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<title>Taiwan Semiconductor Manufacturing Company Limited (TSM) Latest Stock Analysis</title>
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<title>TSMC: Don't Be Ruined By Over-Optimism (Downgrade)</title>
<description><h2>Summary</h2><ul> <li>Taiwan Semiconductor Manufacturing Company Limited aka TSMC is positioned as the "enabler" of the AI industry, fabricating AI chips for companies like Nvidia, AMD, Broadcom, and Marvell.</li><li>TSMC expects over 20% YoY revenue growth in 2024, driven by AI-related revenue and the scaling of its N3 process node.</li><li>The sustainability of the AI growth inflection could lead to further upside potential for TSMC's valuation.</li><li>I explain why the market isn't foolish, as it lifted TSMC's valuation since bottoming out in 2023.</li><li>With AI FOMO driving significant recent gains in TSMC, it's time to play the defensive until we get a steeper pullback.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="2042492720" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">BING-JHEN HONG</p></figcaption></figure><p></p> <h2>TSMC Is The AI "Enabler"</h2> <p>I urged <strong>Taiwan Semiconductor Manufacturing Company Limited</strong> (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>) aka TSMC investors to ignore the pessimism in <a href="https://seekingalpha.com/article/4662858-tsmc-geopolitical-fears-could-rear-its-ugly-head-again">TSM's pre-earnings pullback</a> in mid-January 2024 as the market prepared for <a href="https://pr.tsmc.com/english/news/3101" rel="nofollow">TSMC's<span class="paywall-full-content invisible"> fourth-quarter earnings</span></a><span class="paywall-full-content invisible"> release back then. I assessed robust buying sentiments heading into TSMC's pivotal earnings scorecard and forward guidance as the market contemplated TSMC's AI growth inflection.</span></p> <p class="paywall-full-content invisible">The leading pure-play foundry didn't disappoint, as <a href="https://seekingalpha.com/article/4663479-taiwan-semiconductor-manufacturing-company-limited-tsm-q4-2023-earnings-call-transcript">TSMC focused its earnings</a> conference on being the <a href="https://www.bloomberg.com/news/articles/2024-03-08/tsmc-s-sales-gain-9-4-in-first-two-months-after-ai-boost" rel="nofollow">key "enabler"</a> for the semiconductor industry's AI hype. It shouldn't surprise investors that TSMC is a critical player in the value chain in fabricating the AI chips that Nvidia (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>) customers demand. Furthermore, even <a href="https://www.bloomberg.com/news/articles/2024-04-02/intel-financial-update-shows-losses-at-factories-widened-in-2023" rel="nofollow">arch-rival</a> Intel (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>) outsources its foundry requirements, given its current lack of process leadership. With Advanced Micro Devices (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), Broadcom (<a href="https://seekingalpha.com/symbol/AVGO" title="Broadcom Inc." class="paywall-full-content no-summary-bullets invisible">AVGO</a><span class="paywall-full-content no-summary-bullets invisible">), and Marvell (</span><a href="https://seekingalpha.com/symbol/MRVL" title="Marvell Technology, Inc." class="paywall-full-content no-summary-bullets invisible">MRVL</a><span class="paywall-full-content no-summary-bullets invisible">) leveraging TSMC as its key foundry partner, TSMC investors can be assured that the Taiwan-headquartered company will continue to play a vital role in the AI future.</span></p> <p class="paywall-full-content invisible no-summary-bullets">Accordingly, TSMC expects to deliver more than 20% YoY growth in revenue for 2024, driven by the surge in AI-related revenue. In addition, it also expects its N3 process node to continue scaling, with revenue "expected to triple in 2024 and account for a mid-teens percentage of total wafer revenue." Notably, TSMC is on track to achieve volume production of its N2 node in 2025, heaping more pressure on Intel to catch up. Based on the latest announcement by the Biden Administration on grants and <a href="https://www.bloomberg.com/news/articles/2024-04-08/tsmc-gets-11-6-billion-in-us-grants-loans-for-three-chip-fabs" rel="nofollow">loans provided to TSMC</a>, the foundry is expected to build a third domestic fab for the N2 node "before the end of the decade." While N2 is scheduled to go into volume production in 2025, I don't expect it to be the bleeding edge node when TSMC's third Arizona fab is ready for volume production. Therefore, I believe the most advanced manufacturing technologies will remain in Taiwan, securing its silicon shield while mitigating geopolitical risks with its ex-Taiwan production (including in Japan and Germany).</p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, the sustainability in the AI growth inflection could persist over the next few years, spurring further potential upside that might not have been baked into its valuation.</p> <h2 class="paywall-full-content invisible no-summary-bullets">TSM Valuation Remains Reasonable</h2> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/8/51630113-1712582573976396.png" alt="TSM Quant Grades" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption">TSM Quant Grades <span>(Seeking Alpha)</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">As seen above, Seeking Alpha Quant assigns TSM a "C" <a href="https://seekingalpha.com/symbol/TSM/valuation/metrics">valuation grade</a>, suggesting it's still reasonable. Buying momentum on TSM is also highly robust, with an "A" <a href="https://seekingalpha.com/symbol/TSM/momentum/performance">momentum grade</a>. Therefore, the market has lifted TSM's bullish thesis, seeing the foundry as a vital cog in fulfilling the AI ambitions of its fabless AI chips designers.</p> <p class="paywall-full-content invisible no-summary-bullets">Can TSM continue to drive a further valuation re-rating? Why not? Valued at a forward adjusted P/E of just over 22x, it's well above its 10Y average of 18x. Therefore, investors must consider why the market could lift its valuation much higher than its long-term average. The 20+% growth recovery in its top line momentum corroborates TSM's bullish thesis that the leading-edge foundry will underpin the industry's push toward accelerated computing.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Is TSM Stock A Buy, Sell, Or Hold?</h2> <p class="paywall-full-content invisible no-summary-bullets">Moreover, with Intel not expected to supplant TSMC as the world's largest foundry through 2030, it suggests <a href="https://seekingalpha.com/article/4681951-intel-foundry-is-getting-ready-to-challenge-tsmc-upgrade">Intel might face more</a> intense challenges to grab market share against TSMC. The significant losses undertaken by Intel Foundry in the near term behoove robust financial execution as Intel attempts to defend against market share losses against AMD and Nvidia. As a result, I gleaned that TSMC has a less complicated roadmap, bolstered by its solid execution as it continues to ramp toward N2 volume production next year.</p> <p class="paywall-full-content invisible no-summary-bullets">Geopolitical headwinds that hampered TSMC's valuation in 2023 are expected to taper as it diversifies its production base away from Taiwan. Investors will likely be increasingly confident in affording TSM a higher valuation multiple, consistent with its exposure and position as a key "enabler" of the AI growth cycle.</p> <p class="paywall-full-content invisible no-summary-bullets">As a result, I view steep pullbacks in Taiwan Semiconductor Manufacturing Company Limited's price action as solid opportunities to add exposure. However, I also assessed that the surge from TSM's 2023 lows has been likely priced in significant near-term optimism as it struggled to overcome the $150 resistance level. With selling pressure expected to intensify as earlier investors take profit to lock in gains, I move back to the sidelines as I await another, more attractive opportunity to buy more shares. Notwithstanding my caution, I remain confident about TSM's long-term thesis and will consider buying aggressively if we get a solid retracement to dissipate the recent optimism.</p> <p class="paywall-full-content invisible no-summary-bullets"><em>Rating: Downgrade to Hold.</em></p> <p class="paywall-full-content invisible no-summary-bullets"><em>Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing, unless otherwise specified.</em></p> <h4 class="paywall-full-content invisible no-summary-bullets">I Want To Hear From You</h4> <p class="paywall-full-content invisible no-summary-bullets">Have constructive commentary to improve our thesis? Spotted a critical gap in our view? Saw something important that we didn’t? Agree or disagree? Comment below with the aim of helping everyone in the community to learn better!</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.</p></description>
<link>https://seekingalpha.com/article/4682754-tsmc-dont-be-ruined-by-over-optimism-downgrade</link>
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<pubDate>Tue, 09 Apr 2024 15:30:00 GMT</pubDate>
<author>JR Research</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
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<title>Taiwan Semiconductor: The Revolution Is Just Getting Started</title>
<description><h2>Summary</h2><ul> <li>TSMC's revenue growth is expected to pick up due to the demand for AI-capable products from prominent players in the industry.</li><li>The company's financial position is strong, with no risk of insolvency or liquidity issues.</li><li>TSMC's largest clients, including Apple, Nvidia, Qualcomm, AMD, and Broadcom, are driving the demand for AI innovations, presenting an opportunity for TSMC's growth.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture><img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="2042492720" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"></picture><figcaption><p class="item-credits">BING-JHEN HONG/iStock Editorial via Getty Images</p></figcaption></figure><p></p> <h2><strong>Introduction</strong></h2> <p>I wanted to come back to Taiwan Semiconductor Manufacturing Company Limited (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>) to see how it has progressed through 2023, which was arguably a very tough environment for many semiconductor companies. Unsurprisingly, TSMC's profitably took<span class="paywall-full-content invisible"> a hit, but we are seeing a resurgence in revenue growth. I believe that the future is very bright for TSM, due to the AI hype that other prominent players in the industry are leading the demand for AI-capable products, which should directly influence TSMC's top line.</span></p> <p class="paywall-full-content invisible">Since <a href="https://seekingalpha.com/article/4638960-tsmc-arizona-plant-delay-is-just-short-term-noise">my last article</a> on the company, the shares have advanced over 60%, outpacing S&amp;P500 (<a href="https://seekingalpha.com/symbol/SPY" title="SPDR S&amp;P 500 Trust ETF">SPY</a>) by a large margin. At that point, I argued that the potential in AI is vast, and the company is trading at a ridiculous valuation, which doesn't reflect its potential. My stance hasn't changed.</p> <h2 class="paywall-full-content invisible"><strong>Briefly<span class="paywall-full-content no-summary-bullets invisible"> on Performance</span></strong></h2> <p class="paywall-full-content invisible no-summary-bullets">The company has <a href="https://seekingalpha.com/symbol/TSM/balance-sheet">around $55B in</a> cash and equivalents, against around $30B in long-term debt. I don't think this is particularly a bad position to be in. The company can easily pay it off if it wants to, but there is no need, especially since the company's interest income easily covers the annual interest expense on debt. Safe to say, the company is at no risk of insolvency and has no liquidity issues. Now, let's look at how the other important metrics progressed over the last year, which was a tough year, to say the least, so I am not expecting miracles. Starting with revenues.</p> <p class="paywall-full-content invisible no-summary-bullets">We can see the company had a tough time at the beginning of the year, due to the negative sentiment of the semiconductor industry, which was plagued with oversupply. It is no surprise that the top line took a hit, however, we can see it has bottomed out in Q3 of the year and is starting to pick back up, showing signs of recovery.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-1712174044028887_origin.png" rel="lightbox" data-width="2038" data-height="804" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-1712174044028887.png" alt="Revenues" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Revenues (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Given the tough environment throughout the year, it is also not surprising to see the company's profitability taking a slight hit. Nevertheless, these are still very impressive margins, and it seems that the worst is behind for the industry for now, so I would expect to see these pick back up over the next year.