While the world has been waging a battle with the COVID-19 pandemic, some sectors of the economy have seen sharp improvements in valuation. The leading gainer has been the tech sector, which is up by more than 38% so far in 2018.
As the pandemic has forced more people to work from home and more schools to adopt distance learning, chipmakers also have prospered thanks to rising demand for 5G-capable smartphones and a continuing build-out of global telecommunications infrastructure to implement 5G technology.
Semiconductor makers and manufacturers of the equipment to make semiconductors have bucked the pandemic headwinds with a 40% share price gain for the year to date. According to new data from Taiwan-based research firm TrendForce, global semiconductor foundries (known as fabs) are set to grow revenues by 23.8% in 2020, the industry’s highest growth rate in a decade.
Year over year, revenue growth at Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSM) is expected to increase by about 34%, according to the latest consensus estimate from Refinitiv. Full-year earnings are forecast to rise by 58% to $3.40 per share. TSMC, as it’s known, is the world’s largest contract chipmaker, with a market cap of around $447 billion.
According to TrendForce, TSMC’s and Samsung’s capacity for 10-nanometer (nm) devices are close to fully utilized through the first half of 2021. Its 5nm capacity has been hurt by U.S. sanctions against China’s Huawei, which had a significant customer for TSMC’s 5nm devices. As is the case with virtually all chip technology, the smaller, the better. Smaller processes can stuff more capacity on each chip and reduce the chip’s power requirements.
Apple Inc. (NASDAQ: AAPL) is TSMC’s only other customer for the 5nm chips, and Apple’s demand will occupy about 85% to 90% of TSMC’s 5nm capacity for the second half of this year. TrendForce estimates that Advanced Micro Devices Inc. (NASDAQ: AMD) will be producing small quantities of its 5nm Zen 4 chips at TSMC and Apple will begin production of its A15 Bionic processor for the next generation of iPhones.
Other TSMC customers expected to ramp production next year are MediaTek, Nvidia, Qualcomm, and, yes, Intel Corp. (NASDAQ: INTC), which has ordered some 180,000 wafers from TSMC for delivery next year.
Samsung and TSMC are the only companies in the world that have the capacity to build chips with 7nm or 5nm process technology. Samsung is expanding its capacity for 5nm chips to accommodate Nvidia, while Qualcomm is looking to TSMC as are MediaTek and AMD. To top it off, TSMC is expected to begin mass-producing 3nm chips in the second half of 2022.
As of Wednesday’s close, TSMC stock had gained nearly 86% over the past 12 months, while AMD has seen its shares rise by about 107%. Nvidia stock has increased by more than 150% over the past 12 months, although it traded down Thursday following its third-quarter report. Apple stock is up about 78% in the same period, while Qualcomm has added 67% and Intel has dropped by nearly 21%. Of this group, only Intel both designs and manufactures chips. TSMC only manufactures them and the others only design them.
Based on sales for the first half of 2020, Intel was the industry leader with $38.95 billion, followed by Samsung with $29.75 billion and TSMC with $20.71 billion. In terms of year-over-year growth, however, TSMC posted a gain of 40%, compared to Intel’s increase of 22% and Samsung’s 12% increase. Along with South Korea’s SK Hynix and two U.S. firms, Micron and Texas Instruments, these are the six fabs with the highest sales. Only TSMC is exclusively a foundry.
Among fabless chip companies, HiSilicon saw a 49% boost in sales in the first half of this year and Nvidia saw a gain of 40%. Broadcom experienced a sales drop of 3% year over year, while Qualcomm sales rose 8%.
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