With Chip Capacity So Tight, Prices Can Only Fall (TSM, UMC)

We have commented several times on the apparent disconnect between semiconductor equipment orders, capacity utilization numbers, and rising semiconductor inventories.

We highlight two recent articles from DigiTimes that discuss the details of that tight capacity in Taiwanese foundries.

UMC firm on prices due to strong demand in 3Q reports that:

UMC’s (UMC) mature processes of 0.18 micron and below are running almost at full capacity, and demand for 0.13 micron and other advanced processes is strong, the sources said. The company expects increases in utilization rates, revenues and margins in the third quarter, the sources added.

The pure-play foundry is also standing firm on its prices for orders beyond the third quarter, and it is refusing to offer any discounts, even for IC designers that have strong relationships with the foundry, the sources indicated.

The sources revealed that delivery time from UMC’s mature process has now been extended to six to eight weeks from four to six weeks during the first quarter. In some cases, delivery will take eight to 10 weeks, the sources added.

TSMC Running at 110 percent for analog ICs. reports:

Taiwan Semiconductor Manufacturing Company (TSM) is having a 110% utilization rate for its analog IC capacity, as clients from outside Taiwan are joining local counterparts in a fierce race to secure the foundry’s services, according to industry sources.

These statements are made at about this time in every semiconductor cycle. When capacity is tight and lead times lengthen (UMC’s longer time from order to delivery, customers “racing” to secure TSMC’s services) customers tend to double-order to make sure they get a spot in line. When the inventories rise further, orders get cancelled and suddenly there is overcapacity.

We have asked before why semiconductor inventories are rising if capacity is so tight? We have also asked why semiconductor prices are falling at a faster rate than normal if capacity is so tight? These questions remain unanswered.

We now ask: what will happen to inventories and prices when TSMC and UMC boost their capacity?