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15 April 2021

TSMC Earnings Rise as Demand Overtakes Supply

In a world where technological progression is increasingly integrated into everything we do, the demand for the parts and components to build this technology is ever increasing, and the supply often struggles keep up with demand. Taiwan Semiconductor Manufacturing Co (TSMC) is one of the global giants which is dominating the supply of semiconductor chips. Semiconductors are used in almost anything with integrated technology, from mobile phones, laptops to modern day cars. This increasing reliance on a component which is only produced by a few large manufacturers globally has resulted in a shortage.

TSMC has benefitted substantially by the rising semiconductor demand and limited supply, further catalysed due to Coronavirus. As usual with technology companies, the narrative surrounding people working from home due to global lockdowns has bolstered the company’s sales and profits. In the first quarter of 2020, TSMC generated US$4.93bn in net profits, compared to the expected US$4.73bn.

The company has a roster of highly influential technology companies making up its client base, such as Apple and Qualcomm, which are at the forefront of fifth generation integration into smartphones and laptops. Many major car manufacturers are customers of TSMC and other chip manufacturers, with many reporting that they have had to limit the production of vehicles due to the global shortage of semiconductors.

TSMC’s competitor chip producer, Intel, has announced its US$20bn expansion plan to increase the company’s chip manufacturing capacity to capitalise on the unprecedented demand. TSMC’s expansion plan is set to dwarf that of Intel’s and is set to invest US$100bn over the next three years, with between US$25-28bn to be invested into the development and production of advanced semiconductors this year alone.

TSMC has a market value of around US$558bn at present, more than doubling its value over the past year with more than a 16% increase in its share price this year alone. The outlook for the company is looking positive with the implementation of 5G telecommunications and the development of artificial intelligence which should in turn push demand for semiconductors further. Therefore, with the demand driving at a faster pace than supply, the company to come out on top is likely to be the one who can optimise production capacity to capture new customers and satisfy the need of the market.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
TSMC Earnings Rise as Demand Overtakes Supply

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