IchiGo
2021-06-04
TSMC is big brother now
TSMC: Expanding Its Foundry Market Leadership
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":118767342,"tweetId":"118767342","gmtCreate":1622762850186,"gmtModify":1634098358406,"author":{"id":3571108991612603,"idStr":"3571108991612603","authorId":3571108991612603,"authorIdStr":"3571108991612603","name":"IchiGo","avatar":"https://static.tigerbbs.com/c7799d84b640de8d882c175fa85737b5","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":2,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>TSMC is big brother now </p></body></html>","htmlText":"<html><head></head><body><p>TSMC is big brother now </p></body></html>","text":"TSMC is big brother now","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/118767342","repostId":1160565063,"repostType":4,"repost":{"id":"1160565063","kind":"news","pubTimestamp":1622729043,"share":"https://www.laohu8.com/m/news/1160565063?lang=&edition=full","pubTime":"2021-06-03 22:04","market":"us","language":"en","title":"TSMC: Expanding Its Foundry Market Leadership","url":"https://stock-news.laohu8.com/highlight/detail?id=1160565063","media":"seekingalpha","summary":"Summary\n\nTSMC’s growth by end market is expected to be strong across the board this year especially ","content":"<p><b>Summary</b></p>\n<ul>\n <li>TSMC’s growth by end market is expected to be strong across the board this year especially in HPC and automotive markets due to the resumption in auto production and structural.</li>\n <li>It's undergoing aggressive capacity expansion plans after raising capex by over 60% and committing $100 bln over the next 3 years.</li>\n <li>The company continues to lead with a solid technological advantage as it ramps up its 5nm production followed by 4nm and 3nm scheduled for mass production next year.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/e5c699eaada1188876056b2745946a9b\" tg-width=\"768\" tg-height=\"512\"><span>Photo by Sundry Photography/iStock Editorial via Getty Images</span></p>\n<p>Taiwan Semiconductor Manufacturing Company (TSM) is a pioneer of the pure-play foundry business model with an exclusive focus on manufacturing customers’ products. Backed by a robust demand environment and technological leadership with advanced nodes, TSMC’s market share increased to 56% in 2020 from 53% in the previous year. The company is anticipated to register another strong year of growth as strong demand rollover providing a tailwind and the structural drivers leading to an increase in the underlying semiconductor demand for HPC, IoT, 5G and automotive fueling strong demand from the multi-year megatrends.</p>\n<p>TSMC’s leadership position revolves around its competitive strengths from the scale as the largest pure-play foundry by capacity. The company is scaling up even further by committing an aggressive expansion plan increasing capex potentially up to 63% in 2020 and $100 bln over the next three years. Furthermore, as a technology leader, the company is continuously developing more advanced process technologies to maintain its lead. Its process technology roadmap indicates that it well-positioned to solidify this lead by targeting 3nm and 4nm nodes for mass production next year followed by 2nm further down the line.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/ce2a9da08d637f44171858f9f7587f0c\" tg-width=\"640\" tg-height=\"360\"><span>Source: TSMC</span></p>\n<p><b>Strong End Market Growth Across the Board Especially in HPC and Automotive</b></p>\n<p>TSMC’s impressive growth in 2020 was particularly strong across the HPC, IoT and smartphone end markets registering the highest growth rate among all end markets as depicted in the chart below. This is significant as these three end markets make up the largest segments by revenues with a combined contribution of 89%.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/23cabf4b82975da57c73ceec6d99ae4a\" tg-width=\"640\" tg-height=\"299\"><span>Source: TSMC</span></p>\n<p>Although the smartphone platform is the largest segment, the end market which exhibited the highest growth was the HPC platform. Fueled by the work and study from home shift as well as rapid 5G deployment, HPC saw unit shipments grew by 11% which includes chips for PCs, tablets, game consoles, servers, and base stations. Looking ahead, management expects the robust demand to roll over into 2021 as structural factors spur demand for products at the leading edge including CPU, GPU, networking, FPGA, AI-accelerated video gaming, etc. For example, the proliferation of AI and machine learning