Taiwan Chip Maker Hints at Price Rise

By Baker Li

Taiwan Semiconductor Manufacturing, one of the top contract makers of electronic chips, said Tuesday that it might increase its prices as rising costs threaten to squeeze profits.

Makers of semiconductors face higher costs as they build state- of-the-art chip plants to make more cutting-edge chips, and they are feeling the pain of high oil prices and rising inflation.

“Average selling prices have been falling and profits have been under pressure, and we have to work together to create value,” Jason Chen, vice president in charge of global sales and marketing at TSMC, said at a technology symposium.

He said price changes would mostly be for higher-end chips, but he would not say how big they would be or when they would occur.

“We face some structural profit pressure; in the short term, we also face pressure from inflation and oil prices,” Chen said. But he said that the semiconductor industry “is still vibrant” because of growing emerging-market demand for PCs and mobile phones and added that “2008 will be better than last year.”

Consumer prices in Taiwan rose 3.86 percent in April, with core inflation up 3.1 percent, a nine-year high.

Eric Chen, a BNP Paribas analyst, said TSMC’s customers could accept higher prices if the company provided better services and higher-performance chips. TSMC, Samsung Electronics and Intel have said they would jointly develop next-generation chips using bigger silicon wafers to increase efficiency in manufacturing.

Analysts say that a factory designed to make chips on 450- millimeter wafers could cost $10 billion or more to build, nearly triple the price of a current 300-millimeter wafer factory.

TSMC said last month that its profit grew by half in the first quarter, but it predicted that sales would be flat to slightly higher in the second quarter from the first. TSMC, whose biggest competitor is United Microelectronics, which is also based in Taiwan, had a gross margin of 43.7 percent in the first quarter, but predicted second quarter gross margins would be relatively flat at 43 percent to 45 percent.

TSMC shares closed up 0.46 percent Tuesday in Taipei, while United Microelectronics shares gained 0.54 percent. The main Taiex market was up 0.81 percent. Year to date, TSMC shares are up 6.1 percent, outperforming the 3.2 percent gain in the Taiex.

Originally published by Reuters.

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