TSMC has cut prices!

Industry sources say that in order to cope with the impact of the industry's off-season in the first quarter of next year and the continued uncertainty in the follow-up of the US-China trade friction, TSMC has decided to proactively adopt a price discount strategy covering 8-inch and 12-inch wafer foundry businesses, hoping to attract customers to place orders in advance.

This is a rare initiative to offer a price discount strategy in recent years after TSMC has achieved record revenue for many consecutive years. It is reported that the discount situation depends on different customers, so there is no specific number for the time being. Regarding the relevant news, TSMC said that the company has never disclosed its pricing strategy and customer order trends; as for the first quarter operating forecast of next year, it will be announced at the earnings conference early next year.

According to the latest report from legal persons, TSMC's revenue in the first quarter of next year is expected to decrease by about 15% quarter-on-quarter, the largest decline in the same period in history, due to the traditional off-season and the lackluster sales of Apple and non-Apple mobile phones. The industry interprets that TSMC's active introduction of price discounts at this time reveals that the company is aware of the relatively sluggish situation and hopes to resist the negative impact of the poor market conditions, which leads to loose production capacity and a decline in quarterly operations, by offering preferential prices to customers.

Affected by the overall conservative atmosphere, foreign investors have been on the selling side of TSMC since mid-November, and have even sold their holdings for five consecutive trading days since November 16. Although there were some purchases in the following days, the number of overbought shares was mostly between hundreds and 6,000. Last Friday (November 30), due to the MSCI weight adjustment, large orders were knocked out at the end of the trading day, and the stock closed at the lowest price of the day at 225.5 yuan, down 3.5 yuan.

TSMC confirmed earlier that the 8-inch wafer foundry capacity, which is the most in short supply in the market, has loosened due to increased competition in the 28nm process, but it is expected to be fully loaded soon. At that time, TSMC did not explain the reason why it was fully loaded soon.

TSMC's supply chain revealed that TSMC has recently issued a mobilization order, hoping to use price discount strategies to get chip customers to place orders in advance in the first half of next year, especially to prepare stocks in advance before the off-season, to avoid orders being flooded when trade frictions fade and the industry is in the peak season in the second half of the year.

It is understood that TSMC is currently fully loaded with orders for advanced processes below 12 nanometers, especially 7 nanometers, so TSMC's current price discount strategy is mainly targeted at mature and special processes above 12 nanometers, as well as 8-inch high-pressure processes and other projects, covering 8-inch and 12-inch. This is also the first time TSMC has taken the initiative to offer a price discount strategy after setting new revenue records for many consecutive years, revealing that TSMC's wafer foundry strategy will still be flexibly adjusted and proactive according to production capacity conditions.

TSMC has called on its customers to place orders in advance in the first quarter of next year, which is expected to have a strong siphoning effect. Even if many chip manufacturers have a strategy to disperse their orders, they will generally withdraw orders originally placed with other foundries and give priority to placing orders with TSMC. This move may result in the squeezing out of orders from SMIC, UMC, and even TSMC's world-leading companies.

As TSMC holds a leading position in 8-inch and 12-inch wafer foundry, the supply chain believes that most customers will be given priority to place orders in advance in response to TSMC's call for them to do so. Otherwise, it will be difficult to obtain support from TSMC when the wafer foundry capacity is in great demand.

In response to TSMC's latest instructions, industry insiders pointed out that the reason should be that the global technology industry chain hopes to leave more flexible time and space to observe the latest variables in the Sino-US trade friction.

Due to poor visibility of orders in the first half of 2019, TSMC has recently begun to call on chip customers both inside and outside the island, hoping that customers will actually book wafer foundry capacity in advance based on their 2019 marketing plans, otherwise they will not be able to wait for too long.

In addition, TSMC also requires chip customers not to concentrate the production of their main products in only one factory, but to prepare production bases of at least two wafer fabs to avoid the phenomenon of orders being significantly congested during the peak season.

After TSMC urgently called on customers to repatriate orders, Taiwanese IC design companies said frankly that under the circumstance that they must support TSMC first, orders will definitely be drawn from other foundry companies. As a result, the capacity utilization rates of UMC, SMIC and World Advanced may be expected to be low in the first half of 2019.

Taiwan's first-tier IC design giant pointed out that TSMC's business representatives recently issued two instructions from the company's senior management. One is that the 2019 wafer production capacity demand plan should be proposed as early as possible, and production must be carried out in advance during the traditional off-season. If those who fail to follow the prior reminder, no orders will be accepted during the process.

Second, chip suppliers need to start dispersing their main products to TSMC's other wafer fabs, and stop concentrating them in one wafer fab, so as to avoid everyone always being crowded together at the same time and place.

TSMC's move is mainly for the benefit of its customers. It is mainly because in the past few years, chip customers have been scrambling for production capacity during the peak season, but have always failed to get it, causing chaos in the production and sales plans of the entire upstream and downstream industry chain, and adding to the troubles of its own and its clients' inventory level management plans.

After all, even TSMC President Wei Zhejia admitted that the semiconductor industry chain will definitely be affected. The client's strategy of clearly vague visibility of orders in the first and second quarters of 2019 has made TSMC's capacity utilization rate at its factories in the first half of 2019 seem to be lackluster.

However, TSMC has not taken a completely pessimistic view of the economy in 2019, and believes that the company's operating performance will continue to grow. In order to disperse customers' bad habit of over-concentrating orders during the peak season, it has taken drastic measures, hoping that customers will tell it truthfully about their wafer foundry capacity needs in 2019 so that both parties can make preparations in advance.

However, Taiwanese IC design companies have said frankly that if they want to place orders with TSMC in advance in the first quarter of 2019, based on their own chip inventory levels and overall chip production and sales plans, they will have to draw orders from other foundry partners to support the situation. This will result in all orders in the first half of 2019 being concentrated on TSMC, which will definitely not be good news for UMC, SMIC and World Advanced, and may even increase the pressure on other foundries to cut prices to sell.

Take World Advanced as an example. After it decided in mid-2018 that its integrated order relationship with TSMC would end in the second quarter of 2019, World Advanced will have to rely on its own to receive orders in the future. Given the amazing order magnet effect of TSMC in the first half of 2019, it may have to rely on itself for the best.

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