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440961525_origin.png" rel="lightbox" data-width="2396" data-height="782" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440961525.png" alt="Margins" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Margins (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Continuing with efficiency and profitability, the company's ROA and ROE took a hit since its bottom line deteriorated slightly. The same applies to these as with margins, once the business starts to pick back up, the company's assets and shareholder capital will be put to better use.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440540352_origin.png" rel="lightbox" data-width="2464" data-height="786" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440540352.png" alt="ROA and ROE" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">ROA and ROE (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Overall, we can see what I have been saying in the previous articles. A tough year was not unexpected, and the management mentioned this many times in their previous earnings calls. What matters now is the upcoming year, which I think is going to be pivotal, in terms of revenue acceleration, and innovation by the company's largest clients.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>What to expect from upcoming Earnings</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">Earnings are going to be announced on the 18th of April after the market closes. Analysts are expecting around $18B in revenues and EPS of $1.31. That is around an 8% y/y increase, which is good to see given the last year of negative comparisons. The company slowly returning to growth.</p> <p class="paywall-full-content invisible no-summary-bullets">The management is looking at around the same revenue growth of $18.4B at the midpoint. The management expects to see gross margins in the range of 52% to 54% and 40% to 42% for EBIT margins.</p> <p class="paywall-full-content invisible no-summary-bullets">I don't think it would be hard for the company to beat these estimates. But if it does miss, I would expect some profit-taking to take place as it had a nice run-up since the lows.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Comments on the Outlook</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">Being the pickaxe merchant, TSMC has not been lifted very high in this current gold rush of AI hype, which I think presents an opportunity. The company's top clients, like Apple Inc. (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>), NVIDIA Corporation (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>), QUALCOMM Incorporated (<a href="https://seekingalpha.com/symbol/QCOM" title="QUALCOMM Incorporated">QCOM</a>), Advanced Micro Devices, Inc. (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), and Broadcom Inc. (<a href="https://seekingalpha.com/symbol/AVGO" title="Broadcom Inc.">AVGO</a>), all are somehow involved in the gold rush craze, and to see that it is not reflected with revenue growth currently at TSM is baffling. The company's share price did go up from its lows back in October of last year, right about when I wrote my last bullish article on it. This could mean that investors are already pricing in an eventual turnaround in cyclicality, and the return of the positive sentiment in the semiconductor industry, fueled by the aforementioned "gold rush" in AI.</p> <p class="paywall-full-content invisible no-summary-bullets">The company's largest client, Apple, is starting to embrace this trend, and now that the EV project has been scrapped, which I think was a good idea, given the hindsight of EV troubles and slowdown, the company can fully focus on AI innovations. Apple has been quietly acquiring <a href="https://www.cdomagazine.tech/aiml/ai-shopping-spree-apple-leads-charge-with-32-startup-acquisitions-in-2023" rel="nofollow">over 30 AI startups in 2023,</a> and I don't think this trend is going to stop. I guess it is better late than never. With such decisions, the company is looking to improve its upcoming handsets to be more than just a run-of-the-mill slight upgrade as it has been in the recent past. I am excited to see what the AI revolution will bring to the iPhones in the future. I haven't been impressed by the company since they introduced Apple Silicon with its revolutionary M chip.</p> <p class="paywall-full-content invisible no-summary-bullets">Continuing with handsets, QCOM is another exciting company for me, which I covered <a href="https://seekingalpha.com/article/4681587-qualcomm-still-a-believer-but-i-need-proof-of-future-growth-downgrade">recently</a>, looks to have a lot to prove but the innovations in handsets, for example, on-device AI should fuel the company's top line considerably, as AI is simply too hot to ignore and many enterprises and individuals are looking for the next big breakthrough. The company's upcoming ARM-based processor is specifically designed for Windows laptops and looks to be very power efficient, and a real contender to already established players like Intel Corporation (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>), and AMD. If I hadn't just upgraded my Windows laptop of 8 years for an M2 MacBook, I would have most likely bought the one with the next processor of QCOM, unfortunately, it's not available yet.</p> <p class="paywall-full-content invisible no-summary-bullets">Let's not forget the star of AI, Nvidia. The company saw its revenue transform and turn into a data center powerhouse focused on AI capabilities. In some quarters, the company saw over 200% y/y growth. I don't think this is going to be sustainable for very long, however, I wouldn't be surprised if it persists for another year or two, with continual improvements on their data center products like Blackwell and the current top product Hopper H100 and the upcoming H200. With TSMC being <a href="https://www.techpowerup.com/320679/nvidia-ceo-reiterates-solid-partnership-with-tsmc#:~:text=TSMC%20is%20sole%20maker%20of%20Nvidia%20AI%20GPUs&amp;text=The%20upcoming%20RTX%2050%20series,nm%20processes%2C%20the%20sources%20said." rel="nofollow">the sole maker</a> of Nvidia AI GPUs, there is a lot to be excited about over the next while. The company may not see such growth as NVDA, but if the demand for these new products continues to be strong, revenues at TSMC will certainly pick up.</p> <p class="paywall-full-content invisible no-summary-bullets">TSMC is not standing still and is actively looking to <a href="https://seekingalpha.com/news/4063087-taiwan-semiconductor-and-partners-team-up-to-build-2nd-chip-facility-in-japan">increase capacity</a> to meet the demand for innovations regarding semiconductors. The company is looking to spend around $30B on capex "to support customers' growth". The company also said that they "<em>have sharply increased our Capex spending in preparation to capture and harvest the growth opportunities from HPC, AI, and 5G megatrends."</em> Going further to say that the company is well on track to grow between 15% and 20% CAGR over the next several years, which gives me a good starting point for valuation. I believe that this range is still on the more conservative side, given the potential mentioned above. So, it looks like it is great being the merchant of pickaxes in the modern gold rush. The opportunities are there, it's just a matter of whether TSMC is going to capitalize on it but being one of the most important semiconductor companies in the world, with a highly skilled labor force, the edge is on its side to succeed.</p> <p class="paywall-full-content invisible no-summary-bullets">Let's look at my updated valuation model.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Valuation</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">For revenues, I decided to go with around 13% CAGR over the next decade, which I think is more than reasonable, given how hot the industry has become. The semiconductor industry's sentiment is once again turning positive, the smartphone and PC markets are returning to growth, which will help TSM return to robust growth, on top of AI hype. The management back in 2022 said they were looking for around 15% to 20% CAGR over the next several years, so if we take revenue numbers from FY23 to FY26 assumptions, we get around 14% CAGR, which is on the lower end of their estimates for conservatism sake. After that, we didn't have any numbers, so what I like to do is linearly grow the growth down over time, ending up with around 13% CAGR over the period. I also went ahead and modeled a more conservative case, and more optimistic one. Below are those estimates.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122434358168325_origin.png" rel="lightbox" data-width="1596" data-height="182" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122434358168325.png" alt="Revenue Assumptions" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Revenue Assumptions (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In terms of margins and EPS, over time, I see capex subsiding, leading to better profitability once investments in capacity upgrades are through. The management has mentioned that they see capex <a href="https://seekingalpha.com/article/4663479-taiwan-semiconductor-manufacturing-company-limited-tsm-q4-2023-earnings-call-transcript">"leveling off"</a> already after an intense few years of ramp-up. The leveling off starts at around $30B a year in capex, so for the next decade, I am modeling around a 10% increase in capex per year, just to be more conservative, as I don't think $30B per year for the next decade is going to be sufficient. The value of money reduces so the amounts will increase. To keep it even safer, the management also mentioned that they expect to reach over 53% in gross margins over the long term, so I have modeled that the company over the next decade will achieve 55% margins by FY32, which fits well with what the management said. The improvements in gross margins will bring improvements to EBIT and Net margins. Below are those estimates.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122456990692258_origin.png" rel="lightbox" data-width="1504" data-height="173" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122456990692258.png" alt="Margins and EPS Assumptions" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Margins and EPS Assumptions (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">For the DCF model, I went with the company's WACC of around 9.3% as my discount and 2.5% terminal growth rate for the base case scenario. I didn't think I needed to add more margin of safety here, as the company's financial position is very strong.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440581038_origin.png" rel="lightbox" data-width="1236" data-height="762" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440581038.png" alt="WACC calculations" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">WACC calculations (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, just to be on a bit more conservative end, I am adding another 10% discount to the final intrinsic value, which should be enough for the same reason as above, its balance sheet. With that said, TSMC's intrinsic value is $164 a share, meaning the company is still trading at a discount to its fair value.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122457325133808_origin.png" rel="lightbox" data-width="1248" data-height="252" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122457325133808.png" alt="Fair Value" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Fair Value (Author)</p></figcaption></figure><p></p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Risks and Closing Comments</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">We may see some profit taking if the company misses earnings, which are due in the next couple of weeks. The company has run up over 60% since my last article and October lows, so I wouldn't be surprised if the company doesn't deliver great numbers and the shares see a 10% slide. I would say it would be an opportunity to get in at an even better entry point.</p> <p class="paywall-full-content invisible no-summary-bullets">If the demand for AI-related products isn't as robust as I predict, that will affect the company's top-line, and certainly its fair valuation and share price. Furthermore, there is still a lot of uncertainty in the geopolitical sense. A lot of investors are not keen on investing in a company that is somehow related to China, as it is perceived as very risky. To that I say, it is overblown in my opinion, and I <a href="https://seekingalpha.com/article/4596211-taiwan-semiconductor-invasion-narrative-overblown-company-buy">covered that</a> in more detail in one of my earlier articles.</p> <p class="paywall-full-content invisible no-summary-bullets">The company's plans for expansion may come with some unforeseen extra costs, which could bring down its profitability further, but I would say it's short-term pain for long-term gain.</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">I believe the company has a lot of room for further growth, well passed my conservative fair value, however, I would be cautious if it climbs over that very quickly, and you miss the entry point. I reiterate my strong buy recommendation, but it wouldn't be a bad idea to wait for the next quarter's results before adding to a current position or starting a new one. It is up to you to do further due diligence, and whether you are fine with taking on the risks mentioned.</p></description>
