Taiwan's TSMC likely to post double-digit earnings increase despite Intel ambitions

儘管英特爾野心勃勃，台灣台積電仍可能實現兩位數的盈利增長

Guidance from analysts has world’s largest contract chipmaker posting 13% annual rise in net profit


TAIPEI (Taiwan News) — Taiwan Semiconductor Manufacturing Company (TSMC) is scheduled to post earnings Thursday (July 15), and analysts are predicting a continued double-digit rise in profit despite an expected slackening demand for chips and Intel expanding its foundry business.

Analysts polled by S&P Global Market Intelligence expect TSMC to post a net profit of NT$136.39 billion ($4.87 billion), a 13% rise compared to the same quarter last year. Analysts are also expecting revenue to rise 20% to NT$372 billion ($13.2 billion).

The company’s official forecast places revenue at NT$360 to NT$369 billion (US$12.9-13.2 billion) for the upcoming quarter.

“TSMC’s better pricing power on the back of the capacity tightness should largely offset the margin pressure it is seeing from the massive capital spending,” Citigroup analysts Roland Shu and Grant Chi wrote in a research note.

Although sales of PCs, notebooks, and other electronic devices have shattered cyclical records on the back of pandemic-induced work-from-home demand, analysts expect this to subside as the world’s major economies ramp up vaccination and gradually transition to a post-COVID normal.

Perhaps more pressing for analysts is TSMC’s newfound competitor in Intel. Unlike its rivals AMD and Nvidia, chip designers which rely on TSMC’s foundries to manufacture their silicon, Intel has its own foundries.

However, in March, Intel announced that it would open up these foundries to external clients with its Integrated Device Manufacturer 2.0 strategy and a new business division called Intel Foundry Services (IFS). Intel also announced that it is building two fabs in Arizona for this new division to serve customers that want to produce their silicon closer to home.

In a March press release, Intel expressed confidence in its chipmaking prospects. “Intel is the only company with the depth and breadth of software, silicon and platforms, packaging, and process with at-scale manufacturing customers can depend on for their next-generation innovations,” Intel CEO Pat Gelsinger said in the press release.

A tough game of catch-up

Research firm Strategy Analytics is not so sure that Intel can catch up with TSMC overnight. In a March report, the firm said TSMC still has a significant advantage with its US$45 billion in revenue in 2020 and a healthy 42% profit margin.

Analyst Sravan Kundojjala even believes there is a timeline that would see Intel license TSMC’s process technology for use in its facilities, making TSMC a stakeholder in the success of Intel’s foundry.

For now, Intel is trying in its home market to edge out TSMC, which is ramping up its own capacity in the U.S. with a large fab in Arizona. According to lobbying disclosures, Intel has been busy lobbying American lawmakers for a cut of the money from the CHIPS Act, which has allocated US$50 billion for domestic semiconductor production.

Given Intel CEO Pat Gelsinger’s comments about only allocating taxpayer dollars to “companies that are based here and house their most critical assets domestically,” it would be safe to assume the lobbying efforts are also directed towards excluding TSMC’s U.S. operations from the pie.

But do investors seem worried about all of this Not really. TSMC doesn’t have a notable amount of short interest on the stock, and strike prices for options contracts expiring in September have the price relatively stable.

Persistent headwinds

Investors will want to keep an eye on a few other things that could affect TSMC’s balance sheet though. One is whether Taiwan can corral its domestic COVID outbreak and ramp up vaccination.

While daily case numbers have fallen to the 20s from around 500 at the outbreak’s peak, the country's vaccination rate remains low, with only around 15% of residents having received their first shot. Until that figure climbs significantly, Taiwan will remain vulnerable to flare-ups.

In fact, TSMC reported three confirmed COVID-19 cases on Monday (July 12) among its Taiwan workforce. In a statement published Tuesday (July 13), TSMC said it is encouraging employees not on production lines to work from home.

The U.S.-China rivalry will also continue to put pressure on TSMC. Washington has reportedly pressed the chipmaker to not move ahead with a planned US$2.8 billion investment intended to boost production capacity at its Nanjing fab.