Taiwan Semiconductor (NYSE:TSM) is the world’s biggest semiconductor manufacturer, which puts it in a unique position during the global chip shortage. That’s why it’s spending more than $40 billion in capital expenditures this year.
In this episode of “Beat and Raise,” recorded on Jan. 20, Fool contributors Will Healy and Brian Withers discuss Taiwan Semi’s prospects and why it has such a strong competitive position.
Brian Withers: Looking for Will to come on and talk semiconductors, one of the biggest semiconductor companies in the world, Taiwan Semi.
Will Healy: Well, I’m going to just dive right in. Fourth-quarter revenue came in at $15.7 billion. That was up 21%, that beat expectations, and also know that the $15.7 billion is their figure. I mean, Taiwan uses new Taiwan dollars, but they translate their figures into dollars, so I’m using their information here.
Earnings per share came in at $1.15, that was up 16%. That was also a beat. However, notice that revenue grew faster than earnings. I think this is because they’re just investing so much in the business and they’re having to expand capacity due to the chip shortage and they’re also doing research to get to advance the technology further, so there’s some pressure there.
However, the outlook for Q1 is at $16.9 billion, up 26% year-over-year and that is also a raise from where analysts were placing it. I mean, overall, this was a good quarter, except for earnings not keeping up with revenue.
Some things of note for TSMC, in Q3, they were 53% of the foundry market. That’s interesting because companies like Nvidia (NASDAQ:NVDA), like AMD (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), they’re fabless, so they depend on TSMC to actually build their chips. If something happened to TSMC, the industry would almost be in the dark ages. So this is probably the most important company in the industry, if not in any industry arguably.
I mentioned the spending earlier. They plan to spend $40-44 billion on capital expenditures this year, and that’s a huge amount of money and that may contribute to the shortage that has raised earnings ultimately ending. However, I think they have to do this because all of their competitors are increasing capacity. Again, they have to keep advancing the technology to hold onto their technical lead. That makes a lot of sense they are spending so heavily to maintain their market position.
As for the stock, it trades at about 34 times earnings. I would call that a mid-level valuation. You have …….