TSMC has started providing price discounts Analog IC companies with 8” BCD capacity at TSMC may benefit from lower wafer cost TSMC has been providing price discounts to analog IC companies since late July considering they are facing competition from TI According to our industry survey, since late July, TSMC (2330 TT, Buy) has started providing price discounts to analog IC design companies with 8” BCD (bipolar-CMOSDMOS) capacity. BCD technology delivers power IC designs of up to 100V operating voltage, enabling energy efficiency and high integration that combine analog circuits and digital content as well as power devices and embedded NVMs (non-volatile memories). TSMC’s decision was driven by its analog IC customers who had been facing more severe pricing competition from TI (TXN US, NR) since early this year, leading to TSMC’s plans to support them in order to maintain the competitiveness, given these customers have been mostly facing increased business pressure this year. The price discount is not necessarily in the form of a spot deal (customers get price discounts when they place significant wafer orders), but to directly lower the prices for customers. Some China analog IC companies with more products based on TSMC’s 8” BCD process may benefit We believe before July this year, the foundries in China such as SMIC (981 HK, Neutral) and Hua Hong (1347 HK, Neutral) might have started providing more price discounts to their customers, including analog ICs. As a result, tier-2 foundries in Taiwan such as UMC (2303 TT, Buy) and Vanguard (5347 TT, Neutral) have all provided spot deals to analog IC customers with 10-30% price discounts depending on customers’ order volume. TSMC originally had strong bargaining power over its customers, but considering the overall analog IC supply has been easing and its customers have been facing more competition from TI, TSMC started providing price discounts to customers since late July this year. Both SG Micro (300661 CH, Neutral) and Awinic (688798 CH, Buy) may have received 5- 10% lower prices directly from TSMC, on our estimate. However, we think not all analog IC companies have received price discounts from TSMC, if they are not using TSMC as their major foundry (Fig. 1 ). Currently, SG Micro, Awinic and Injoinic (688209 CH, NR) are the major China analog IC companies that use TSMC as their major foundry partner. Maintain Buy rating on Awinic, and await for better visibility on SG Micro as it has more product overlapping with TI We have been conservative about China’s analog IC sector since June 2022 (link ). After a year of weak demand and inventory adjustment, some niche analog IC companies with not much of a product portfolio overlap with TI (TXN US, Not rated) have been turning less conservative (since late-2Q23), including Awinic, which faced reduced pricing pressure in 2Q23 and has recorded shipments recovery (due to a low base) since 2H22. Considering both of Awinic’s foundries, TSMC and Hua Hong, have provided price discounts, we expect Awinic’s GPM in 3Q23F to recover from a low level in 2Q23 (please refer to our Awinic upgrade report “The first-in first-out play of analog IC sector” in July). SG Micro has more business overlap with TI than Awinic, and hence its business recovery pace may be slower than that of Awinic. Thus, we maintain our Neutral rating on the stock.