applications across a broad range of industries with continuous R&D from tech giants spurring demand for accelerators to handle inferencing and training workloads leading to a CAGR of 42.2% to 2027 for the AI market. Additionally, the ongoing cloud migration by enterprises and scaling of data centers by leading cloud service provider fueling the cloud computing market with a CAGR of 17.5%. Other drivers include 5G deployment as well as next-generation gaming all requiring higher performance and power-efficient chips. All of these factors support the long-term growth of the HPC platform which TSMC believes can overtake the smartphone platform to become the most significant end market in the future.</p>\n<p>Besides HPC, the ongoing automotive chip shortage is another platform in which the company expects stronger growth this year. In 2020, the segment contracted in line with the decline in global vehicle sales by 14% as consumer confidence weakened and auto manufacturers halted production. As production resumes with car sales expected to rebound in the low teens, we expect the segment to grow in line with the industry recovery. Additionally, rising semiconductor content driven by EV which could see nearly10 times greater content per vehicle than a conventional combustion vehicle and ADAS fueling demand for sensors, analog and power ICs is a structural driver for TSMC.</p>\n<p>Additionally, even more impressive about TSMC’s 2020 growth is the fact that the company lost a key contribution from the embargoed Huawei’s HiSilicon (12.8% of revenues) but still managed to register strong smartphone platform growth. Despite the modest global unit shipments decline of 9%, the growth in the platform is driven by 5G adoption, improved performance, longer battery life and increasing complexity of features such as biosensors and more AI features. These long-term factors support the company’s outlook for high single-digit growth in 2021 and beyond.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/45123609324056b25e0de8e36bf86f46\" tg-width=\"633\" tg-height=\"444\"><span>Source:Toms Hardware, The Information Network</span></p>\n<p><b>Aggressive Capacity Expansion Plans and Investments</b></p>\n<p>In terms of capacity expansion, TSMC has upped its game in 2021 by increasing its capex by potentially 63% more than last year to $28 bln. The company has announced that around 80% of the budgeted capex will be allocated to expand capacity for the advanced process technologies below 7nm with the remainder for advanced packaging and specialty technologies. Additionally, it is also committing $100 bln over the next 3 years to increase capacity and support R&D towards advanced processes.</p>\n<p>Previously, TSMC also announced its plan to expand in the US with a $12 bln fab in Arizona capable of producing 5nm chips. The 12-inch fab in Phoenix is relatively modest with a planned output of 20,000 with volume production only expected in 2024. Though, it has also been reported that TSMC might further increase the capacity and equipment capabilities which is a strong possibility with the robust demand environment and the company has also indicated that the location allows it to expand capacity if desired.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/326c261509a8f27ac5d2dfd0cd823458\" tg-width=\"907\" tg-height=\"618\"><span>Source:EENewsEurope,Techspot</span></p>\n<p>In comparison with other larger spenders Intel(NASDAQ:INTC)and Samsung, TSMC’s planned investment commitment of $100 bln for foundry expansion is the most significant. In March, Intel announced it's planned a $20 bln initialinvestmentin Arizona for the construction of two fabs to directly compete with TSMC but a lot more is needed to stand a chance at challenging TSMC’s dominance. On the other hand, Samsung’s plannedinvestmentsof $116 bln are larger but spread across a longer period of 10 years compared to just 3 for TSMC.</p>\n<table>\n <tbody></tbody>\n</table>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/9a96afbf56db7d1f4ecaf334f01866dc\" tg-width=\"640\" tg-height=\"181\"><span>Source:Bloomberg</span></p>\n<p><b>TSMC’s Superior Process Technology and Roadmap</b></p>\n<p>Backed by its strong investment commitment, TSMC is able to reap the benefits from its strength as a technological leader in semiconductor manufacturing. Shrinking the size of transistors is becoming more challenging with prohibitive costs but a key feature for increasing chip density allowing continued performance improvements and energy efficiency. Chips at the leading edge nodes (below 10nm) are critical to achieve this and its share of demand would only grow larger to support advanced technologies accounting for nearly one third of capacity in 3 years.