1. Taiwan Semiconductor Manufacturing (TSM)
TSM has a steady growth plan for the next decade. It is ahead of Intel in its manufacturing process and has committed a capital expenditure plan of $100 billion over three years. For example, it has a $12 billion fabrication plant in Phoenix, Arizona recently where it will produce 5-nanometer chips in 2024. TSM will output 20,000 wafers monthly by that time.
In the coming years, TSM should consistently earn higher gross margins than competitors, thanks to its economies of scale and premium pricing justified by cutting-edge process technologies. The company wins when its customers compete to offer the most advanced processing systems using the latest process technologies.Also, TSM will benefit from more semiconductor companies embracing the fabless business model and internet giants designing their own data center chips.
However, although TSM is the foundry leader, each generation of process technology matures and commoditizes quickly, forcing the company to deal with pricing pressure. The company’s new approach to diversify production geographically may add cost pressures with little added resilience in stability. Samsung has significantly improved its foundry offerings and is now arguably on a par with TSM. State-supported Chinese foundries are also potential threats. The war in Ukraine has sparked worries about raw material supply and incursions into Taiwan.
TSM’s highest stock price in history was USD 145 per share (13th January 2022) and it is currently trading at USD 88.66 (16th of June 2022). Approximately 45% difference from the all time high.
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