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TSMC and other pure-play foundries will be under pressure to renegotiate quotes and orders for 2023 with their automotive customers, according to industy sources. The renegotiation talks are poised to take place starting the fourth quarter.

Utilization rates for mature process nodes at those foundries have slid substantially, due to a rapid slowdown in demand for PCs and other consumer technology devices, the sources said. Automotive IC IDMs have also experienced fab utilization rate drops, and may scale down their outsourcing, the sources indicated.

Automotive OEMs and tier-one suppliers are seeking to have foundry quotes return to pre-pandemic levels in 2023, as they have seen stress on short supply chains start being relieved, the sources noted. Many automotive IC categories are no longer in tight supply, with some chip inventories even approaching pre-pandemic levels, the sources said.

The car vendors intend to initiate their price renegotiation talks for next year with pure-play foundries first, the sources indicated. The overall automotive IC shortage has been improving, and is expected to ease substantially by the first half of 2023, the sources indicated. Such development will put pure-play foundries at a disadvantage in the price renegotiations.

Automotive OEMs and tier-one suppliers also consider negotiating lower prices for critical ICs offered by IDMs, the sources said. IDMs have kept their prices flat for those chips for the fourth quarter of 2022.

In addition, pure-play foundries will be in talks with automotive IDMs about adjustments in their near-term order commitments, the sources said, adding vendors including Infineon and STMicroelectronics outsource about 20% of production to their contract partners.

Foundry quotes for automotive ICs have soared over the last couple of years, as demand drastically outpaces supply, according to the sources. But inflationary pressure and other macro headwinds have cast a shadow on the demand outlook next year, prompting car vendors to re-examine risks and costs.

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