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Taiwan Semiconductor Manufacturing Co Ltd ADR TSM

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Morningstar’s Analysis

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TSMC Q4 2020 Profit Beats Expectations; Gives Upbeat Capital Expenditure, Long-Term Revenue Outlook

Phelix Lee Equity Analyst

Analyst Note

| Phelix Lee |

We raise our fair value estimate on TSMC to TWD 760 per share, or USD 136 per ADR due to better prospects in high-performance computing, or HPC, and automotive markets, underpinned by the firm's aggressive capital expenditure plans. Our fair value estimate corresponds to 33.6 times 2021 P/E. We think the multiple is justified by a stronger EPS outlook by capturing potential cutting-edge HPC orders from Intel, higher confidence in widening technology leadership through 3nm and later process nodes, and leveraging the current shortage to migrate automotive customers to less-tight 12-inch capacity. Spending was budgeted at USD 25 billion-USD 28 billion for 2021, over 50% higher than 2020, 80% of which is spent on cutting-edge nodes like 3nm and 5nm process technologies. We think this lends credence to market talk regarding Intel outsourcing cutting-edge processors to TSMC; in addition to organic growth in artificial intelligence, data analysis and other HPC applications.

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Company Profile

Business Description

Taiwan Semiconductor Manufacturing Company, or TSMC, is the world's largest dedicated chip foundry, with over 50% market share in 2019 per Gartner. TSMC was founded in 1987 as a joint venture of Philips, the government of Taiwan, and private investors. It went public as an ADR in the U.S. in 1997. TSMC's scale and high-quality technology allow the firm to generate solid operating margins, even in the highly competitive foundry business. Furthermore, the shift to the fabless business model has created tailwinds for TSMC. The foundry leader has an illustrious customer base, including Apple and Nvidia, that looks to apply cutting-edge process technologies to its semiconductor designs.

No. 8, Li-Hsin Road 6, Hsinchu Science Park
Hsinchu, 300-78, Taiwan
T +886 35636688
Sector Technology
Industry Semiconductors
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 51,297