TSMC Global Pricing Strategy

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Source: https://investor.tsmc.com/english/e...3a8d90d0423c57c6b120/TSMC 1Q24 Transcript.pdf

"Charlie Chan - Morgan Stanley, Research Division - Technology Analyst

So my first question is about selling the value. I think another caller also addressed this topic, but I want to go a little bit deeper. Because given all the efforts you made, right, and also ongoing cost challenge made at the coming U.S. fab, electricity cost hike, I'm not sure if you can give investors kind of a range about a potential price adjustment or kind of the value you're going to sell to your customers.

Based on our back testing, I think based on your revenue and shipments in 2022 and 2023, we calculate your price hike could be around 10% in 2022 and the price hike of 5% in 2023. So C. C., I'm not sure whether you are planning to hike price in this kind of a range or magnitude for 2025, so we can be comfortable you can achieve the 53% gross margin in 2025.


Jeff Su - Taiwan Semiconductor Manufacturing Company Limited - Director of IR

Okay. So Charlie's first question is about TSMC's pricing strategy. He notes that TSMC, of course, makes a lot of efforts to deliver technology leadership and manufacturing excellence to our customers, but we also face a lot of cost challenges, whether from electricity price hikes or the higher cost of overseas fabs. So his question is, number one, I guess, what is our intention about pricing strategy to sell our value; and then, number two, he would like to know what percentage range, if any?"


C. C. Wei - Taiwan Semiconductor Manufacturing Company Limited - CEO

Okay, Charlie, this is C. C. Wei. First, I would like to emphasize again this kind of a pricing strategy is very confidential and totally between TSMC and the customer. However, let me expand a little bit, we do encounter some kind of higher cost in the overseas or even recently, the inflation and the electricity. We expect our customers to share some of the higher cost with us, and we already started our discussion with our customers.

And as I said, for the overseas fab, we want to share our value, which also includes the flexibility of geographic location or something like that. If my customer requests to be in some certain area, then definitely, TSMC and the customer had to share the incremental cost.

Charlie, did I answer your question?

Charlie Chan - Morgan Stanley, Research Division - Technology Analyst

Yes, I think that answers my question. I think passing through some cost or all the cost to -- incremental cost to customers should be fair, especially you are creating lots of value to your customers.

 

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From the above Q&A during TSMC 1Q2024 earnings Conference Call on April 18, 2024, it appears TSMC will adopt country specific pricing strategy.

 

[Daniel Nenni]

From the above Q&A during TSMC 1Q2024 earnings Conference Call on April 18, 2024, it appears TSMC will adopt country specific pricing strategy.

Yes, I read that and assumed the same but at the TSMC Symposium I was told that was not the case. If so customers would not use the US fabs. But CC is right, each wafer agreement is negotiated independently and it is very confidential. I would not call it country specific pricing, it is customer specific. TSMC has to fill the AZ fabs and pricing will not step in the way of that, my opinion.

 

[hist78]

Yes, I read that and assumed the same but at the TSMC Symposium I was told that was not the case. If so customers would not use the US fabs. But CC is right, each wafer agreement is negotiated independently and it is very confidential. I would not call it country specific pricing, it is customer specific. TSMC has to fill the AZ fabs and pricing will not step in the way of that, my opinion.

TSMC has expressed its intention to use a country specific pricing strategy several times. For example TSMC Chairman Mark Liu explained it clearly during the TSMC 2023 shareholders meeting last June. Mark said it is similar to a cloth that is priced differently if it's made in USA or in China. Did you hear the global unified pricing from a private conversation or from a speech at the TSMC Symposium? Thanks.

 

[Daniel Nenni]

TSMC has expressed its intention to use a country specific pricing strategy several times. For example TSMC Chairman Mark Liu explained it clearly during the TSMC 2023 shareholders meeting last June. Mark said it is similar to a cloth that is priced differently if it's made in USA or in China. Did you hear the global unified pricing from a private conversation or from a speech at the TSMC Symposium? Thanks.

Private conversation. I will ask customer contacts and see if they know of it yet.

 

[hskuo]

Private conversation. I will ask customer contacts and see if they know of it yet.

I would expect the price will vary depending on the demands. The "demand more than supply" situation could be: If customer needs lower price wafers, Taiwan fabs could be the best choice. It might take time to wait for the wafer start and might have longer cycle time. But there will be alternative capacity in US. The price is higher, the delivery could be quicker. Customer will justify the value and make decisions then. For the reverse situation, the other differentiation strategy is needed.