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INTRO
Founded back in 1987 by Morris Chang, Taiwan Semiconductor Manufacturing Company Limited (TSMC) has grown to become the world's largest semiconductor manufacturer today. TSMC is headquartered in Hsinchu, Taiwan.
Lately, the company has come into the limelight due to the global chip shortage brought about by the increased demand for electronics during the Covid-19 pandemic, coupled with trade pressures with China
CHIP GIANT
TSMC is the world’s largest foundry, with clients including, but not limited to Qualcomm, Nvidia and Apple. Some of the company’s subsidiaries include WaferTech LLC, Systems on Silicon Manufacturing TSMC Global Ltd., VisEra Holding Company, and TSMC China Company Limited.
As of the end of 2019, TSMC and its subsidiaries employed over 51,000 individuals spread across North America, Japan, China, Europe, and South Korea
TSMC currently has a 54% market share in the semiconductor contract manufacturing
“So TSMC, if you just have a look at market share, I believe manufactures around 50% of all semiconductors in the world. And I think that still understates how important it is, because these are some of the most advanced chips out there,” Dan Wang by Yen Nee Lee for CNBC
It has over 281 different process technologies, and manufactures over 11,617 products to over 510 customers all over the world, with revenue earnings of over 1.34 trillion TWD, equivalent to US$46.95 billion
“China’s companies have been unsuccessful in their bid to match TSMC’s manufacturing prowess, but the US has also started to struggle: Intel is set to outsource some production of processors, its crown jewel, to the Taiwanese company. In Washington, the Pentagon has been quietly pressing for the US to invest more in advanced chipmaking, so that its weapons are not dependent on foreign manufacturers.” by Kathrin Hille for the Financial Times
ADVANCED TECHNOLOGY
TSMC’s pride and joy is the 5-nanometer production capabilities - the most advanced semiconductor process technology available in the world today. With over 10,761 products in its product line and over 272 different technologies, TSMC has grown to make a name for itself in the tech world.
TSMC’s primary product is semiconductors covering a broad range of applications in the industrial, consumer, communications, computer, and standard segments. Its products can be spotted in various devices from mobile phones to high-performance computing, automotive electronics, along with the Internet of Things (IoT)
Back in 2019, TSMC’s annual capacity of its manufacturing facilities exceeded 12 million 12-inch equivalent wafers. For context, TSMC has three 12-inch wafer GIGAFAB fabs, four 8-inch wafer fabs, and one 6-inch wafer fab, with a production capacity of 2.7 million wafers a month which is 13.1% of the total worldwide capacity. Samsung, however, is responsible for 14.7% of the world’s total capacity, with 3.1 million 200mm-equivalent wafers per month, as of 2020
“The Taiwan Semiconductor Manufacturing Company (TSMC) is moving full speed ahead with its construction of a new fabrication facility in Tainan, Taiwan. This facility will be the world's most advanced chip manufacturing plant after completion, as it will manufacture chips through what TSMC markets as the 3nm process node.” by Ramish Zafar for WCCFTech
Given its market positioning, TSMC could grow to become the undisputed market leader in the semiconductor manufacturing industry.
SUPPLYING INTEL
TSMC’s primary industry competitors include Samsung, Intel Corporation, Qualcomm, Foxconn and MediaTek. TSMC focuses on a B2B model and has created an environment where clients can even design the tools that TSMC will use when making their chips.
TSMC has adopted the dedicated “pure-play” foundry model, unlike its key competitors Samsung and Intel. These two enterprises design and manufacture the chips that they set in their products. TSMC, on the other hand, only operates on a contract basis and does not design chips
Intel Corporation has been struggling with its own production technology, and it was reported that it might soon send more orders to TSMC
“Those nearest competitors are Samsung Electronics Co. and Intel Corp. The latter is struggling with its own production technology to the point that it may soon end up sending more orders to Taiwan and doing less at home in its own fabs. TSMC surely wants to win those orders instead of letting them go to Samsung.”
“Further, if TSMC can really prove its value to Intel, that may incentivize a possible plan for the U.S. company to shift to an asset-light model, which would see the maker of computer processors scale down its own manufacturing. This alone would be a long-term boon to TSMC and more than justify a year or two of massive spending.” by Tim Culpan for Bloomberg
This is attributed to Intel’s move into 10nm chips, while TSMC and Samsung are already producing 7nm chips. Given that every process in the semiconductor industry is built on the one before, a company cannot skip any steps, and that is the plight of Intel
"Every process is built on the one before, so you can't really skip any steps, so unless TSMC runs into its own delays, it will be hard for Intel ever to catch up" Linley Gwennap by Kevin Fogarty for S&P Global
However, Samsung is not standing still and has so far invested over $116 billion into its next-generation chip business which includes fabricating silicon for external clients with the goal of closing the gap on TSMC by 2022.
