Wafer fabs in Taiwan are responding to the competitive pressure posed by mainland Chinese and Korean counterparts by implementing large-volume price reductions and novel order models. UMC, Advanced Micro Devices, and Power Semiconductor Manufacturing Co., Ltd. have introduced strategies such as tying quantity without tying price and extending wafer production volume. These innovations are in response to the intensifying price war between Huahong Semiconductor in China and Key Foundry in South Korea. Industry insiders anticipate a 10% to 20% price decline in the first quarter of next year.
The semiconductor industry expects 32 mature process wafer fabs to be operational in China by the end of next year, prompting Taiwanese wafer foundries to gear up for the anticipated competition. To counter the threat and improve production capacity utilization, these companies hope to secure orders from Chinese and Korean competitors by offering reduced prices.
In a departure from past sales strategies, wafer foundries are exploring diversified profit-sharing and order-taking approaches, indicating a shift towards more flexible and customer-friendly pricing and ordering structures. These changes include tying quantity without tying price, and extending wafer production volume. These adaptations aim to capitalize on potential business opportunities in the consumer electronics sector expected to materialize in the coming year.
Despite some recent improvement in terminal demand, the IC design industry has not experienced a significant recovery. Nevertheless, industry players are pressing wafer foundries to lower prices in the next quarter, emboldened by the perceived favorable market conditions for buyers. In response, wafer foundries have devised a range of concealed price adjustment strategies, including large-volume price reductions and various pricing models like motive pricing and wafer bank packages.
The prevailing pessimistic market conditions in the first quarter, coupled with the impact of an extended holiday period, suggest that demand in the subsequent quarter may remain subdued. With Chinese and Korean competitors actively engaging in aggressive pricing tactics, Taiwanese wafer foundries are compelled to act swiftly to mitigate the risk of losing orders. Consequently, it is expected that prices will drop by approximately 10% in the next quarter. However, the three major wafer foundries in Taiwan have refrained from making specific comments on pricing at this time.
In a departure from previous practices, domestic mature process manufacturers are shifting away from maintaining stable prices and offering discounts based on shipment volumes. Instead, they are expected to implement direct price reductions for products exceeding certain quantities. It is anticipated that the leading wafer foundry will spearhead this price reduction, prompting other industry players to follow suit. While the extent of the price reduction may vary across products and processes, the average reduction for wafer foundries in the first quarter of next year is estimated to be around 10% to 20%.
Industry insiders have noted that the current approach adopted by wafer factories involves offering price reductions on large order volumes. There is room for price negotiations on orders exceeding 10,000 pieces, with the pricing flexibility increasing with the order quantity. Implementing quantity-based pricing without fixed prices may result in lower prices, particularly as market conditions evolve. Furthermore, extending production volume allows IC design companies to defer placing orders, motivated pricing is utilized in the form of rush orders, and wafer banks accept wafers for intermediate processing, allowing for packaging when necessary.