Taiwan Semiconductor Manufacturing: Our Top Technology Pick For 2021 Is At The Heart Of The Next Wave Of Technology

Summary

• Taiwan Semiconductor Manufacturing is a market leading foundry that's spending tens of billions of dollars to maintain that position.
• The company has massive revenue generation that should continue to grow, along with profits, by double digits.
• The company's impressive financial potential and foundry asset base should generate billions in annual FCF.
• The struggles of Intel and an increased shift to ARM processors mean an increasing competitive position for the company.
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Taiwan Semiconductor Manufacturing (NYSE:TSM) is a leading multinational semiconductor contract manufacturing and design company. The company has a market cap near $500 billion, but that's minimal in relation to the next wave of technology. Fundamentally, the company manufacturers chips for customers using 300 mm wafers at a variety of sizes, on the forefront of foundry technology.

As we'll see throughout the article, the company's continued record investment (~$20 billion in 2021 capital expenditures) combined with its market leading position should drive long-term profits.

TSMC - EE Times Asia

Taiwan Semiconductor Manufacturing Volume Growth

Taiwan Semiconductor Manufacturing is focused on consistently growing its asset base with the aim to provide higher volumes to shareholders.

Taiwan Semiconductor Manufacturing Capacity - Taiwan Semiconductor Manufacturing Annual Report

Taiwan Semiconductor Manufacturing fundamentally manufactures wafers along with the chips for those wafers. The baseload of the company's abilities is not only the capacities at which it can manufacture those wafers (10 nm, 7 nm, etc.) but also the number of wafers it is actually capable of manufacturing and selling.

The company in 2018 manufactured 12-13 million 12-inch equivalent wafers. In 2018 its annual growth rate was 8%. In 2019 it was 2% and in 2020 it was 5%. The company has had steady mid-single digit capacity growth here. At the same time, the company has steadily moved to smaller wafers. In 2018, the company sold 41% <16 nm wafers. By 2020 it's expected to be ~55%.

That's expected to continue in subsequent years. It's not surprising with massive demand, Apple has already secured 80% of Taiwan Semiconductor Manufacturing's 2021 5 nm production.

Taiwan Semiconductor Manufacturing Low NM Growth and Leadership

Taiwan Semiconductor Manufacturing's major source of leadership is the company's low NM growth and leadership.

Taiwan Semiconductor is a leader in manufacturing. The company has hit 5

Analyst’s Disclosure:I am/we are long 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.