Taiwan Semiconductor Manufacturing Co Ltd (TSMC), a dedicated integrated circuit foundry company, reported that its third-quarter net profit climbed 36% and revenue increased about 30% on solid demand for high-end chips.
The world’s largest contract chipmaker reported consolidated revenue of TWD 356.43 billion, net income of TWD 137.31 billion, and diluted earnings per share of TWD 5.30 (US$0.90 per ADR unit) for the third quarter ended September 30, 2020.
Year-over-year, third-quarter revenue increased 21.6% while net income and diluted EPS both increased 35.9%. Compared to the second quarter of 2020, third-quarter results represented a 14.7% increase in revenue and a 13.6% increase in net income, the company said.
In USD, third-quarter revenue was $12.14 billion, which increased 29.2% year-over-year and increased 16.9% from the previous quarter. Gross margin for the quarter was 53.4%, operating margin was 42.1%, and net profit margin was 38.5%.
Taiwan-based multinational semiconductor contract manufacturing and design company said it forecast 2020 revenue to jump more than 30%, higher than the previous prediction of more than 20% rise. TSMC forecast fourth-quarter revenue of between $12.4 billion and $12.7 billion, upgraded from $10.4 billion registered a year earlier.
On the NYSE, TSMC shares closed 1.16% lower at $88.60 on Wednesday; however, the stock is up over 50% so far this year.
“Our third-quarter business benefitted from the strong demand for our advanced technologies and speciality technology solutions, driven by 5G smartphones, HPC and IoT-related applications,” said Wendell Huang, VP and Chief Financial Officer of TSMC.
“Moving into the fourth quarter of 2020, we expect our sequential growth to be supported by strong demand for our industry-leading 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications.”
TSMC stock forecast and analyst comments
Morgan Stanley target price is TWD 498 with a high of TWD 541 under a bull scenario and $119 under the worst-case scenario. TSMC’s stock price forecast was raised by Susquehanna to $55 from $40.
For the one listed on the NYSE, five analysts forecast the average price in 12 months at $55.00 with a high forecast of $55.00 and a low forecast of $55.00. The average price target represents a -37.92% decrease from the last price of $88.60. From those five equity analysts, four rated “Buy”, none rated “Hold” and one rated “Sell”, according to Tipranks.
“Revenue shortfall from HiSilicon restriction is likely to be compensated by other customers’ share gains, which reflects TSMC’s technology leadership in the foundry industry. Despite the recent share price rally, we still see risk-reward skewed to the upside thanks to key secular trends in, such as 5G, AI, and high-performance computing benefiting TSMC,” said Charlie Chan, equity analyst at Morgan Stanley.
“CPU outsourcing from x86 vendors presents incremental upside, thanks to TSMC’s cutting edge technology. Amid an uncertain macro environment, TSMC’s cash-flow generating ability should allow it to pay out at least NT$10 DPS annually, which makes it a relatively defensive global tech stock with strong downside support,” Chan added.
Upside and Downside Risks
Upside: 1) Advanced logic demand is faster than expected, given accelerated growth in semi content per box. 2) Macro situation improves, fueling stronger end demand. 3) Samsung and Intel in leading-edge can’t compete with TSMC – highlighted Morgan Stanley.
Downside: 1) Advanced logic demand is slower than expected, given stagnant growth in semi content per box. 2) Macro situation weakens, hurting end demand. 3) Samsung and Intel compete in high-end logic.
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This article was originally posted on FX Empire