Taiwan Semiconductor Manufacturing Company (TSMC) is a titan in the semiconductor industry. Founded in 1987, TSMC has grown to become the world's largest dedicated independent semiconductor foundry. Its significance cannot be overstated, as it plays a critical role in the production of chips that power everything from smartphones to supercomputers.
Furthermore, it acts as a backbone for the global tech industry, providing essential components for major companies like Apple, NVIDIA, and Qualcomm. As such, understanding TSMC offers valuable insights for those considering investment opportunities. Given the recent AI boom, its shares are among the most appealing for investors.
Company Profile
History and Background of TSMC
TSMC was established by Morris Chang in Taiwan as the first dedicated semiconductor foundry. The company was born out of a need to develop Taiwan's semiconductor industry, with substantial government support. This strategic initiative laid the foundation for what would become a global leader in chip manufacturing.
Since its inception, TSMC has consistently pushed the boundaries of technology. It has evolved from producing simple chips to developing cutting-edge semiconductors that meet the demands of modern computing.
Key Executives and Leadership Team
Morris Chang led TSMC until 2018, after which Mark Liu took over as chairman and C.C. Wei became CEO. Under their leadership, TSMC has continued to innovate and expand its market presence. The management team is known for its strategic vision and commitment to research and development, ensuring TSMC remains at the forefront of technological advancements.
Market Positioning
TSMC's Position in the Semiconductor Market
TSMC dominates the semiconductor market, accounting for approximately 54% of the global foundry market share as of 2023. Its advanced manufacturing capabilities and strong relationships with key clients bolstered this leadership.
Comparison with Competitors
While Intel is often seen as TSMC's largest competitor in the microchip foundry market, TSMC significantly outpaces Intel in terms of revenue. For instance, TSMC reported $68 billion (SGD in revenue for fiscal year 2023 compared to Intel's $55 billion. Other competitors include GlobalFoundries and Samsung, but none match TSMC's scale or technological prowess.
| Company | Market Share | Revenue (2023) |
|---|---|---|
| TSMC | 54% | SGD 94.94 billion |
| Intel | 22% | SGD 74.30 billion |
| Samsung | 16% | SGD 69.86 billion |
Technological Advancements
TSMC's Cutting-Edge Technology and Innovation
Innovation is at the heart of TSMC's operations. The company is renowned for its advanced manufacturing processes, including 5-nanometer (nm) technology that enables higher performance while reducing power consumption. As of mid-2024, about 35% of TSMC's revenue came from these advanced nodes.
Overview of TSMC's Manufacturing Processes
TSMC employs an array of sophisticated manufacturing techniques to produce semiconductors. Its fabs (fabrication plants) are equipped with state-of-the-art machinery that allows for precision production at scale. This capability is crucial in meeting the increasing demand for high-performance chips across various sectors.
Recent Developments and Future Outlook
Looking ahead, TSMC is investing heavily in expanding its production capacity. The company plans to establish seven new plants in response to growing demand from sectors like artificial intelligence and high-performance computing. This proactive approach positions TSMC well for future growth.
Financial Performance Evolution (2019-2023)
Over the past five years, Taiwan Semiconductor Manufacturing Company (TSMC) has experienced significant fluctuations in its financial performance, driven by various market dynamics and technological advancements. Here’s a detailed look at how TSMC's financial metrics have evolved during this period.
Revenue Growth
- 2019: TSMC reported revenues of approximately NTD 1.07 trillion (SGD 43.87 billion), marking a modest growth of 3.73% from the previous year.
- 2020: The company saw a substantial increase in revenue, reaching NTD 1.34 trillion (SGD 54.94 billion) , which represented a growth rate of 25.17%. This surge was largely attributed to increased demand for smartphones and high-performance computing chips.
- 2021: Revenue continued to climb to NTD 1.59 trillion (SGD 65.19 billion), reflecting an 18.53% increase. The growth was fuelled by the ongoing digital transformation and heightened demand for semiconductors across various sectors.
- 2022: TSMC achieved record revenue of NT2.26 trillion (SGD 92.66 billion), up 42.61% year-over-year. This remarkable growth was driven by robust demand for advanced nodes, particularly in the automotive and data centre markets.
- 2023: However, TSMC faced a downturn with revenues decreasing to NTD2.16 trillion (SGD 88.56 billion), down 4.51%. Global economic challenges and a slowdown in consumer electronics demand influenced this decline.
