To The Moon

$Taiwan Semiconductor Manufacturing(TSM)$

Intense R&D focus builds capabilities, widens market lead and strengthens competitive moat: TSMC's relentless pursuit of technological capabilities ensures a substantial technology lead over nearest competitors Samsung and Intel. This provides a significant competitive barrier for TSMC over the next three years as customers rely on the company to deliver the most advanced products for use in high performance computing, 5G connectivity and intelligent self-driving electric vehicles. Leading fabless semiconductor companies such as Apple, Nvidia, Qualcomm, AMD and Broadcom rely heavily on TSMC to produce their most cutting edge products for sale to their respective end markets.

Strong secular growth trends and market share gain to drive scale and profitability:

Demand for semiconductors will stay strong as both digitalization and digitization tailwinds sustain demand for chip making services and TSMC's technology lead will drive further market share gains. As technologies evolve with advanced connectivity technologies, computing power and mobility capabilities, new applications will emerge and drive further expansions in the total addressable market size over multi-year periods. These are expected to drive mid-teens topline revenue growth CAGR between now and 2024. This is ahead of projected industry growth rate of 4% according to Technavio.

Pricing power and scale expansion sustain strong earnings growth: TSMC's technological lead and prowess have accorded substantial pricing power to the company and will support its earnings growth. This is so, despite the substantial investments in advanced processes and newer generation fabs which would have dragged earnings. Increasingly, the hefty investment is emerging as a formidable competitive barrier as rivals reconsider their respective capital returns on advanced processes given that they trail the market leader. TSMC's scale expansion will also provide stronger economies of scale and bargaining power supporting margin expansion and overall earnings growth. TSMC is expected to grow 3-year earnings CAGR at double digit, slightly ahead of sales over the same period.

Risks

Slowdown in demand from key customers using advanced processes could lead to more than expected growth declines. Unexpected slowdown in global economy and demand for semiconductors could hurt earnings growth more during capacity expansion amid lower utilization rates. Poor execution, weaker than expected yield rates or capacity utilization could hurt margins and yields substantially. I would be careful in entering the market for semi con now given the cyclical downturn.

@TigerStars

DYODD