The world's largest semiconductor manufacturer today reported a record profit for its business despite falling revenue. Taiwan Semiconductor CFO Wendel Hunag states in a commentary on the report: "Our fourth quarter business was dampened by end market demand softness, and customers inventory adjustment, despite the continued ramp-up for our industry-leading 5nm technologies. As overall macroeconomic conditions remain weak, we expect our business to be further impacted by continued end market demand softness, and customers’ further inventory adjustment". The company now appears to be betting on its technological competitiveness during a downturn for the industry.
A few words about Taiwan Semiconductor
Taiwan Semiconductor Manufacturing Company (TaiwanSemic) is a Taiwanese company that manufactures miniature ICs. It is the world's largest third-party IC supplier. It manufactures chips for various electronics companies such as Apple, Qualcomm, Nvidia and others.
Taiwan Semiconductor was founded in 1987 by Morris Chang, former CEO of Texas Instruments Taiwan. Initially, the company focused on subcontracting integrated circuits to other companies, but quickly expanded and began producing its own chips. Within a few years, TSMC became one of the largest manufacturers in the world and one of the most important suppliers to the electronics industry.
Today, TSMC is one of the leaders in chip manufacturing technology, offering the latest technology processes, such as 7nm and 5nm, to produce more efficient and smaller chips. The company is known for its high quality products and services and for investing in research and development to provide innovative solutions for its customers.
Report for Q4 2022
Taiwan Semiconductor Manufacturing Company (TaiwanSemic) has reported its fourth quarter financial results. We learned that revenues increased 42.8% year-on-year, thanks to a favourable exchange rate and growing demand for 5nm technology. 5nm process technology contributed to a 32% increase in chip-related revenue in Q4 2022. Advanced technologies (7nm and below) accounted for 54% of IC-related revenues. High-Performance Computing (HPC) and Smartphone platforms accounted for 42% and 38% of revenue, respectively. From a geographic perspective, North American customers appear to be the most key for the company, accounting for 69% of total revenue, while revenue from China, Asia-Pacific, EMEA (Europe, Middle East, Africa) and Japan accounted for 12%, 7%, 6% and 6% respectively.
According to Bloomberg Intelligence analyst Charles Shum: "Overseas capacity expansion will be front and center for now, especially in the US and Japan, as TSMC pushes to meet customers’ diversification requests and rises to the challenge of growing competition from Samsung and Intel. Rapidly rising depreciation and operation costs, coupled with increasing uncertainty for smartphone demand recovery, are capping its gross margin." Despite this, the company's net profit grew by as much as 78% year-on-year and its operating margin was a record 52%. Another advantage of the company appears to be that it is US$44 billion in cash and cash equivalents with a capitalisation of US$421 billion.
Source: Conotoxia MT5, TaiwanSemic, Daily
What did we learn about other industries from the report?
An analysis of the change in order volumes by industry from the largest semiconductor supplier could give us a fairly good idea of how they are performing. Sales volumes for the High Performance Computing (HPC) sector, a field of computing that deals with the design, construction and use of supercomputers for numerical computing and modelling, increased by 10% year-on-year in Q4 2022. This seems likely to benefit Cisco Systems (Cisco), which manufactures routers, switches, wireless access points, network security, and other networking and telecommunications solutions, among other products. It is one of the largest suppliers of such technology manufacturers in the US.
Source: Conotoxia MT5, Cisco, Daily
The situation is just as good for the carmaker industry, whose sales in the last quarter of 2022 also increased by 10% year-on-year. The production of more and more electric cars appears to be driving the industry's demand for microchip technology. This could have a positive impact on the valuation of the Consumer Discretionary Select Sector SPDR Fund (XLY), a large part of which is made up of companies in the carmaker industry.
Source: Conotoxia MT5, XLY, Daily
The Digital Consumer Electronics (DCE) industry was the worst performing. DCE is the branch of the electronics industry that deals with the manufacture and sale of consumer electronics such as televisions, smartphones, laptops, tablets, media players, as well as other electronic devices that are used for entertainment and communication. Revenue from microchip sales for this industry fell by 23% year-on-year. It appears that one of the sufferers in the near term may be technology giant Apple (Apple).
Source: Conotoxia MT5, Apple, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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