Semiconductor Manufacturing International Corporation (SMIC) has informed customers it has reduced foundry prices 5-10%, according to sources at SMIC’s customers. The foundry has also increased its proportion of DRAM production, according to the sources and memory channel distributors.

SMIC, however, denied the speculation, stating that its utilization rate this quarter should not drop below last quarter’s 85%. Sources at the foundry also added that the utilization rate at both its Shanghai and Beijing plant were at full capacity in the third quarter. The foundry stated that WLAN and consumer electronics related chips are currently seeing strong demand.

Customers of SMIC, on the other hand, hinted that they have received notification from SMIC about a price reduction for this quarter. Some sources stated that SMIC produced excess amounts (up to 30%) of LCD driver ICs and commodity DRAM in the third quarter to boost its utilization rates. So, despite LCD driver IC demand remaining strong this quarter, the utilization rate at the foundry may drop due to the inventory buildup, a Commercial Times report quoted sources as saying. SMIC is offering the price adjustment to keep wafer starts stable.

In addition, according to sources at memory trading houses in Taiwan and Hong Kong, SMIC has also started to aggressively sell DRAM.

Even if SMIC is cutting its prices, industry observers commented that this should not place much pressure on Taiwan-based foundries as SMIC focuses on mature 0.25- and 0.18-micron production. Sources at both Hong Kong and Taiwan’s LCD driver IC design houses also stated that SMIC’s potential price adjustment should not impact their relationship with other foundries, as design houses value their long-term relationships with foundries and would not request a price cut before cautiously examining the market trends.

Both Taiwan Semiconductor Manufacturing Company and United Microelectronics Corporation (UMC) should still be able to maintain average selling price (ASP) growth of 3% and 6%, respectively, in the fourth quarter, the Commercial Times reported