<link>https://seekingalpha.com/article/4682193-taiwan-semiconductor-revolution-getting-started</link>
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<pubDate>Thu, 04 Apr 2024 17:09:12 GMT</pubDate>
<author>Gytis Zizys</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Gytis Zizys</category>
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<title>TSMC: Continues To Trade Cheap Heading Towards Q1 2024</title>
<description><h2>Summary</h2><ul> <li>TSMC's stock rose by 37.13% since my previous article, now it stands at $140.45, near the lower end of my fair price estimate range of $146.4- $220.1.</li><li>TSMC expands fabs and innovates to maintain market dominance, holding 61% share. This last one represents pricing advantages.</li><li>TSMC remains undervalued with a fair price estimate of $238.47, suggesting 33% annual returns throughout 2029, offering opportunity even with consensus projections.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="1879125119" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">BING-JHEN HONG</p></figcaption></figure><p></p> <h2>Thesis</h2> <p>In <a href="https://seekingalpha.com/article/4660737-tsmc-i-should-have-sticked-to-my-model-rating-upgrade">my previous article</a> about Taiwan Semiconductor Manufacturing Company Limited (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>), I updated my models and got a fair price estimate ranging from $146.4 to $220.1.</p> <p>That article was published after <a href="https://seekingalpha.com/news/4021820-taiwan-semiconductor-gaap-epadr-of-129-beats-by-013-revenue-of-1728b-beats-by-580m">Q3 2023</a> (which was released<span class="paywall-full-content invisible"> on October 19, 2023. At that time the stock was trading at $104, which prompted a rating upgrade from "Hold" to "Strong Buy". Since then the stock price has increased by 37.13%, and now the stock price stands at $140.45, therefore being close to the lower end of the fair price estimate range.</span></p> <p class="paywall-full-content invisible">TSMC released <a href="https://seekingalpha.com/news/4055856-taiwan-semiconductor-beats-q4-top-and-bottom-line-estimates">Q4 2023 earning</a>s on January 18. For that quarter, TSMC beat top EPS estimates by $0.05 and revenue by 50M. The company also disclosed that 3nm and 5nm accounted for 15% and 35% respectively, 50% in total.</p> <p class="paywall-full-content invisible">After updating my models again, I arrived at a<span class="paywall-full-content no-summary-bullets invisible"> fair price estimate of $238.47 and a future price estimate for 2029 of $418.49. Both of these targets mean an upside of 69.8% and annual returns of 33% throughout 2029.</span></p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712136042920807.png" alt="Performance since my previous article" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Seeking Alpha</span></p></figcaption></figure><p></p> <h2 class="paywall-full-content invisible no-summary-bullets">Overview</h2> <h4 class="paywall-full-content invisible no-summary-bullets">TSMC's Growth Plan</h4> <p class="paywall-full-content invisible no-summary-bullets">TSMC's business is manufacturing, therefore its growth plan is essentially expanding its existing fabs and <a href="https://www.taipeitimes.com/News/biz/archives/2022/08/31/2003784445" rel="nofollow">building new ones</a>. Aside from that, they are very focused on innovation, which is one of the reasons why they have managed to keep their dominance.</p> <h4 class="paywall-full-content invisible no-summary-bullets">How does TSMC compare against Peers?</h4> <p class="paywall-full-content invisible no-summary-bullets">TSMC is the largest semiconductor manufacturing company by capacity and market share. This last one <a href="https://www.statista.com/statistics/867223/worldwide-semiconductor-foundries-by-market-share/#:~:text=Semiconductor%20foundries%20revenue%20share%20worldwide%202019%2D2023%2C%20by%20quarter&amp;text=In%20the%20fourth%20quarter%20of,11.3%20percent%20of%20the%20market." rel="nofollow">stands at around 61%</a>, which is far superior to the second place, Samsung Electronics Co., Ltd. (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) which holds 11.3% of the market. The third and fourth places are GLOBALFOUNDRIES Inc. (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>), and United Microelectronics Corporation (<a href="https://seekingalpha.com/symbol/UMC" title="United Microelectronics Corporation">UMC</a>) with 5.8% and 5.4% respectively.</p> <p class="paywall-full-content invisible no-summary-bullets">TSMC's size is, in my opinion, a moat by itself since with a higher volume, TSMC can offer reduced pricing per unit as well as preferential pricing for lithography machines and fab equipment.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121731202773843.png" alt="Market Share of foundries" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Statista</span></p></figcaption></figure><p></p> <h4 class="paywall-full-content invisible no-summary-bullets">Industry Outlook</h4> <p class="paywall-full-content invisible no-summary-bullets">The<a href="https://www.statista.com/outlook/tmo/semiconductors/worldwide" rel="nofollow"> worldwide semiconductor market</a> is expected to grow at a CAGR of 6.30% throughout 2027. At the end of 2023, the market generated revenues of $553B, and it's expected to reach $736.4B by 2027.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526_origin.png" rel="lightbox" data-width="1698" data-height="902" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"> <picture> </picture></a></span><span><a href="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526_origin.png" rel="lightbox" data-width="1698" data-height="902" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526.png" alt="Semiconductors - Worldwide" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Statista</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">However, that is taking all semiconductors sales which is beyond foundry services. This last one <a href="https://www.alliedmarketresearch.com/semiconductor-foundry-market-A124887" rel="nofollow">was valued at $106.9B in 2022</a> and is expected to reach $231.5B by 2032, which is an 8.1% annual growth rate throughout that period.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Valuation</h2> <p class="paywall-full-content invisible no-summary-bullets">To value TSMC I will employ a DCF model. Below you can see the list of financial figures that will be needed to build the model. The equity market price is the market cap of TSMC at the time I started writing the article.</p> <p class="paywall-full-content invisible no-summary-bullets">The WACC will be calculated with the already-known formula. In this case, it came out at 10.50%. If you want to see a more detailed procedure, you can see the section labeled "WACC Calculation" in the DCF model.</p> <p class="paywall-full-content invisible no-summary-bullets">Lastly, CapEx will be left fixed at $35.68B, which is around $5B higher than the FY2023 CapEx of $ 30.94 B. Interest expenses will grow at a 9% rate at pace with the 2021-2023 average growth of total debt, which was 9%. Then, D&amp;A will be calculated with a margin tied to revenue, which is 24.37%.</p> <span class="table-responsive paywall-full-content invisible no-summary-bullets"><span class="table-scroll-wrapper"><span data-intersection-boundary="start"></span><table> <colgroup> <col> <col> </colgroup> <tbody><tr><td colspan="2">TABLE OF ASSUMPTIONS</td></tr> <tr> <td>(Current data)</td> <td> </td> </tr> <tr> <td>Assumptions Part 1</td> <td> </td> </tr> <tr> <td>Equity Market Price</td> <td>622,940.00</td> </tr> <tr> <td>Debt Value</td> <td>32,132.50</td> </tr> <tr> <td>Cost of Debt</td> <td>4.90%</td> </tr> <tr> <td>Tax Rate</td> <td>7.22%</td> </tr> <tr> <td>10y Treasury</td> <td>4.365%</td> </tr> <tr> <td>Beta</td> <td>1.06</td> </tr> <tr> <td>Market Return</td> <td>10.50%</td> </tr> <tr> <td>Cost of Equity</td> <td>10.87%</td> </tr> <tr> <td>Assumptions Part 2</td> <td> </td> </tr> <tr> <td>CapEx</td> <td>30,940.70</td> </tr> <tr> <td>Capex Margin</td> <td>43.94%</td> </tr> <tr> <td>Net Income</td> <td>27,314.40</td> </tr> <tr> <td>Interest</td> <td>1,573.20</td> </tr> <tr> <td>Tax</td> <td>4,606.30</td> </tr> <tr> <td>D&amp;A</td> <td>17,163.40</td> </tr> <tr> <td>Ebitda</td> <td>50,657.30</td> </tr> <tr> <td> </td> <td> </td> </tr> <tr> <td>D&amp;A Margin</td> <td>24.37%</td> </tr> <tr> <td>Interest Expense Margin</td> <td>2.23%</td> </tr> <tr> <td>Revenue</td> <td>70,419.4</td> </tr> </tbody></table> <span data-intersection-boundary="end"></span></span><button class="table-enlarge-button"><svg viewBox="0 0 16 16" xmlns="http://www.w3.org/2000/svg" class="table-enlarge-icon"><path fill-rule="evenodd" clip-rule="evenodd" d="M16 11a5 5 0 0 1-5 5H5a5 5 0 0 1-5-5V5a5 5 0 0 1 5-5h6a5 5 0 0 1 5 5v6zm-4.5-2.5h2v-6h-6v2h4v4zm-9-1h2v4h4v2h-6v-6z"></path></svg>Click to enlarge</button></span> <p class="paywall-full-content invisible no-summary-bullets">The first step to arrive at the fair value estimate is to calculate revenue. For doing this I will rely on historical data concerning <a href="https://www.wsts.org/61/MARKET-STATISTICS" rel="nofollow">Worldwide Semiconductor Shipments from WSTS</a> and the historical quarterly revenue of TSMC since Q1 20218.</p> <p class="paywall-full-content invisible no-summary-bullets">Analyzing the trend below, you can observe that the average quarterly growth of semiconductor shipments since 2018 has been 5.80% and the average contraction has been 5.68%. Meanwhile, TSMC has been growing 2.16% more and contracting 4.31% less than the overall market. These are the proportions I will keep for the overall projection of worldwide semiconductor shipments and TSMC's quarterly revenue.</p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, contractions in semiconductor shipments usually last 1 quarter. The only exception has been the period of Q1 2022-Q1 2023, which was later resolved thanks to the increased demand for AI-capable GPUs and CPUs. Then, periods of growth usually last three quarters.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145236722433_origin.png" rel="lightbox" data-width="1182" data-height="652" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145236722433.png" alt="COmparisson" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In the table below you can see my projections for worldwide semiconductor shipments as well as for TSMC's quarterly revenue throughout 2029. In red you can see the periods where both metrics contracted. You may observe that for some periods TSMC followed a distinct path from the market, however, for the protection (which is marked in green) I made that every three quarters there would be a quarterly contraction.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145903541842_origin.png" rel="lightbox" data-width="1441" data-height="1327" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145903541842.png" alt="Historical Data + Projections" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Finally, the model is also going to suggest which could be the stock price for 2029. To do this I will try to predict which could be the value of each of the elements that compose equity. To do this I will rely on the average evolution displayed by these elements in 2021-2023.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121465173553262_origin.png" rel="lightbox" data-width="1316" data-height="1524" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121465173553262.png" alt="DCF" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">As you can see, the model yields a present fair price estimate of $238.47, which implies a 69.8% upside from the current stock price of $140.45. Then, the future price estimate of $418.49 translates into 33% annual returns throughout 2029.</p> <h4 class="paywall-full-content invisible no-summary-bullets">How do my Estimates Compare with the Average Consensus?</h4> <p class="paywall-full-content invisible no-summary-bullets">If I did a model completely based on <a href="https://seekingalpha.com/symbol/TSM/earnings/estimates">average estimates</a>, I would get a fair price per share of $162.88, which is a 16% upside from the current stock price of $140.45. Then, the future price yielded by this hypothetical model would be $284.10, which translates into 17% annual returns throughout 2029.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121466454955733_origin.png" rel="lightbox" data-width="1012" data-height="765" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true&quo... |
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<title>Understanding Intel's Foundry Situation</title>
