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Taiwan Semiconductor Manufacturing Co Ltd ADR TSM

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Stewardship

PREMIUM

TSMC Taking Huawei Ban in Stride as Apple, AMD, and Nvidia to Drive 2H 2020 Growth; Raising FVE

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

TSMC reported second-quarter results consistent with management’s guidance as strong demand for high performance computing, or HPC, chips and the ongoing ramp of 5G smartphones helped the firm overcome coronavirus-driven headwinds. We remind investors that the firm enjoyed an easier comparison from the same period in 2019, which was negatively impacted by elevated inventories related to the cryptocurrency crash and softer smartphone demand. Management was upbeat about the remainder of 2020 and called for greater than 20% revenue growth for the full year, which we attribute to strong demand from Apple, AMD, and Nvidia. Concerning 5G, management anticipates penetration in the high teens (from mid-teens previously) while global smartphone unit growth will be down in the low teens for 2020 (versus down in the high single digits as disclosed last quarter). Taken together we believe these trends will offset each other, though management was adamant that its 5G unit forecast is higher. We are raising our fair value estimate to USD 51 (TWD 306) per share from USD 46 (TWD 276) as we incorporate a superior near-term outlook. Nonetheless, given the bevy of uncertainties with potential supply chain disruption and end-market demand associated with the COVID-19 recovery, we recommend prospective investors wait for a wider margin of safety, especially as shares of narrow-moat TSMC are up over 50% from mid-March lows.

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Company Profile

Business Description

Taiwan Semiconductor Manufacturing is the world's largest dedicated chip foundry, with over 50% market share in 2018 (according to IC Insights). 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.

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