A new report indicates that the price of chips and devices, in general, are on track to rise into 2022 as the world’s biggest contract chipmakers are ramping up productions fees, which could end up impacting Apple and its chipmaker TSMC.
According to a story from Nikkei Asia, TSMC, which makes chips for Apple, Nvidia, and Qualcomm, always had production fees around 20% higher than its rival. But with the semiconductor shortage, some of its competitors already charge more than TSMC.
Now, the company is expected to prepare its biggest price hike in a decade, which could impact a lot of tech businesses.
“These higher prices stem from a range of factors, including higher material and logistics costs as well as the race by device makers to secure adequate chip supplies, that have emerged since the chip shortage first began to bite late last year.“
Industry sources tell Nikkei that TSMC is keen to weed out so-called double-booking, in which clients place orders for more chips than they actually need in hopes of securing production line space and support from contract chipmakers amid the global supply crunch. This, in turn, has made it difficult for TSMC to grasp the “real demand” picture.
Counterpoint Research says that the rising cost of chips may even impact smartphone makers’ business strategies.
“The net profit margin for smartphone makers excluding Apple is only about 5% to 10%. In that case, the rising chip costs will definitely push all the industry players to roll out higher-end handset models for next year to offset the cost impacts rather than focus on midrange or lower-end phones.”
Last month, a paywalled report from DigiTimes suggested that Apple would be facing bigger bills from TSMC for its A-series and M-series chips.
TSMC is poised to raise its quotes including those for advanced sub-7nm process technologies, which will result in more manufacturing costs facing Apple and other major clients, according to industry sources.
Even though, it’s important to notice that there is generally little relationship between Apple’s component costs and iPhone pricing.
Apple’s size enables it to negotiate favorable terms with suppliers. The company tends to demand deals that give it priority over other customers, and it likes to diversify its supply chain to have multiple suppliers for most components. That means that the company can boost orders with one supplier if there are problems with another and also playoff suppliers against each other in order to get the best pricing.
However, Apple has less bargaining power when it comes to sole suppliers. TSMC is the company’s only supplier of the A-series and M-series chips used in iPhones, iPads, and new Macs.
With new iPhones and Watches set to be announced in the coming weeks, we only need to wait a bit more to know how much TSMC’s price hike will impact Apple and its products.
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