Net Income Trends
| Year | Net Income (NTD / SGD | Year-over-Year Change (%) | Notes | |
|---|---|---|---|---|
| 2019 | NTD 345 billion ( SGD 14.15 billion | - | Baseline year for comparison | |
| 2020 | NTD 517 billion ( SGD 21.16 billion) | 49.8 | Significant growth from previous year | |
| 2021 | NTD 596 billion (SGD 24.4 billion) | 15.3 | Continued growth, though at a slower pace | |
| 2022 | NTD 1.02 trillion (SGD 41.82 billion) | 71.0 | Highest net income recorded | |
| 2023 | NTD 838 billion (SGD 34.40 billion) | -17.4 | Decline due to changing market conditions |
Earnings Per Share (EPS)
TSMC's earnings per share (EPS) have also shown significant variation:
| Year | EPS (NTD / SGD) | Notes |
|---|---|---|
| 2019 | 13.41 / 0.55 | Baseline EPS for comparison |
| 2020 | 19.97 / 0.82 | Strong profit margins during this period |
| 2021 | 22.93 / 0.94 | Continued increase in EPS |
| 2022 | 39.25 / 1.61 | EPS peaked due to record profits |
| 2023 | 32.47 / 1.33 | Decrease consistent with the decline in net income |
Key Insights
- Market Demand Fluctuations: TSMC's financial performance is closely tied to market demand for semiconductors. The rapid growth during 2020 and 2021 can be attributed to heightened demand driven by the pandemic-related digital shift, while the subsequent decline reflects broader economic challenges.
- Technological Leadership: TSMC's investments in advanced manufacturing technologies have positioned it as a leader in the semiconductor industry. Its ability to produce cutting-edge chips has attracted major clients, which has been crucial for its revenue growth.
- Diversification Strategy: The company's diverse customer base across various sectors helps mitigate risks associated with cyclical downturns in specific markets, although recent trends show that even diversified companies can face challenges during economic slowdowns.
- Future Outlook: Despite the recent downturn, TSMC remains optimistic about its future prospects due to ongoing investments in new technologies and expansion plans aimed at meeting future demand from sectors like artificial intelligence and automotive applications.
Financial Performance for 2024
Revenue and Profit Analysis
In Q3 2024, TSMC reported a remarkable 39% increase in revenue year-over-year, amounting to NT$759.69 billion (approximately SGD 31.12 billion). This surge reflects strong demand for its advanced chip technologies.
Furthermore, net income increased by 54.2%, showcasing TSMC's ability to navigate challenging market conditions effectively.
Investment Potential and Stock Performance
TSMC trades on both the Taiwan Stock Exchange and the New York Stock Exchange (NYSE). As of October 2024, its market capitalisation stood at approximately $791 billion ( SGD 1.083 trillion.) Analysts have rated TSMC stock positively, with an average rating leaning towards "Strong Buy." This sentiment reflects confidence in TSMC's long-term growth potential amidst evolving market dynamics.
Analysis of Key Financial Metrics
Key financial metrics indicate a stable investment opportunity:
Assuming an exchange rate of 1 USD = 1.37 SGD. This analysis comments on revenue growth, profitability, and liquidity.
Income Statement Highlights
| Metric | Q3 2024 (USD) | Q2 2024 (USD) | Q3 2023 (USD) | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Revenue | $23,504M | $20,758M | $16,944M | +12.8% | +39.0% |
| Gross Profit | $13,593M | $11,040M | $9,160M | +22.7% | +48.1% |
| Operating Expenses | $2,447M | $2,171M | $2,126M | +12.7% | +15.1% |
| Income from Operations | $11,162M | $8,869M | $7,034M | +25.9% | +58.6% |
| Net Income | $10,058M | $7,638M | $6,470M | +31.6% | +55.4% |
| Earnings per Share (Diluted) | $0.39 | $0.30 | $0.25 | +30.0% | +56.0% |
Analysis:
- Revenue Growth: TSMC demonstrated strong revenue growth, with a 39% YoY increase and a 12.8% QoQ increase, showing sustained demand and operational efficiency.
- Profit Margins: Gross profit and income from operations both outpaced revenue growth, suggesting effective cost management and a favourable sales mix.
- Earnings per Share (EPS): EPS showed solid improvement YoY and QoQ, enhancing shareholder returns.
Balance Sheet Highlights
| Metric | Sep 2024 (USD) | Jun 2024 (USD) | Sep 2023 (USD) | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Total Assets | $194,881M | $189,479M | $173,682M | +2.9% | +12.2% |
| Total Liabilities | $67,758M | $68,301M | $66,182M | -0.8% | +2.4% |
| Total Equity | $127,123M | $121,178M | $107,500M | +4.9% | +18.3% |
Analysis:
- Asset Growth: TSMC’s total assets rose by 12.2% YoY, driven by increased cash flow and investments in property, plant, and equipment.
- Stable Liabilities: With only a slight QoQ decrease, liabilities remained steady, supporting a strong balance sheet.
- Equity Growth: Strong earnings retention and moderate debt reflect TSMC’s solid financial health, which bolsters its resilience and long-term growth outlook.
