Global supply of silicon wafers will remain tight and their prices are expected to spiral upward probably through 2025 due to ever-expanding demand and slow capacity expansions at the world's major suppliers, prompting foundry houses to seek longer-term supply contracts while also moving to hike foundry quotes, according to industry sources.

Doris Hsu, chairperson of Taiwan-based GlobalWafers, recently said that her company has seen its capacities fully booked through the end of 2020, stressing that the supply contracts to be signed between 2021 and 2025 will see no space for downward price adjustment, no matter for 6-inch, 8-inch or 12-inch wafers.

Industry sources said that as the world's top-5 silicon wafer suppliers - Shin-Etsu Handotai, Sumco, GlobalWafers, Silitronic, and LG Siltron - have no major capacity expansion plans, silicon wafer prices will surely keep surging at least in the next five years along with the sharply growing demand from automotive electronics, IoT, AI, cryptocurrency mining and memory applications since the fourth quarter of 2016.

To counter, foundry houses are seeking to sign long-term contracts with silicon wafer suppliers, aiming to minimize the pressure from increased material costs. But silicon wafer suppliers have shown intentions to raise quotes when renewing contracts after existing ones expire in 1-2 years.

Foundry firms are expected to hike fabrication quotes to reflect the increased wafer costs. But Taiwan Semiconductor Manufacturing Company (TSMC) said in early 2018 that it would not pass the increased costs onto customers although its gross margin rate may fall by 0.5pp to 1pp for the year.

In contrast, second-tier foundry houses may be forced to hike their quotes lest the increased wafer prices should further undermine their gross margins that are significantly lower than those recorded by first-tier ones. Among them, United Microelectronics (UMC) has raised its 8-inch wafer foundry quotes since June 1 2018 to reflect increases in wafer costs, which, however, can hardly help boost its profitability, industry sources indicated.