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d4e784ad457fc66c73ca376c7af1981e\" tg-width=\"525\" tg-height=\"427\"><span>Source:IC Insights</span></p>\n<p>This is where TSMC shines with its leadership owing to its focus on continuously developing more advanced process technologies. While the company only accounts for 40% to 65% of revenues for the less sophisticated 28-65nm chips, it dominates the market for most advanced nodes with making up 90% of chips below 10nm. We expect it to maintain its leadership at the advanced nodes as other pureplay competitors struggle with developing their processes.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/ab154a4af28b364c0c3dc9e281683ecd\" tg-width=\"640\" tg-height=\"458\"><span>Source:Financial Times</span></p>\n<p>In terms of the TSMC’s technology roadmap, the company’s 5nm process is already in the second year of volume production and continues to be ramped up with strong demand from smartphone and HPC applications. Following 5nm, the company is moving to 4nm and targeting volume production by next year. Also, the company has scheduled the 3nm for volume production in the second half of 2022. Based on a FinFET transistor structure, it is believed that its 3nm can provide 70% logic density gain, boosting performance up to 15% and cutting power consumption by 30%. The transistor size in a 3nm node is just 1/20,000th of a human hair. At the same time, the company is developing its GAAFET-based 2nm node with production expected in its Taiwanese fabs across Hsinchu and Baoshan.</p>\n<p>Compared to leading competitors, Samsung’s roadmap is also quite similar to TSMC as it plans to mass produce 3nm chips in 2022 with 2nm possibly also indevelopmentwith IBM(NYSE:IBM)but produced by Samsung. More recently, TSMC has announced a breakthrough in thedevelopmentof 1nm. Whereas for Intel, its Arizona fab is only indicated to produce 7nm technologies but only when it is completed in 2024.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/6cce4edae659b7c5424284f348286586\" tg-width=\"577\" tg-height=\"384\"><span>Source:IC Insights</span></p>\n<p>Overall, TSMC’s investment plans allow it to derive a distinct advantage owing to its focus on advanced nodes despite the hefty costs. Among pure-play foundries, the company has the highest return on capital employed at 27.3% versus the industry average of 13.8%.</p>\n<table>\n <tbody>\n <tr>\n <td><p><b>Company</b></p></td>\n <td><p><b>Return on Capital Employed</b></p></td>\n </tr>\n <tr>\n <td><p>TSMC</p></td>\n <td><p>27.3%</p></td>\n </tr>\n <tr>\n <td><p>UMC</p></td>\n <td><p>11.1%</p></td>\n </tr>\n <tr>\n <td><p>SMICOTCQX:SMICY</p></td>\n <td><p>3.1%</p></td>\n </tr>\n </tbody>\n</table>\n<p><i>Source:WSJ</i></p>\n<p>Moreover, TSMC also benefits from favourable pricing with a rising wafer pricing trend in line with its advanced node migration. As the only pure-play foundry with 7nm and 5nm in 2020, its wafer pricing increased by 6.8% while other pureplay foundries had flattish wafer pricing trends. As TSMC transitions to more advanced nodes, pricing is expected to trend upwards while its competitors’ prices remain relatively flat but couldriseby up around 20% this year due to tight capacity.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d72237f327bae332b07dc3bbd226641a\" tg-width=\"596\" tg-height=\"326\"><span>Source:IC Insights</span></p>\n<p>Besides advanced nodes, the company’s advantage due to its scale is apparent as evident from its superior profitability compared to rivals. Its gross margins of 53.21% and net margins of 38.86% triumphs UMC and SMIC. However, data for Global Foundries could not be obtained as it is a private company.</p>\n<table>\n <tbody>\n <tr>\n <td><p><b>Company</b></p></td>\n <td><p><b>Revenues ($ bln)</b></p></td>\n <td><p><b>Gross Margins</b></p></td>\n <td><p><b>Net Margins</b></p></td>\n </tr>\n <tr>\n <td><p>TSMC</p></td>\n <td><p>$47.95</p></td>\n <td><p>53.21%</p></td>\n <td><p>38.86%</p></td>\n </tr>\n <tr>\n <td><p>UMC</p></td>\n <td><p>$6.3</p></td>\n <td><p>23.88%</p></td>\n <td><p>20.59%</p></td>\n </tr>\n <tr>\n <td><p>SMIC</p></td>\n <td><p>$3.91</p></td>\n <td><p>22.83%</p></td>\n <td><p>17.87%</p></td>\n </tr>\n </tbody>\n</table>\n<p><i>Source: Seeking Alpha, Investing.com, Macrotrends</i></p>\n<p><b>Valuation</b></p>\n<p>Due to the robust foundry market, TSMC’s revenue grew 33% in 2020 with a 5-year average growth rate of 13.7%. Its average gross margins and net margins are 49.7% and 35% respectively.