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IC design houses passing on rising production costs to clients

Rising foundry and backend quotes are prompting IC design houses to make efforts to pass on higher production costs to customers, according to industry sources in Taiwan.

Tight capacities at foundries and backend houses have led to constrained supply to many Taiwan-based IC design houses, the sources said. The fabless firms are also under pressure to raise their chip prices, as their foundry and backend partners are all raising their contract-manufacturing quotes amid tight capacity, the sources said.

Taiwan's fabless chipmakers have moved to negotiate with their clients about raising prices to reflect the rising manufacturing costs, the sources noted.

Taiwan-based MCU and analog IC specialists have already managed to raise their chip prices, adjustments that will take effect starting from the second quarter, the sources indicated.

Rising costs and extended lead times at backend houses may dampen fabless chipmakers' gross margins in the first quarter of 2021, according to sources at Taiwan's MCU suppliers. As a result, fabless firms may have to pass the additional costs onto consumers in order to stabilize margins and profits.

Production lead times at Taiwan-based backend houses have been extended to 1-2 months from 1-2 weeks previously, the sources added. Rising backend quotes already began to weigh down some fabless chipmakers' revenues in January, the sources said.

Taiwan-based backend houses have enjoyed robust orders demanding mature packaging processes including DIP (dual in-line package), QFN (quad-flat-pack-no lead) and TSOP (thin small outline package), and already seen their supply fall short of demand, according to industry sources. The backend firms also intend to prioritize the expansion of their advanced packaging capacity, leaving little room for them to expand mature process packaging capacity, the sources indicated.

Besides, backend firms have encountered rising costs of raw materials and have been keen to raise their quotes, the sources said.