HSINCHU, Taiwan (Reuters) - Top contract chip maker Taiwan Semiconductor Manufacturing Co Ltd said on Tuesday it may raise prices for its higher-end chips as rising costs threaten to squeeze profits.
Semiconductor makers face higher costs to build state-of-the-art chip plants for most cutting-edge chips, and are also feeling the pain of rising inflation.
As the industry's leading and oldest player, with more than three times the sales of closest rival, United Microelectronics Corp, TSMC has stressed in recent years that its products should command a premium over its peers.
"Average selling prices have been falling and profits have been under pressure, and we have to work together to create value," Jason Chen, a company vice president in charge of global sales and marketing, told a TSMC technology symposium.
He said price changes would be mostly for chips made by advanced process technology, but would not say how big they would be or when they would occur.
He did not say when TSMC last raised prices.
"We face some structural profit pressure. In the short term, we also face pressure from inflation and oil prices," Chen said.
Consumer prices in Taiwan, where TSMC is based, rose 3.86 percent in April, with core inflation up 3.1 percent -- a nine year high.
BNP Paribas analyst Eric Chen said TSMC's customers could accept higher prices if TSMC provided better services and higher-performance chips.
"The semiconductor industry is still vibrant, and 2008 will be better than last year," TSMC's Chen said, betting on growing emerging market demand for PCs and mobile phones.
TSMC, Samsung Electronics Co Ltd and Intel Corp have said they would jointly develop next-generation bigger silicon wafers to boost efficiency in chip manufacturing.
Analysts say a factory designed to make chips on 18-inch wafers could cost $10 billion or more to build, nearly triple the price of a current 12-inch wafer factory.
TSMC said last month its profit grew by half in the first quarter, but it forecast sales would be flat to slightly higher in the second quarter from the first.
TSMC had a gross margin of 43.7 percent in the first quarter, but predicted second quarter gross margins would be relatively flat at 43-45 percent.
TSMC's Taipei-listed shares rose 0.46 percent on Tuesday, while UMC shares were up 0.54 percent. The main TAIEX market rose 0.81 percent.
Year-to-date, TSMC shares are up 5.5 percent, outperforming the TAIEX's 2.7 percent gain.
(Writing by Doug Young and Baker Li, Editing by Ken Wills & Ian Geoghegan)