<description><h2>Summary</h2><ul> <li>Intel Corporation stated they lost $7B on their foundries in 2023, and 2024 will be worse.</li><li>This was not unexpected, as entering the external foundry business is very expensive, and takes time to generate profits. It was also necessary.</li><li>Although things will improve after 2024, it will be several years before the foundry is a strong contributor to earnings.</li><li>The potential benefit to Intel is enormous, and justifies the cost, long term.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w750" alt="Intel headquarters in silicon valley" width="4928px" height="3264px" data-id="458652825" data-type="getty-image" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">maybefalse</p></figcaption></figure><p></p> <p>I <a href="https://seekingalpha.com/author/technology-investing?ticker=INTC">have been long</a> <strong>Intel Corporation</strong> (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a></span>) stock for a few years, and was a bit surprised by the reaction of the stock price on the recent news where Intel broke down the losses on their foundry<span class="paywall-full-content invisible"> business. </span><a href="https://seekingalpha.com/news/4086589-intel-foundry-built-for-the-ai-era-hopes-to-achieve-break-even-margins-before-2030" class="paywall-full-content invisible">Intel announced</a><span class="paywall-full-content invisible"> their foundry lost $7 Billion dollars last year, and will lose more this year. While it certainly has some meaning, some of it is also how Intel uses their accounting, and it just means their other divisions are much more profitable. It is not damning for the company; we already knew the company isn't where it needs to be in manufacturing maturity, technology and efficiency. The enormous investments in new sites and process R &amp; D were always going to be a huge drag on the company until they could translate into benefits. Those benefits are, and were always intended to be, in the future.</span></p> <p class="paywall-full-content invisible no-summary-bullets">I want to start with a lot of this article is not based on cold facts, because we are looking forward to nodes that we don't have full information for, and the future is also never certain. Stock prices look forward, so do I, and so we have to make the best of what we have now to try to best estimate the future.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Some Basics</h2> <p class="paywall-full-content invisible no-summary-bullets">So, let's start with some basics. Intel not only designs their chips, but they also manufacture (most of) them. They will use outside companies, namely TSMC (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>), when it makes sense. Many consider TSMC to be ahead technologically, and although that's not completely true, it is close. Intel's 7 is better than anything TSMC has in terms of raw performance at fairly absurd power scenarios (which Intel does use), but in almost every other way, Intel 7 is behind. And this is important, because it's an indication of what Intel values, or at least did, and what TSMC does.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel 4 is hard to categorize, but it doesn't seem any more efficient than Intel 7 in power use, as Meteor Lake uses essentially the same architecture as Raptor Lake, and doesn't demonstrate clear clock speed improvements in laptop chips. It also doesn't seem to have the raw performance of Intel 7, based on the <a href="https://www.tomshardware.com/laptops/intel-core-ultra-meteor-lake-u-h-series-specs-skus" rel="nofollow">maximum clock speeds</a> we see. It is far more dense though.</p> <p class="paywall-full-content invisible no-summary-bullets">I should point out, names like 3nm, or 10nm, are not meaningful. As Intel said, they could just as easily call their node "George," as it's not an actual measurement anymore, but just a name. So, for example, it's doubtful anything in Intel 7, or TSMC 3nm, is actually 7nm, or 3nm, and if there is, it's purely coincidental. Companies will try to make the name meaningful, so, you would expect Intel 4 to be more dense than Intel 7 (which it is), but at the end of the day, it's just a name. And processes with the same number are not equal; Intel 3 and TSMC's 3nm will be significantly different, as each company places a different emphasis on their design goals.</p> <p class="paywall-full-content invisible no-summary-bullets">Even now, no one makes processors that clock as high as those based on <a href="https://www.tomshardware.com/pc-components/cpus/intel-core-i9-14900ks-cpu-review" rel="nofollow">Intel's 7 process</a>. It's likely TSMCs processes are not as well suited for this, although clock speed is also based on architecture, so it's not a certainty. But this is a clear indicator of what Intel has historically considered the most important, and which TSMC does not prioritize to the same extent. I mention this because this pattern will extend into the future, although I suspect to a lesser extent.</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>Intel's Current and Future Nodes</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Intel has proudly talked about the 5N4Y plan, which means five nodes in four years. While it nice Intel has released two real nodes in those four years, it's far less impressive than they would have you believe. Intel 7 is a (spectacular in some ways) derivation of 10nm, so isn't a new node. It's an improved node. <a href="https://www.xda-developers.com/intel-roadmap-2025-explainer/" rel="nofollow">Intel 4 and Intel 3</a> are essentially the same, or if you prefer, two half nodes, but either way count as one real node. Intel 20a and 18a are similar. It's still an impressive achievement, considering their issues with 14nm and 10nm nodes, but it's really nonsense in how it's presented, and to dilute the accomplishment by being misleading.</p> <p class="paywall-full-content invisible no-summary-bullets">Right now, Intel 7 is the dominant node used by Intel, with Intel 4 now ramping up with Intel's Meteor Lake processors (but only for the CPU part of the chiplet; a lot is made by TSMC). Intel 4 is essentially an internal node, although it does have at least <a href="https://www.techpowerup.com/316184/ericsson-first-to-market-with-processors-made-on-intel-4-technology" rel="nofollow">one external customer</a>. Intel 3 is very closely related to Intel 4, and will be the node Intel offers to external customers, and will also be Intel's last FinFET node. Intel 7 uses what is called DUV (Deep Ultraviolet Lithography), which is a relatively approach on leading edge processes, and requires additional steps (multi-patterning) to create the tiny transistors in modern nodes. This adds cost, and can lower yields, making Intel 7 a very expensive node.</p> <p class="paywall-full-content invisible no-summary-bullets">Did Intel care? Not that much, since they were selling expensive processors, and that largely masked (forgive the pun) the expense of the node. Intel 4 partially uses EUV, which is an abbreviation of Extreme Ultraviolet Lithography, to a limited extent, which simplifies the process compared to a pure DUV approach. A very crude way of thinking about it is cutting with a sharper knife. Intel 3 will increase the use of EUV, which lowers the amount of steps needed even further, and thus lower cost.</p> <p class="paywall-full-content invisible no-summary-bullets">Wafer cost is very important outside of the context of Intel selling its own processors. It's been estimated the expense of an Intel 7 wafer is roughly the same as what TSMC charges for theirs, even with their profits, so it's very inefficient. Intel 3 should be better, but according to Intel, still more expensive than TSMC's 3nm nodes (of which there are several).</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>What to Expect</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Does this really matter? Not that much, because the battle of Intel 3 and TSMC's 3nm is essentially over before Intel even released their node. Companies have to start designs well in advance, so we know TSMC has largely won this round. The "2" (meaning Intel 18A vis-a-vis TSMC/Samsung 2nm) is where there will be some sort of battle, and clearly where Intel will do better. For that reason, I'm not going to waste too much time on Intel 3, it's not going to generate a lot of money or interest, although it could generate interest as Intel improves the process with new derivations, and for those who wish to stick to FinFETs. But, it will never be a big node.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel 18a, however, looks promising in some ways. CEO Pat Gelsinger has indicated he is betting the company on it, although with his penchant for needless drama, it's not that important a statement. A lot has to be determined in terms of how it will match up against TSMC 2nm. Intel will be ahead by using PowerVia, which should improve efficiency and performance. But, that's not a clear indicator of superiority, as there are other characteristics that are probably more salient.</p> <p class="paywall-full-content invisible no-summary-bullets">Below is Intel's image describing how they view the competitive landscape going forward.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/8/saupload_Intel-leadership.jpg" alt="IFS Roadmap" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Intel</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">For one, Intel is in some ways a prisoner of its own success. TSMC has never had super high performing nodes, since it's a relatively small market compared to the phone market, for example. Intel wants really good clock speeds, because they sell products which benefit from them. Outside of Advanced Micro Devices (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), which is lucky to have <a href="https://www.techspot.com/news/102231-intel-shipped-50-million-pc-cpus-q4-2023.html" rel="nofollow">20% market share in the PC segment</a>, they don't have many customers that require this. Efficiency? Yes. Density? Yes. This is not to say TSMC cares nothing about performance, and it's dreadful. It's not. It's just not as good as Intel's, and likely won't be. And they are fine with that.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel has historically cared about performance first. And probably second as well. Of course, the others matter, even to Intel, but when it comes down to it, they'll take clock speed. Even now, Intel's CCG group <a href="https://www.intc.com/news-events/press-releases/detail/1672/intel-reports-fourth-quarter-and-full-year-2023-financial" rel="nofollow">dominates their revenue</a>, so it's not a misplaced priority. But, for external customers? It's not as widely useful as other factors.</p> <p class="paywall-full-content invisible no-summary-bullets">My guess, based on information and estimates by people who know more than I do, and information given by Intel, is 18A will lead in performance, be roughly equivalent in power efficiency, at least as cost-efficient, but significantly less dense (which is why I think cost efficiency will be good; they are related).</p> <p class="paywall-full-content invisible no-summary-bullets">I think it fairly obvious that density will be more important than absolute performance in more scenarios that external customers are involved in, but certainly 18A will have advantages, and will be competitive. It's not even that important in the greater scheme of things though. Intel has a big advantage over TSMC in that almost everyone outside of TSMC wants another leading edge fab to choose from, as competition can only help them. That's where it ends though. TSMC has the advantage of being a known partner, and one that has many successful partnerships. No major company will risk their major line on Intel yet, and even Intel has indicated this. On top of this, TSMC is not a competitor in any market their customers are in. And of course, their PDKs are more mature, and Intel is still learning things TSMC has known for years.</p> <p class="paywall-full-content invisible no-summary-bullets">With this reality, Intel can't possibly even come close to TSMC in attracting as many external customers in the 18A era. I think a realistic way to look at it is, Intel 3 is going to be quite unsuccessful in attracting external customers, and that battle has pretty much been fought, and lost. If it's even been fought. This is not to say it won't help Intel sell their own products, at least servers, but for external customers, it's already been decided.</p> <p class="paywall-full-content invisible no-summary-bullets">18A is really the first step. It's probably more attractive from a technical perspective vis-a-vis TSMC 2nm, than Intel 3 is when compared to TSMC's multiple 3nm nodes. But, more than that, companies have had more time to evaluate it, and Intel has had more time to pursue them. It's almost a pipe-cleaner node (not technically, 20A actually is) for new customers in the sense that companies will likely commit relatively lower volume parts to it, but not their most important products; the risk is too high. But, if these relationships work out and have success, it could start a pattern where Intel can gain momentum as their relationships mature, as well as their experience in operating as a foundry.