Taiwan's main display driver IC (DDI) suppliers, including Novatek Microelectronics and Sitronix Technology, are set to raise their quotes for some new offerings by 10-15% starting in April and will increase wafer starts with foundry partners, signaling a turnaround for the chip segment that was first and worst hit by the sluggish terminal market demand over the past year, according to industry sources.
The price hikes are enabled by a gradual surge in end-market demand, continuous inventory replenishment by customers, and launch of new DDI chips, which will help the leading DDI suppliers renew their growth momentum following nearly one year of poor sales results, the sources said.
Chip demand for consumer applications experienced a sharp downturn starting in the second quarter of 2022 amid the lingering Russia-Ukraine war, global inflation, and China COVID lockdowns, sending inventory swelling along the entire supply chain and price falls sweeping all the chip segments except those for automotive and industrial control applications, the sources continued.
Quite a few DDI suppliers, suffering the most from the headwinds, were forced to stop placing wafer starts to prevent inventory from ballooning further and to reduce losses, although they had to honor higher-than-expected punitive payments for violating long-term agreements with foundry partners including TSMC and United Microelectronics (UMC).
Among them, FocalTech Systems slipped into heavy operating losses for 2022 after appropriating NT$2.5 billion in inventory losses in the third quarter of the year. Novatek saw its revenue and net profits for the year drop 18.8% and 28.04%, respectively, on year.
But vendors of DDIs, MCUs, and some other consumer chips are seeing an increasingly stable rebound in China market demand due to terminal inventory depletion accelerating on the lifting of COVID lockdowns since early 2023, the upcoming week-long Labor Day holiday and "618" shopping festival, and government subsidies to rural residents for buying home appliances and new energy vehicles, sources said.
Meanwhile, the worst moment for the foundry sector will be gone soon. TSMC and other local peers will have a chance to see their capacity utilization rates and revenues regain growth momentum in the second quarter of 2023 thanks to more foundry orders being transferred from Chinese and foreign customers under intensifying US-China trade conflicts, apart from accelerated destocking at customers, the sources said.
TSMC's 28nm capacity is reportedly to stay fully loaded through the end of the year, and its 5/4nm capacity utilization will ramp up quarter by quarter. The foundry may consider another price hike in the second half of the year in response to its ever-increasing manufacturing costs. Price hikes are possible for specific process nodes in high demand. It has raised quotes for 2023 by around 6%, following a larger 10-20% increase in its quotes for 2022.
Article translated by Willis Ke
