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Taiwan Semiconductor Manufacturing Co. (TSMC) was founded in 1987 and is headquartered at Taiwan’s Hsinchu Science Park. It is listed on the Taiwan Stock Exchange (TWSE:2330) and its shares can be traded on New York Stock Exchange through the ADR route. TSMC pioneered the pure-play foundry business model with a focus on manufacturing customers’ products.
The company produced 12,302 different products using 291 distinct technologies for 535 customers (including Apple and Qualcomm) in 2021. The yearly capacity of the factories run by TSMC and its subsidiaries was greater than 13 million 12-inch equivalent wafers. These facilities include four 12-inch GIGAFAB® fabs, four 8-inch fabs, one 6-inch fab, one 12-inch fab of a wholly owned subsidiary, TSMC Nanjing Company Limited, and two 8-inch fabs of wholly owned subsidiaries, WaferTech in the US and TSMC China Company Ltd.
TSMC earnings figures
The world’s largest semiconductor maker reported a profit surge of over 76% for Q2 ended June 30, 2022. The chipmaker reported a roughly 50% rise in revenue year-on-year compared to the same period last year, but also warned of “excessive inventory”. The buffer was created against the massive uncertainty during the Covid-19 pandemic amid global chip shortage. “Our expectation is for the excessive inventory in the semiconductor supply chain to take a few quarters to rebalance to a healthier level. We foresee a few quarters of inventory adjustment into the first half of 2023,” CC Wei, CEO of TSMC, told investors on an earnings call.
The company’s net profit for Q2 increased from the previous year to NT$237.03 bn ($8.05 bn) while revenue increased 43.5% to NT$534.14 bn ($16.99 bn). Its gross margin reached a record high of 59% due to higher product pricing and a favourable exchange rate. The Taiwanese company has projected third-quarter revenue of $19.8 to $20.6 bn, up 35.7% from the same period last year. It raised its full-year growth forecast from a little under 30% to nearly 35%.
The company also stated that its ultra-modern 3-nanometer chip fabrication technology will begin production at Hsinchu “soon”. The three new plants in Kaohsiung (China), Japan and the US would start producing the new 3-nm chips in 2024. “TSMC expects its advanced technology capacity to expand at a compound annual growth rate of 70% from 2018 to this year, thanks to robust demand for chips used in smartphones and high-performance computing devices such as servers,” said YL Wang, Vice President at TSMC, at the firm’s annual technology symposium in Hsinchu.
“The capital investment for speciality technologies would grow about 4.5-fold compared with the average outlay over the past three years. This would boost the capacity contribution from speciality technologies to about 63% of total wafer capacity this year, compared with 45% in 2018,” Wang added.
TSMC stock movement
TSMC surprised the world in August last year when it decided to raise its manufacturing prices by 10% to 20% starting in 2022 to improve its future growth prospects. The Relative Strength (RS) Rating for TSMC stock climbed to 71 (1 being the worst and 99 the best) in December 2021.
The US-listed shares of the company have fallen nearly 34% in the past year, largely due to macro headwinds, weak global demand and China’s threat of an attack on Taiwan. TSMC has a market capitalization of $391 bn and a PE Ratio of 16.77. The forward PE Ratio of the company’s stock is estimated at 14.27. Meanwhile, TSMC has a price-to-book ratio of 4.90.
Challenges for TSMC
Taiwan’s chip production has long been a source of dependence for China as semiconductor chips are required to produce everything from smartphones to autonomous vehicles. Although China is keen on building its domestic capacity for semiconductors, Taiwan continues to supply the majority of the nation’s more basic semiconductors as well as practically all of its highest-tech processors.
The geopolitical tensions between Taiwan and China are pushing major countries like the US, EU and India to shift their semiconductor supply chains closer to home. “We want to unleash the innovation for the world into the future continuously and not to be scared because we have some disputes with our neighbours,” noted Mark Liu, Chairman of TSMC in an interview with CNN, “China accounts for about 10% of TSMC’s business and if they [China] need us, it is not a bad thing.”
The semiconductor industry is also facing the brunt of supply chain disruptions due to high uncertainties in the market from the pandemic and the Russia-Ukraine war. Leading chip tool manufacturers, such as Applied Materials, KLA, Lam Research, and ASML alerted customers that they may have to wait up to 18 months for some essential machines and components. There are shortages of everything from microcontrollers, engineering plastics, and electronic modules to lenses, valves, and pumps. “Our suppliers have been facing greater challenges in supply chains, which are extending tool delivery times for both our advanced and mature nodes,” Wei added at the tech forum at Hsinchu which in turn is pushing back the company’s plans to expand its capacity.
The road ahead for TSMC
“TSMC has entered a period of structural high growth,” Liu told shareholders in June 2022. In the long run, TSMC will continue to play a crucial role in global commerce as a major chip supplier to various industries.
To maintain and strengthen TSMC’s leadership, the company is investing heavily in R&D and capacity expansion and has earmarked between $40 bn to $44 bn in 2022 and more than $40 bn for 2023. The company is also focusing on new speciality technologies such as radio frequency identification (RFID) and 3D intelligent sensors targeting 5G and smart IoT applications.
