Taiwan Semiconductor: Uncertainty is Priced In

I’m currently watching Taiwan Semiconductor Manufacturing Company (TSM)10.00 -0.40%, vol: 11,717,000. Shares of this well-managed company have been dropping despite strong September sales. I expect to see shares coast to the low to mid $9’s. I like the TSM January, 2010, $5 call option WPDAA.X at $4-$4.50. As I pointed out earlier, there is almost no premium on the 2010 options since the market is pricing in uncertainty over the future of the semiconductor industry. All observers of fabrication companies have generally come to understand that we move in 12-18 month technology cycles for computer hardware and in 3-5 year cycles for consumer electronics.

I’ve written in the past that growth in mobile applications and HD technologies will likely fuel growth in the short-term. I still believe we are at the beginning of a new HD consumer electronics cycle. Adoption rate of HD display and disc technologies is just getting started and TSM, as the world's largest outsourced semiconductor fabricator, will likely manufacture a lot of the chips that power the graphics cards and rendering technologies for these HD devices.

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