Japanese chemical supplier Showa Electric expects the company to further increase prices and reduce unprofitable product lines to address a series of economic challenges facing the $550 billion semiconductor industry.
The company's Chief Financial Officer Hideki Somemiya stated in an interview with Bloomberg that this decision is based on at least a dozen interest rate hikes this year, tight supply of Covid-19, soaring energy costs caused by the Ukrainian war, and a significant depreciation of the yen. He added that this situation is unlikely to significantly improve until at least 2023.
Somemiya stated that Showa Electric, headquartered in Tokyo, provides basic chip manufacturing materials to companies such as TSMC and Infineon, forcing the company to significantly increase the costs passed on to customers. Because it is a major supplier of chemicals used by chip manufacturers and other manufacturers such as Toyota in the early stages of the production chain, its price increase may squeeze profits or force customers to follow suit.
A common theme among all participants in the materials industry this year is how much cost burden we can persuade customers to share with us, "Somemiya said. The current market trend requires us to demand twice the amount we previously calculated
Hideki Yasuda, an analyst at Dongyang Securities, said that it is not only Showa Electric that is raising prices, but other component manufacturers and material suppliers have also been taking similar measures to cope with the difficult market. He added that consumers of durable goods such as electronic products will not be immune to higher price tags in the future. According to Bloomberg, chip manufacturers such as TSMC and Samsung Electronics have informed their customers that they plan to increase prices.
Somemiya's company has also begun to terminate sales of certain products and terminate contracts with customers because they believe that these businesses have no potential for profitability. And the company's stock price has fallen by 31% in the past 12 months,
In addition to the rising prices of raw materials and natural resources, Somemiya from Showa Electric stated that the depreciation of the yen poses another challenge. The Bank of Japan's commitment to ultra loose monetary policy has become increasingly isolated, with the yen falling to its lowest level in 24 years against the US dollar.
The current trend of the Japanese yen is not ideal for us because the weak yen is further pushing up material costs on the plateau, "Somemiya said. As a company, the measures we can take to respond to the Japanese yen are very limited
Somemiya was a former banker at JPMorgan Chase. She resigned from Sony Group last year and served as the Chief Financial Officer at Showa Electric. She also served as the right-hand man for CEO Hidehito Takahashi to carry out comprehensive reforms of the company. At that time, Somemiya criticized the chemical supplier for being too naive in negotiating prices and leaving profits at the negotiating table.
Afterwards, employees became more confident in negotiations, partly because they had no other choice - the positive changes that market turbulence could bring.
The current increase in material costs has little positive significance, but employees who are accustomed to simply accepting customer price reduction requests have become more strongly convinced that in the long run, appropriate pricing is the best for us and our customers, "Somemiya said.
At the beginning of last month, the Nikkei also revealed that large semiconductor material companies in Japan have started to raise prices. SUMCO will increase the price of silicon wafers for substrate materials by about 30% by 2024, and Showa Electric has increased the price of high-purity gases used in circuit formation by 20%. There is a great demand for semiconductors from the fields of electronic products and automobiles, and the supply and demand of raw materials are also becoming increasingly tight. The Ukrainian crisis is also exacerbating material price increases, and cost increases may affect the final product.
SUMCO will increase its price by about 30% in a three-year long-term agreement signed with semiconductor manufacturers until 2024. Spot prices have been rising, and long-term agreements signed with various enterprises will also increase in price.
In 2021, the global wafer supply area increased by 14% compared to 2020, setting a historical record. Xinyue Chemical Industry in the same industry will also increase prices. Other materials will also increase in price. With the surge in raw materials, Showa Electric has recently raised the price of high-purity gases by more than 20%, and Sumitomo Electric Wood has also raised the price of packaging materials used to protect semiconductor chips by about 20%.
According to statistics from American research companies, the average price of semiconductor MCUs widely used in electronic products and automobiles increased by about 15% in January 2021.
