Taiwan Semi's Growth Accelerates As AMD Gains Steam
Summary
- TSMC has been and continues to be the undisputed leader of cutting edge process and is continuing to grow business and gain market share.
- AMD is one of the beneficiaries of TSMC's process edge and is likely to drive considerable growth at TSMC.
- The article shows why AMD is likely to surpass Apple and become the top customer at TSMC.
- This idea was discussed in more depth with members of my private investing community, Beyond The Hype. Get started today »
TSMC (NYSE:TSM) has been on a tear lately. One of the key developments that has been accelerating TSMC growth in 2020 has been its association with Advanced Micro Devices (NASDAQ:AMD). TSMC story, while temporarily driven by AMD, goes far beyond AMD and stands on its own merit. TSMC, now a de-facto process leader, has solid growth ahead with or without AMD. AMD mainly helps accelerate the growth into a high gear.
Apple (AAPL) contributed to more than 20% of TSMC revenues for the last several years. Outside of Huawei, no other customer has even breached the 10% mark in recent years. While not disclosed, AMD was likely a mid-single digit percentage customer in 2019. Based on the current growth trends, AMD is likely to surpass Apple in number of wafer starts in 2021 and become TSMC’s largest customer over time.
It is a tall order to say that AMD will grow its business at TSMC to Apple’s level in the next couple of years. Is it possible?
Let’s take a look.
The biggest driver of Apple business at TSMC is the iPhone. At about 200Mu per year, and rounded to 100mm2 per unit, this demand towers over all other chip demand from Apple. Chips for other devices, like watches, earphones, wireless devices, etc., are tiny in comparison to iPhone chips. The volumes of these chips are also significantly lower. Consequently, all non-iPhone chip demand at Apple likely rounds out to another 10% to 20% incremental business at TSMC. Let’s be generous and say that total Apple demand at TSMC is about 250M 100mm2 equivalent chips with about two thirds of volume at the leading edge node.
In 2020, Apple has begun moving its Mac CPU business from Intel (INTC) to TSMC. In addition to CPUs, Apple seems to be on track to move much of its GPU business from AMD to an internal alternative (also to be manufactured at TSMC) in 2021. The new CPU/GPU business will likely constitute another 25Mu of incremental units of business for TSMC. The die size of Mac CPUs is likely bigger than the die size of iPhone chips. Considering the larger die size, it is likely that the Mac CPUs could increase Apple business at TSMC by about 20%. Much of this growth will be occurring between Q3 2020 and Q2 2022. Effectively, assuming iPhone and other businesses stay relatively stagnant, Apple business at TSMC could be growing roughly 10% a year for the next two years. Assuming rest of TSMC business grows by about 10%, Apple will remain about a 22% customer through CY 2022. Thus Apple continues to be one of the growth drivers at TSMC for the next couple of years.
Despite this Apple’s growth, we expect AMD business to surpass Apple business at TSMC sometime in 2022!
How is this possible? How can AMD business at TSMC become so large?
The answer is three parts:
- AMD’s ongoing CPU market share gains. PC OEMs are now predicting that the PC market will grow to 300Mu in 2021. That means, every 1% market share gain by AMD translates to about 3M incremental units at TSMC. Even though a Zen2 CPU die is about 100mm2, the average die size of the 3M CPUs is likely to be significantly larger. (However, note that most iPhone chips in 2021 are likely to be manufactured at 5nm whereas AMD PC CPUs are manufactured at 7nm).
- AMD’s Console business: AMD’s console business is shaping up to be a massive driver of 7nm wafer starts. Sony (SNE) and Microsoft (MSFT) together are likely to ship north of 50M console units in 2021. And, these chips are large – about 2 to 3.5 times bigger than a typical iPhone chip. Large chips also mean lower yields and more wafer starts. Adjusted for these factors, the console business alone could drive wafer starts that are roughly equivalent to half of Total Apple wafer starts.
- AMD’s GPU business: AMD, after a long time, is competitive with Nvidia (NVDA) in the GPU business. GPUs are typically large die devices. The high-end Big Navi is about 5 times as big as iPhone chip. Even the low-end devices tend to be considerably larger than 100m2. CDNA devices are also likely to be large – likely even larger than Big Navi devices. As AMD’s GPU market share grows, GPUs will become another significant driver of wafer starts at TSMC.
Between these three dynamics, it should be clear that AMD’s wafer starts at TSMC will grow past Apple’s wafer starts in a short order. As such, AMD’s wafer start ramp at TSMC has already become meaningful. In Q4 2020, AMD, for the first time, may become a 10% customer at TSMC – second only to Apple.
If AMD can gain 10 percentage point market share in 2021 from Intel (INTC), which is likely, it will add about 60Mu iPhones worth of business at TSMC. Console business will add over 200Mu equivalent business. GPUs, assuming AMD takes reasonable share from Nvidia (NVDA) will add about 50Mu equivalent business. i.e. about 310Mu iPhone equivalent business. This is well above the wafer starts that Apple is currently purchasing at TSMC!
In other words, YES, AMD business has the potential to equal or surpass Apple business by the end of 2021. As time progresses and as AMD takes more share from Intel and Nvidia, AMD is likely to pass Apple as the
Prognosis
With AMD’s CPU, GPU, and console lines kicking into a high gear, TSMC growth is set to accelerate for the next several quarters.
Note: A more detailed article was published to subscribers of Beyond The Hype in September. TSM stock is up over 25% since the writing but TSMC continues to be strong secular growth story.
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This article was written by
Author of Beyond the Hype, a comprehensive emerging technology stock analysis and discussion service on Seeking Alpha Marketplace. Currently, we focus on identifying and investing in the semiconductor, renewable energy, storage, EV, autonomous vehicle, CPU, and GPU markets.
Beyond the Hype is different because it is dedicated to cutting through management and Wall Street commentary and providing fresh and insightful perspectives from a mid-market M&A consultant specializing in the technology and energy industries who's also been an individual Investor for over 25 years. The platform is about growth oriented investments primarily in market leaders and technology leaders. Investment philosophy is long term buy and hold with average holding time of several years.
Beyond the Hype is different because it is dedicated to cutting through management and Wall Street commentary and providing fresh and insightful perspectives on companies and investments. We see through hype, show the true value of companies, and make investments safer. A lot of views tend to be controversial, against the grain, and remarkably accurate.
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Disclosure: I am/we are long AMD, TSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Short NVDA
Long/Short volatility position in INTC