According to supply chain interviews, most customers have agreed to raise contract manufacturing prices in exchange for reliable supply, which will further drive up TSMC's gross margin. According to analysts' estimates, TSMC's gross margin will climb to 55.1% in 2025 and approach 60% to reach 59.3% in 2026, respectively, respectively. $Taiwan Semiconductor (TSM.US)$Industry insiders said that this price hike may be based on considerations of market demand, capacity, and cost. According to sources, the four major factories, Apple, Qualcomm, Nvidia, and AMD, have heavily booked TSMC's 3nm process capacity, resulting in customer queues that extend all the way to 2026.

Insiders say that this price increase may be based on considerations of market demand, production capacity, and cost. Some reports show that...$Apple (AAPL.US)$, $Qualcomm (QCOM.US)$, $NVIDIA (NVDA.US)$with$Advanced Micro Devices (AMD.US)$In the background of large customers crazily reserving production capacity, TSMC's 3nm family process production capacity remains tight and has become the norm. It is reported that Apple, Qualcomm, Nvidia and AMD, and other large manufacturers have significantly increased their TSMC's 3nm family process production capacity, and there is a queue of customers all the way until 2026.

It is worth noting that the news of price increases in the semiconductor industry chain is becoming more and more intensive, which includes vendors such as Qualcomm, TSMC, Hua Hong, covering IC design, chip manufacturing and other links, and with the benefits of the AI wave, the quote for DRAM (memory) and SSD (solid-state drive) has also risen significantly.

Breaking news from TSMC.

According to supply chain surveys, most of TSMC's customers have agreed to raise contract prices in exchange for reliable product supplies, which will drive TSMC's gross margin even higher.

Due to the growing prospects for profitability year by year, Macquarie maintains a higher-than-market rating for TSMC, and has raised the target price for TSMC to NT$1280, an increase of 28% over the current price, with a potential increase of more than 27%.

Macquarie believes that under the trend of AI development, TSMC's demand visibility is higher than the historical average. As TSMC creates value for customers, the bank believes the company will be able to raise prices.

Lai Yuzhang, a semiconductor industry analyst at Macquarie, said that as most of TSMC's customers have agreed to adjust contract prices to obtain stable and reliable supply, future gross margins will rise year by year.

Recently, the industry chain news revealed that TSMC will raise prices for its most advanced 3nm process technology from 2025. Among them, AI product prices will increase by 5% to 10%, while non-AI product prices will rise by 0% to 5%. The price of 5nm is also expected to increase due to higher production costs.

According to Lai Yuzhang's estimate, TSMC's gross margin will rise to 55.1% in 2025, and approach 60% in 2026. This year, the gross margin has already increased to 52.6% due to improved production efficiency.

With the long-term trend of AI, coupled with rising gross margins, TSMC's annualized compound growth rate (CAGR) from 2023 to 2026 will reach 26%. Based on this, Lai Yuzhang has raised TSMC's tax-after net profit (EPS) per share for 2024 to 2026 by 5%, 2%, and 1%, respectively.

In addition, regarding market attention on capital expenditures, Lai Yuzhang believes that as TSMC continues to invest in advanced processes, especially 3nm and 2nm, TSMC's capital expenditure predictions for 2025 and 2026 have been raised to $35 billion and $37 billion, respectively.

Lai Yuzhang expects that TSMC will complete an annual capacity of 5000 wafers of 2nm by the end of 2024, and by the end of 2027, the capacity will expand significantly to 0.09 million wafers.

Currently, the global market expectations for TSMC are high, with foreign institutions continuously raising TSMC's target price. Among them, HSBC has given a target price of NT$1370, Goldman Sachs NT$1160, Citigroup NT$1150, Barclays NT$1096, and Morgan Stanley and JPMorgan both have given a target price of NT$1080.

According to a survey of 29 analysts, TSMC's revenue in the second quarter is expected to grow by 36% year-on-year, the fastest growth rate since the fourth quarter of 2022. Bloomberg industry research predicts that the company's revenue will exceed market expectations by 10%, leading the performance in the Chinese Taiwan wafer foundry industry.

