World’s Largest Semiconductor Maker Plans Price Increases

Taiwan Semiconductor Manufacturing Co.’s Pricing Power

Taiwan Semiconductor Manufacturing Co. (TSM), the world’s largest contract chip maker, is increasing its prices by as much as 20%. This could result in higher price tags for consumers buying electronics.

The company is known for supplying chips to Apple (AAPL) and other tech giants. TSMC supplies over 90% of the world’s most advanced chips, so it has significant pricing power. The company will bump the prices of its most advanced chips by about 10% while the cost of its less advanced chips will be 20% higher. The change in prices is expected to take place late this year or early next year.

The Chip Shortage’s Impact Across Industries

TSMC’s announcement comes as a variety of industries continue to deal with a global semiconductor shortage. The shortage has impacted electronics companies as well as carmakers.

This month, General Motors (GM) idled three of its North American factories specializing in pickup trucks, its most profitable vehicle. Last week, Toyota (TM) also announced plans to scale back production by 40% in September.

Looking Ahead

TSMC’s motivations for the price increase are twofold. The company hopes that higher prices will drive down demand and alleviate the shortage. The company also plans to invest revenue from the increased prices into expanding manufacturing capacity.

Over the next three years, TSMC plans to invest $100 billion in new factories and equipment. It is increasing production capacity in Nanjing, China, and has started building a $12 billion production facility in Arizona. These moves will likely help alleviate the chip shortage in the long term. But in the short term, TSMC’s higher prices may trickle down to consumers.

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