A new iPhone launch has long meant a quarterly sales boost for Apple chip supplier TSMC. The surge in orders that pushed the Taiwanese giant’s fourth-quarter net profits up 23 per cent to NT$143bn ($5.1bn) is broadly based and will not be shortlived. After becoming a big beneficiary of the pandemic, the growth in demand is just getting started.
Not long ago, there were concerns that TSMC, the world’s biggest contract chipmaker, would be hit hard by US bans on selling chips to Huawei. The Chinese smartphone maker had been TSMC’s second-largest customer after Apple, accounting for about a tenth of its revenue.
Instead, remote working and learning have boosted demand for chips as sales of products that use semiconductors — everything from servers to gaming consoles such as PlayStations — surged. Chips for Apple played a big part, accounting for about a fifth of its sales.
Demand is set to grow further. As cars get smarter, more chips go into them. A pandemic-induced global shortage of micro processors in the auto industry is just starting to show through. Honda Motor will reduce vehicle production while Volkswagen will produce 100,000 fewer cars in the first quarter due to supply shortages.
Purchasing habits are changing too. Companies have started bulk buying chips after experiencing shortages last year.
Moreover, setting up next generation 5G networks around the world have added to demand. Intel, which has struggled to keep up with technological changes, is expected to outsource parts of its production to TSMC.
At the same time, TSMC’s competitors are floundering. Local rival United Microelectronics lacks the scale and technology to compete. US sanctions on China’s largest chipmaker SMIC have slashed sales and disrupted its supply chain of raw materials.
Yet supply has been unable to keep up as regulatory hurdles mount. The lengthy process of sourcing raw materials and producing chips — which takes at least three months — means the shortage is here to stay. There are few other suppliers that can produce at the scale of TSMC.
Even though the Taiwan-listed shares are up 140 per cent from a March low, there is room for upside. An added bonus is the group’s payouts. TSMC has no trouble covering its dividend yield of 1.6 per cent. That is significantly higher than global peers such as Micron.
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