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Taiwan Semiconductor ((TSM - Free Report) ), the giant $500 billion microchip foundry for Apple ((AAPL - Free Report) ) and NVIDIA ((NVDA - Free Report) ), has slipped into the cellar of the Zacks Rank as analysts ratcheted down EPS estimates in the past two months.
Despite TSM's importance as the premier "fab" for the world's top technology companies, the current year profit consensus has fallen from $5.32 to $4.82, representing a -26% annual drop.
And next year has also been taken down from $6.26 to $5.79. At the same time, the 2024 revenue consensus of $79.6 billion would only represent a 4.6% advance over the 2022 sales.
Has Semiconductor Demand or Production Peaked?
This might be a really important question for technology investors as TSM is the key foundry for Apple and NVIDIA.
But the other underlying issues involve both geopolitics and economic trade barriers as chip designers seek to reduce their exposure to the China-Taiwan conflicts and supply chain disruptions by building significant silicon wafer fabrication equipment (WFE) capabilities on domestic shores like the US.
I recently touched on these dynamics in my Bear of the Day article on GlobalFoundries ((GFS - Free Report) ) where I discussed how this US-based Semi fabricator fights to draw new business in a global nanometer AI-chip war.
Big Picture for TSM: Honey, I Shrunk the Kids!
The article linked above has significant insights from one of my favorite Semi analysts, Mark Lipacis of Jefferies, where he describes the landscape of "trailing node" in the semi supply chain.
I'm going to provide an excerpt here but I want to emphasize that what makes TSM special is their virtual monopoly on technological capabilities to fabricate sub-10 nanometer architectures that give Apple and NVIDIA the "honey I shrunk the kids" compact power they crave.
WFE Demand Historically Driven By Leading Edge and Memory
Lipacis describes the industry dynamics, even in the midst of AI-GPU mania that exceeded his expectations (but not mine, where we were heavy buyers of NVDA near $120 during the October bear market nadir)...
"Historically, WFE demand was primarily driven by leading-edge logic chips like CPUs in PCs, processors used in datacenters or application processors and modems used in cellphones, led by most advanced logic and increasingly smaller and cheaper memory solutions. Consequently, ~80% of WFE spend was driven by leading edge logic and memory."
But Trailing Node is a New Driver of WFE, Driven by an IoT Computing Era
"We've argued that the industry has entered the '4th Tectonic Shift to an IoT Computing Era,' where for the first time in history, the volume computing device, IoT, requires trailing node instead of the leading-edge chips required by previous computing eras, like handsets and PCs."
The Lipacis team estimates that this IoT Computing Era is rapidly growing to 10s of billions of devices annually, which is driving demand for trailing node WFE. They estimate that trailing node CapEx will increase from 22% of WFE historically to 46% of WFE spend in 2023 and believe the Street is underestimating the importance of Trailing Node CapEx.
They also believe that increased tensions between the US and China will lead US and European-based semiconductor companies and OEMs will shift sourcing to domestic players, ultimately translating to faster revenue growth. This works for GFS as they have EU fabs too.
(end of GlobalFoundries article excerpt)
Bottom line on TSM: They have the premier foundry for sub-10nm chipsets and NVIDIA's Jensen Huang has a close relationship since he is also from Taiwan. As long as international tensions don't hurt Taiwan's capacity to produce, the stock should trough soon.
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Bear of the Day: Taiwan Semi (TSM)
Taiwan Semiconductor ((TSM - Free Report) ), the giant $500 billion microchip foundry for Apple ((AAPL - Free Report) ) and NVIDIA ((NVDA - Free Report) ), has slipped into the cellar of the Zacks Rank as analysts ratcheted down EPS estimates in the past two months.
Despite TSM's importance as the premier "fab" for the world's top technology companies, the current year profit consensus has fallen from $5.32 to $4.82, representing a -26% annual drop.
And next year has also been taken down from $6.26 to $5.79. At the same time, the 2024 revenue consensus of $79.6 billion would only represent a 4.6% advance over the 2022 sales.
Has Semiconductor Demand or Production Peaked?
This might be a really important question for technology investors as TSM is the key foundry for Apple and NVIDIA.
But the other underlying issues involve both geopolitics and economic trade barriers as chip designers seek to reduce their exposure to the China-Taiwan conflicts and supply chain disruptions by building significant silicon wafer fabrication equipment (WFE) capabilities on domestic shores like the US.
I recently touched on these dynamics in my Bear of the Day article on GlobalFoundries ((GFS - Free Report) ) where I discussed how this US-based Semi fabricator fights to draw new business in a global nanometer AI-chip war.
Big Picture for TSM: Honey, I Shrunk the Kids!
The article linked above has significant insights from one of my favorite Semi analysts, Mark Lipacis of Jefferies, where he describes the landscape of "trailing node" in the semi supply chain.
I'm going to provide an excerpt here but I want to emphasize that what makes TSM special is their virtual monopoly on technological capabilities to fabricate sub-10 nanometer architectures that give Apple and NVIDIA the "honey I shrunk the kids" compact power they crave.
WFE Demand Historically Driven By Leading Edge and Memory
Lipacis describes the industry dynamics, even in the midst of AI-GPU mania that exceeded his expectations (but not mine, where we were heavy buyers of NVDA near $120 during the October bear market nadir)...
"Historically, WFE demand was primarily driven by leading-edge logic chips like CPUs in PCs, processors used in datacenters or application processors and modems used in cellphones, led by most advanced logic and increasingly smaller and cheaper memory solutions. Consequently, ~80% of WFE spend was driven by leading edge logic and memory."
But Trailing Node is a New Driver of WFE, Driven by an IoT Computing Era
"We've argued that the industry has entered the '4th Tectonic Shift to an IoT Computing Era,' where for the first time in history, the volume computing device, IoT, requires trailing node instead of the leading-edge chips required by previous computing eras, like handsets and PCs."
The Lipacis team estimates that this IoT Computing Era is rapidly growing to 10s of billions of devices annually, which is driving demand for trailing node WFE. They estimate that trailing node CapEx will increase from 22% of WFE historically to 46% of WFE spend in 2023 and believe the Street is underestimating the importance of Trailing Node CapEx.
They also believe that increased tensions between the US and China will lead US and European-based semiconductor companies and OEMs will shift sourcing to domestic players, ultimately translating to faster revenue growth. This works for GFS as they have EU fabs too.
(end of GlobalFoundries article excerpt)
Bottom line on TSM: They have the premier foundry for sub-10nm chipsets and NVIDIA's Jensen Huang has a close relationship since he is also from Taiwan. As long as international tensions don't hurt Taiwan's capacity to produce, the stock should trough soon.