Samsung Electronics is preparing to increase prices for chip contract manufacturing in the second half of this year which comes as no surprise given skyrocketing cost pressures eating away at the company’s margins.
Samsung’s contract-based chip prices are set to increase between 15-20% given the level of manufacturing complexity, Bloomberg said, citing people familiar with the matter, adding the new pricing model has been discussed and negotiated with clients.
Samsung’s decision comes as the cost of energy, raw materials, equipment, freight, and labor are rapidly soaring. The move was “inevitable,” said Masahiro Wakasugi, a Bloomberg Intelligence analyst.
Another component driving the price hikes is the ongoing global chip shortage. Then there are lockdowns in China driving lead times — the lag between when a semiconductor chip is ordered and delivered — to 26.6 weeks, a record high.
Rising chip prices will only increase consumer costs for smartphones, tablets, computers, game consoles, televisions, smart speakers, automobiles, and the list goes on and on. Samsung is the world’s second-largest chip contract manufacturer.
TSMC, short for Taiwan Semiconductor Manufacturing Company, is the world’s largest contract chip manufacturer and recently notified clients of price increases of 5% to 8% next year, following a 20% price hike last year.
There aren’t alternatives to the world’s largest chipmakers. This means companies that require chips to power their products have no leverage and are stuck with expensive chips, which will only mean the cost of consumer electronics will go higher.