Chip material: Supplier Vital TSMC warns of chip material price hikes through 2023, Telecom News, ET Telecom
Kelly Choos
3 min read
Japanese chemical supplier Showa Denko KK plans to raise prices further and cut unprofitable product lines as it grapples with a barrage of economic challenges facing the 550-pound semiconductor industry billions of dollars.
This is on top of at least a dozen rises already this year, reflecting supply grunts from Covid-19, soaring energy costs from war in Ukraine and the dramatic weakening of the yen, said CFO Hideki Somemiya to Bloomberg News in an interview. The situation is unlikely to improve significantly until at least 2023, he added.
Tokyo-based Showa Denko, which supplies critical chip-making materials to Taiwan Semiconductor Manufacturing Co. and Infineon Technologies AG, has been forced to dramatically increase costs that it passes on to customers, Somemiya said. Because it is a key supplier of the chemicals used early in the production line by chip makers and other manufacturers like Toyota Motor Corp., its price increases could potentially squeeze margins or incentivize customers to follow suit.
“A big theme this year, common to everyone in the materials industry, is the cost burden that we would be able to convince customers to share with us,” Somemiya said. “Current market movements require us to ask for double the amount we previously calculated.”
Showa Denko is far from alone in raising prices as other component makers and material suppliers have taken similar steps to deal with a tough market, said Toyo Securities analyst Hideki Yasuda. Consumers of durable goods like electronics will not be spared higher prices later, he added. Chipmakers like TSMC and Samsung Electronics Co. have notified their own customers of plans to raise prices, Bloomberg News reported.
Somemiya’s company has begun ending the sale of certain commodities and contracts with customers where it does not see the potential to continue operations profitably. The company, whose share price has fallen 31% in the past 12 months, will spend the rest of this year figuring out which areas to pull back on, he said.
In addition to rising commodity and natural resource prices, Showa Denko’s Somemiya said the weakening yen poses another challenge. The Bank of Japan has increasingly isolated itself in its commitment to ultra-loose monetary policy, pushing the yen to its lowest level against the US dollar in 24 years.
Somemiya, a former banker at JPMorgan Chase & Co., left Sony Group Corp. last year to serve as chief financial officer at Showa Denko and serve as CEO Hidehito Takahashi’s right-hand man in revamping the company. At the time, Somemiya blamed the chemical supplier for being naive in negotiating prices and leaving profit on the table.
Employees have since become more assertive in their negotiations, in part because they have no other choice – a positive change that market turmoil could have brought.
“There is nothing positive about the current rise in material costs, but employees, who were used to simply accepting customer requests to lower prices, have become stronger in saying that proper pricing will be the best for us and long-term customers,” Somemiya said.
