Taiwan Semi Just Reported Earnings. What It Says About the Global Chip Shortage.
By Max A. Cherney
April 15, 2021 2:19 pm ET
Taiwan Semiconductor is gearing up to make more car chips, a shift that the CEO thinks will slowly help ease a shortage that has hobbled the auto industry.
Shares of Taiwan Semi (ticker: TSM) fell 3.1% to $117.21 in afternoon trading Thursday, as the PHLX Semiconductor index, or Sox, advanced 1.1%. The stock has climbed 136% in the past year; the Sox has increased 97%.
Chief executive C.C. Wei talked about adding production capacity during a first-quarter earnings call Thursday. He stressed that Taiwan Semi’s top priority is supporting its automotive customers and predicted the shortage would ease by the company’s second quarter.
Wei made another prediction, too: Chips, which are used to make goods ranging from computers and cars to videogame consoles and appliances, could be in short supply into next year.
“We see the demand continue to be high and the shortage will continue throughout this year, and maybe extended into 2022 also,” Wei said.
Wei made his observation weeks after Intel (INTC) CEO Pat Gelsinger told Barron’s that the global chip shortage will last two years.
Taiwan Semiconductor reported first-quarter net income of NT$139.69 billion ($4.93 billion), which amounts to NT$5.39 a share, compared with a net profit of NT$116.99 billion, or NT$5.41 a share, in the year-ago period. Revenue rose 17% to NT$362.41 billion.
Analysts had expected earnings of NT$5.26 a share and revenue of NT$360.58 billion.
Taiwan Semi expects second-quarter revenue of $12.9 billion to $13.2 billion. Analysts expect revenue of $12.95 billion.
On the call, CFO Wendell Huang told investors that revenue continued to benefit from chips destined for 5G devices, and high-performance computing, or HPC.
“As we enter a period of higher growth, underpinned by the multiyear structural megatrends of 5G-related and HPC applications, we believe a higher level of capital investment is necessary to capture the future growth opportunities,” he said.
The chief financial officer said the company expects chip industry growth of roughly 12%, excluding memory, and that Taiwan Semi’s fabrication revenue will rise about 20% this year. Taiwan Semi expects to spend roughly $30 billion this year on capital expenses, such as building greater capacity. The company had previously said it expected capital expenses of $25 billion to $28 billion, and that it expects to spend roughly $100 billion over the next three years.
In a note, Bernstein analyst Mark Li wrote that investors will point to the disappointing margin guidance for the second quarter and high valuation as reasons to take a negative view of the stock. But Li argued that the lower margins are a signal of the company’s solid investments in its most advanced manufacturing technology, which will pay off in years to come.
Bernstein’s Li wrote that the $100 billion investment proves that chip demand will remain strong at least until 2024.
Write to Max A. Cherney at email@example.com