(Yicai Global) April 4 -- Shares of Vanchip Tianjin Technology fell after the major Chinese supplier of smartphone chips said it will terminate a pandemic-era agreement to buy integrated circuit wafers from United Microelectronics so as to control costs.

Vanchip [SHA: 688153] ended 5.3 percent lower at CNY58.05 (USD8.43) today, paring its gain so far this year to 58 percent.

Lower demand for electronic devices has made the purchase price agreed with UMC unprofitable since the second half of last year, Tianjin-based Vanchip said yesterday. It will pay a USD4 million termination fee to UMC, it added.

The pair signed a supply guarantee agreement for IC wafers in 2021 because of the general shortage of production capacity at major fabs at the time. The deal set the price and monthly order volume of eight-inch wafers between last year and 2024.

The deal’s end will give Vanchip greater control over wafer costs and more flexibility in selecting suppliers to address the price pressures faced by clients in the consumer electronics sector, it added, noting that the termination fee will trim net profit by USD1.3 million last year and USD2.7 million this year.

Vanchip’s operating income fell 35 percent to CNY2.3 billion (USD334 million) in 2022 because of sluggish demand in the electronic devices market, the firm said in a preliminary earnings report released in February. Net profit excluding non-recurring losses rose 51 percent to CNY22.2 million (USD3.2 million) thanks to an optimized product structure that widened the gross margin.

Editor: Futura Costaglione