TSMC chemicals supplier warns of additional chip material price hikes, which could squeeze semiconductor giants

Japanese chemicals supplier Showa Denko KK expects to further raise prices after a dozen hikes this year amid economic headwinds for the semiconductor industry

The company, whose share price has fallen 31 per cent over the past 12 months, will spend the rest of this year sorting out which areas to retreat from

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Showa Denko KK, which supplies essential chip fabrication materials to some of the world’s largest chip makers, said it is raising prices further to cope with a tough market. Photo: Shutterstock

Published: 9:50am, 5 Jul 2022

Japanese chemicals supplier Showa Denko KK expects to further raise prices and cut back unprofitable product lines as it grapples with a barrage of economic challenges confronting the US$550 billion semiconductor industry.

That’s on top of at least a dozen hikes already this year, reflecting Covid-19 supply snarls, surging energy costs from the Ukraine war and the yen’s dramatic weakening, chief financial officer Hideki Somemiya told Bloomberg News in an interview. The situation is unlikely to significantly improve until at least 2023, he added.

Tokyo-based Showa Denko, which supplies essential chip fabrication materials to the likes of Taiwan Semiconductor Manufacturing Co and Infineon Technologies AG, has been forced to drastically increase the cost it passes on to customers, Somemiya said. Because it’s a key supplier of the chemicals used early in the production chain by chip makers and other manufacturers like Toyota Motor Corp, its price hikes could potentially squeeze margins or pressure customers to follow suit.

“A big theme this year common to all the players in the materials industry is how much cost burden we’d be able to convince customers to share with us,” Somemiya said. “The current market moves require us to ask twice the amount we had previously calculated.”

Showa Denko is far from alone in raising prices, as other component makers and materials suppliers have been making similar moves to cope with the tough market, Toyo Securities analyst Hideki Yasuda said. Consumers of durable goods like electronics won’t be spared higher price tags further down the road, he added. Chip makers like TSMC and Samsung Electronics Co have notified their own customers they intend to raise prices, Bloomberg News has reported.

Somemiya’s company has started terminating the sale of certain commodity products and contracts with customers where it doesn’t see the potential to carry on business profitably. The company, whose share price has fallen 31 per cent over the past 12 months, will spend the rest of this year sorting out which areas to retreat from, he said.

In addition to rising prices of raw materials and natural resources, Showa Denko’s Somemiya said the weakened yen poses another challenge. The Bank of Japan has grown increasingly isolated in its commitment to an ultra-easy monetary policy, pushing the yen to its lowest level against the US dollar in 24 years.