What are the Implications of the Rise in TSMC Chip Prices?

TSMC the world's largest Taiwanese chip making company that supplies chips to Apple, AMD, Nvidia, Qualcomm and even to some extent to its rival Intel, has recently given indications that it's considering raising the chip prices in an already chip-shortage market. This has sent shockwaves through the hardware market and also through many AI-enable software segments,as many of these softwares need the chips marketed by TSMC.

The reason for the rise in chip prices is that they are in shortage following an increase in demand because of recent shift to remote work model and the supply is not able to meet the demand. TSMC hopes that by raising the chip prices it will bring down the volume of demand.

Shortage of chips is likely to continue till 2023.

Here are some implications of this price rise -

1 - Intel, the competitor of TSMC has finally forged a partnership with its rival TSMC and will import sub-components of chips and assemble them at Intel facilities layering them with its own technology. This is to check the surge of its competitors Nvidia and AMD in terms of fast data processing capabilities.

This means that some Intel products may become expensive.

Intel hopes to meet the competition's demands by 2025.

2 - Automotives have stopped manufacturing some models to avoid high end expenditure on these models because of chips becoming more expensive.

Coupled with the rise in petrol and diesel prices, a shortage in chip supply is taking a toll especially in India on the automotive markets. If the shortage in chips continues till 2023, this may drastically change the automotive market.

At the same time, there are many new Electric Vehicles coming up. Maruti is considering bring in the Hydrogen-fuelled technology. Perhaps it's time for the IT MSMEs to focus on these alternative vehicle options.

3 - Apple products may especially become more expensive, as Apple uses some of these critical chips in its products. This may especially hit the iPhones.

4 - IT gadgets may become expensive as many of these gadgets use chips. Rise in chip prices will invariably impact the prices of electronic and IT gadgets that use chips.

5 - India may encourage competitor chip making companies, as Indian IT electronics and hardware is very large and the paying capacity of the consumers is very low, especially in lockdown and its aftermath. Already some companies are operating in India in this direction - Saankhya Lab which is an Indian venture, Broadcom an American company, Tata Elxsi which is an arm of Tata, NXP a Dutch company and Wipro are some of them.

Although there are two major Indian conglomerates in this segment viz., Tata and Wipro and Saankhya Labs is coming up, chip manufacturing and the R&D involved in it requires a large amount of investment in the range of several billion USD. Hence, chip supply industry in India is mostly focused on Assembly, Testing, Marketing and Packaging (ATMP).

This means that India will be hit by the shortage of chip supply and its raised prices. In order to avoid this, large conglomerates in India have to invest manufacturing and R&D plants and have to make India self-reliant in chip manufacturing and not just ATMP.

Unless India begins to manufacture its own chips, this problem is not going to be solved.