Semiconductors have been in the center of attention since the beginning of the coronavirus pandemic. On one hand, pandemic boosted demand for electronic devices that use chips while on the other hand, it has also led to massive supply chain disruptions. TSMC (TSM.US), world's largest independent semiconductor manufacturer, has just released its earnings report for Q4 2021. Let's take a look at what the release can tell us about this crucial industry.
Headline results
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Create account Try a demo Download mobile app Download mobile appTaiwan Semiconductor Manufacturing Company, or TSMC, reported a 24.1%YoY increase in Q4 2021 revenue, to a record $15.74 billion. Net profit in Taiwanese dollar terms jumped 16% YoY and also reached a record at NT$166.2 billion (around $6 billion). Both measures turned out to be higher than expected by analysts. Beat in net profit was driven by an improvement in operating margin with margin. TSMC announced that it aims for an average sales growth of 15-20% in the coming years. That's around two times faster growth than previously projected. Company announced that revenue for Q1 2022 is expected to come in at $16.6-17.2 billion, around 5% above analysts' estimates for the current calendar quarter.
TSMC managed to generate record sales and profits in the final quarter of 2021. Company's net margin reached 38% for the first time since Q1 2021. Source: Bloomberg, XTB
Big CapEx plans for 2022
TSMC announced some time ago that it plans to spend $100 billion on expanding its production capacity in the coming years. More clarity on the matter was provided with the latest quarterly earnings release as the company announced that CapEx plans for 2022 assume spending $40-44 billion! That's over $10 billion more than the company's CapEx target for 2021! Those funds will be spent on expanding and upgrading production capacity as well as improving its technology. Company plans a large expansion as its current capacity does not allow it fully capture the boom that the semiconductor market is experiencing. Demand is so strong that no improvement can be seen even though companies are expanding production. According to data from Susquehanna FInancial Group, delivery times for semiconductors increased by 6 days in December, to 25.8 weeks.
Risk of customers moving production in-house
However, there are also other reasons behind the acceleration in TSMC investments. One of them is the growing risk of Intel moving its semiconductor production in-house. Big tech companies, like Intel or Apple, outsource semiconductor manufacturing to other companies, like for example TSMC. Intel has been expanding its own production capacity and should it decide to move production fully in-house - stop outsourcing production to other companies - it could be a potential issue for independent manufacturers. Having said that, big spending plans announced by TSMC are not only aimed at meeting higher demand but also at maintaining its lead in the industry.
TSMC laid out ambitious spending plans for 2022. However, the company seems to be in sound financial position with quarterly cash from operations exceeding quarterly CapEx on a regular basis. Source: Bloomberg, XTB
Future outlook
Future outlook for TSMC remains upbeat. Company has set out ambitious spending plans for 2022 and expects a strong growth in sales. It should not come as a surprise as semiconductors are definitely the hottest and most sought after components in the global economy today. As long as supply bottlenecks in the sector persist, TSMC is expected to continue to deliver stellar results. Company is in very good condition with $38 billion in cash on hand at the end of 2021 - almost enough to fully meet its 2022 spending plans. Apart from that, more and more of TSMC customers decide to make upfront payments in order to ensure security of supply, which further helps keep the company financially stable. TSMC generated $6.7 billion in pre-payments in 2021.
Share price of TSMC (TSM.US) managed to break above the upper limit of the trading range at $126.00 at the beginning of 2022. Stock made a successful retest of the area later on and another upward impulse was generated. Near-term resistance is marked with recent local high at around $135.60 and is a final barrier ahead of all-time highs in the $142.00 area. However, current premarket quotes point to an over 4% bullish price gap at the beginning of today's Wall Street session and opening above the aforementioned $135.60 mark. Source: xStation5