Why raise prices?

Industry insiders analyze that according to normal practice, TSMC will not easily introduce price increase plans, and this price increase may be based on considerations of market demand, production capacity, and cost.

In the background of large customers crazily reserving production capacity, TSMC's 3nm family process production capacity remains tight and has become the norm. It is reported that Apple, Qualcomm, Nvidia and AMD, and other large manufacturers have significantly increased their TSMC's 3nm family process production capacity, and there is a queue of customers all the way until 2026.

In regards to Apple, the iPhone 16 series of new phones that are expected to be equipped with AI functionality will be released as soon as this September, which may drive a new wave of phone replacement. The market expects that the shipment volume of the iPhone 16 series of new phones this year is expected to increase by 5% year-on-year to 92-95 million units. TSMC is the exclusive supplier of the A-series processors for the new phones, and related orders will become the largest outlet for the 3nm family process.

The global market's expectations for TSMC are high, and foreign institutions have raised TSMC's target price one after another. Among them, HSBC has given a target price of NT$1370, Goldman Sachs NT$1160, Citigroup NT$1150, Barclays NT$1096, and Morgan Stanley and JPMorgan have both given a target price of NT$1080.

In addition, Morgan Stanley analysts Charlie Chan and others wrote in their latest report that Apple may use Taiwan Semiconductor's SoIC-X chip stacking technology in the M5 series chips used for AI servers. Apple's goal may be to mass produce M5 chips in the second half of next year. Currently, Apple uses the M2 Ultra chip in AI server clusters, with an estimated usage of around 0.2 million chips this year. With the mass production of M5 chips, it is expected that Taiwan Semiconductor will significantly expand its SoIC production capacity next year.

In order to meet the market demand, Taiwan Semiconductor has been actively expanding its production capacity by continuously building new advanced packaging factories. Currently, the production capacity will be increased by more than twice this year and will continue to increase next year.

According to Trendforce, Taiwan Semiconductor is planning to build another advanced packaging and testing factory in Pingtung, southern Taiwan, in order to quickly improve its CoWoS packaging capacity. The location is currently being selected.

The rising tide of price hikes is approaching.

Currently, there is increasing news about price increases in the semiconductor industry chain, including high-end companies such as Qualcomm, Taiwan Semiconductor, Huahong, covering IC design, chip outsourcing and other links. The increase in prices of DRAM and SSD quotations is also more evident due to the AI wave.

According to the supply chain, due to the insufficient supply of Taiwan Semiconductor's 3nm production capacity, upstream IC design companies have begun to spread news of price increases. The first to increase prices may be Qualcomm. It is rumored that the Snapdragon 8 Gen 4 created with Taiwan Semiconductor's N3E will increase in price by 25% compared to the previous generation, and subsequent price increases cannot be ruled out.

According to Japanese media reports, the bulk transaction price of solid state drives (SSDs) in April-June increased by about 15% compared to the previous quarter, and has been rising for three consecutive quarters.

In late June, the bulk transaction price of DRAM continued to rise. In May of this year, the wholesale price (bulk transaction price) of the pointer product DDR4 8Gb was around US$2.1 each, and the price of the smaller 4Gb product was around US$1.62 each. The prices increased by about 8% compared to the previous month and rose for the first time in three months.

The utilization rate of mainland Chinese wafer factories has also significantly increased, and many manufacturers have reached full production, and even there are cases of capacity utilization exceeding 100%. The industry believes that the continuous increase in production capacity and the full production of foundry factories will create conditions for price increases, and quotation prices are expected to end the two-year decline.

Morgan Stanley stated that$HUA HONG SEMI (01347.HK)$The wafer factories' current capacity utilization rate has exceeded 100%, and it is expected that prices may be increased by 10% in the second half of this year.

Analysts pointed out that the tight situation of production capacity may continue until the end of the year when entering the traditional stocking season, and the mainland China wafer foundry may further brew a specific process price increase atmosphere.

Editor/Somer