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$TSM: Fueling the Future of Computing
Taiwan Semiconductor Mfg. Co. (TSMC) has become the leading manufacturer (fab) of semiconductor chips by capitalizing on a series of egregious missteps at $INTC
This is *not* a buy rec, but rather info for when it's actionable
A thread
Taiwan Semiconductor Mfg. Co. (TSMC) has become the leading manufacturer (fab) of semiconductor chips by capitalizing on a series of egregious missteps at $INTC
This is *not* a buy rec, but rather info for when it's actionable
A thread
1/ The Basics
The first "pure-play" foundry -> enabled the rise of the "fabless" (i.e. design-only) industry
A foundry ("Fab") manufactures microchips (integrated circuits "IC") for customers such as fabless chip companies.
Fab only = sole focus on better process technologies
The first "pure-play" foundry -> enabled the rise of the "fabless" (i.e. design-only) industry
A foundry ("Fab") manufactures microchips (integrated circuits "IC") for customers such as fabless chip companies.
Fab only = sole focus on better process technologies
2/ First Mover
The leader in chip mfg. is the fab that can get to the next “process node” first
Process Node (“Tech”): Used to indicate feature size of transistor - > now marketing tool for chip generation
As @GavinSBaker wrote in Jan '19, TSMC passed INTC at the 7nm node
The leader in chip mfg. is the fab that can get to the next “process node” first
Process Node (“Tech”): Used to indicate feature size of transistor - > now marketing tool for chip generation
As @GavinSBaker wrote in Jan '19, TSMC passed INTC at the 7nm node
3/ Market Overview
All electronics = powered by semis
3 Types of Companies:
1. Integrated Device Mfgs. (“IDM”): $INTC, KOSE: A005930, $TXN, $MU
2. Fabless: $NVDA, $AMD, $QCOM, $AVGO
3. Fabs: $TSM, $UMC, $SMICY, GF
Market Size: Semis power all electronics…
All electronics = powered by semis
3 Types of Companies:
1. Integrated Device Mfgs. (“IDM”): $INTC, KOSE: A005930, $TXN, $MU
2. Fabless: $NVDA, $AMD, $QCOM, $AVGO
3. Fabs: $TSM, $UMC, $SMICY, GF
Market Size: Semis power all electronics…
4/ Technology Advantage
Tech dominance while other foundries can’t keep up (GF dropped out at 7nm)
Tech advantage -> customer additions ($AMD from GF)
1) 5nm already in production
2) Specialty tech (5G)
3) Advanced Packaging
TSM: 52% market share
Manu leader + Ecosystem
Tech dominance while other foundries can’t keep up (GF dropped out at 7nm)
Tech advantage -> customer additions ($AMD from GF)
1) 5nm already in production
2) Specialty tech (5G)
3) Advanced Packaging
TSM: 52% market share
Manu leader + Ecosystem
5/ Technology Platforms
Automotive Electronics: IP ecosystem & RF tech driven by autonomous & EV
High Performance Computing: Cloud datacenters and communication infrastructures
IoT: Fueled by wearables, smart homes / cities / industries
Smartphone: Mobile proliferation
Automotive Electronics: IP ecosystem & RF tech driven by autonomous & EV
High Performance Computing: Cloud datacenters and communication infrastructures
IoT: Fueled by wearables, smart homes / cities / industries
Smartphone: Mobile proliferation
6/ Q4 2020 Financial Results
Accelerating Rev growth YoY: 16%, 22%, 24.2%
Expanding EBIT %: 35%, 37.7%, 40%, 41.3%
2x FCF YoY
Accelerating EPS Growth YoY: 24.2%, 43.5%, 49.2%
ROA: 10.7%, 12.1%, 13.1%, 14%
ROE: 20.9%, 23.4%, 27.8%, 29.1%
Accelerating Rev growth YoY: 16%, 22%, 24.2%
Expanding EBIT %: 35%, 37.7%, 40%, 41.3%
2x FCF YoY
Accelerating EPS Growth YoY: 24.2%, 43.5%, 49.2%
ROA: 10.7%, 12.1%, 13.1%, 14%
ROE: 20.9%, 23.4%, 27.8%, 29.1%
7/ Capital Expenditures
2021 Guidance: $25B-$28B vs. $17B in 2020 (47% - 65% YoY Increase)
LT Capital Intensity: mid-30%
Accelerates CapEx spend to prep for higher growth
2021 Capital Intensity est.: ~48.5%
On conf. call: to support expected higher Revenue CAGR next 5 years
2021 Guidance: $25B-$28B vs. $17B in 2020 (47% - 65% YoY Increase)
LT Capital Intensity: mid-30%
Accelerates CapEx spend to prep for higher growth
2021 Capital Intensity est.: ~48.5%
On conf. call: to support expected higher Revenue CAGR next 5 years
8/ Revenue Composition
5nm shipments accelerated in Q4 – now 20% of Rev
Advanced Tech (< 16nm tech) = 62% vs. 56% Q4 2019
Smartphone continues to dominate
Main HPB growth areas: CPU, networking & AI accelerator
- Could CPU growth be from $INTC?
