Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is not exactly an overlooked 5G stock; it’s been wowing Wall Street for years. And the company should continue to dominate the global semiconductor market for years to come—especially in the wake of 5G and the soaring demand for chips and application processors.
TSM stock trounced the broader market in 2020, finishing the year up by approximately 80%.
With a market cap of $469.6 billion, Taiwan Semiconductor Mfg. Co. Ltd. has provided investors with strong near-term gains. Since bottoming in March, Taiwan Semiconductor stock has soared 155%, and since the November election, it has rallied by an impressive 30%.
Chart courtesy of StockCharts.com
For income-starved investors, TSM stock also provides an annual dividend of 1.7%, or $1.75 per share.
Taiwan Semiconductor stock has also been rewarding buy-and-hold investors. Since the start of 2010, the stock has climbed 1,053%, which represents an annual growth rate of approximately 26.2%.
Chart courtesy of StockCharts.com
TSM Stock Overview
Taiwan Semiconductor is the world’s largest manufacturer of integrated circuits and semiconductors, with a semiconductor foundry market share of 56%. (Source: “Company Info,” Taiwan Semiconductor Mfg. Co. Ltd., last accessed January 5, 2021.)
As a third-party manufacturer, Taiwan Semiconductor doesn’t design its own chips. Instead, the company helps its customers create chips that make 5G, Internet of Things (IoT), and artificial intelligence (AI) a reality. As a high-tech “pick-and-shovel” company, this ensures it doesn’t compete with its own customers.
As the world’s largest semiconductor foundry, Taiwan Semiconductor manufactures 10,761 different products, using 272 distinct technologies for approximately 500 customers.
Its products are used in the computer, communications, consumer, and industrial segments—and in a wide variety of end markets, including mobile devices, high-performance computing, automotive electronics, and IoT.
One of Taiwan Semiconductor Mfg. Co. Ltd.’s largest customers is Apple Inc (NASDAQ:AAPL). The company is the sole supplier of Apple’s application processor. Apple’s new 5G “iPhones” use Taiwan Semiconductor’s new processor.
Taiwan Semiconductor said it expects the strong demand for its semiconductors to continue as the need for high-efficiency 5G mobile networking rolls out around the globe.
In its third-quarter conference call, the company said its mobile customers have been ordering large amounts of 5G chips to ensure they have enough to meet 5G demand. Not only that, 5G phones use 30% to 40% more silicon content per unit. (Source: “Q3 2020 Earnings Call,” Taiwan Semiconductor Mfg. Co. Ltd., October 15, 2020.)
This is great for Taiwan Semiconductor Mfg. Co. Ltd., since more than 45% of its sales came from its mobile chip segment in the third quarter.
Third-Quarter Results Beat Wall Street Estimates
On October 15, Taiwan Semiconductor announced that its revenue for the third quarter ended September 30 increased 21.6% year-over-year to $12.1 billion. Wall Street was looking for sales of $11.9 billion. (Source: “TSMC Reports Third Quarter EPS of NT$5.30,” Taiwan Semiconductor Mfg. Co. Ltd., October 15, 2020.)
Third-quarter earnings per share were up 35.9% year-over year, at $0.90. Wall Street was calling for third-quarter profitability of $0.81 per share.
“Our third quarter business benefitted from the strong demand for our advanced technologies and specialty technology solutions, driven by 5G smartphones, [high-performance computing (HPC)] and IoT-related applications,” said Wendell Huang, CFO. (Source: Ibid.)
Looking ahead to the company’s fourth-quarter earnings report, Huang said he expects sequential growth to be supported by strong demand for its 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications.
For the fourth quarter, Taiwan Semiconductor expects to report revenue in the range of $12.4 to $12.7 billion. At the midpoint, this represents an 18.4% increase over the $10.6 billion recorded in the same period in the previous year.
Taiwan Semiconductor Mfg. Co. Ltd. is a 5G juggernaut that continues to provide investors with long-term capital and dividend growth.
With 5G technology still in its infancy and the 5G mobile market expected to explode over the coming decade, the company is well positioned to further capitalize on the demand for its manufacturing prowess. That’s good news for holders of Taiwan Semiconductor stock.