Long-term supply agreements are nothing new in the semiconductor industry. Both major chip designers and contract chip manufacturers naturally favor stable supply and demand. Where supply is severely tight, chip developers may be willing to pay upfront, something foundries want.

Taiwan Semiconductor Manufacturing (TSMC), the world’s largest foundry, announced that as of September 30, 2021, it received provisional payments of approximately $3.8 billion from customers. These payments made by the company were made to maintain the capacity.

To better understand the numbers, TSMC generated approximately $14.9 billion in revenue in the third quarter of 2021. So 3.8 billion dollars is a pretty big amount for the company. These advance payments are made within the framework of agreements with certain terms and conditions. As a result, TSMC does not consider these payments as immediate income, and customers do not see the guaranteed chips as inventory.

TSMC did not disclose its customers who want to pay upfront, but large companies such as AMD and NVIDIA were mentioned. As of August 1, 2021, NVIDIA’s prepaid expenses increased from $142 million on January 31, 2021 to $195 million. NVIDIA does not disclose whether it is making an advance payment to TSMC or Samsung Foundry.

AMD, on the other hand, made significant upfront payments in long-term supply agreements. As of September 25, 2021, their prepayments increased from $299 million to $355 million in one year. Additionally, let’s add that AMD has supply agreements with TSMC and GlobalFoundries.

Qualcomm doesn’t reveal how much upfront it paid for the chips. However, the company recently confirmed that it will make additional deals with certain suppliers in order to secure the future procurement process.

The semiconductor industry is currently in a quandary and chip designers have started making upfront payments to get enough capacities. Likewise, semiconductor manufacturers have become ready to pay upfront for equipment.

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Michael Lewis


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