Taiwan Semiconductor Manufacturing Company (TSMC) is considering dropping contract prices for its handset-IC clients to help ease the pressure of their declining ASPs and gross margins, according to industry sources.

TSMC will likely lower prices including those for 16nm and 20nm process technologies for its handset-chip customers including MediaTek and other firms supplying chips mainly for Android devices, said the sources.

Intense competition among handset-IC suppliers has led to falling chip prices and affected negatively the suppliers' profitability. Major handset-IC vendors including Qualcomm, MediaTek and Spreadtrum have all suffered gross margin decreases.

MediaTek said at its most-recent investors meeting that the company would see its gross margin fall further in the second quarter of 2016 despite higher shipments and revenues. MediaTek also cut its gross margin outlook for the year of 2016 to 35-38%.