SINGAPORE – Taiwan Semiconductor Manufacturing Co. (TSMC) may experience earnings after the company announced plans for major capital spending this year, an analyst told CNBC.
After the world’s biggest earnings for the fourth quarter earned a record on Thursday, he said he would spend between $ 25 billion and $ 28 billion in 2021 to make advanced chips.
The figure surprised Mehdi Hosseini, a senior analyst at Susquehanna Financial Group.
“We were expecting a flat income guide with a double-digit growth target for the whole year. But it was the capex that surprised and it was above expectations,” Hosseini said on CNBC’s Squawk Box Asia on Friday. .
He added that part of TSMC’s decision to announce such a large figure for likely capital expenditure was due to an increasing competitive threat from Samsung’s chip manufacturing company.
The potential value for TSMC’s planned capital expenditure this year lies in long-term growth opportunities, he said. “They are the best in class, they have proven to us that they are the leading semiconductor manufacturer. But if you come up with this kind of big capital, I think there are some implied risks,” Hosseini added.
He explained that there are two possible problems that could place TSMC’s future earnings. First, TSMC’s decision was likely to be influenced by a greater competition threat from Samsung. Hosseini said the revenue associated with capital expenditures allocated to head the competition will only materialize in late 2022.
“This, coupled with the fact that margins are declining, indicates that earnings are going to be under pressure,” Hosseini said.
According to the analyst, the second problem has to do with the diversification of TSMC’s revenue sources. The chipmaker’s revenue has long been driven by chips for iPhones.
“Now that revenue is diversifying and the cloud infrastructure is starting to have a big impact, it is extremely difficult to predict the revenue contribution from the cloud,” Hosseini said, adding that it increases volatility and speculation about future revenue growth related to cloud, which makes business planning more challenging.
Hosseini said its 12-month share price target for the stock is 425 new Taiwanese dollars ($ 15.18), about 28% lower than the share price on Thursday.
TSMC said it expects growth for the first quarter of 2021 to be driven by demand for chips to support high-performance computers – the ability to process data and complex calculations at high speeds, as well as a recovery in the car segment and a lighter seasonal demand for smartphones than in recent years.
Recently, Reuters also reported that US chipmaker Intel plans to tap into TSMC to make a second-generation discrete graphics chip for personal computers in an effort to help curb the rise of Nvidia. Companies like Intel, Nvidia, Qualcomm and Apple rely on Asian foundries to manufacture their chips. TSMC has more than half of the total chip manufacturing market, including a strong hold on advanced chips.
Analysts said the price of chips is expected to recover in 2021 as demand improves due to the long-standing need for remote work, as well as greater use of new technologies such as 5G and artificial intelligence.