Cash Flow Highlights
| Metric | 9M Ended Sep 2024 (USD) | 9M Ended Sep 2024 (SGD) | 9M Ended Sep 2023 (USD) | YoY Change |
|---|---|---|---|---|
| Net Cash Provided by Operating Activities | $37,622M | S$51,516M | $29,834M | +26.1% |
| Net Cash Used in Investing Activities | -$17,249M | -S$23,618M | -$14,122M | +22.1% |
| Net Cash Used in Financing Activities | -$7,661M | -S$10,501M | -$5,038M | +52.1% |
| Cash and Cash Equivalents (End of Period) | $58,861M | S$80,646M | $45,716M | +28.7% |
Analysis:
- Strong Operating Cash Flow: A 26.1% YoY increase highlights TSMC’s enhanced cash-generating ability, providing funds for growth and innovation.
- Investment in Assets: Increased cash utilised in investing indicates substantial reinvestment in production capabilities, vital for future technology advancements.
- Liquidity: The increase in cash and equivalents underscores TSMC’s robust liquidity, providing a buffer against market volatility and enabling strategic capital allocation.
These tables and analyses provide a comprehensive view of TSMC's financial performance, highlighting revenue growth, operational efficiency, asset strength, and effective capital management, reinforcing its competitive position in the semiconductor industry.
TSMC's 2024 stock performance
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Image Credits: Yahoo Finance
Key Observations:
Overall Trend: Strong upward momentum from January to October 2024, with the stock rising from approximately USD 100 (SGD 137) to a peak near USD 205 (SGD 280.85), representing roughly a 105% gain.
Notable Periods:
- Q1 (Jan-Mar): Steady climb from USD 100 (SGD 137) to around USD 140 (SGD 191.09).
- Q2 (Apr-Jun): Continued momentum reaching the USD 180-185 (SGD 246.60-253.45) range.
- Q3 (Jul-Sep): Some volatility but maintained USD 160-180 (SGD 219.20-246.60) range.
- Oct-Nov: Reached new highs above USD 200 (SGD 274.90) before a recent pullback to USD 191.50 (SGD 262.17).
Volume Analysis:
- Notable high-volume spikes in January, March, and October.
- Recent significant volume increase in late October/early November coinciding with price volatility.
- Base volume appears to be around 10 million shares daily.
Technical Levels:
- Strong support established around USD 150-160 (SGD 205.50-219.20) range.
- Key resistance turned support at USD 180 (SGD 246.60).
- Currently trading (6th Nov 2024) at $191.50 (SGD 262.17) with recent rejection from $210 (SGD 287.70) level.
Volatility:
Largest pullback occurred in July-August period (approximately 15-20% correction) Recent volatility in October-November showing increased price swings.
The stock's performance reflects a strong investor confidence in TSMC's market position in semiconductor manufacturing and growing demand for advanced chips. The robust uptrend suggests positive market sentiment regarding TSMC's business fundamentals and industry outlook.
Risks and Challenges Facing TSMC’s Growth
U.S. Regulatory Scrutiny: TSMC is currently under investigation by the U.S. Commerce Department over alleged chip sales to Huawei, a sanctioned Chinese firm. If proven, this could impact TSMC’s U.S. market access, a critical revenue stream, and lead to tighter export restrictions affecting future business.
Geopolitical Risks: As a Taiwan-based company, TSMC operates under the shadow of cross-strait tensions with China, which could threaten its operations and supply chain stability despite efforts to diversify manufacturing globally.
Dependence on Advanced Technology Nodes: TSMC’s growth relies heavily on high demand for its advanced 3nm and 5nm technology nodes. If market demand shifts, TSMC may face challenges in balancing capacity with profitability, making it vulnerable to market fluctuations and competition.
These factors underscore the complexity of investing in a global semiconductor leader amidst regulatory, geopolitical, and market-related uncertainties.
Conclusion
“The demand (for semiconductors) is real, and I believe it's just the beginning of this demand… one of my key customers say, the demand right now is insane…It’s just the beginning…and will continue for many years” — C.C. Wei, TSMC Chairman and CEO
Recap of TSMC's Significance in the Semiconductor Industry
Taiwan Semiconductor Manufacturing Company stands as a pillar in the semiconductor industry. Its innovative technologies and robust financial performance make it an attractive option for investors seeking stability and growth potential.
Investment Outlook and Potential Growth Opportunities
With ongoing investments in capacity expansion and a strong focus on cutting-edge technologies like AI chips, TSMC is well-positioned to capitalise on future market opportunities.
Final Thoughts on TSMC's Future Prospects
For Singaporean retirees and professionals looking to diversify their investment portfolios, TSMC presents a compelling case study. Its leadership position in an essential industry combined with sustainable practices makes it not just an investment opportunity but also a chance to be part of an innovative future.
Remember: Always do your own research and consult with financial professionals before investing.
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