Potential Pricing Standoff in the Semiconductor Industry: TSMC vs. ASML

Renowned analyst Ming-Chi Kuo has predicted a possible pricing standoff in the semiconductor industry.

What Happened: On Thursday, Kuo, who works at TF Securities, shared insights on X, formerly known as Twitter, revealing market rumors that suggest ASML Holding might raise equipment prices for Taiwan Semiconductor Manufacturing Company (TSMC).

Despite these rumors, Kuo believes that TSMC, recognized as the world’s largest contract chipmaker and ASML’s primary customer, will likely resist these price hikes.

Kuo stated, "Market rumors indicate ASML plans to increase equipment prices for TSMC. However, my understanding is that TSMC will likely negotiate for lower prices from ASML." This could lead to potential negotiations that challenge the existing pricing structure.

ASML specializes in manufacturing high-end extreme ultraviolet (EUV) lithography systems, which are crucial for creating advanced semiconductor chips. TSMC utilizes ASML’s EUV technology to produce cutting-edge chips for various clients, including major companies like Apple and Nvidia.

Kuo’s analysis points to a scenario where TSMC’s efforts to negotiate better pricing may result in a standoff with ASML over these costs, potentially affecting the semiconductor supply chain.

Why It Matters: This potential standoff is particularly significant as TSMC recently reported strong third-quarter earnings, exceeding expectations due to high demand for advanced chips used in artificial intelligence applications. The company has also forecasted its fourth-quarter revenue to be notably higher than the consensus, reflecting ongoing robust performance.

On the other hand, ASML announced third-quarter sales of 7.5 billion euros (approximately $8.16 billion), which surpassed the analyst predictions of 7.12 billion euros. However, ASML also updated its sales forecast for the year, which could suggest financial pressures related to pricing.

Earlier this year, TSMC expressed frustrations regarding the high costs associated with ASML’s new advanced chip manufacturing machines. TSMC’s senior vice president, Kevin Zhang, highlighted the expensive nature of high-NA extreme ultraviolet systems, which are priced at around $380 million each.

In conclusion, the ongoing discussions regarding price hikes could severely impact the semiconductor industry, particularly as companies strive to balance affordability with technological advancement. With TSMC's leading position in the market and its essential role in the supply chain, its negotiations with ASML will be critical to watch in the coming months.

semiconductor, pricing, TSMC