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/fb481e40dd284b4be697764012599660\" tg-width=\"640\" tg-height=\"360\"><span>Source: TSMC, Khaveen Investments</span></p>\n<p>The company has a strong cash flow generation profile with a 5-year average of 21%. However, due to the significant rise in guided capex from 2021 onwards, the company’s margins are expected to dip but recover as it expands aggressively.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/ef99c8c626d03cd5796d38088510e291\" tg-width=\"640\" tg-height=\"360\"><span>Source: TSMC, Khaveen Investments</span></p>\n<p>Owing to its immense scale and technology leadership, the company has managed to solidify its leadership by growing its market share over the past 5 years to 56% in 2020. As the company scales up capacity and advanced nodes 5nm this year, we anticipate further market share gains even beyond 2021.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/c58cebb1fc453c5861aac81712d01607\" tg-width=\"640\" tg-height=\"360\"><span>Source: Statista, Khaveen Investments</span></p>\n<p>The global foundry market is expected to grow at a 11% CAGR according to estimates from TrendForce. We expect TSMC to outpace this growth rate by gaining market share due to its scale and technological advantages as highlighted above. Overall, we see TSMC growing nearly 15% through 2023 which is in line with management guidance of 10 to 15% CAGR long term.</p>\n<table>\n <tbody>\n <tr>\n <td><p><b>TSMC Revenue Projection</b></p></td>\n <td><p><b>2020</b></p></td>\n <td><p><b>2021F</b></p></td>\n <td><p><b>2022F</b></p></td>\n <td><p><b>2023F</b></p></td>\n </tr>\n <tr>\n <td><p>Foundry Market</p></td>\n <td><p>78,921</p></td>\n <td><p>87,602</p></td>\n <td><p>97,239</p></td>\n <td><p>107,935</p></td>\n </tr>\n <tr>\n <td><p>TSMC Foundry Revenues</p></td>\n <td><p>44,205</p></td>\n <td><p>50,809</p></td>\n <td><p>58,343</p></td>\n <td><p>66,920</p></td>\n </tr>\n <tr>\n <td><p>TSMC Growth %</p></td>\n <td><p>14.9%</p></td>\n <td><p>14.8%</p></td>\n <td><p>14.7%</p></td>\n </tr>\n </tbody>\n</table>\n<p><i>Source: Statista, TrendForce, Khaveen Investments</i></p>\n<p>The industry average EV/EBITDA of the pure-play foundry market is 10.53x excluding Samsung which is a tech conglomerate.</p>\n<table>\n <tbody>\n <tr>\n <td><p><b>Company</b></p></td>\n <td><p><b>EV/EBITDA</b></p></td>\n </tr>\n <tr>\n <td><p>TSMC</p></td>\n <td><p>15.64</p></td>\n </tr>\n <tr>\n <td><p>UMC</p></td>\n <td><p>8.89</p></td>\n </tr>\n <tr>\n <td><p>SMIC</p></td>\n <td><p>7.07</p></td>\n </tr>\n <tr>\n <td><p><b>Average</b></p></td>\n <td><p><b>10.53</b></p></td>\n </tr>\n </tbody>\n</table>\n<p><i>Source: Seeking Alpha</i></p>\n<p>Based on a discount rate of 7.3% (company’s WACC), our model shows an upside of 15.2%.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/3cec106cd5858b583064db2d09cd133b\" tg-width=\"640\" tg-height=\"360\"><span>Source: Khaveen Investments</span></p>\n<p><b>Verdict</b></p>\n<p>Despite all the plans by Samsung and Intel, TSMC remains too big to beat as a pure-play foundry leader with growing market share owing to its superior technology process and scale. In 2020, the company saw robust growth across most end market platforms despite the trade embargo on Huawei. Robust demand is expected to roll over into 2021 across all major end markets especially fueled by the resumption of auto production and structural trend of HPC and 5G. To capitalize on the multi-year megatrends, the company has not only stepped up its capex budget for the year potentially up 63% but also a long-term 3-year $100 bln investment commitment to expand capacity for the advanced nodes. This highlights its commitment towards implementing its roadmap for the node migration towards 4nm and 3nm next year followed by 2nm further into the future. These factors cumulatively solidify its market leadership which could lead to further market share gains. Overall, we rate the company as a<i>Buy</i>with a target price of<i>$126.32.</i></p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>TSMC: Expanding Its Foundry Market Leadership</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTSMC: Expanding Its Foundry Market Leadership\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 22:04 GMT+8 <a href=https://seekingalpha.com/article/4432785-tsmc-expanding-foundry-market-leadership><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nTSMC’s growth by end market is expected to be strong across the board this year especially in HPC and automotive markets due to the resumption in auto production and structural.