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The global semiconductor chip shortage, the result of lower production from COVID restrictions and increased demand due to Work From Anywhere (WFA). Then we have a delay in Intel's chips. This has put the Taiwanese Semi giants in a powerful position for upcoming negotiations with automakers.

Taiwan Semiconductor Chips

The negotiations come just after an increase just a few months ago.  With the Electric Vehicle industry exploding and a rush to take charge in the market the Volkswagen e-Golf electric car is front and center of negotiations. The government officials in Germany, the U.S. and Japan have become involved and asked Taiwanese authorities to get involved with the auto chip shortage. 

Computer chips are dominated by Taiwan Semiconductor Manufacturing Co (TSMC)  the world's largest contract chipmaker. TMC and fellow Taiwan Semi's are considering another round of price increases on automotive chips, Nikkei reported on Monday. Prices collapsed after years of a glut and the intial collapse of the global economy wrecked revenue and profits for chipmakers. Now the a global semiconductor shortage puts pricing power firmly on the side of TMC and friends prices hikes of up to 15% are being considered by TSMC Vanguard International Semiconductor subsidiary for auto chips. The other Taiwanese firms including No. 4 foundry United Microelectronics Corp will most likely follow suite.

This would mean the second large price hikes for the Taiwanese suppliers within just a few months,

When contacted by Nikkei, UMC Chief Financial Officer Liu Chi-tung said he "can't answer questions about prices." But, he added, "it's true that we chipmakers are in a relatively advantageous position based on the supply-demand balance."

Nikkei reported that any increases are expected to be phased in starting in the second half of February at the earliest and going into March. The Taiwanese foundries have already reached out to customers that specialize in automotive chips such as the Netherlands' NXP Semiconductors and Renesas Electronics of Japan.

From these meetings both Renesas and NXP have already asked automakers to accept higher prices, and onto that further increases by the Taiwanese companies to which they outsource production would affect auto companies' profit margins. Last time around the chip foundries reportedly raised prices by around 10% to 15% in response to a wave of additional orders to meet demand from automakers ramping up production.

Further to the tightness in global chip supplies from the changing WFA world the Taiwan dollar strengthened against the US dollar.around 6% over the past year. The changing world is one the chip companies have a chance to make up for the slim years. The automakers typically looked for price cuts of around 2% to 3% to drive profit growth.  TSMC is well positioned to capitalize on surges in demand. The automakers have a situation of higher manufacturing costs, do they pass on to consumers in a very competitive marketplace? 

UMC's Liu said: "Our plants are already running at full capacity, so it will be difficult to increase output in the short term." "I don't know when [the shortage] will be resolved, but it will take us at least another six months to have production lines ready," Liu added.

The effect of the shortages could ripple through the semiconductor supply chain, beyond chip manufacturers like TSMC and UMC. ASE Technology Holding. A prominent Taiwanese semiconductor packaging company, is believed to be considering raising prices by about 10%. Prices across the industry may continue rising as shortages extend beyond autos to other types of products requiring chips. Examples are home electronics, phones and industrial equipment.

Semiconductor production has gone from being dominated by the US, Germany, Netherlands and Japan to the dominance of the Taiwanese powerhouse. This tracks back to the digital revolution over the last twenty years driving up capital spending requirements which triggered sharp swings in market conditions, driving many players out of the game such as the collapse of prices seen over the prior three years after the Bitcoin fall from $20,000 to $2,000 crushed demand for miners among other overproduction events. 

Left standing are giants like TSMC and Samsung Electronics and niche players. Taiwanese authorities have supported the island's semiconductor industry since the 1980s. When we talk about the cold war between mainland China and the island this is a massive powerbase in the context of global importance.  The result means less competition and greater control which helps further solidify their strong position. TSMC in 2020 had record profit with a 25% rise in revenue and a 50% jump in net profit. UMC's net profit tripled on the year in the July-September quarter emboldening the chip monsters.

Source: Asia Nikkei

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