TSMC: Top Foundry As Demand for Computer and Automotive Chips Increases (NYSE:TSM)

View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant.

BING-JHEN HONG/iStock Editorial via Getty Images

For the second quarter, Taiwan Semiconductor Manufacturing Co. (TSMC) (NYSE:SST) reported that revenue rose 36% to NT$491.1 billion ($17 billion) in the three months to March 2022. Analysts had estimated NT$469.4 billion on average.

For the second quarter, TSMC forecast revenue of $17.6 billion to $18.2 billion. The midpoint of $17.9 billion beats the Wall Street consensus estimate of $17.3 billion. TSMC predicted a gross profit margin of 56% to 58% in the June quarter. That’s an increase of 55.6% in the March quarter.

TSMC also reported that by platform, Smartphone and HPC (High Performance Computing) accounted for 40% and 41% of net revenue, respectively, in 1Q22, while IoT, Automotive, DCE and Others each accounted for 8%. %, 5%, 3%, and 3%. HPC and Automotive expect 2Q22 business to be supported by HPC and automotive-related demand, partially offset by smartphone seasonality.

As shown in Chart 1, in 2021, year-over-year growth in HPC platform revenue was 40%. Automotive increased revenues 64% YoY.

TSMC revenue by platform

TSMC

Table 2 compares TSMC’s top 10 customers for 2015, 2020 and 2021. We see the growth of Advanced Micro Devices (amd) as a leading client, and the fall of Hi-Silicon, which was the second largest client in 2020 and fell to 0.0% in 2021 due to the restriction of US commercial transactions with its parent company Huawei. Revenue for the top 10 companies increased 17% in 2021 after 39% year-over-year in 2020.

tsmc top 10 customers

TSMC

Table 3 shows TSMC’s revenue by technology node, with 30% of revenue coming from wafers in the 7nm node in 1Q22. Revenues in the 5nm node represented 20% of revenues in 1Q22.

Apple’s A15 Bionic chip, used in the iPhone 13, uses the 5nm process. Qualcomm (QCOM), MediaTek (OTCPK:MDTKF), and Nvidia (NVDA) continue to expand their orders in the 5nm family.

Wafer revenue by technology

TSMC

Apple (AAPL) will launch most of its devices with 3nm chips made by TSMC in 2023, including Macs with M3 chips and iPhone 15 models with A17 chips. Intel (INTC) and Bitmanu, an ASIC manufacturing startup, also planned N3 clients.

TSMC’s N3E (Enhanced) Node will further expand its N3 family with improved performance, power, and performance. Volume production is scheduled for a year after N3, and I expect Apple, Intel, MediaTek, and Qualcomm to be planned N3E customers.

Table 4 shows TSMC’s ASP (Average Selling Price) estimates per node, based on our report titled “Global Semiconductor Equipment: Markets, Market Share, Market Forecast.”

In 2021, the ASP was $10,775 for 7nm wafers and $14,104 for 5nm wafers. In 2023, during full production, 3nm wafers will be priced at $19,865. I anticipate prices to decline 5% a year after full production starts.

TSMC wafer prices per node

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Investor Takeaway

Table 5 shows the process roadmaps for the three foundries.

First introduced by major foundries around 2020, 5nm process technology is characterized by extensive use of EUV for critical dimensions, along with quad patterns for the fins and double patterns for the rest of the metal stack. . The 7nm Intel process is comparable to the 5nm foundry node.

TSMC will mass produce the 3nm process in the fourth quarter of 2022 and plans to introduce GAA (Gate All Around) technology when it enters the 2nm process and start mass production of 2nm process chips in 2024.

Casting Process Roadmap

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Samsung Electronics’ (OTC:SSNLF) 3nm process uses GAA design with MBCFET (Multi-Bridge Channel FET) for up to 35% reduction in package area, 30% higher performance or 50% lower power consumption compared with its 5nm EUV process.

Samsung previously revealed that in the first half of 2022 it will launch the first generation of 3nm 3GAE technology (3nm full gate before).

Intel stuck to the 14nm process for seven years, and it wasn’t until 2019 that it actually mass-produced 10nm, which was equivalent to the number of transistors in TSMC’s 7nm process. To catch up with TSMC and Samsung, Intel plans an aggressive roadmap of four nodes in three years.

In Chart 1, I show the quarterly gross profit margin over a three-year period for foundry competitors TSMC, Intel, and Samsung Electronics. TSMC reported gross margin for 1Q22 (not yet included in the YChart) was 55.6%, 2.9 percentage points higher than 4Q21 and 3.2 percentage points higher than 1Q21. Here we see the positive impact of <7 nm nodes for TSMC.

TSMC gross profit margin vs peers

YGraphics

Box 1

Chart 2 shows the change in TSMC stock price over the past year and the 10-year Treasury rate. Here we see the inverse correlation between the increase in the 10-year treasury and the fall in the price of TSMC shares.

Although the analysts Morning Star found minimal correlation between 10-year treasury and tech stocks over a 15-year period, since January 2022 the surge in 10-year stocks due to inflation fears has hit tech stocks and TSMC significantly.

TSMC Price % Change

YGraphics

Graph 2

Chart 3 shows the Alpha ratings for TSMC, Intel, and Samsung. Quant Ratings holds TSM and INTC, but analysts have TSM as a buy.

TSM Ratings

looking for alpha

Chart 3

Seeking Alpha’s quantitative rankings are shown in Exhibit 4. TSM has a sector ranking of 116 out of 588 companies and a semiconductor industry ranking of 29 out of 62 companies, both ahead of INTC.

frame

looking for alpha

Box 4

Chart 5 shows Seeking Alpha’s quantum factor grades, giving TSM a higher rating than INTC.

degrees of quantum factor

looking for alpha

Chart 5

Please note that TSM’s values ​​are for its total business, which is exclusively a pure foundry (it only makes chips for customers). Intel’s chips are currently produced for its in-house business, as its foundry business is in its infancy. The SSNLF data is for the total business, but that business is not just foundry, but also memory, displays, smartphones, and consumer products.

TSMC is in a league of its own, with over 50% share of the overall pure foundry business and a 60% share of <7nm node capacity. Strong demand for HPC and automotive chips (with the transition to electric vehicles), coupled with a planned capex of $42.6 billion in 2022, will keep TSMC a strong buy through 2022.

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