TSMC only increased the price of Apple products by 3%

In the chip manufacturing industry, TSMC is no doubt one of the largest in the business. Its manufacturing processes are favoured by many big brands including Apple. In fact, Apple is TSMC’s largest customer. This means that it sometimes gets different treatment relative to other brands. Recently, there were reports that TSMC has increased its foundry price by 20%. However, after investigations, the chip foundry only increased the price by 3% for its major customer, Apple. This was confirmed by a popular industry analyst, Lu Xingzhi.

However, the fundamental question is that why do other customers such as MediaTek, Nvidia and AMD feel embarrassed? There are three important points to be seen. According to media reports out Thof Tllaiwan, Lu Xingzhi reveals that Apple’s orders account for more than 20% of TSMC’s revenue. However, its profit accounts for less than 20%, and the gross margin continues to go lower than the average. Thus, others can not fathom why TSMC gives such customers special offers.

In contrast, other important customers such as AMD, Nvidia, and MediaTek did not get the same offer. Some of these mature process customers have higher-than-average order gross margins. However, they are getting a price increase of up to 20%. The question is “why is that so”?

Here are the three key points behind TSMC’s offer to Apple

1. Without Apple’s single huge orders, it is difficult to say whether TSMC’s advance manufacturing process can always lead the world. Presently, Apple’s bargaining power is superior to TSMC. However, once it is no longer a top customer of TSMC’s advance manufacturing process, the company will withdraw its preferential policy.

2. According to industry feedback, TSMC’s large customers generally increase prices by 10%-20%, while small customers are still communicating. It is believed that the 10%-20% price increase is the official statement for major customers is not as we see it. Actually, it depends on the order volume of each manufacturer. By next year, each manufacturer will know the exact price increase that it will get.

3. TSMC has a huge decision to take. It needs to decide whether it is reasonable for it as a leading foundry to put all its capital expenditure and R&D expenses on advanced processes with few customers. However, this will lead to strong customer negotiation power, high depreciation costs, and the worst gross margins. The company will also decide whether the demand for process nodes in the semiconductor industry in the next 20 years will be as concentrated on advanced processes as in the past 20 years.