</p> <p class="paywall-full-content invisible no-summary-bullets">I think it's premature to talk about 14A outside of this context. I haven't really seen much on its technological merits, so won't comment much about it. Intel will likely be using <a href="https://www.tomshardware.com/pc-components/cpus/intel-receives-first-high-na-euv-chipmaking-tool-from-asml-intel-is-the-first-pathfinder-for-revolutionary-new-lithography-tech" rel="nofollow">High-NA EUV</a>, but not much beyond that is known about it yet. I think they have a greater opportunity with it than 18A, if for no other reason than those stated above; more mature relationships, and greater experience. But, if they screw up, that could easily work against them as well.</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>Is Intel's Strategy Sensible?</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Many people consider this whole thing as too risky, either in investing too much in new fabs and such, or in even keeping the fabs as part of the company. I would say these are exactly why it's such a winning formula; it's extremely difficult for anyone else to enter this industry, although <a href="https://www.anandtech.com/show/21332/rapidus-to-get-39-billion-in-government-aid-for-2nm-multichiplet-technologies" rel="nofollow">Rapidus</a> seems to be trying. It's extremely capital intensive, it takes a very long time to build the fabs and fill them, and it's also difficult to develop the experience and supporting technology that allows external customers to efficiently make processors.</p> <p class="paywall-full-content invisible no-summary-bullets">Then, you have to build trust. Compare that with processor designs, where we see cloud providers coming out with new internal only designs all the time. There's also a synergy with having your own fabs and designs, one that benefits Intel processors, even with their current fab technology being largely behind.</p> <p class="paywall-full-content invisible no-summary-bullets">It's going to take time, and money. If you're a patient investor, the payoff can be huge. If you're not, it probably seems like Intel is killing itself. Even Intel is giving indications they are not meeting expectations (which they will not come out and say directly), by first saying they won't have any major product line on 18A, the <a href="https://www.tomshardware.com/tech-industry/manufacturing/intel-18a-based-cpus-will-ramp-to-high-volume-in-2026" rel="nofollow">18A ramp being in 2026</a>, and in their foundry news indicating the company does not have to increase external revenue to make their manufacturing profitable.</p> <p class="paywall-full-content invisible no-summary-bullets">No doubt there is some truth to this, as they can certainly improve their efficiency and technological position. The company also indicated they expect to move from outsourcing 30% of their manufacturing to 20%, which is related to the previous remark. We also see <a href="https://www.cleveland.com/news/2024/03/intels-ohio-plants-delayed-2-years-will-start-production-in-2027-or-later.html" rel="nofollow">delays in construction</a> of Intel's new fabs. Put together, it's difficult for me to not see this as Intel thinking they would get much more business by this time, or at least much stronger interest, than they have. And now they have to put together a business plan that more realistically assesses the slower external revenue growth than was expected.</p> <p class="paywall-full-content invisible no-summary-bullets">One company I have left out is Samsung (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>). Yes, they kind of, sort of, well, make advanced transistors. In theory. At least according to their published papers. And numbers they come up with. Except, they have no enjoyed success, regardless of their rhetoric. Whereas history records Intel as often having the best processes, with TSMC currently having extremely strong product lines. Even so, we can't say for sure Samsung will continue to be non-competitive, but Intel has to aim higher than this flightless bird, so I focused primarily on TSMC. Intel may not have to pass TSMC in every metric, but they have to be competitive, and have advantages in some scenarios. I think they will (and do), particularly in performance. But they also better not be so severely disadvantaged in everything else.</p> <p class="paywall-full-content invisible no-summary-bullets">However you look at it, the foundry business is going to be a painful grind. It's super expensive, it's time consuming, and it's going to take a long time before it's very profitable. Companies are not going to jump ship en masse to the great Intel foundries. They aren't great anymore; it's not 2010. They not only have to improve capacity and technology, but also have all the tools in place for their customers. They need experience, which only happens slowly. After that, they need trust, and that is even a slower process. Intel has a lot of smart people, and I think they are better understanding this market now, and are being more realistic about it. But even if they execute very well, it's still a very long process to become very profitable. It is realistic to expect improvement in the losses with the new nodes and better focus, nearer term, however.</p> <p class="paywall-full-content invisible no-summary-bullets">Of course, this article is largely about their foundry, and does not reflect the overall opportunities of the company. Of course, nodes like Intel 3 will impact their server line, for example, and presumably very favorably, but I wanted to focus more on the external foundry business. I am still very optimistic on Intel as a whole, and even on the foundry business. I think it's a very difficult business to get into, but it also allows Intel to profit in far more scenarios than selling their own processors directly. It also will generate income that will allow further development costs possible, as each node is enormously expensive. It will also allow Intel to use equipment much longer for trailing nodes that external customers will still need long after Intel's products would not find them meaningful.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Conclusion</h2> <p class="paywall-full-content invisible no-summary-bullets">All of this convinces me this is the right strategy for Intel Corporation. I never expected the foundry business to be a quick payoff, and always just wanted to see iterative improvement. We're still really early in the game, and while we see the technology becoming more competitive, we don't see significant design wins yet, or major customers producing important product lines at IFS. Nor would we expect to yet, so that part is inconclusive. We should see some uptake on 18A, and hopefully continued momentum going forward. But however you look at it, it's going to be slow, and will take time for Intel Corporation to fully develop it.</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.</p></description>
<link>https://seekingalpha.com/article/4682739-understanding-intel-foundry-situation</link>
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<pubDate>Mon, 08 Apr 2024 20:30:35 GMT</pubDate>
<author>Technology Investing</author>
<category>Intel Corporation (INTC)</category>
<category>Intel Corporation (INTC:CA)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSMWF)</category>
<category>Samsung Electronics Co., Ltd. (SSNLF)</category>
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<item>
<title>Intel Reveals Groundbreaking Financial Roadmap Through 2030</title>
<description><h2>Summary</h2><ul> <li>Intel Corporation has revealed an ambitious financial roadmap through 2030, targeting a nearly 70% improvement in Intel Foundry's operating margin. A monumental turnaround indeed.</li><li>The stock market reacted negatively to the long-term outlook, but this was unfounded as the overall financial targets remained unchanged. Intel will likely also increase its process leadership with 14A.</li><li>The internal foundry model exposes the manufacturing group as the main cause of Intel's deteriorating margins, which the turnaround will reverse. The product groups remain profitable.</li><li>The turnaround could be likened to AMD's, with the 2017 Zen launch only marking the beginning of a new era of long-term growth and investor returns. Restoring tech leadership is only a prerequisite for investors.</li><li>Overall, the webinar provided a strong case for returning the manufacturing side to profitability (and beyond), solidifying the case for a long-term investment.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture><img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w750" alt="Entrance of The Intel Museum in Silicon Valley." data-id="1002010996" data-type="getty-image" width="4841px" height="3227px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"></picture><figcaption><p class="item-credits">JHVEPhoto/iStock Editorial via Getty Images</p></figcaption></figure><p></p> <h2>Investment Thesis</h2> <p>At its highly anticipated "New segment reporting <a href="https://seekingalpha.com/article/4681836-intel-corporation-intc-new-segment-reporting-webinar-transcript">webinar</a>," <b>Intel Corporation</b> (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a></span>) revealed an ambitious financial roadmap through 2030, with as its headline the target for a nearly 70 percentage point improvement<span class="paywall-full-content invisible"> in Intel Foundry's operating margin through the period.</span></p> <p class="paywall-full-content invisible">However, as the stock market doesn't like to look forward so far, the stock sunk because of this long-term reality, not unlike when the financial details of the turnaround were first disclosed in late 2021 ahead of the (early 2022) investor meeting. While there are certainly risks in succeeding in this aggressive goal, the main (high-level) takeaway is the incredible potential for improved profitability as Intel moves into the EUV era and regains process leadership.</p> <h2 class="paywall-full-content invisible">Background</h2> <p class="paywall-full-content invisible">Intel first announced its plan to create the so-called "internal foundry model" in fall 2022. The aim was to split up<span class="paywall-full-content no-summary-bullets invisible"> the company in products and manufacturing without actually splitting up the company. In that way, the Intel product groups would become foundry customers just like any external foundry customer would. In that way, Intel Foundry would have to compete for Intel Products business just like any other foundry would, on equal footing (i.e., on price and process PPAC or power-performance-area-cost).</span></p> <p class="paywall-full-content invisible no-summary-bullets">The idea was that this would more clearly expose the underlying financials, allowing for like-for-like comparisons of both businesses against their respective competitors, which would not only give more clarity to investors, but also to Intel's management. After all, the idea behind being an IDM was to get "margin stacking": instead of having to buy a foundry wafer at 50% gross margin (=2x the actual manufacturing cost), the so-called "foundry tax," Intel as IDM only had to pay the actual manufacturing cost, and could then either undercut fabless competitors in pricing at the same gross margin at one end, or achieve higher gross margins at similar pricing. Add in Intel's process leadership, which provided even more flexibility in power-performance and cost-gross margins, and Intel had a great recipe for industry domination, and hence shareholder returns.</p> <p class="paywall-full-content invisible no-summary-bullets">However, looking at Intel's more recent financials in the wake of the 10nm and 7nm delays and then the post-COVID-19 downturn, not much of this supposed IDM advantage seems to remain. Indeed, in leaked slides, Intel had done the exercise of cooking up a virtual Taiwan Semiconductor aka Taiwan Semiconductor Manufacturing Company Limited (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) - Advanced Micro Devices, Inc. (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>) or TSMC - NVIDIA Corporation (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>) IDM, which showed that it would achieve much higher gross margins than either of them separately, and (perhaps even more worryingly) also much higher than peak Intel. So, IDM should still have an advantage in principle, but that just hasn't been realized by Intel: besides loss of process leadership, the lack of scale is also detrimental as Intel overall has to absorb over $20B in R&amp;D and SG&amp;A fixed costs. This is, of course, the main thesis behind starting the foundry business. Nevertheless, as just mentioned, the TSMC-AMD virtual IDM comparison also showed Intel just seemed inefficient in its operation.</p> <p class="paywall-full-content invisible no-summary-bullets">Overall, the internal foundry model doesn't change the strategy, which is the 5N4Y to regain process leadership to strengthen long-term competitiveness and cost structure, as well as the foundry business as one of the new areas for long-term growth. Indeed, in my previous coverage (which in hindsight was a bit too pessimistic), I <a href="https://seekingalpha.com/article/4546197-intel-introduces-internal-foundry-model">called it</a> mostly a financial engineering gimmick.