Melanie Boulton
26 May 2022• 2 min read
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These price increases follow already substantial price hikes for semiconductors from 2021
“Insurmountable barriers to entry” are among the issues exacerbating the predicted 20% semiconductor price hike as global chip demand continues to outstrip supply, according to Franklin Templeton senior ETF investment strategist Marcus Weyerer.
As supply chain issues continue for the sector, Weyerer said that Taiwan Semiconductor Manufacturing Company (TSMC), Samsung and UMC – three of the leading firms in the semiconductor industry – are planning the price increases.
As the industry is contained within a small number of countries and firms, semiconductor cost increases are more easily compared to other industries, which sell “nearly indistinguishable” products in a mass market, he said.
For instance, Franklin Templeton’s report cited research by Knometa Research that showed by the end of 2021, five companies, including Samsung and TSMC, controlled 60% of silicon wafer capacity.
This monopoly can be even starker for some of the more advanced chips, with TSMC reporting 84% market share for the most advanced and efficient chips, according to Weyerer.
Furthermore, the increasing global secular trend towards digitisation has now made semiconductors integral to the global economy, much like other commodities, such as oil and gas.
This has “put chipmakers at the nexus of the modern supply chain”, according to Weyerer.
He explained: “A carmaker that has no access to a sufficient supply of chips will not be able to make cars any longer, period.”
Another factor on the side of semiconductor producers is the “highly specialised, capital intensive and cyclical” style of the industry.
Weyerer explains that it can often take four months or longer from designing the wafer to actual production.
This is further hindered by the fact that setting up a new production facility can take two years and cost the producer a significant amount of capital. According to Franklin Templeton’s report, TSMC announced it would spend $100bn to increase its capacity over three years.
Weyerer added: “Structurally high and growing demand is facing a supply curve that is rather sluggish, not least thanks to near-insurmountable barriers to entry. It cannot be increased at will, and certainly not quickly.”
These price increases follow already substantial price hikes for semiconductors from 2021. According to Nikkei, TSMC said it would raise prices by 20% in 2021, following a 10% increase the year prior.
Similarly, microcontroller chip prices were up 30-40% and power management chips up 30-40% too, with some extreme cases seeing price rises of 500% or more.