Vital TSMC Supplier Warns of Chip Material Price Hikes Into 2023

Showa Denko K.K., a Japanese chemicals supplier, expects to raise prices and cut unprofitable product lines in the face of economic challenges.

Chief Financial Officer Hideki Somemiya said in an interview that there have been at least a dozen hikes this year. He said that the situation is unlikely to improve.

Tokyo-based Showa Denko, which supplies essential chip fabrication materials to the likes of Taiwan Semiconductor Manufacturing Co. and Infineon Technologies AG, has had to dramatically increase the cost it passes on to customers. It is a key supplier of the chemicals used early in the production chain by chipmakers and other manufacturers.

The theme of this year is how much cost burden we can convince customers to share with us. The current market moves require us to double the amount we had calculated.

Showa Denko is not alone in raising prices as other component makers and materials suppliers have been doing the same. He said that consumers of durable goods will have to pay more down the road. The companies that make the chips have told their customers that they intend to raise prices, according to the report.

The company is in talks to increase the prices of chips.

Somemiya's company has begun to stop selling certain commodity products and contracts with customers where it doesn't see the potential to make money. He said that the company would spend the rest of the year sorting out which areas to retreat from.

Showa Denko's Somemiya said that rising prices of raw materials and natural resources are one of the challenges. The Bank of Japan has become isolated in its commitment to an easy monetary policy, which has pushed the Japanese currency to a 24 year low against the US dollar.

The weak yen is pushing up the cost of raw materials and that's not good for us. The measures that we can take to deal with the Japanese currency are very limited.

The CFO of Showa Denko, Somemiya, moved from Sony Group Corp. to serve as the CEO of the company. The chemicals supplier was criticized by Somemiya for being naive in negotiating prices.

Showa Denko bet on the next design challenge.

The market turmoil has made employees more assertive in their negotiations, in part because they have no other choice.

Employees who were used to accepting customer demands to cut prices have become stronger in arguing that appropriate pricing will be best for us and customers over the long term.