Taiwan Semiconductor Manufacturing Company (TSM) missed the Zacks Consensus Estimate on both the top and bottom lines, and the shares moved marginally lower in response.Any other company would have been punished more severely.
But Wall Street is already aware that this is the number one semiconductor company, possessing all the leading edge manufacturing technologies that tech leaders like Apple (AAPL), NVIDIA (NVDA), Advanced Micro Devices (AMD), and Qualcomm (QCOM) rely on. To a lesser extent, we have Texas Instruments (TXN) and STMicroelectronics (STM) also dependent on it since they outsource some chip manufacturing to the company.
Intel (INTC) just about makes this list, based on a news report in a Taiwan-based newspaper Commercial Times that says it will outsource 6 nanameter chips to TSM next year. Intel’s once-prized process tech has hit multiple issues, setting the company back big time in this innovation cycle.
To be fair, TSM grew revenue and earnings over 29% and over 45%, respectively, from the September 2019 quarter, which is no mean feat. But street estimates jumped 11 cents on average seven days ago, which was a couple of cents higher than what the Zacks Rank #2 (Buy) company actually achieved.
The revenue distribution by platform clearly shows smartphones as the largest segment, comprising a 46% share, followed by high-performance computing (HPC) at 37% and the Internet of Things (IoT) at 9%.
While Apple is its largest customer, it was the HPC segment (as well as NVIDIA and AMD) that grew the strongest. HPC, in fact, is expected to remain the strongest growth driver over the next few years. Its 25% growth was followed by an almost equally strong IoT segment that grew 24%.
Smartphones only came thereafter with 12% growth, but it’s commendable considering that the market isn’t so strong any more. It’s only the growing silicon per phone and the company’s own share gains that’s allowing it to grow at these levels. 7 nanometer tech now makes up the largest share at 35%, followed by 16 nanometer at 18% and 5 nanometer at 8%. The company’s strategy of de-emphasizing 10 nanometer to jump to 7 has clearly paid off.
In what appears to be clear a reference to the above companies, CEO C. C. Wei said on the call: “Moving into the fourth quarter 2020, we expect our sequential growth to be supported by strong demand for our industry-leading 5 nanometer technology, driven by 5G smartphone launches and HPC-related applications.”
Moreover, there’s the expectation that customers will maintain above-seasonal inventory levels because of concerns about supply chain issues. As a result, TSM is seeing stronger-than-expected demand.
So the company now expects to grow 30% in 2020, faster than the 20% growth expected of the foundry industry and mid-single-digit growth expected of the semiconductor industry, based on its achieving the industry sweet spot with process leadership that’s on time to catch the 5G and HPC revolutions.
Apple
TSM is its main foundry partner and management commentary on the earnings call appeared to directly refer to Apple. From these, it appears that Apple will have a strong fourth quarter. But because it will build some inventory, sales may not be as strong as prior launches. This Zacks Rank #3 (Hold) company has an earnings expected surprise prediction (ESP) of 1.29%, indicating that it will beat estimates.
NVIDIA
It does look very good for NVIDIA, not only this quarter but also over the next few years. This Zacks Rank #3 (Hold) company has an earnings expected surprise prediction (ESP) of 1.75%, indicating that it will beat estimates.
Advanced Micro Devices
The company should continue its recent growth trajectory, taking share from Intel. Both PC and server market share is up for grabs. This Zacks Rank #3 (Hold) company has an earnings expected surprise prediction (ESP) of 1.3%, indicating that it will beat estimates.
Qualcomm
TSM was its largest foundry partner last year and will likely be so this year, as well. But the company is also expanding its supplier base as Samsung’s 5 nanometer process comes online. This Zacks Rank #3 (Hold) company has an earnings expected surprise prediction (ESP) of -31.0%, so we don’t know if it will beat estimates. It has, however, topped estimates in each of the last four quarters at an average rate of 14.3%.
Intel
Intel going the foundry route is really big news. But it’s the least it can do to try to protect market share. While its partnership with TSM hasn’t been talked about much, CEO C. C. Wei said on the call: “Intel is one of our important customers and we continue to work with them." So it must be true. Intel is also talking to Samsung about a foundry relationship.
This Zacks Rank #3 (Hold) company has an earnings expected surprise prediction (ESP) of 0.0%, indicating that it may beat estimates. It has topped estimates in each of the last four quarters at an average rate of 15.3%.
Comments
Log in or sign up to join the conversation.