\nIt's ...</p>\n\n<a href=\"https://seekingalpha.com/article/4432785-tsmc-expanding-foundry-market-leadership\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"TSM":"台积电"},"source_url":"https://seekingalpha.com/article/4432785-tsmc-expanding-foundry-market-leadership","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1160565063","content_text":"Summary\n\nTSMC’s growth by end market is expected to be strong across the board this year especially in HPC and automotive markets due to the resumption in auto production and structural.\nIt's undergoing aggressive capacity expansion plans after raising capex by over 60% and committing $100 bln over the next 3 years.\nThe company continues to lead with a solid technological advantage as it ramps up its 5nm production followed by 4nm and 3nm scheduled for mass production next year.\n\nPhoto by Sundry Photography/iStock Editorial via Getty Images\nTaiwan Semiconductor Manufacturing Company (TSM) is a pioneer of the pure-play foundry business model with an exclusive focus on manufacturing customers’ products. Backed by a robust demand environment and technological leadership with advanced nodes, TSMC’s market share increased to 56% in 2020 from 53% in the previous year. The company is anticipated to register another strong year of growth as strong demand rollover providing a tailwind and the structural drivers leading to an increase in the underlying semiconductor demand for HPC, IoT, 5G and automotive fueling strong demand from the multi-year megatrends.\nTSMC’s leadership position revolves around its competitive strengths from the scale as the largest pure-play foundry by capacity. The company is scaling up even further by committing an aggressive expansion plan increasing capex potentially up to 63% in 2020 and $100 bln over the next three years. Furthermore, as a technology leader, the company is continuously developing more advanced process technologies to maintain its lead. Its process technology roadmap indicates that it well-positioned to solidify this lead by targeting 3nm and 4nm nodes for mass production next year followed by 2nm further down the line.\nSource: TSMC\nStrong End Market Growth Across the Board Especially in HPC and Automotive\nTSMC’s impressive growth in 2020 was particularly strong across the HPC, IoT and smartphone end markets registering the highest growth rate among all end markets as depicted in the chart below. This is significant as these three end markets make up the largest segments by revenues with a combined contribution of 89%.\nSource: TSMC\nAlthough the smartphone platform is the largest segment, the end market which exhibited the highest growth was the HPC platform. Fueled by the work and study from home shift as well as rapid 5G deployment, HPC saw unit shipments grew by 11% which includes chips for PCs, tablets, game consoles, servers, and base stations. Looking ahead, management expects the robust demand to roll over into 2021 as structural factors spur demand for products at the leading edge including CPU, GPU, networking, FPGA, AI-accelerated video gaming, etc. For example, the proliferation of AI and machine learning applications across a broad range of industries with continuous R&D from tech giants spurring demand for accelerators to handle inferencing and training workloads leading to a CAGR of 42.2% to 2027 for the AI market. Additionally, the ongoing cloud migration by enterprises and scaling of data centers by leading cloud service provider fueling the cloud computing market with a CAGR of 17.5%. Other drivers include 5G deployment as well as next-generation gaming all requiring higher performance and power-efficient chips. All of these factors support the long-term growth of the HPC platform which TSMC believes can overtake the smartphone platform to become the most significant end market in the future.\nBesides HPC, the ongoing automotive chip shortage is another platform in which the company expects stronger growth this year. In 2020, the segment contracted in line with the decline in global vehicle sales by 14% as consumer confidence weakened and auto manufacturers halted production. As production resumes with car sales expected to rebound in the low teens, we expect the segment to grow in line with the industry recovery. Additionally, rising semiconductor content driven by EV which could see nearly10 times greater content per vehicle than a conventional combustion vehicle and ADAS fueling demand for sensors, analog and power ICs is a structural driver for TSMC.