Weak Demand Forces Taiwanese Foundries to Cut Prices

According to a report from the Economic Daily, the demand for mature semiconductor processes has not shown significant recovery, resulting in a buyer's market. Recently, it has been reported that some Taiwanese foundries are under pressure as they approach the fourth quarter, prompting them to consider price reductions for mature process technologies. There is speculation that some pricing adjustments may continue into the first quarter of next year, potentially marking a decline over two consecutive quarters.

The main players in Taiwan's mature process foundry sector include United Microelectronics Corporation (UMC), GlobalFoundries, and Powerchip Semiconductor Manufacturing Corporation (PSMC). Regarding the situation of price reductions, PSMC has not provided a comment. UMC has stated that its prices remained stable in the third quarter, with further details expected to be revealed during the upcoming earnings call. GlobalFoundries also indicated that it would announce its fourth-quarter outlook during the same call. Notably, during the last earnings call, GlobalFoundries expressed that they anticipate a respite from aggressive pricing competition, with third-quarter capacity utilization increasing to approximately 70% or higher. Looking ahead, they believe achieving a capacity utilization of 70% to 80% next year is feasible, contingent on demand.

This anticipated price reduction in mature processes is mainly attributed to the sluggish market conditions for high-volume applications, particularly in power management chips and driver ICs. As a result, foundries are feeling pressure to adjust their pricing, with expectations that some prices may experience single-digit percentage declines over the next two quarters. Interestingly, while Taiwanese foundries are open to negotiating prices, counterparts in mainland China have maintained a firmer stance without significant price adjustments.

An anonymous source from a driver IC manufacturer noted that some Taiwanese foundries are willing to offer single-digit percentage price reductions based on capacity utilization. In contrast, foundries in mainland China that are expanding do not appear to be compromising on pricing.

Another IC design firm highlighted that the pricing attitudes of foundries on both sides of the Taiwan Strait exhibit a trend where Taiwanese firms are more flexible, whereas mainland firms are more rigid. This is largely because mainland manufacturers have already improved their capacity utilization and previously engaged in aggressive price reductions, resulting in a notable gap between their prices and those of Taiwanese foundries.

IC designers have reported that when negotiating prices for mature processes, the prevailing sentiment is "volume drives pricing." Some microcontroller (MCU) manufacturers have mentioned that certain foundries have not lowered their base quotes but are instead offering project-specific pricing with single-digit discounts contingent on meeting minimum order quantities.

Due to the lack of a significant market rebound, an unnamed power management IC manufacturer described the second half of the year as "mildly better" than the first half, with clients consistently requesting price reductions each quarter. Consequently, manufacturers are seeking collaborative efforts within their supply chains to navigate these challenging conditions. Notably, packaging and testing service providers have shown greater flexibility, while negotiations with foundries require more individualized discussions.

Currently, IC designers are engaged in discussions with their supply chains regarding pricing for the first quarter of next year. Industry observers believe that while there may still be opportunities for some foundries to lower their quotes, the extent of these reductions is likely to be limited.

IC design firms estimate that the order volumes required for foundry services next year will influence the pricing provided by foundries. However, it is crucial that the actual order volumes from major Taiwanese firms closely align with these estimates—at least 80% to 90%—to avoid significant cuts in allocation for 2025. To ensure stable long-term relationships, IC designers are taking a cautious approach in their estimations.