Taiwan Semiconductor Manufacturing Company (NYSE: TSM) - the world's largest semiconductor company. TSMC manufactures products for large technology companies, including Apple and Nvidia. In 2020, the company released more than 11 thousand different products using 281 separate technologies for 510 different customers..
About company
The company distinguishes the following main segments of its products.
Smartphones. Technological processors, memory modules, nutrition, displays, various microcircuits. The share in the revenue structure in 2020 was 48,18%.
High performance computing. Central processing units, GPUs, programmable gate arrays, server processors, accelerators, network chips and more. The share in the revenue structure in 2020 was 32,84%.
Internet of things. Advanced and comprehensive ultra-low energy technology platforms for ai development. The share in the revenue structure in 2020 was 8,24%.
Cars. A full range of services and technologies for modern smart electric vehicles. The share in the revenue structure in 2020 was 3,31%.
Digital home appliances. The company provides various technologies for smart devices: smart vacuum cleaners, cameras, TV, controllers and so on. The share in the revenue structure in 2020 was 4,07%.
Largest regions of revenue: North America - 61,79%, China - 17,46%.
The largest part of the orders in 2020 of the company fell on chips of the size 7 nanometers - 33%.
Financial indicators of the company for 2020 by segments, in billion TWD and a percentage of revenue
| Smartphones | 645,304 | 48,18% |
| High performance computing | 439,810 | 32,84% |
| Internet of things | 110,355 | 8,24% |
| Cars | 44,367 | 3,31% |
| Digital consumer electronics | 54,556 | 4,07% |
| Other | 44,863 | 3,35% |
| Total | 1339,255 | 100,00% |
645,304
Company revenue by regions, in billion TWD and interest
| North America | 827,511 | 61,79% |
| China | 233,783 | 17,46% |
| Asian-Pacific area | 144,448 | 10,79% |
| Europe, Near East, Africa | 70,214 | 5,24% |
| Japan | 63,299 | 4,73% |
| Total | 1339,26 | 100,00% |
827,511
The company's revenue structure in 2020 by chip size, as a percentage of the total
| 28 nm | 13% |
| 16 nm | 17% |
| 7 nm | 33% |
| 5 nm | 8% |
| 40—45 nm | 9% |
| 65 nm | 5% |
| 90 nm | 2% |
| 0,11—0.13 μm | 3% |
| 0,15—0.18 μm | 7% |
| 0,25 μm | 2% |
13%
Financial indicators
Net revenue in 2020 increased by 25,2%, up to 1339 billion Taiwan dollars, which was mainly due to an increase in average selling prices for 8,2% and supplies to 23,1%.
Operating profit increased by 52,15%, to NT$566.7 billion, due to the growth of gross profit, and margin increased by seven points. As a result, net profit increased by 49,99%, to 517,8 7 billion Taiwan dollars. Free cash flow increased by 89,09%, to NT$327.98 billion, due to the growth of operating cash flow and a decrease in cash flow from financial activity, which is used to pay dividends, bond and loan repayment.
The company announced its forecasts for 2021, according to which sales growth is expected 20%. Capital investments will amount to from 25 billion to 28 billion dollars, out of which 80% planned capital investments - for the development of advanced 3-nanometer and 5-nanometer processors.
Financial performance of the company by year, in billion TWD
| Revenue | Operating profit | Operating margin | Net profit | FCF | |
|---|---|---|---|---|---|
| 2016 | 947,938 | 377,799 | 39,85% | 334,247 | 220,46 |
| 2017 | 977,447 | 385,546 | 39,44% | 343,111 | 265,16 |
| 2018 | 1031,473 | 383,625 | 37,19% | 351,130 | 273,22 |
| 2019 | 1069,985 | 372,694 | 34,83% | 345,263 | 173,45 |
| 2020 | 1339,254 | 566,780 | 42,32% | 517,885 | 327,98 |
Balance sheet indicators. Assets grew by 22,12%, to NT$2.760 billion, due to the growth of cash and cash equivalents, reserves, cost of fixed assets. Capital increased by 14,19%, to NT$1.850 billion, due to an increase in retained earnings and special capital reserves.
Assets and capital of the company by year, in billion TWD
| Assets | Capital | |
|---|---|---|
| 2016 | 1,890 | 1,390 |
| 2017 | 1,990 | 1,520 |
| 2018 | 2,090 | 1,680 |
| 2019 | 2,260 | 1,620 |
| 2020 | 2,760 | 1,850 |
Debt load. The company's total debt increased by 91,77%, to NT$369.6 billion. The company increased its debt burden by issuing bonds in the amount of 254.105 million Taiwan dollars, That, probably, will be directed to the construction of a plant in the UNITED STATES, - Its launch is scheduled for 2021. Despite the growth of total debt, the net cash position / net debt ratio increased by 7,18%, to NT$430.273 billion, due to the growth of cash and cash equivalents. Most of TSMC's debt payments after 2025.
Total and net debt of the company by year, in billion TWD
| Total debt | net debt | |
|---|---|---|
| 2016 | 249,183 | −386,867 |
| 2017 | 213,967 | −442,04 |
| 2018 | 180,554 | −533,116 |
| 2019 | 192,739 | −401,438 |
| 2020 | 369,620 | −430,273 |
Market
According to analysts, at the end of 2020, TSMC leads the market with a total share 28%. Taiwanese UMC ranks second with market share 13%, primarily due to investments in legacy processors of the size 40 nanometers and more. SMIC ranks third with share 11%, behind it - Samsung and GlobalFoundries at the level 10 And 7% respectively.
