The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), has signalled to major clients that it may raise prices in response to rising production costs and surging demand. The move, first reported by Bloomberg, has sent a chill through the British technology sector, which relies heavily on imported semiconductors for everything from smartphones to electric vehicles.
For UK firms, the timing could not be worse. The cost of capital has already been driven up by the Bank of England’s aggressive tightening cycle, and sterling’s recent weakness has made dollar-denominated chip imports even more expensive. A price hike from TSMC would be another nail in the coffin for margins already squeezed by inflation.
Simon Coveney, chief executive of UK-based chip designer ARM Holdings, warned in a statement that “any disruption or cost increase in the semiconductor supply chain will have ripple effects across the entire British tech ecosystem.” ARM, which designs chips used in nearly every smartphone worldwide, relies on TSMC for manufacturing. While ARM does not manufacture its own chips, its clients will feel the pinch.
The price hike is not yet confirmed, but TSMC’s chairman Mark Liu told investors on a conference call that “the cost of advanced manufacturing nodes has increased significantly, and we must reflect that in our pricing to ensure long-term sustainability.” The market read between the lines: shares of TSMC fell 2.3% on the news, while UK-listed chip stocks such as IQE and Dialog Semiconductor also slid.
This development comes as the UK government finalises its National Semiconductor Strategy, which includes a £1 billion package to boost domestic chip design and manufacturing. Critics, however, argue that the sum is paltry compared to the $52 billion in US subsidies authorised under the CHIPS Act. “It’s like bringing a butter knife to a gunfight,” said one industry insider, speaking on condition of anonymity.
Smaller UK tech firms are particularly vulnerable. They lack the pricing power of Apple or Samsung to absorb cost increases. For them, the choice is stark: pass on costs to consumers and risk losing sales, or eat the margin and risk going bust.
The Bank of England’s Monetary Policy Committee is watching closely. Higher chip costs feed into producer price inflation, which could prompt another rate hike. “This is exactly the kind of supply side shock that keeps central bankers awake at night,” said Andrew Haldane, former MPC member.
But not all doom and gloom. Some analysts argue that the price increase will accelerate the trend towards chiplets and disaggregated manufacturing, where smaller firms can use older, cheaper nodes for less demanding chips. “This is a catalyst for innovation,” said Dr. Rebecca Marshall, technology analyst at Investec. “Necessity is the mother of invention, after all.”
Still, for the average British tech CFO, the news is unwelcome. “We’re already dealing with rising energy costs and a tight labour market,” said James Cooper, CFO of Cambridge-based chip start-up Graphcore. “This is just another headwind.”
As the sun sets on another trading day in the City, yields on 10-year gilts have crept up by 5 basis points to 4.25%, reflecting increased uncertainty. The FTSE 100 closed 0.4% lower, dragged down by tech stocks.
The message from TSMC is clear: the era of cheap chips is over. For British tech, the bottom line is looking ugly.