\nAdditionally, even more impressive about TSMC’s 2020 growth is the fact that the company lost a key contribution from the embargoed Huawei’s HiSilicon (12.8% of revenues) but still managed to register strong smartphone platform growth. Despite the modest global unit shipments decline of 9%, the growth in the platform is driven by 5G adoption, improved performance, longer battery life and increasing complexity of features such as biosensors and more AI features. These long-term factors support the company’s outlook for high single-digit growth in 2021 and beyond.\nSource:Toms Hardware, The Information Network\nAggressive Capacity Expansion Plans and Investments\nIn terms of capacity expansion, TSMC has upped its game in 2021 by increasing its capex by potentially 63% more than last year to $28 bln. The company has announced that around 80% of the budgeted capex will be allocated to expand capacity for the advanced process technologies below 7nm with the remainder for advanced packaging and specialty technologies. Additionally, it is also committing $100 bln over the next 3 years to increase capacity and support R&D towards advanced processes.\nPreviously, TSMC also announced its plan to expand in the US with a $12 bln fab in Arizona capable of producing 5nm chips. The 12-inch fab in Phoenix is relatively modest with a planned output of 20,000 with volume production only expected in 2024. Though, it has also been reported that TSMC might further increase the capacity and equipment capabilities which is a strong possibility with the robust demand environment and the company has also indicated that the location allows it to expand capacity if desired.\nSource:EENewsEurope,Techspot\nIn comparison with other larger spenders Intel(NASDAQ:INTC)and Samsung, TSMC’s planned investment commitment of $100 bln for foundry expansion is the most significant. In March, Intel announced it's planned a $20 bln initialinvestmentin Arizona for the construction of two fabs to directly compete with TSMC but a lot more is needed to stand a chance at challenging TSMC’s dominance. On the other hand, Samsung’s plannedinvestmentsof $116 bln are larger but spread across a longer period of 10 years compared to just 3 for TSMC.\n\n\n\nSource:Bloomberg\nTSMC’s Superior Process Technology and Roadmap\nBacked by its strong investment commitment, TSMC is able to reap the benefits from its strength as a technological leader in semiconductor manufacturing. Shrinking the size of transistors is becoming more challenging with prohibitive costs but a key feature for increasing chip density allowing continued performance improvements and energy efficiency. Chips at the leading edge nodes (below 10nm) are critical to achieve this and its share of demand would only grow larger to support advanced technologies accounting for nearly one third of capacity in 3 years.\nSource:IC Insights\nThis is where TSMC shines with its leadership owing to its focus on continuously developing more advanced process technologies. While the company only accounts for 40% to 65% of revenues for the less sophisticated 28-65nm chips, it dominates the market for most advanced nodes with making up 90% of chips below 10nm. We expect it to maintain its leadership at the advanced nodes as other pureplay competitors struggle with developing their processes.\nSource:Financial Times\nIn terms of the TSMC’s technology roadmap, the company’s 5nm process is already in the second year of volume production and continues to be ramped up with strong demand from smartphone and HPC applications. Following 5nm, the company is moving to 4nm and targeting volume production by next year. Also, the company has scheduled the 3nm for volume production in the second half of 2022. Based on a FinFET transistor structure, it is believed that its 3nm can provide 70% logic density gain, boosting performance up to 15% and cutting power consumption by 30%. The transistor size in a 3nm node is just 1/20,000th of a human hair. At the same time, the company is developing its GAAFET-based 2nm node with production expected in its Taiwanese fabs across Hsinchu and Baoshan.\nCompared to leading competitors, Samsung’s roadmap is also quite similar to TSMC as it plans to mass produce 3nm chips in 2022 with 2nm possibly also indevelopmentwith IBM(NYSE:IBM)but produced by Samsung. More recently, TSMC has announced a breakthrough in thedevelopmentof 1nm. Whereas for Intel, its Arizona fab is only indicated to produce 7nm technologies but only when it is completed in 2024.