It is worth noting, that in different analytical materials on the semiconductor industry, market share belongs to other players, like Intel, Micron, Qualcomm and so on. The fact, that Taiwanese companies manufacture products under the customer's name, in order not to enter into competition with them. So, TSMC produces chips for Apple, AMD, Qualcomm. UMC releases chips for Intel, MediaTek и Realtek. At the facilities of SMIC, chips for Qualcomm are produced, Broadcom, Texas Instruments.
In 2020, the semiconductor market showed better results, than expected, thanks to the growth of cloud computing and the demand for devices to support remote work and learning. This is despite the impact of COVID-19 on the global economy.. According to market analysts, global semiconductor revenue rose to $442 billion, What's on 5,4% more, than in 2019.
According to forecasts, the semiconductor market will grow in volume by $ 90.8 billion between 2020 and 2024, while the average annual growth rate in the forecast period will exceed 4%. Respectively, can be expected, that TSMC's revenue will grow in the long term.
This market is a strategic industry for the largest technology countries, mainly China and USA. Therefore, it can be strongly influenced by political aspects..
China is the largest manufacturer of electronics, occupying more than half of the semiconductor consumption market. In 2020, China reported, that invests $1.4 trillion in production, and local companies began pooping key TSMC engineers., to overtake the U.S. in chip manufacturing.
Semiconductors are also of strategic importance to the United States, including for the military industry. In 2020, the United States and TSMC signed an agreement to build a plant in the United States in Arizona. And the Sanctioned Chinese company Huawei TSMC refused to produce chips. In May of this year, the United States announced the allocation of $ 52 billion for the support and research of semiconductors, which shows the government's interest in this sector.
The situation in the semiconductor market is so actively discussed in the news., that in the scenario of the Third World War got a military confrontation for the island of Taiwan between China and the United States in 2029. Despite reasonable skepticism about various war scenarios, but given the ongoing trade standoff between the U.S. and China and the strategic importance of the semiconductor industry., it is not necessary to exclude such variants of events.
Comparison with competitors
United Microelectronics was chosen as a comparison., Semiconductor Manufacturing International, Samsung Electronics, Hua Hong Semiconductor. The revenue growth rate will show, how successful the company is in its market, are its services in demand?.
Return on equity ratio (ROE) shows the financial return on the use of the company's capital, allows you to assess the quality of work of financial managers. The result shows, that TSMC is a leader in terms of revenue growth over five years and in terms of ROE, what makes TSMC the industry leader.
Dividends and multiples
Taiwan Semiconductor Manufacturing pays dividends since 2004, and since 2019 has switched to quarterly payments. Dividend yield at the end of 2020 was 1,58%. The share of dividend payments from net profit amounted to 51,93%, which gives the potential to increase dividends in the future. The average return over a five-year period was 2,91%, and the dividend growth rate is 12,84%. This is very good for a growth company..
Most TSMS multipliers show that the share price is overbought compared to their counterparts., which does not allow the company to be considered for purchases at current levels.
Dividends of the company by year, in dollars and interest
| Dividend per share | Payout ratio | Dividend yield | |
|---|---|---|---|
| 2016 | 0,94 | 51,94% | 3,27% |
| 2017 | 1,16 | 53,54% | 2,92% |
| 2018 | 1,35 | 60,58% | 3,64% |
| 2019 | 2,01 | 75,10% | 3,46% |
| 2020 | 1,72 | 51,93% | 1,58% |
TSMC and competitors' multipliers
| P / E | P / BV | P / S | EV / EBITDA | |
|---|---|---|---|---|
| Taiwan Semiconductor Manufacturing | 31,55 | 8,82 | 12,18 | 15,64 |
| United Microelectronics Corp | 22,51 | 2,85 | 3,38 | 7,18 |
| Semiconductor Manufacturing International Corp | 98,21 | 4,58 | 15,85 | 18,55 |
| Samsung Electronics | 21,09 | 1,23 | 2,04 | 6,75 |
| Hua Hong Semiconductor | 69,74 | 2,72 | 7,23 | 29,32 |
| Mean | 48,62 | 4,04 | 8,136 | 15,49 |
| Rise / fall potential | 54% | –54% | –33% | –1% |
Factorial model of the company's share price
Considering the analysis of the company's multiples, which showed the inexpediency of buying at current prices, let's try to predict the share price in another way – by building a factor model.
To determine the factors, affecting the price of the company's shares, built a correlation matrix. The selection of factors was carried out intuitively., data were taken for the past five-year period. As a result, you can see, that the share price is closely related to all factors, apart from the size of the semiconductor market.
As a result of building the model, some factors were revealed., which may be of interest to potential TSMC investors: high dependence of the stock price on the S index&P 500, which the, in its turn, highly dependent on the U.S. M2. As soon as FED The U.S. will stop creating liquidity and printing money, index S&P 500 will stop growing and may be adjusted, which will also affect TSMC shares.
What's the bottom line?
TSMC's financial performance is growing, and that's despite the pandemic. The semiconductor market is a promising market, which is growing due to the development of automotive industry technologies, 5G adoption, internet of things. This will ensure TSMC's revenue growth for the coming years., but only if the company retains leadership in the industry.
TSMC is a company with high business efficiency. But my analysis and methods of price estimation did not confirm the feasibility of buying at current levels.. I guess, that we should expect a correction of at least 20-30% of the current levels, if it happens without the risk of deterioration in current financial performance.
It is still possible to consider the option of investing in the growth of the semiconductor industry through ETF, например фонд iShares PHLX SOX Semiconductor Sector Index ETF.
