IC foundries, and PC and handset manufacturers continue to encounter rising costs of components and materials, and will see their gross margins come under downward pressure in 2018.

Prices for silicon wafers, passive components, DRAM, and other chip components and materials have been rising on tight supply, the sources indicated. Contract IC and device manufacturers are under increasing cost pressure, the sources said.

In the silicon wafer market, for example, supply continues to lag demand. Chip demand for automotive electronics, IoT, AI and cryptocurrency mining applications has been robust, while major silicon wafer producers remain reluctant to expand substantially production capacity.

Semiconductor wafer prices will continue rising in 2018 and 2019, with prices for 6-, 8- and 12-inch wafers all looking bullish, GlobalWafers chairwoman Doris Hsu was quoted as saying in previous reports.

Taiwan Semiconductor Manufacturing Company (TSMC) disclosed previously a rally in silicon wafer prices already undermined its gross margin by 0.2pp in 2017. The foundry expects silicon wafer prices to continue rising to eat away 0.5-1pp of its gross margin in 2018.

In addition, the supply of DRAM and passive components for handsets, PCs and servers will remain tight in 2018 pushing up the chip component prices. The tight supply of passive components, such as MLCCs and aluminum electrolytic capacitors, will likely become more severe this year as major suppliers put increased focus on their high-ASP and high-margin automotive and industrial offerings, according to industry sources.

The supply of conventional MOSFET chips has also fallen short of demand, with major suppliers extending delivery lead times to 3-4 months, the sources said.

Nice work of free market hand.