Taiwan Semiconductor: Big Opportunity In Tiny Wafers

Inside Taiwan Semiconductor’s fabrication — or “fab” — clean rooms pressurized with filtered air, technicians don white coveralls to control the level of contamination as they braid transistors by the billions into tiny slivers of silicon.

The end product: computer chips.

Taiwan Semiconductor Manufacturing (NYSE:TSM) employs some 40,500 workers and operates on a foundry business model that Chairman Morris Chang pioneered in 1987.

Taiwan Semiconductor is expected to generate $ 25.1 billion in revenue this year, with earnings per share excluding items of $ 1.68, according to analysts polled by Thomson Reuters. If the forecast holds true, revenue will jump about 25% from last year.

The company’s long-term revenue trajectory has gone from $ 1.5 billion in 1997 to more than $ 20 billion in 2013.

The Hsinchu, Taiwan-based firm doesn’t design, manufacture or market chips under its own brand name. It avoids competing directly with customers — such as Qualcomm (NASDAQ:QCOM), Advanced Micro Devices (NYSE:AMD), Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:BRCM) — that rely on its wafer-production lines to mass-produce chips and other products.

Mark Liu, Taiwan Semiconductor’s co-CEO along with C.C. Wei, told IBD that the company expects to benefit from China’s aggressive 4G (fourth generation) smartphone sales and infrastructure buildup, as well as other industrywide wellsprings of demand.

CEO Sees Demand

Liu said that the demand it’s seeing in China and elsewhere runs counter to a warning on Oct. 9 from Microchip Technology (NASDAQ:MCHP) that “another industry correction has begun” — which sent chipmaker stocks plummeting.

“Demand from China is still normal, maybe a little deviation from seasonal, but demand for 4G mobile application and telecom infrastructure remains aggressive,” Liu said.

“We think the growth of smartphones and tablets in propelling our revenue growth will continue for at least several years,” he said. “Also, there are recent innovations in wearable devices including smartwatches, in cloud computing, in the Internet of Things with smart cars and smart homes. We are working closely with our customers on all these applications to set the stage of the next growth wave to move us forward.”

Taiwan Semiconductor has also benefited as worldwide sales of semiconductors reached $ 87 billion during Q3, an all-time quarterly record and an 8% increase from a year earlier, the Semiconductor Industry Association reported.

That marked seven straight months of sequential growth for the industry, SIA President Brian Toohey said.

Market tracker Gartner expects worldwide semiconductor revenue in 2014 to top $ 336 billion, up 6.7% from last year.


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