Although Taiwanese IC design companies remain optimistic that in 2021, driven by rising wafer foundry and packaging/testing costs, there will still be opportunities for terminal chip market prices to rise further, it cannot be denied that the gross profit margins of Taiwanese IC design companies often reached 50% in the second quarter. Moreover, since the second half of 2020, their quarterly gross profit margins have mostly improved by 5 to 10 percentage points, which has made downstream Taiwanese foundries with relatively low gross profit margins and system manufacturers with average gross profit margins still hovering in the double digits feel somewhat envious.

 System manufacturers believe that if chip makers, having already achieved a gross profit margin exceeding 50%, continue to raise prices arbitrarily without ensuring sufficient supply, then the scenario where system manufacturers seek alternative chip foundry sources and retaliate in the future will be hard to avoid. This has left Taiwanese IC design companies in a situation in the third quarter where they want to raise chip prices but lack the ability to do so. Major Taiwanese chip companies, including MediaTek, Novatek, and PixArt, when assessing their gross profit margin performance for the third quarter, mostly anticipate it to remain close to that of the second quarter, showing a notably more conservative outlook compared to the first half of the year.

 Taiwanese LCD driver IC (DDI) suppliers pointed out that given the capacity allocation plans of upstream Taiwanese wafer foundries and the persistent high demand in the downstream panel market, the pressure of insufficient supply of DDI and TDDI is likely to remain unresolved until at least mid-2022. In particular, with TSMC and UMC seemingly set to raise wafer foundry prices again recently, the prices of DDI and TDDI chips are expected to be more likely to rise than fall in the third quarter.

 However, it cannot be denied that downstream panel and module manufacturers, witnessing that terminal panel prices have shifted from rising to falling and that the gradual decline is difficult to curb in the short term, are inwardly resistant to any further price hikes for DDI and TDDI quotes, making chip price increases less smooth than in the first half of 2021. In the first half of the year, customers' purchasing strategies were primarily focused on volume rather than price, but now they seek both volume and favorable pricing. This shift in approach indeed creates new contradictions regarding terminal chip pricing. Nevertheless, most Taiwanese DDI suppliers still believe that prices must rise in the third quarter to reflect the pressure of rising costs.

 IC distributors stated that it is true that the quoted prices of various chips have been on the rise since the third quarter of 2020, with the listed prices of DDI, MCU, MOSFET, and niche memory surging all the way. Otherwise, it would be hard to explain the abnormal phenomenon where Taiwanese DDI suppliers such as Novatek, Himax, Fitipower, FocalTech, Sitronix, and Raydium could achieve a quarterly gross profit margin increase of 10 percentage points.

 The gross profit margins of Taiwanese MOSFET chip suppliers such as Alpha & Omega Semiconductor, Jet Power Technologies, FuDing Electronics, and NexPower in the second quarter nearly doubled compared to the same period in 2020. This demonstrates that after chip prices rose, Taiwanese IC design companies leveraged their previous competitive advantages of low costs and high inventory to deliver impressive results in one go, and were effectively able to pass on increased costs. Therefore, most Taiwanese suppliers remain optimistic about their gross profit margin performance in the coming period.

 However, while ideals are beautiful, reality is often more stark. Some downstream customers began to employ moral persuasion tactics, shouting slogans like "leave a way out for others, and you'll meet again in the future." Coupled with the release of second-quarter financial reports, it became evident that upstream chip suppliers were earning significantly more than their downstream customers. Even their average gross profit margins surpassed those of TSMC, UMC, Powerchip, and VisEra, and this competitive advantage of better gross profit margins turned out to be the biggest obstacle for Taiwanese IC design companies in their bargaining processes with upstream foundries, backend packaging and testing subcontractors, as well as downstream customers.

 The reason is simple: while others can only earn meager wages from their jobs, Taiwanese chip suppliers are still talking about continuing to raise prices. The backlash from customers and upstream and downstream partners will create new obstacles for Taiwanese IC design companies in their pursuit of higher gross profit margins in the second half of 2021, which will require time and skill to overcome one by one.