Chip shortage will likely drive the cost of upcoming flagships higher

Apple's main chip supplier is reportedly in the process of increasing its prices

A new report from Nikkei Asia suggests that electronic chips/semiconductors could soon see a sharp price increase, inadvertently increasing the price of smartphones and other electronics too.

Prices for semiconductors have been rising since the fourth quarter of 2020, owing to a global supply shortage, but the gravity of the situation is gaining major traction now because Taiwan Semiconductor Manufacturing Company (TSMC), Apple’s major chip supplier, is in the midst of raising its costs in response to industry-wide inflation. According to Nikkei, the company’s proposed price increases are thought to be the most significant in a decade.

TSMC dominates more than half of the worldwide chip industry, producing semiconductors for companies such as Nvidia and Qualcomm, in addition to Apple.

The Taiwanese firm typically charges 20 percent more than its competitors, but a recent shift in the industry has seen smaller foundries increase their prices too, owing to “higher material and logistics costs as well as the race by device makers to secure adequate chip supplies.” This has led TSMC to further increase its prices to maintain that 20 percent higher cost gap.

Further, TSMC’s decision to increase chip prices also owes to its $100 billion in investment over the next three years, further passing on these additional expenses to customers.

“We are all in a great shock, and all of our account managers need to speak to our customers to see if we can renegotiate some of the contracts,” a chip executive told Nikkei. “We haven’t seen TSMC introduce such a broad rate increase in over a decade.”

TSMC is still processing current orders, and the impact of the price increases will be felt considerably more severely next year, probably Q1 or Q2, once manufacturing capacity has been extended, and previous orders have been fulfilled.

It is expected that smartphone companies will sell their upcoming flagships at a higher price than usual, and the higher price may become ‘normal’ moving forward.

Source: Nikkei