Sat. Jan 22nd, 2022

“We’ve Passed the Worst of the Slide Deficit” was a common line in news headlines and analyst reports late last year. Investors were quick to drop shares of chipmakers after a slight rise in car chip stocks in November. Record profits at the world’s largest contract processor of microprocessors indicate that those investors were sold out prematurely.

Taiwan Semiconductor Manufacturing Company Recorded Quarterly Record profits Thursday, up 16.4 percent to NT $ 166 billion ($ 6 billion) on forecast sales. The continuing global shortage of semiconductors, crucial components in everything from cars to smartphones, has continued to boost earnings.

It usually takes 10 weeks to deliver an order of chips. That wait was extended to 26 weeks in December. Some major ports on the Chinese mainland closed last week. This will further disrupt supply chains. Expect longer delivery times – and the backlog of customer orders that will grow in the coming months.

TSMC is increasing capital spending by a third, up to $ 44 billion this year, to meet unprecedented demand. The group already has an edge over global competitors such as Intel. Upgrading its technology and increasing its capacity will leave it untouchable.

The business should exploit a strong new stream of demand for advanced chips made with 5 nanometer (nm) technology. The expensive, high-margin 5nm chips, which accounted for nearly a quarter of total wafer revenue in the most recent quarter, will help TSMC maintain its 42 percent fat operating margin.

The 5nm chips should support TSMC’s growth as demand for most other chips starts to decrease. This will take place when the industry’s current capacity expansion is completed. The 5nm technology is not only the key to the power of the latest smartphones and cars. It is also key to technologies such as artificial intelligence, autonomous management and 5G.

Only two companies can mass-produce 5nm chips: TSMC and South Korea’s Samsung. The latter uses much of its capacity to supply its own range of electronic consumer goods. This leaves TSMC as a more attractive contract maker for customers like Apple.

According to S&P Global, shares in TSMC are trading at a two-thirds premium for Intel at about 25 times forward earnings. But that gap narrowed as the U.S. manufacturer improved its rating, weakening TSMC’s own ratio. It’s time for the Taiwanese disk giant to get an upgrade of its own.

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