IC Design Firms Diversify Sources Amid Loosening Wafer Foundry Capacity, Leading to Potential Pricing Pressure

The semiconductor industry is experiencing a downturn, resulting in a loosening of wafer foundry capacity. In order to strengthen their supply chain and prepare for potential geopolitical changes, IC design companies are diversifying their sources of goods. This could lead to increased pricing pressure on wafer foundries.

According to a report from Taiwan's Economic Daily News, microcontroller manufacturer Shengquan, based in Taiwan, has traditionally sourced most of its wafers from Taiwanese foundries, but may increase its purchases from mainland China in the future. Additionally, touch chip maker Elan has not yet produced 8-inch wafers in mainland China but may do so in the future.

Due to weak demand in the end market, wafer foundries have been adjusting their inventory and experiencing a significant loosening of capacity this year. Compared to Q4 of last year, the utilization rate of TSMC's Q1 capacity is expected to drop by 10%, while Powerchip's utilization rate will drop to 60% and UMC's to 70%.

Most IC design companies report that wafer foundries have not reduced their prices, but are offering discounts to customers who pre-order wafers. The level of discount depends on the volume of wafers ordered.

IC design companies expect the wafer foundry market to shift from a supply shortage to an oversupply as chip manufacturers continue to diversify their sources of goods. This could lead to increased pricing pressure on wafer foundries in the future. It is important to stay up-to-date on industry trends and changes in supply and demand to make informed purchasing decisions.