AI computing power demand overwhelms advanced packaging capacity! Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) reportedly plans to raise prices by 10-20%, putting cost pressure on NVIDIA Corporation and Apple Inc.

According to supply chain sources, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) is preparing to raise prices for advanced packaging processes by 10%20%, driven by surging AI chip demand that is squeezing capacity. If this plan materializes, costs for chipmakers such as NVIDIA Corporation (NVDA.US) and AMD (AMD.US) will be pushed higher, and Apple Inc.'s (AAPL.US) iPhone and MacBook could also face a new round of price increase pressureboth product lines had already raised prices earlier due to memory chip price increases. The price increase targets CoWoS (Chip on Wafer on Substrate), the technology that integrates logic chips and high-bandwidth memory (HBM) into a single package. Reports say demand for advanced packaging is spilling over from GPUs to server CPUs and custom ASICs, causing capacity tightness; Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS monthly capacity is expected to exceed 130,000 wafers in 2026 and further rise to more than 200,000 wafers in 2027. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is the world's largest wafer foundry, and its major customers also include Broadcom Inc. (AVGO.US), Qualcomm (QCOM.US), and MediaTek. Where does pricing power come from: a curve where capacity cannot catch up with demand Advanced packaging can raise prices because it is currently the hardest physical constraint on AI chips. CoWoS monthly capacity expanded from about 13,00016,000 wafers in 2023 to about 70,000 wafers by the end of 2025, is expected to exceed 130,000 wafers by the end of 2026, and market expectations point to about 200,000 wafers in 2027. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR Chairman C.C. Wei previously said bluntly at an earnings call that packaging capacity is "so tight that it limits customer growth." The demand-side slope is even steeper. Morgan Stanley's supply chain research puts global CoWoS demand at about 1.394 million wafers per year in 2026 and about 2.694 million wafers in 2027, with NVIDIA Corporation accounting for about 60% in 2026 and falling to about 45% in 2027, mainly because cloud providers' custom ASIC share is rising; UBS Group AG estimates about 1.307 million wafers in 2026 and about 2.475 million wafers in 2027. The two sets of figures use different methodologies, but both point to the same conclusion: expansion speed cannot catch up with demand. The market's own expansion rate also supports the price increase: Yole Group's 2025 annual report shows the global advanced packaging market was US$46 billion in 2024, up 19% year on year, and is expected to exceed US$79.4 billion by 2030; DIGITIMES Research expects the global data center AI chip packaging market to grow from US$5.6 billion in 2024 to US$53.1 billion in 2030, a compound growth rate of about 45.5%. Currently, AI chip testing cycles are longer, further intensifying packaging and testing capacity pressure. Chip equipment lead times have lengthened from the previous 36 months to 68 months; Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's downstream customers "place orders as long as delivery dates can be committed," with no time to bargain. The same report also mentions that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, which in previous years usually asked suppliers for price cuts during annual equipment procurement, did not renegotiate prices this year and instead placed orders at original prices. Who pays the bill: NVIDIA Corporation's gross margin, Apple Inc.'s second price increase For NVIDIA Corporation, the impact is most directits data center GPUs rely heavily on CoWoS, and packaging price increases will either compress its own gross margin or be passed on to downstream cloud providers and end customers. For Apple Inc., the pressure is cumulative rather than new: TrendForce's September estimate found that the total bill of materials for the 256GB iPhone 18 Pro rose about 38% year on year, with memory chips accounting for about 34%, up from about 10% a year earlier; the procurement price of 12GB DRAM rose from US$39 to US$145, and 256GB NAND from US$13 to US$51, and it expects the memory share to exceed 40% in the first half of 2027; the institution judges that new handset prices will rise 10%20%. At the July earnings call, Cook described this round of memory price increases as a "once-in-a-century flood." Price increases are already happening: according to an official price comparison compiled by The Paper, the China starting price of the 256GB iPhone 18 Pro series rose by RMB1,000 compared with the previous generation, and the top-end 2TB iPhone 18 Pro Max rose by RMB3,500; in June, Mac and iPad already completed a round of price increases. Broadcom Inc., Qualcomm, and MediaTek are also on the customer list, with pressure in the same direction but at different magnitudestheir package sizes and HBM stack counts are generally smaller than those of top-tier AI accelerators. This forms a noteworthy transmission chain: AI data centers first absorb memory capacity, forcing consumer electronics to bear price increases; now packaging, a process even closer to AI, is also set to raise prices, adding another increase to the same cost sheet for consumer electronics. Alternative routes are taking shape The historical rule of the semiconductor industry is that whether foundry price increases can hold depends on whether capacity utilization is high enough and whether alternative capacity is still years awayCoWoS currently happens to be in exactly this position, but there is still a gap between "floating the idea" and "implementation" in the form of long-term customer contract negotiations. Alternative capacity is not absent. Intel Corporation's EMIB-T and Samsung's I-Cube/X-Cube are taking some ASIC camp orders, while packaging and testing companies such as ASE and Amkor are absorbing overflow volume; however, what the recipients get is mostly relatively mature categories such as CoWoS-S/R, while the most advanced CoWoS-L remains locked by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. It should also be noted that this price increase targets high-end heterogeneous packaging for AI such as CoWoS and does not cover all of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's packaging product lines; other mature solutions such as InFO have not yet been reported to be raising prices in tandem. Industry observers judge that the key is where the foundry's price increase "ultimately lands"if it is absorbed by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR itself into blended average selling prices and gross margin, that is an improvement in its profitability; if it is merely passed down the chain, then for the entire AI ecosystem it is just another bout of inflation. Putting Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's third-quarter report into the picture makes the weight of the price increase clearer. The third-quarter report released on October 15 shows third-quarter revenue of US$46.72 billion, up 41.2% year on year, with a gross margin of 66.4%, an operating margin of 58.7%, and a net margin of 51.1%; fourth-quarter guidance is revenue of US$52.3 billionUS$54.3 billion and a gross margin of 65%67%, the full-year US dollar revenue growth guidance was raised to about 44%, and capital expenditure maintained at US$60 billionUS$64 billion. Deutsche Bank Aktiengesellschaft maintained "Buy" on October 20 with a target price of NT$3,000 and raised its 2027 and 2028 capital expenditure forecasts to US$84 billion and US$100 billion, citing C.C. Wei's remark that "we have no intention of giving away the benefits; we want to win all possible business." At the same earnings call, the company said five-reticle-size packaging has entered mass production with good yield, is advancing nine-reticle and fourteen-reticle solutions, and is using CoPoS panel-level packaging to address larger sizes and cost reduction needs. In the quarter, the high-performance computing (HPC) platform accounted for 68% of revenue, and advanced processes of 7nm and below accounted for 79% of wafer sales value. The price increase is both the realization of pricing power and an advance collection of the expansion bill. What truly determines the nature of this news is whether it ultimately lands on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's gross margin or on NVIDIA Corporation's and Apple Inc.'s cost sheetsand the answer must wait for long-term customer contract negotiations and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's official statement.