2/
We often think of TSMC output always rising. Certainly revenue *usually* rises, but actual shipments often stagnates or even declines
3/
TSMC can boost revenue when output stalls by raising prices. This isn& #39;t as simple as it seems. Chip prices, like-for-like, fall over time. So to extract more money per wafer means always advancing technology.
Compare them to UMC and you& #39;ll see the difference.
4/
Despite bleatings by the auto industry, IoT and HPC have grown the most in the past two years. Cars have lagged.
5/
Smartphones remain the largest contributor to TSMC& #39;s revenue. But high-performance computing, which includes servers and base stations, were a huge contributor to incremental sales over the past two years.
Autos are barely a blip on the radar.
6/
We& #39;re currently in the third year of what I predict will be a 5-6 year spending growth spurt.
This is normal. TSMC capex cycles tend to last around 5 years from trough to peak.
7/
Yesterday I predicted this spending spurt would force TSMC to borrow money.
Turns out, that prediction was more prescient than I& #39;d expected: just today it launched a $3.5 billion USD bond offering in 5, 7 & 10yr terms. Expect more debt sales to come.
8/
Since depreciation is a major component of costs, and more capex means higher depreciation, it& #39;s likely that TSMC& #39;s profitability (gross margins) has hit an apex.
That figure will probably trend up again, but for now it& #39;ll be under pressure due to the big jump in spending.
9/
Looming large is the TWD.
Taiwan& #39;s currency appreciated strongly in recent years, with a 1% rise in the TWD hitting TSMC& #39;s gross margin by around 40bps.
As @samsonellis & @liviayap11 write, the U.S. may push for further appreciation of the TWD

https://www.bloomberg.com/news/articles/2021-04-18/u-s-hints-more-pressure-to-come-on-undervalued-taiwan-dollar">https://www.bloomberg.com/news/arti...
10/
Despite its strong growth, TSMC has actually been seen as a good dividend play with solid yields.
But the rising share price has narrowed that yield to record lows.
11/
In February I wrote about Taiwan& #39;s drought and the risk to semiconductors. It bears repeating because the drought has worsened.

https://www.bloomberg.com/opinion/articles/2021-02-25/making-chips-requires-lots-of-water-and-gulp-taiwan-has-a-drought

In">https://www.bloomberg.com/opinion/a... fact, this chart tells you all that you need to know about the current water crisis.
12/
Now some bonus charts you haven& #39;t seen yet.

Inventory. Always keep an eye on inventory.
Although reports of chip shortages are well known, there& #39;s also word that some clients are double-booking (ordering more than they may need).

Inventories are now at historic highs.
13/
Rising inventories can be viewed in many ways.
But it& #39;s worth noting that TSMC& #39;s Days of Inventory, a common metric to measure stockpiles, has almost doubled over the past four years to near record levels.
14/14
This ends my thread.
But let me leave you with a final thought: I actually think Intel& #39;s decision to stick with chip manufacturing is a good thing for TSMC.
I know that sounds counterintuitive, so you can read my arguments in this piece. https://www.bloomberg.com/opinion/articles/2021-01-22/tsmc-can-breathe-easy-intel-will-keep-making-chips">https://www.bloomberg.com/opinion/a...
You can follow @tculpan.
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