The Taiwan Semiconductor Manufacturing Company (TSMC), the largest contract manufacturer in the world of chips used in a wide variety of tech products, including for data centers for AI solutions, has informed clients that it will be raising prices for both advanced and mature chip production services by as much as 10% or more in 2027. The reason for the increase is to offset rising costs for materials, manufacturing equipment, and construction of new overseas chip plants, multiple sources told Nikkei Asia.
Learn more about this increase and its impact on inflation around the world…
Sources have reported to the Nikkei that TSMC is in the process of holding discussions with clients in order to notify them that prices will rise in their next contract period in 2027. Increases will affect a wide range of products manufactured, including those for the 7-nanometer and below (more advanced level) products, which accounted for 77% of TSMC’s revenue in the most recent April-June quarter.
The range of increases, which is dependent on the customer and the product, will start at 5% on the low end, rising to as much as 10% on the high end. While a 10% increase for a component of a tech product is huge, most industry analysts were not surprised that an increase was coming from TSMC. Many had expected it after memory chip makers had a substantial increase earlier this year.
An Ironic Circular Situation
In a way, it is kind of an ironic circular situation. One of the major justifications for this pricing uptick is due to inflation impacting the manufacturer’s cost structure. While that most likely is true, many economists think that this increase in sophisticated semiconductor chips used in a wide variety of consumer goods sold today may itself lead to a further uptick in global inflation.
But the increase I’ve just told you about is called a “base increase” by TSMC. What does that mean? It means that TSMC is planning further price increases that will be applied on a more dynamic basis. For example, sources say that for any client that adds further high-performance computing chips beyond its initial forecast, TSMC will add an additional premium that will run between 10%-15%. This is an additional increase, on top of the base increase, which gets us quickly to the possibility of a 25% increase!
Increases to Hit Advanced Node and Mature Note Processes
As you might suspect, the report notes that for “mature-node” production, such as 12-nm, 16-nm, 28-nm chips – as well as “other legacy processes – TSMC will hold to a maximum of 10% increase. In many cases, they say the increase will be much less than that. Mature-node production refers to those slightly older chip versions. While they are less advanced than the 7-nm & smaller newer designs, mature-node chips are still a significant part of the business and include those used in power management and sensors. According to the Nikkei, mature-node chips accounted for around 23% of TSMC’s total revenue in the last quarter.
Just who are TSMC’s clients? The answer to that is a veritable Who’s Who in technology, including Nvidia (number one in multi-core graphics processors used in AI), Apple, Google, Amazon, Qualcomm, Arm, MediaTek, and many, many more.
The Many Forces Combining to Drive Up Inflation
Many industry executives say that TSMC’s price increase strategy was, by design, a less aggressive approach. Negotiations began early and, now complete, clients have the opportunity to adjust their operations to the new pricing levels which take effect in January 2027.
There are many forces combining to drive inflation up – particularly in the tech industry. First and foremost, as big tech scrambles to scale their AI infrastructure build-out, demand for products like semiconductors and memory chips has skyrocketed. That factor alone has caused huge price increases in the tech supply chain.
Add to this the U.S.-Iran war, which has impacted global supply chains and driven up costs for staples, affecting just about every industry, including the tech supply chain. That war has dragged on now for six months, and while the occasional cease-fire has provided some temporary relief, it seems to be ever-so short-lived, reengaging tensions and supply chain impact.
A Leading Provider of Next-Generation Manufacturing Facilities
Finally, TSMC is a leading manufacturer of chips mainly because it aggressively invests in innovating the next-generation capabilities and factories. In most industries, contract manufacturers are adept at mass-scale manufacturing…but not so much innovating new technologies. TSMC does both – the lowest-cost mass-scale manufacturing – and innovating the next-generation chips. Right now, the company is investing heavily – to the tune of hundreds of billions of dollars – in next-gen 2-nanometer chip production facilities.
In a recent earnings call, TSMC Chairman C.C. Wei spoke with financial analysts about the company’s pricing strategy. He told analysts that “he was ‘jealous’ of memory chip makers whose gross margins have reached as high as 86%,” the Nikkei reported. However, he assured the market that “TSMC would not raise prices in the same way seen in the memory industry.”
We Earn Our Value
We don’t suddenly increase our price…four or five times… We earn our value and we make sure that our profit, our gross margin, is enough for our long-term sustaining expansion. That’s to the benefit of my customers and TSMC also. That’s our philosohy.
C.C. Wei, TSMC Chairman
Learn more about TSMC by visiting tsmc.com.
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