\nSource:IC Insights\nOverall, TSMC’s investment plans allow it to derive a distinct advantage owing to its focus on advanced nodes despite the hefty costs. Among pure-play foundries, the company has the highest return on capital employed at 27.3% versus the industry average of 13.8%.\n\n\n\nCompany\nReturn on Capital Employed\n\n\nTSMC\n27.3%\n\n\nUMC\n11.1%\n\n\nSMICOTCQX:SMICY\n3.1%\n\n\n\nSource:WSJ\nMoreover, TSMC also benefits from favourable pricing with a rising wafer pricing trend in line with its advanced node migration. As the only pure-play foundry with 7nm and 5nm in 2020, its wafer pricing increased by 6.8% while other pureplay foundries had flattish wafer pricing trends. As TSMC transitions to more advanced nodes, pricing is expected to trend upwards while its competitors’ prices remain relatively flat but couldriseby up around 20% this year due to tight capacity.\nSource:IC Insights\nBesides advanced nodes, the company’s advantage due to its scale is apparent as evident from its superior profitability compared to rivals. Its gross margins of 53.21% and net margins of 38.86% triumphs UMC and SMIC. However, data for Global Foundries could not be obtained as it is a private company.\n\n\n\nCompany\nRevenues ($ bln)\nGross Margins\nNet Margins\n\n\nTSMC\n$47.95\n53.21%\n38.86%\n\n\nUMC\n$6.3\n23.88%\n20.59%\n\n\nSMIC\n$3.91\n22.83%\n17.87%\n\n\n\nSource: Seeking Alpha, Investing.com, Macrotrends\nValuation\nDue to the robust foundry market, TSMC’s revenue grew 33% in 2020 with a 5-year average growth rate of 13.7%. Its average gross margins and net margins are 49.7% and 35% respectively.\nSource: TSMC, Khaveen Investments\nThe company has a strong cash flow generation profile with a 5-year average of 21%. However, due to the significant rise in guided capex from 2021 onwards, the company’s margins are expected to dip but recover as it expands aggressively.\nSource: TSMC, Khaveen Investments\nOwing to its immense scale and technology leadership, the company has managed to solidify its leadership by growing its market share over the past 5 years to 56% in 2020. As the company scales up capacity and advanced nodes 5nm this year, we anticipate further market share gains even beyond 2021.\nSource: Statista, Khaveen Investments\nThe global foundry market is expected to grow at a 11% CAGR according to estimates from TrendForce. We expect TSMC to outpace this growth rate by gaining market share due to its scale and technological advantages as highlighted above. Overall, we see TSMC growing nearly 15% through 2023 which is in line with management guidance of 10 to 15% CAGR long term.\n\n\n\nTSMC Revenue Projection\n2020\n2021F\n2022F\n2023F\n\n\nFoundry Market\n78,921\n87,602\n97,239\n107,935\n\n\nTSMC Foundry Revenues\n44,205\n50,809\n58,343\n66,920\n\n\nTSMC Growth %\n14.9%\n14.8%\n14.7%\n\n\n\nSource: Statista, TrendForce, Khaveen Investments\nThe industry average EV/EBITDA of the pure-play foundry market is 10.53x excluding Samsung which is a tech conglomerate.\n\n\n\nCompany\nEV/EBITDA\n\n\nTSMC\n15.64\n\n\nUMC\n8.89\n\n\nSMIC\n7.07\n\n\nAverage\n10.53\n\n\n\nSource: Seeking Alpha\nBased on a discount rate of 7.3% (company’s WACC), our model shows an upside of 15.2%.\nSource: Khaveen Investments\nVerdict\nDespite all the plans by Samsung and Intel, TSMC remains too big to beat as a pure-play foundry leader with growing market share owing to its superior technology process and scale. In 2020, the company saw robust growth across most end market platforms despite the trade embargo on Huawei. Robust demand is expected to roll over into 2021 across all major end markets especially fueled by the resumption of auto production and structural trend of HPC and 5G. To capitalize on the multi-year megatrends, the company has not only stepped up its capex budget for the year potentially up 63% but also a long-term 3-year $100 bln investment commitment to expand capacity for the advanced nodes. This highlights its commitment towards implementing its roadmap for the node migration towards 4nm and 3nm next year followed by 2nm further into the future. These factors cumulatively solidify its market leadership which could lead to further market share gains. Overall, we rate the company as aBuywith a target price of$126.32.","news_type":1},"isVote":1,"tweetType":1,"viewCount":367,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":19,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/118767342"}
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