HPC - main growth driver
5nm shipments accelerated in Q4 – now 20% of Rev
Advanced Tech (< 16nm tech) = 62% vs. 56% Q4 2019
Smartphone continues to dominate
Main HPB growth areas: CPU, networking & AI accelerator
- Could CPU growth be from $INTC?
HPC - main growth driver
9/ Next Step: N3
2021 Rev Driver = HPC & Auto
HPC: “We see a stronger innovation is coming our way on N3 as well as on N5.”
N3: Volume production 2H 2022
N3: 70% logic density gain, up to 15% performance gain & up to 30% power reduction vs. N5 (175MM transistors / mm^2)
2021 Rev Driver = HPC & Auto
HPC: “We see a stronger innovation is coming our way on N3 as well as on N5.”
N3: Volume production 2H 2022
N3: 70% logic density gain, up to 15% performance gain & up to 30% power reduction vs. N5 (175MM transistors / mm^2)
10/ Future R&D Leadership
3nm logic tech platform & apps (2021): 6th gen 3D platform
Beyond 3nm by 2023 – 2nm in pipeline
Projects: Beyond-2nm node, 3D transistors, new memory, etc.
Focus: novel materials, processes, devices, nanowires & memories (+8-10 yrs away)
3nm logic tech platform & apps (2021): 6th gen 3D platform
Beyond 3nm by 2023 – 2nm in pipeline
Projects: Beyond-2nm node, 3D transistors, new memory, etc.
Focus: novel materials, processes, devices, nanowires & memories (+8-10 yrs away)
11/ Conclusion
$TSM is fueling the world of ubiquitous computing and interconnected devices
Has overtaken $INTC in mfg. leadership -> economic benefits
Positioned to benefit and capitalize on hyper-growth trends: AI / autonomous driving, 5G, IoT
$TSM is fueling the world of ubiquitous computing and interconnected devices
Has overtaken $INTC in mfg. leadership -> economic benefits
Positioned to benefit and capitalize on hyper-growth trends: AI / autonomous driving, 5G, IoT
12/ Resources
@GavinSBaker on INTC: https://gavin-baker.medium.com/investing-mistakes-chapter-1001-9f0b7dbc6637
Anything written by @FoolAllTheTime
$TSM R&D: https://www.tsmc.com/english/dedicatedFoundry/technology/future_rd
$TSM Q4 2020 Earnings: https://investor.tsmc.com/english/quarterly-results/2020/q4
@GavinSBaker on INTC: https://gavin-baker.medium.com/investing-mistakes-chapter-1001-9f0b7dbc6637
Anything written by @FoolAllTheTime
$TSM R&D: https://www.tsmc.com/english/dedicatedFoundry/technology/future_rd
$TSM Q4 2020 Earnings: https://investor.tsmc.com/english/quarterly-results/2020/q4
13/ Bonus Feature
@SahilBloom posted an amazing thread (as always) on TSMC's founder, Morris Chang. It is a great supplement to this thread! https://twitter.com/SahilBloom/status/1353369463190560773?s=20
@SahilBloom posted an amazing thread (as always) on TSMC's founder, Morris Chang. It is a great supplement to this thread! https://twitter.com/SahilBloom/status/1353369463190560773?s=20