</p> <p class="paywall-full-content invisible no-summary-bullets">However, for the first time in Intel history, it will quantify the extent to which the IDM margin stacking is actually realized, which might uncover previously unseen inefficiencies.</p> <h2 class="paywall-full-content invisible no-summary-bullets">New segment reporting webinar</h2> <p class="paywall-full-content invisible no-summary-bullets">On April 2, Intel held its internal foundry model webinar. The released material, including press release, presentation, and webcast can be found here: <a href="https://www.intc.com/news-events/ir-calendar/detail/20240402-new-segment-reporting-webinar" rel="nofollow">New Segment Reporting Webinar</a>. The recast financial results for the last three years are shown below.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165317693333_origin.png" rel="lightbox" data-width="2006" data-height="1328" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165317693333.png" alt="Intel internal foundry model" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Obviously, the overall P&amp;L doesn't change. Instead, what happens is that the internal Foundry "revenue" and "profit/loss" is at the end are subtracted as intersegment revenue and expenses.</p> <p class="paywall-full-content invisible no-summary-bullets">The main result of this exercise is that it exposes that the manufacturing group is the main culprit for Intel's deteriorating margins and earnings. Specifically, in the past, manufacturing costs would be split among the various product groups. Instead, now these costs are solely allocated to the manufacturing group. Besides wafers, there are still some other costs for the product groups, such as wafer expedites and samples, but these too are now priced similarly as at other foundries.</p> <p class="paywall-full-content invisible no-summary-bullets">Overall, for 2023 the operating margin of the product groups (CCG-DCAI-NEX) under this model would have been 24% instead of 10%, mainly (as just discussed) due to the near-complete elimination of allocated manufacturing costs.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342009834_origin.png" rel="lightbox" data-width="2414" data-height="1280" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342009834.png" alt="Intel PC client revenue operating margin" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Hence, Intel's product groups actually remain reasonably profitable despite the process technology issues in the last half a decade. Although, looking closer shows that it is mainly the client group that is quite profitable, with NEX and DCAI struggling much more. Of course, this is not that unexpected, as this was already to some extent visible in the prior financials, and DCAI has been most impacted by the loss of process leadership (substantial core count deficit).</p> <p class="paywall-full-content invisible no-summary-bullets">So instead, as the manufacturing costs are now solely incurred by Foundry, it shows that Foundry is operating at a stunning -37% operating margin. As has been widely reported, Foundry had a $7B operating loss in 2023 on $19B revenue. Intel expects this loss to peak this year, followed by a linear improvement towards the 2030 target of 40% gross margin and 30% operating margin.</p> <p class="paywall-full-content invisible no-summary-bullets">Note that this target is a new disclosure. It is some 10+ percentage points below TSMC, perhaps reflecting some higher price aggressiveness as a new entrant and challenger, but still respectable, especially as it is roughly similar to TSMC's results prior to COVID-19. Intel expects to reach breakeven for the manufacturing business midway during this period, so around 2027. Overall, this target represents around a 67-percentage point swing in operating margin in 6 years, which is ambitious (and indeed worthy of the term turnaround).</p> <p class="paywall-full-content invisible no-summary-bullets">Looking at this from a higher level, the stock reacted to the downside on this webinar, which was quite reminiscent of when Intel first disclosed the financial implications of the turnaround in October 2021 during its earnings call at the time, after a year of mainly technological and business-related disclosures and discussions.</p> <p class="paywall-full-content invisible no-summary-bullets">However, the plan Intel presented is a simple reality, and is aligned with what I have been discussing as the Intel thesis since (at least) Pat Gelsinger's return in 2021: while the technological turnaround (5N4Y: 5 nodes in 4 years to return to industry process technology leadership) is slated to be completed by the end of the year by finishing the development of 18A, the first products are planned for the second half of 2025. Then, like pretty much all companies except the likes of Apple Inc. (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>) and Samsung Electronics Co., Ltd. (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) with their blockbuster smartphone launches, it will take another year or so until these products are really established in the marketplace (launching in various PCs and data centers, replacing old products), and hence for the manufacturing output to become more substantial.</p> <p class="paywall-full-content invisible no-summary-bullets">As such, as I have been arguing for years, there is a clear distinction between the technological turnaround and the financial one. In the past, I have compared this to AMD and its Zen turnaround. Looking at the stock price shows that the launch of Zen was only the beginning of the financial implications of completing the turnaround, with the stock continuing to rise for many years thereafter. What Intel showed, with the (Foundry) operating margin (loss) bottoming in 2024 before recovering over the next half a decade or longer, is very similar if not exactly the same.</p> <p class="paywall-full-content invisible no-summary-bullets">For example, when Pat Gelsinger launched IFS in early 2021, which was before the 5N4Y announcement, even if Intel had revealed its roadmap under NDA, potential customers at that time were indeed just buying into a roadmap from a company with questionable execution (at best) in the half a decade prior. At the webinar, Pat Gelsinger said it now has 50 test chips on 18A in the pipeline (and 5 customers), so progress is steadily mounting.</p> <p class="paywall-full-content invisible no-summary-bullets">As confirmed during the Q&amp;A, besides the lower revenue expectations, there really isn't much of a change in the margin profile expectations and goals compared to the investor meeting two years ago: although the near- to mid-term might be a bit below prior expectations, the long-term goal is actually <em>more</em> ambitious than the 2022 investor meeting long-term model.</p> <p class="paywall-full-content invisible no-summary-bullets">In the near term, by the time Foundry reaches breakeven, the overall operating margin will be around 25%. For comparison, the 2021/22 goal was to reach a 20% FCF margin by 2026. Under Bob Swan, the goal was for FCF to be 80% of net income, with net income itself being around 80% of operating income. Hence, assuming this holds, the operating margin would have to be about 31% to reach the 20% FCF target, a bit higher than the new target.</p> <p class="paywall-full-content invisible no-summary-bullets">On the other hand, the new long-term goal (although one which Intel has talked about before, but without any explicit deadline) of 40% operating margin would likely result in more than 20% FCF margin. In fact, even during the heydays of milking the 14nm node from 2018-2020, the operating margin only topped out at 33%, at the high-end of Intel's official target at the time. The new target is actually the most ambitious in Intel's history, making the selloff a bit baffling when viewed in this light.</p> <p class="paywall-full-content invisible no-summary-bullets">As such, investors should see the stock reaction as rather a reflection of the time it will take to reach this target, which is far longer than what the stock market usually tends to discount. While, as mentioned, some headlines were focusing on the $7B foundry loss, obviously this re-slicing of the financials doesn't change those that Intel has reported over the last year (and 2024 was announced to be the year of peak loss, which is also in-line with the 2022 investor meeting).</p> <p class="paywall-full-content invisible no-summary-bullets">Some investors might remember that around the 7nm delay in mid-2020, there were a lot of discussions regarding whether Intel would have to spin off/sell its uncompetitive fabs, as it seemed Intel was falling irrecoverably far behind (which the turnaround has now finally disproven).</p> <p class="paywall-full-content invisible no-summary-bullets">However, as the disastrous foundry P&amp;L shows, this actually doesn't seem possible without Intel Foundry sooner or later going bankrupt. Either Foundry tries to optimize costs like stopping node development like GLOBALFOUNDRIES Inc. (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>), but then rather soon it would lose the Intel manufacturing business to TSMC as Intel Products seeks to remain competitive by buying leading-edge wafers. So it would have fabs, but no customers.</p> <p class="paywall-full-content invisible no-summary-bullets">Alternatively, if Foundry had operated as it has in the last few years (investing in the expensive turnaround), then it too would have gone bankrupt, as shown by those multibillion-dollar ("$7B") losses visible in the Foundry P&amp;L. Hence, as a standalone company, Foundry simply would not (have) be(en) able to fund the turnaround.</p> <p class="paywall-full-content invisible no-summary-bullets">Put differently, what this effectively means is that the product groups have and are subsidizing (paying for) the turnaround. In other words, instead of the "margin stacking" theory of why an IDM is superior to a fabless company, Intel is currently experiencing "margin subtraction" from its highly unprofitable, trailing edge manufacturing business.</p> <p class="paywall-full-content invisible no-summary-bullets">To be sure, some might note or argue that all this is simply financial engineering trickery, as Intel could vastly change the P&amp;L of both groups depending on the wafer price it (arbitrarily sets) for those internal wafers. Of course, the P&amp;L of both groups would be correlated as the overall Intel P&amp;L cannot change, but the idea is that Foundry could have been made to look a lot more profitable by setting a higher wafer price that Products would have to pay.</p> <p class="paywall-full-content invisible no-summary-bullets">However, while technically correct, in practice this is wrong, or at least against the whole idea of the model (being a realistic model). As the Product groups are free to choose any foundry for their designs, if the Foundry raised its prices, it would be uncompetitive against wafers of competitive foundries, so Products would switch foundries. Foundry has to charge market prices.</p> <p class="paywall-full-content invisible no-summary-bullets">Note that this switching has already happened to some extent over the last few years (and will continue for the next year with Arrow and Lunar Lake), with Intel increasing its outsourcing. This is yet another reason (or confirms the aforementioned one) why Intel Foundry wouldn't (have) survive(d) as a standalone business, as outsourcing has increased from around 20-25% to 30%. At least, it is also one of the reasons for the decline in Foundry's revenue and profitability. Given the meager profitability of 10nm, it might be beneficial to leverage foundries instead (even for chiplets on the same node, i.e., using N6 instead of 10nm/I7).</p> <p class="paywall-full-content invisible no-summary-bullets">This is indeed what Intel seems to have done, with some Meteor/Arrow/Lunar Lake tiles being built by TSMC (although for the GPU tile, one might argue that this was done because Intel 4 does not have a higher-density library that the GPU would use, which was done to speed up Intel 4 development). Going forward, Intel has said that its goal is to reduce its reliance on foundries, and from the graph in the presentation, it seems the target is even below the amount it was doing prior to Pat Gelsinger (i.e., far below 20%).</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342218247_origin.png" rel="lightbox" data-width="2456" data-height="1374" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342218247.png" alt="Intel Foundry profitability" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In any case, as the reported P&amp;L shows, a standalone Intel Foundry would have seen a large decrease in volume/revenue and a further increase in. This would only be exacerbated if it had raised prices. So, in the model, Intel is using wafer prices conforming to those of similar nodes from competitors. Either way, going forward Intel Products will simply be charged the same price as any other Foundry customer. Hence, this model is indeed a valid and real representation of the underlying foundry economics.