Showa Denko KK

2022: Intention to dramatically raise prices of chemicals for chip manufacturing

On July 5, 2022, it became known that the Japanese company Showa Denko KK, one of the suppliers of chemicals for the production of microcircuits, intends to sharply raise prices for its products. According to the financial director of the company Hideki Somemiya, an ex-employee of JPMorgan Chase & Co. and Sony Group Corp.), if it fails to agree with customers on new prices, then the release of part of the chemicals will simply stop - Showa Denko KK does not intend to work at a loss.

Showa Denko KK's customer list includes a the Taiwan TSMC chipmaker. She produces chips for,,, etc., Apple Qualcomm Nvidia AMD but bypasses and "." the Russian MCST Baikal Electronics

Showa Denko KK cited two main reasons for the upcoming price increase. The first is global inflation, and the second is the rapid and record weakening of the yen, Japan's national currency. The company's management also mentions the situation in Ukraine, which led to an increase in the cost of energy.

According to Bloomberg Hideki Somemia, the situation with prices for the chemical necessary for the production of semiconductors is unlikely to improve significantly until at least 2023. The same applies to prices for the microcircuits themselves.

Showa Denko KK's plans to raise prices for its chemicals will eventually, with a high degree of probability, affect the wallets of many people. The company's products are used for the manufacture of microcircuits. TSMC and its competitors, apparently, will also raise the cost of their services, which will eventually lead to an increase in the cost of the chips themselves.

Chips in 2022 are used in almost all areas. For example, they are used in the production of cars - the same Toyota orders considerable quantities of chips for its cars.

In this case, companies purchasing chips will have two ways out of the current situation - to come to terms with the reduction in income against the background of rising costs or pass on the increased costs to buyers.

The big challenge of 2022, common to all players in the materials industry, is what cost burden we can convince customers to share with us, "Somemia said. - Current market movements require us to request twice the amount we had previously calculated for.

Showa Denko is far from alone in raising prices, according to Toyo Securities analyst Hideki Yasuda. Other component manufacturers and material suppliers are taking similar steps to deal with a tough market. Yasuda stressed that consumers of durable goods, which include, among other things, electronics, will not be able to avoid higher prices in the future.

The rise in the cost of chips will not have to wait. TSMC has already notified its customers of its intention to raise prices, as has Samsung, its main competitor. Korean vendor for July 2022 negotiations with its customers on raising the price of chip production to 20%.

Showa Denko KK does not intend to waste time waiting until its clients morally and financially prepare for the rise in price of chemicals. It is already gradually stopping shipping some products. The company also stopped concluding contracts with customers in which it does not see an opportunity for profitable conduct of its business. According to Hideki Somemia, the company will spend the rest of 2022 to figure out which chemicals it should stop releasing.

Showa Denko KK is nowhere near its peak in terms of finance. Its share price has fallen 31% over the past 12 months. Apparently, this is one of the catalysts for the transition to tougher business measures^[1].