THE MARKET
In 2020, the global semiconductor revenue stood at $442 billion, a 5.4% increase from the previous year. It is projected that in 2021, this market will achieve sales of $476 billion, a 7.7% year-over-year growth that can be attributed to the various Covid-19 vaccines being disseminated and economies gradually recovering.
The global semiconductor market could reach $655.6B by 2025 compared to $342.7B in 2015 with a CAGR of 6.7%
Semiconductors in computing systems grew by 10.9% in 2020 to reach revenue earnings of $152 billion
Smartphones were the second-largest demand driver in 2020, owing to the growth of 5G. Revenue growth from the sale of phone semiconductors grew by about 3%, and it is projected that in 2021, 5G phones will capture close to 54% of this revenue segment, with a projected 11.4% growth in revenue to $128 billion
In 2021, it is projected that non-memory automotive semiconductor revenue will grow by 12.6%
Regionally, year-to-year sales in 2020 increased across all markets as follows:
Asia Pacific: 16%
The Americas: 15.4%
China: 12.4%
Japan: 9.6%
Europe: 6.4%
TIER-1 MANAGEMENT
TSMC is currently led by Dr. C. C. Wei, the CEO and former president and Co-CEO of the company. Dr. Wei has also held the position of Co-Chief Operating Officer and Senior Vice President of Business Development. He has worked with TSMC since 1998 and currently holds a Ph.D. in Electrical Engineering from Yale University, USA.
Currently the CEO of TSMC, a position that he has held since 2018
Previously served as Senior Vice President of Technology at Chartered Semiconductor and was also a member of the technical staff at Texas Instruments R&D organization. Held various positions within TSMC since joining the company back in 1998, including serving as President and Co-CEO, Co-Chief Operating Officer, and Senior Vice President of Business development
Holds a Bachelor of Science degree in Electrical Engineering from National Chiao Tung University and a Ph.D. from Yale University
Currently serving as the Senior Vice President, Europe & Asia Sales at TSMC. She is responsible for supporting customers' needs in Korea, India, Japan, China, and Taiwan
Joined TSMC in 1999 and has held various positions in the company ever since, including Corporate Controller and Chief Financial Officer, and Spokesperson
Has an MBA degree from National Taiwan University and a Bachelor of Arts degree from the National Cheng-chi University
Currently serving as the Senior Vice President, Corporate Strategy Office, Chief Executive Officer, and President of TSMC Arizona
Responsible for the company's corporate strategy office, a role that he has served at the company since 2014. Joined TSMC back in 1997 as the Vice President of Account Management, TSMC North America, before being promoted to President and CEO of the company’s North American Branch in 2005. Previously worked at Fairchild Semiconductor and National’s Military and Aerospace Division, among others. Currently serves on the Global Semiconductor Alliance (GSA) Board of Directors, an organization dedicated to the advancement of the worldwide semiconductor industry
Holds a Bachelor of Science degree in Engineering from the United States Military Academy at West Point
FINANCIAL REVIEW
Sales reached $ 12.1B in Q3 2020, growing by 29% year-on-year and coming from $ 9.4B in Q3 2019
Revenue grew 34% year-on-year during the second quarter and 45% during the first quarter
Gross margins increased to 53% from 47% a year earlier
EBIT margins increased to 42% from 37% a year earlier and net margins increased to 38% from 34% a year earlier
The company currently has $ 35B in current assets versus $ 20B in current liabilities
THE TAKE
What we like:
TSCM has grown to become the world's largest semiconductor manufacturer. The company is now investing over $ 100B in new facilities capable of producing 3 nm chips while taking the orders of Intel, Apple, Nvidia and Qualcomm
TSMC is ideally positioned to take advantage of the changing technological landscape where large tech companies design their own chips internally and rely on state-of-the-art manufacturers for production
Placing diversified chips designers and manufacturers in a difficult position and favoring specialized foundries such as TSMC
What we don’t like:
Political tensions within Asia and international trade conflicts could negatively affect TSMC’s sale
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Disclaimer: Return is not an investment advisor, we have no access to non-public information about publicly traded companies, and this is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. We are not regulated by the Financial Services Authority. Investors should conduct their own analysis before making any investment. The value of shares, assets and investments and the income derived from them can decrease as well as increase. Investors may not get back the amount they invested - there is a real risk of partial or total loss. Past performance is not a guide to future performance.
Disclosures: The author has a position in TSMC. The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article.
Picture: Courtesy of TSMC.