[News] Rumors Regarding Price Reductions in Mature Process for Foundries Emerge, Signaling a Further Decrease in Prices in Q2

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Weak demand in mature process has triggered another wave of foundries’ price reductions. According to a report from Economic Daily News citing industry sources, some foundries have been continuously adjusting their quotes for mature process downward by single-digit percentages (4% to 6%) this quarter.

With mature process production capacity continuing to expand in China, it is reportedly estimated that prices may decrease further in the second quarter, leading to a cumulative reduction of around 10% for the first half of the year.

Overview of Foundries’ Price Reductions in Mature Process

According to the same report citing sources, IC design companies that previously tape out to Chinese foundries primarily focused on driver ICs. However, recently, some power management IC companies have gradually increased orders to Chinese foundries. Currently, the price difference between foundry services in Taiwan and China can be as high as 20% to 30%.

Regarding this wave of price reductions in mature process, an unnamed sources from the IC design industry cited by the report disclosed that the price reduction for Taiwanese foundries is at least in the low single-digit percentage range (1% to 3%), while for Chinese foundries, it is in the mid-single-digit percentage range (4% to 6%). If the order volume is large, prices can be negotiated even lower, or different discount methods may be available.

Reportedly, as Chinese foundries continue to increase their production capacity for mature process, supported by subsidies from the Chinese government, they maintain considerable flexibility in pricing strategies. As long as customers are willing to provide a certain quantity of orders, prices above the variable costs can be negotiated. Therefore, there is indeed room for further price reductions in the second quarter.

Regarding mature process, IC design companies cited in the report mention that the high-demand 28-nanometer process still faces supply shortages and may even see price increases. However, for the 40-nanometer and 55-nanometer processes, where the increase in production capacity outpaces the return of demand, price reductions are essentially the only option.

With China’s significant investment in mature nodes, it is positioned at a time when the global chip industry is poised for recovery. According to a recent TrendForce’s data, China currently has 44 operational fabs, with an additional 22 under construction. By the end of 2024, 32 Chinese fabs will expand their capacity for 28-nanometer and older mature chips.

TrendForce predicts that by 2027, China’s share of mature process capacity in the global market will increase from 31% in 2023 to 39%, with further growth potential if equipment procurement progresses smoothly.

However, compared to the proactive pricing strategies adopted by Chinese foundries, Taiwanese foundries have been relatively firm in their pricing.

For example, TSMC emphasizes that while it has faced significant pricing pressure from counterparts in China recently, the company is not prepared to engage in a price war. Instead, it anticipates seizing opportunities to attract orders from European and American clients. TSMC aims for moderate growth this year.

Regarding IC pricing, IC design companies cited by the report acknowledge that although their IC production costs have decreased, customers also demand price reductions. Caught between customers and foundries, both of which are larger in scale than IC design companies, it is difficult to predict how well operations will perform this year amidst ongoing challenges.

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(Photo credit: TSMC)