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Cost reductions</h2> <p class="paywall-full-content invisible no-summary-bullets">Since, as discussed, Foundry is currently not profitable, being a trailing edge IDM is indeed a net drag on the company currently. The margin stacking will only occur and become a reality when Foundry becomes profitable. The only way for Foundry to become profitable (in a real way, not by arbitrarily charging unrealistically high, uncompetitive wafer prices) is by regaining process (cost-density) leadership and achieving high yield.</p> <p class="paywall-full-content invisible no-summary-bullets">Of course, as mentioned in the introduction, this model ultimately does not change the underlying economics, as those dynamics are ultimately just a function of regaining process leadership. Nevertheless, one point that is amplifying the turnaround is EUV, which Intel referred to as the "EUV wall," and mentioned a cost per transistor delta of 2x. As a reminder, due to EUV less multiple patterning steps are required. So, while the tool is much more expensive, ultimately the reduced process flow makes up for that.</p> <p class="paywall-full-content invisible no-summary-bullets">Hence, the combination of EUV introduction and the accelerated 5N4Y cadence (moving quickly past Intel 4/3 to the second-gen 20/18A shrink) should make for a very large improvement in cost structure and economics. Again, though, it will take several years for these nodes to become a majority in terms of volume.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653174525547_origin.jpg" rel="lightbox" data-width="1381" data-height="726" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653174525547.jpg" alt="Intel wafer fab capacity 2030" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure> <figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653419238603_origin.png" rel="lightbox" data-width="2468" data-height="1292" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653419238603.png" alt="Intel Foundry wafer fab capacity 2030" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In addition, with Foundry now being tasked with becoming as efficient as possible as a standalone business, it turns out (as Intel had discussed previously already as part of its $8-10B spending reduction plan) there are some hidden costs/inefficiencies in the business. For example, for Intel wafer expedites are/were very common compared to the foundry space, where those kinds of wafers are very expensive. In practice/essence, this results in lower utilization, so several billion dollars can be saved simply by improving utilization to best-in-class levels (i.e. phasing out expedites by charging appropriate costs to customers, conforming to standard market practices).</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342165631_origin.png" rel="lightbox" data-width="2464" data-height="1376" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342165631.png" alt="Intel fab efficiency cost" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure> <figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653178389776_origin.jpg" rel="lightbox" data-width="1380" data-height="776" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653178389776.jpg" alt="Intel Internal Foundry Model Webinar - SemiWiki internal foundry model cost reduction" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Doing the math, reducing costs by several billion from such efficiencies would indeed be a large contributor towards (and beyond) breakeven. As shown above, the three other ones are transistor leadership, scale (including from insourcing outsourced products/chiplets), and opex leverage. Regarding insourcing, Pat Gelsinger said two whole fab modules worth of wafer capacity would be brought back. From the graph, it seems outsourcing will be reduced from around 30% to 10%.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Process comparison</h2> <p class="paywall-full-content invisible no-summary-bullets">Pat Gelsinger also provided a qualitative overview of Intel's process node benchmarking, showing that it expects to only further extend its regained leadership with 14A.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653421370695_origin.png" rel="lightbox" data-width="2512" data-height="1384" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653421370695.png" alt="Intel TSMC process technology node comparison 20A 18A N3 N2" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">It wasn't mentioned if this comparison is based on what is available at the point of node introduction into the market or based on the same name. For example, clearly, Intel 7 was compared against TSMC N5, as I7 has a higher density than N7. However, during the presentation, Pat Gelsinger said 14A would be both earlier to market and also superior in power, performance, area, and cost, which (the time to market part) implies it is compared against A14. So it isn't sure if 18A is compared to N3(P) or N2, but presumably N2.</p> <p class="paywall-full-content invisible no-summary-bullets">Either way, the density comparison is actually a bit surprising. Intel 3 should already be quite close to N3, and presumably, 18A represents a full-node shrink (2x). As TSMC is hardly scaling at N2, 18A should be meaningfully denser than both nodes, i.e., more than just a wavy sign.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Risks</h2> <p class="paywall-full-content invisible no-summary-bullets">While, as discussed, all the fundamentals for the turnaround are in place, the main "risk" is that the 2030 target for 60/40 gross and operating margin might be too ambitious, especially the operating margin target, as Intel only achieved about 33% OM at its highest point.</p> <p class="paywall-full-content invisible no-summary-bullets">More in general, while the line of sight in terms of modelling towards these goals should be straightforward, it still needs to be executed. In any case, while those operating margin targets are encouraging, one of the main drivers for investor returns (in any stock) is revenue growth, which Intel has so far not demonstrated. Intel did state $15B in annual external foundry revenue as its 2030 target.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Investor Takeaway</h2> <p class="paywall-full-content invisible no-summary-bullets">Ultimately, having a separate P&amp;L for both foundry and products is very logical and perhaps could or should have been done years or decades ago already. Specifically, doing this exercise has uncovered multiple inefficiencies in the manufacturing organization that will likely save multiple billions of dollars. This is not different from (i.e., it is part of) the $8-10B cost reduction plan that was announced in the wake of the downturn, which at the time was cheered on by investors.</p> <p class="paywall-full-content invisible no-summary-bullets">In addition, the technological turnaround also remains just as valid, with 18A completing development by the end of the year, ramping in 2025 and starting to hit the P&amp;L more meaningfully in 2026. More broadly, by quickly advancing through two full process nodes (and two further intra-nodes) over the course of 2024-25, regaining process leadership, and which also coincides with the very important introduction of EUV, Intel's inherent cost structure should improve dramatically.</p> <p class="paywall-full-content invisible no-summary-bullets">Nevertheless, even when Foundry is projected to breakeven by around 2027, the EUV nodes collectively still will not represent even half of Intel's wafer volume, although quite a la |
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<title>4 stocks to watch on Tuesday: GE, TSM and more</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w750" alt="GE Turbine Engine" data-id="1175825323" data-type="getty-image" width="4884px" height="3254px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1175825323/image_1175825323.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">hapabapa</p></figcaption> </figure><div class="before_last_paragraph-piano-placeholder"></div><p>U.S. stock index futures on Tuesday <a href="https://seekingalpha.com/news/4088119-sp500-nasdaq-dow-jones-outlook-stock-market">pointed</a> to a slightly higher open, a day ahead of a key consumer inflation report. Here are some stocks to watch on Tuesday: </p> <ul> <li>U.S.-listed shares of Tilray Brands (<a href="https://seekingalpha.com/symbol/TLRY" title="Tilray Brands, Inc.">TLRY</a>) <span class="red">slid more than<span class="paywall-full-content invisible"> 13%</span></span><span class="paywall-full-content invisible"> in pre-market trading, after the cannabis company said it no longer expects to generate positive adjusted free cash flow for the full fiscal year 2024. The pot producer, which has dual listings in the U.S. and Canada, said it had faced delayed timing for collecting cash on various asset sales. Tilray (</span><a href="https://seekingalpha.com/symbol/TLRY" title="Tilray Brands, Inc." class="paywall-full-content invisible">TLRY</a><span class="paywall-full-content invisible">) also revised its full year adjusted EBITDA guidance to $60M-$63M from a previous outlook of $68M-$78M. The company's guidance update </span><a href="https://seekingalpha.com/news/4088151-tilray-stock-falls-on-guidance-cut" class="paywall-full-content invisible">weighed</a><span class="paywall-full-content invisible"> on other pot companies, with U.S.-listed shares of Canopy Growth (</span><a href="https://seekingalpha.com/symbol/CGC" title="Canopy Growth Corporation" class="paywall-full-content invisible">CGC</a><span class="paywall-full-content invisible">) </span><span class="red paywall-full-content invisible">down 6.2%</span><span class="paywall-full-content invisible">, Cronos Group (</span><a href="https://seekingalpha.com/symbol/CRON" title="Cronos Group Inc." class="paywall-full-content invisible">CRON</a><span class="paywall-full-content invisible">) </span><span class="red paywall-full-content invisible">down 5.9%</span><span class="paywall-full-content invisible">, and Aurora Cannabis (</span><a href="https://seekingalpha.com/symbol/ACB" title="Aurora Cannabis Inc." class="paywall-full-content invisible">ACB</a><span class="paywall-full-content invisible">) </span><span class="red paywall-full-content invisible">down 5.6%</span><span class="paywall-full-content invisible">. See how TLRY performed </span><a href="https://seekingalpha.com/news/4088139-tilray-in-charts" class="paywall-full-content invisible">in charts</a><span class="paywall-full-content invisible">.</span> </li> <li class="paywall-full-content invisible">GE Aerospace (<a href="https://seekingalpha.com/symbol/GE" title="GE Aerospace">GE</a>) stock was in focus, <span class="green">climbing marginally</span> after Goldman Sachs gave it a Buy rating. The company was officially <a href="https://seekingalpha.com/news/4086431-why-is-ge-aerospaces-stock-down-today-ge-vernova-spinoff">launched</a> as standalone firm on April 2 following the completion of the spin-off of GE Vernova (<a href="https://seekingalpha.com/symbol/GEV" title="GE Vernova Inc.">GEV</a>), marking the end of the legacy conglomerate known as General Electric. Since then, GE Aerospace (<a href="https://seekingalpha.com/symbol/GE" title="GE Aerospace">GE</a>) stock has been on a roll, having notched a <a href="https://seekingalpha.com/symbol/GE/historical-price-quotes">four-day</a> win streak that has seen it gain 14.7%. Goldman on Tuesday said GE Aerospace (<a href="https://seekingalpha.com/symbol/GE" title="GE Aerospace">GE</a>) was <a href="https://seekingalpha.com/news/4088158-ge-aerospace-rated-buy-at-goldman-sachs-after-energy-spinoff">poised</a> for growth with rebounding demand for new airplanes. "Engines have great long-term cash flow characteristics with recurring revenue and pricing power in a long-term secular growth market,” the brokerage said.</li> <li class="paywall-full-content invisible">U.S.-listed shares of Taiwan Semiconductor Manufacturing (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) continued to garner some of the spotlight, <span class="green">rising around 3%</span> ahead of the opening bell after notching a <a href="https://seekingalpha.com/symbol/TSM/historical-price-quotes">two-day</a> win streak in the previous session. The U.S. on Monday <a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing">signed</a> a tentative deal with the chipmaker to provide it with up to $6.6B in grants and as much as $5B in loans to boost domestic manufacturing of advanced semiconductors. Taiwan Semiconductor's (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) Ariz.-subsidiary signed a non-binding preliminary memorandum of terms with the U.S. Department of Commerce to get the funds under the CHIPS and Science Act.</li> <li class="paywall-full-content invisible">Alkermes (<a href="https://seekingalpha.com/symbol/ALKS" title="Alkermes plc">ALKS</a>) stock <span class="green">advanced about 6%</span> ahead of market open, after the Irish drugmaker said its investigational sleeping disorder therapy <a href="https://seekingalpha.com/news/4088165-alkermes-stock-gains-sleeping-disorder-drug">showed</a> promise in an early-stage study. The company said topline data from a phase 1b trial of the treatment, ALKS 2680, showed that the therapy outperformed placebo in patients with narcolepsy type 2 and idiopathic hypersomnia. Alkermes (<a href="https://seekingalpha.com/symbol/ALKS" title="Alkermes plc">ALKS</a>) said the therapy indicated clinically meaningful and statistically significant improvements at all dose levels compared to placebo. The Irish drugmaker now plans to select doses for a mid-stage trial expected to begin in H2 2024.</li> </ul> <h2 class="paywall-full-content invisible">More on the markets </h2> <ul class="paywall-full-content invisible"> <li><a href="https://seekingalpha.com/news/4088112-biggest-stock-movers-today-maxn-ntes-and-more">Biggest stock movers today: TLRY, BB, MAXN, NTES, and more</a></li> <li><a href="https://seekingalpha.com/news/4088194-mymd-mdia-and-lifw-are-among-premarket-gainers">MYMD, MDIA and LIFW are among premarket gainers</a></li> <li><a href="https://seekingalpha.com/news/4088174-acor-hubc-and-dats-among-pre-market-losers">ACOR, HUBC and DATS among pre-market losers</a></li> <li><a href="https://seekingalpha.com/article/4682865-are-the-stars-finally-aligned-for-us-financial-stocks">Are The Stars Finally Aligned For U.S. Financial Stocks?</a></li> <li><a href="https://seekingalpha.com/article/4682861-gold-monthly-golds-hot-run-continues">Gold Monthly: Gold's Hot Run Continues</a></li> </ul></description>
