COMPANY DESCRIPTION

Taiwan Semiconductor Manufacturing is a foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Co. also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. Co.'s products include logic semiconductors, mixed-signal/radio frequency semiconductors, CMOS image sensor semiconductors and high voltage semiconductors.

 

ECONOMIC MOAT

TSM’s moat is dug from scale advantages in the foundry space that no other firms can match. Semiconductor fabrication technologies continually advance, which allows the chip industry to come out with ever-faster chips that are more power efficient, at lower per-unit costs. As the undisputed market share leader, TSMC has more resources to invest in research and development and cutting-edge production equipment to stay at the forefront of chip manufacturing technologies, as well as spread out its fixed costs more efficiently, than its closest competitors.

 

OUTLOOK

Taiwan Semiconductor reported strong results in 2014.  Revenues increased 46%, while earnings rocketed 72%. Growth should continue in 2015, though at a slower pace than 2014.  Year-to-year improvement for 2015 will more than likely  be constrained by a strong U.S. dollar, which is hurting end demand across myriad of sectors, including the personal computer, mobile, and tablet segments. Growth over the long term ought to continue to be driven by healthy demand for silicon used in mobile applications.  This chip space is competitive but size gives TSM’s size and agility to quickly adjust to customers' production needs will give TSM a competitive edge. In our opinion the stock has room to move higher in the 3 to 5 years ahead. 

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STRENGTHS

  • Leading market position

  • Strong R&D capabilities

  • Manufacturing excellence 

WEAKNESSES

  • Customer concentration

  • Patent infringement litigations 

THREATS

  • Intense competition

  • Adverse fluctuations in exchange rates

  • Risk from highly cyclical semiconductor and electronics industries 

OPPORTUNITIES

  • Robust outlook for the global semiconductors market
    Focus on solar and solid state

  • lighting businesses

  • Wearable and internet of things (IoT) offer robust growth opportunities 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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