Why Taiwan’s Covid-19 disruptions may give mainland Chinese chip makers more pricing power
- The Covid-19 impact on Taiwan’s chip production has so far been limited, but the fact that it comes on top of a global chip shortage has only exacerbated the supply situation
- King Yuan Electronics Co, the world’s 8th-largest IC package and testing firm, suspended all of its foreign migrant workers at its main Taiwan plant for two weeks on June 7
The recent surge of Covid-19 cases in Taiwan that has disrupted some semiconductor operations on the island could help boost the pricing power of mainland Chinese rivals, an analyst said.
The shortage has meant chip factories on both sides of the Taiwan Strait have been running at full capacity, and announcements of price increases have been frequent over the last couple of months.
A marginal drop in production capacity in Taiwan could see chip plants in China hike prices further if the Covid-19 surge continues, said Gary Ng, an economist with Natixis.
“It is possible that the bargaining power of mainland Chinese foundries will be stronger if the virus outbreak in Taiwan is not contained by the third quarter of 2021,” Ng said. “It is an industry norm that revised pricing not only applies to new orders but also orders in the pipeline.”
However, any shift in business from Taiwan to mainland China due to Covid is likely to be minimal as most foundries are already operating near full capacity and there is no alternative on the mainland when it comes to advanced chip production. China’s most advanced foundry, Semiconductor Manufacturing International Corp (SMIC), is still several generations behind the industry leader Taiwan Semiconductor Manufacturing Co (TSMC).