Joining an industry-wide move to increase prices to cover rising costs of materials and logistics, Samsung Electronics is negotiating with clients about the increase in prices for making semiconductors by up to 20% this year, Bloomberg reported on Friday.
Depending upon the level of sophistication, contract-based chip prices are likely to increase by around 15% to 20%. This is according to people familiar with the matter, who asked not to be identified due to the sensitivity of the issue, as cited by Bloomberg.
Moreover, chips produced on legacy nodes would face bigger price hikes.
New Pricing on Chipmaking Will be Applied From Second Half of This Year
The source said that new pricing would be applied from the second half of this year. While Samsung has finished talking with some clients, there are still ongoing discussions with others.
Samsung Electronics declined to comment on the issue.
According to the Edge Markets, Samsung's decision is a shift from its relatively stable pricing policy last year, when the industry rushed to hike prices in the event of a global chip shortage.
There are multiple macro risks that Samsung is facing, which include the war in Ukraine, Covid-19 lockdown measures in China as well as rising interest rates and inflation.
The move of the electronics company means additional pressure on makers of smartphones, cars and game consoles because they would have to lift the prices that consumers would pay.
Next to Taiwan Semiconductor Manufacturing Co (TSMC), Samsung is the world's second-largest chip contract manufacturer. The two companies account for more than two-thirds of global capacity for outsourced chips.
Manufacturing costs for chipmakers are now rising at about 20% to 30% on average on all fronts from chemicals, gas and wafers to equipment and construction materials, the Edge Markets reported.
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Warnings of the Hike has Been Issued Several Months Ago
Several months ago, contract chip manufacturers including TSMC and United Microelectronics Corp (UMC) are warning clients that they plan to raise prices by a mid-to-high single-digit per cent on the heels of a price hike, as per the Edge Markets.
According to Nikkei, TSMC has told clients that it plans to raise prices by about 5% to 8% from 2023, following a 20% price hike last year.
On the other hand, UMC is also planning another round of 4% price hikes in the second quarter.
ASML Holding NV, a key supplier to Samsung and TSMC, warned last month that in addition to higher material costs and transportation, there will also be an increase in labor cost.
Masahiro Wakasugi, a Bloomberg Intelligence analyst said that semiconductor makers have been trying to improve profitability, partly by shifting more weight to high-end chips.
"This is an inevitable move for Samsung," Wakasugi said.
He added that with costs rising for everything from power and equipment to materials and freight, some customers may accept higher prices if they can get chips earlier than others.
Samsung spent more than US$36 billion on expanding its chip division in 2021.
It has dethroned Intel Corp to become the world's biggest chipmaker by revenue last year. It has since then declared that it wants to overtake TSMC and become the biggest player in the US$400 billion foundry business of making chips for global corporations like Qualcomm Inc and Nvidia Corp, said Edge Markets.
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