United Microelectronics Corp. (UMC), the second largest contract chipmaker in Taiwan, said Monday that an increasing number of its integrated circuit designer clients have been signing longer agreements to secure chip supply, amid global shortages.
Based on its orders received so far, UMC said, its production capacity has been fully booked into next year, as demand continues to exceed supply in the market.
The company said it is not uncommon for some of its IC design clients to seek longer contracts, but with supply tightening, an increasing number of them are going that route.
According to a report Monday in the Economic Daily News, UMC and other contract chipmakers in Taiwan like Vanguard International Semiconductor Corp. (VIS) have been asking their clients to sign two- to three-year contracts, based on current prices, and those agreements will take effect next year.
A global supply shortage of chips made on more mature processes, including the 28 nanometer technology, is expected to continue into 2022, and the longer contracts are likely to help UMC and VIS maintain a good bottom line, the reports said.
VIS, which specializes in such chips, declined to comment on the report, but UMC said its clients that are served by its 12A fab’s P6 section in the Southern Taiwan Science Park have been signing longer contracts and paying deposits to secure supply.
The 12A fab, which rolls out more than 87,000 12-inch wafers a month, uses the mature 28nm process, and it is scheduled to upgrade to the 14nm process in the future.
UMC has benefited this year from the strong global demand, reporting a 10-year record high gross margin of 31.3 percent in the second quarter. The gross margin refers the difference between its revenue and cost of goods sold.
At an investor conference in late July, UMC forecast a 6 percent sequential growth in its third-quarter average selling price (ASP).
Earlier in the year, the company had projected a 10 percent annual increase in its ASP for the whole of 2021, but based on its third-quarter forecast, analysts are expecting UMC to beat its full-year estimate.
The global supply shortage also extends to chips made on more advanced processes, which has driven up prices for those products as well.
Last week, Taiwan Semiconductor Manufacturing Co. (TSMC) reportedly issued a notice to its clients, informing them that the prices of its chips made on the advanced 7 nanometer and 5nm processes had increased by 7-9 percent, while the prices of those made on older processes would rise by about 20 percent.
The 5nm process, TSMC’s latest technology, went into mass production in the second quarter of last year.
Two American brokerages said the price hike will push up TSMC’s 2022 earnings per share to NT$26-NT$28, above the market forecast of NT$22-NT$23 for 2021.
Source: Focus Taiwan News Channel