Chipmaker Intel begins informing customers of price hike plans for a wide range of products

Intel has informed its customers that it will raise prices for most of its microprocessor and peripheral chip products later this year, citing rising costs. The largest U.S. chipmaker plans to raise prices this fall on flagship products such as servers and computer CPUs, which dominate the market, as well as on a variety of other products, including Wi-Fi and other connectivity chips, as per three industry executives with direct knowledge of the situation.

Intel said the price hike was necessary due to higher production and material costs, executives said. The increase has not been finalized and may vary by chip type, but could grow from the low single digits to more than 10% and 20% in some cases, one of them said.

Intel's move comes at a time when U.S. and global inflation is soaring. The U.S. reported that consumer prices rose 9.1% in June to a 40-year high. But while rising costs of raw materials, transportation and labor have weighed on the chip industry, inflation has also troubled the outlook for consumer spending, making pricing decisions particularly difficult.

Earlier this year, demand for smartphones, PCs, TVs and game consoles weakened, and equipment makers warned that inventories of unsold items were rising. Samsung Electronics has ordered suppliers of some of its products to stop shipping. Many of Intel's top PC customers, such as Acer and Asus computers, have publicly warned of the economic downturn. Acer Chairman Jason Chen told reporters that his company was no longer plagued by chip shortages. "The CEOs of some chip suppliers even called me recently to buy more chips from them," he said. "The situation has changed."

Intel warned of slowing demand at its last earnings call in April and reiterated its dull macroeconomic outlook in subsequent events. On the same earnings call, Intel executives hinted at impending price hikes. Chief executive Pat Gelsinger said the company would "repackage products at higher prices". CFO Dave Zimmer said they were looking for "target price increases in specific segments."

In a statement to Nikkei Asia last Thursday, the company said: "On its Q1 earnings call, Intel indicated it would increase pricing in certain segments of its business due to inflationary pressures. The company has begun to inform customers of these changes."

Intel's Asian rival Taiwan Semiconductor Manufacturing Co. - the world's largest contract chip maker - has told customers it will raise prices by "single-digit" percentages from 2023. It was less than a year away from its biggest price hike in a decade. Smaller chip maker China's SMIC also told investors that it would raise prices to reflect rising material costs, otherwise the increased production costs would eat into its 10% gross margin.

Chip material suppliers such as Shin-Etsu Chemical, Sumco and Showa Denko have all told customers they will raise prices by at least 20 percent. Doris Hsu, CEO of GlobalWafers, the world's third-largest producer of wafer materials, also recently confirmed that the company is raising prices for chip-making customers.