<link>https://seekingalpha.com/news/4088209-4-stocks-to-watch-on-tuesday-ge-tsm-and-more</link>
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<pubDate>Tue, 09 Apr 2024 12:59:00 GMT</pubDate>
<author>Anuron Mitra, SA News Editor</author>
<category>GE Aerospace (GE)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Alkermes plc (ALKS)</category>
<category>Tilray Brands, Inc. (TLRY)</category>
</item>
<item>
<title>Micron could get $5B in CHIPs Act funding, Citi says</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w750" alt="Micron Technology Inc. One of american leader in semiconductor devices, dynamic random-access memory, flash memory, USB flash drives, solid-state drives." data-id="1150565928" data-type="getty-image" width="5760px" height="3840px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1150565928/image_1150565928.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">vzphotos</p></figcaption> </figure><p>Amid yesterday's <a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing">news</a> that Taiwan Semiconductor (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) will receive grants and loans from the CHIPs Act, Citi believes Micron Technology (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/MU" title="Micron Technology, Inc.">MU</a></span>) may get its slice of the proverbial pie.</p> <p>"Intel has already been granted $8.5 billion in cash so there is<span class="paywall-full-content invisible"> roughly $22.0 billion left in cash to be distributed in the CHIPS act and we expect Buy-rated Micron to receive a significant grant (&gt;$5 billion) as well," analyst Christopher Danely wrote in an investor note.</span></p> <p class="paywall-full-content invisible">Media reports have suggested that Samsung (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) <a href="https://seekingalpha.com/news/4088077-samsung-chip-subsidy-grant-expand-us-production">could</a> get its own CHIPs Act aid, perhaps as soon as next week.</p> <p class="paywall-full-content invisible">After the CHIPs Act was signed into law, Micron announced two new massive fabs in the U.S. — <a href="https://seekingalpha.com/news/3888454-micron-to-invest-up-to-100b-in-massive-new-york-chipmaking-plant">one</a> in New York and the <a href="https://seekingalpha.com/news/3882071-micron-ceo-says-company-breaking-ground-on-15b-idaho-factory-more-plants-coming-report">other</a> in its home state of Idaho. However, the company <a href="https://seekingalpha.com/news/4004752-micron-rises-federal-funding-necessary-idaho-ny-manufacturing-plants">said</a> this past August that federal support was necessary for both plants. </p> <h2 class="paywall-full-content invisible">Chip production in the US </h2> <p class="paywall-full-content invisible">The CHIPs Act was <a href="https://seekingalpha.com/news/3869879-as-biden-signs-chips-act-into-law-micron-leads-sector-lower-after-issuing-weak-forecast">signed</a> into law by President Biden in August 2022 and is designed to help boost domestic production of semiconductors.</p> <p class="paywall-full-content invisible">BAE Systems (<a href="https://seekingalpha.com/symbol/BAESY" title="BAE Systems plc">OTCPK:BAESY</a>) was the first company to <a href="https://seekingalpha.com/news/4044990-bae-systems-secures-35m-funding-from-us-department-of-commerce">receive</a> funding from the CHIPs Act in December 2023. Since then, <a href="https://seekingalpha.com/news/4052229-us-awards-microchip-technology-162m-to-boost-chip-production">Microchip</a> (<a href="https://seekingalpha.com/symbol/MCHP" title="Microchip Technology Incorporated">MCHP</a>), <a href="https://seekingalpha.com/news/4068587-globalfoundries-to-get-15b-from-us-for-chip-manufacturing">GlobalFoundries</a> (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>), <a href="https://seekingalpha.com/news/4081469-intel-awarded-nearly-20b-in-grants-loans-by-us-to-boost-chip-production">Intel</a> (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>) and <a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing">Taiwan Semiconductor</a> have received awards of various amounts.</p> <p class="paywall-full-content invisible">The use of subsidies to help boost domestic semiconductor production — both leading edge and trailing edge — has been well received, Danely said.</p> <p class="paywall-full-content invisible">"We believe the best use of subsidies is TSMC as we expect TSMC will remain the undisputed leader in leading-edge semiconductor manufacturing over Intel due to their technological lead, economies of scale and conflict of interest ..." Danely wrote in a note, adding that Taiwan Semiconductor has an edge over Intel when it comes to foundry manufacturing. </p> <p class="paywall-full-content invisible">Taiwan Semiconductor is slated to open its leading edge 2 nm foundry in Arizona in 2028, later than the initial plan of 2026.</p> <div class="before_last_paragraph-piano-placeholder"></div><p class="paywall-full-content invisible">The company remains on track for volume production of 4nm process technology in the first half of 2025, Chairman Mark Liu <a href="https://seekingalpha.com/news/4055924-tsm-stock-rises-after-20-revenue-growth-forecast-for-24-2nd-arizona-plant-sees-delay">said</a> in January. </p> <div id="more-links" class="paywall-full-content invisible"> <h2>More on Micron </h2> <ul> <li><a href="https://seekingalpha.com/article/4682220-micron-gnashing-of-teeth-as-the-best-upcycle-develops-rating-downgrade" class="more-link">Micron: Gnashing Of Teeth As The Best Upcycle Develops (Rating Downgrade)</a></li> <li><a href="https://seekingalpha.com/article/4680853-micron-reasonable-valuation-on-massive-tailwind" class="more-link">Micron: Reasonable Valuation On Massive Tailwind</a></li> <li><a href="https://seekingalpha.com/article/4680240-micron-will-experience-strong-tailwinds-as-gpu-capacity-loosens-up" class="more-link">Micron Will Experience Strong Tailwinds As GPU Capacity Loosens Up</a></li> <li><a href="https://seekingalpha.com/news/4087891-nvidia-micron-qualcomm-in-focus-keybanc-boosts-estimates-on-china-ai-hopes" class="more-link">Nvidia, Micron, Qualcomm in focus as KeyBanc boosts estimates on China, AI hopes</a></li> <li><a href="https://seekingalpha.com/news/4087536-micron-could-see-3b-in-high-bandwidth-memory-revenue-by-2025-citi-says" class="more-link">Micron could see $3B in high-bandwidth memory revenue by 2025, Citi says</a></li> </ul> </div></description>
<link>https://seekingalpha.com/news/4088183-micron-could-get-5b-in-chips-act-funding-citi-says</link>
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<pubDate>Tue, 09 Apr 2024 12:41:07 GMT</pubDate>
<author>Chris Ciaccia, SA News Editor</author>
<category>Micron Technology, Inc. (MU)</category>
<category>Intel Corporation (INTC)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Microchip Technology Incorporated (MCHP)</category>
<category>BAE Systems plc (BAESY)</category>
<category>Samsung Electronics Co., Ltd. (SSNLF)</category>
<category>GLOBALFOUNDRIES Inc. (GFS)</category>
</item>
<item>
<title>South Korea mulls $7B investment in AI chip manufacturing - report</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w750" alt="CPU AI Circuit board South Korean Flag concept" data-id="1451430266" data-type="getty-image" width="1536px" height="1152px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1451430266/image_1451430266.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">hh5800/iStock via Getty Images</p></figcaption> </figure><p>South Korea plans to invest 9.4T won (about $6.94B) in AI by 2027, to maintain its position in semiconductors as countries around the world step up efforts to boost local chip manufacturing, Reuters reported.</p> <p>The announcement made by South Korean<span class="paywall-full-content invisible"> President Yoon Suk Yeol also consists of a separate 1.4T won fund to support AI semiconductor companies, the report </span><a href="https://www.reuters.com/technology/south-korea-invest-7-bln-ai-bid-retain-edge-chips-2024-04-09/" target="_blank" class="paywall-full-content invisible">added</a><span class="paywall-full-content invisible">.</span></p> <p class="paywall-full-content invisible">By setting aside investments and a fund, South Korea intends to expand research and development in AI chips such as artificial neural processing units, or NPUs, and next-generation high-bandwidth memory, or HBM, chips, the government said, as per the report.</p> <p class="paywall-full-content invisible">The country will also promote the development of next-generation artificial general intelligence, or AGI, and safety technologies which go beyond existing models.</p> <p class="paywall-full-content invisible">Yoon intends South Korea to become one of the top three countries in AI technology including chips, and take a 10% or more share of the worldwide system semiconductor market by 2030, the report added.</p> <p class="paywall-full-content invisible">Semiconductors are vital to the Asian nation's export-driven economy. In March, chip exports surged to their highest in 21 months at $11.7B, or nearly a fifth of total exports shipped by the country, according to the report.</p> <p class="paywall-full-content invisible">The U.S. is providing funding through its CHIPS Act, which aims to increase U.S. semiconductor manufacturing and research, especially in advanced semiconductors.</p> <p class="paywall-full-content invisible">Several companies are expected to get funds under the act, with Intel (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a></span>) already having <a href="https://seekingalpha.com/news/4081469-intel-awarded-nearly-20b-in-grants-loans-by-us-to-boost-chip-production">inked</a> a deal for about $20B in grants and potential loans, and Taiwan Semiconductor Manufacturing (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>) <a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing">signing</a> an agreement for up to $6.6B in grants and as much as $5B in loans. Samsung Electronics (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) is expected to be <a href="https://seekingalpha.com/news/4088077-samsung-chip-subsidy-grant-expand-us-production">awarded</a> more than $6B.</p> <div class="before_last_paragraph-piano-placeholder"></div><p class="paywall-full-content invisible">Japan is also providing subsidies to companies to <a href="https://seekingalpha.com/news/4086120-japan-greenlights-39b-in-subsidies-for-local-chip-company-rapidus">boost</a> domestic chip manufacturing.</p> <div id="more-links" class="paywall-full-content invisible"> <h2>More on tech stocks</h2> <ul> <li><a href="https://seekingalpha.com/article/4682739-understanding-intel-foundry-situation" class="more-link">Understanding Intel's Foundry Situation</a></li> <li><a href="https://seekingalpha.com/article/4682735-intel-a-huge-chunk-of-revenue-at-risk" class="more-link">Intel: A Huge Chunk Of Revenue At Risk</a></li> <li><a href="https://seekingalpha.com/article/4682581-intel-stock-turnaround-long-shot-that-may-not-pan-out-maintain-sell" class="more-link">Intel's Turnaround Is A Long Shot That May Not Pan Out</a></li> <li><a href="https://seekingalpha.com/news/4088077-samsung-chip-subsidy-grant-expand-us-production" class="more-link">Samsung to get $6B chip subsidy next week to boost U.S. production - report</a></li> <li><a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing" class="more-link">Taiwan Semiconductor gets up to $11.6B in US grants, loans to boost local chip manufacturing</a></li> </ul> </div></description>
<link>https://seekingalpha.com/news/4088087-south-korea-mulls-7b-investment-in-ai-chip-manufacturing</link>
<guid isPermaLink="false">https://seekingalpha.com/news/4088087-south-korea-mulls-7b-investment-in-ai-chip-manufacturing</guid>
<pubDate>Tue, 09 Apr 2024 08:41:54 GMT</pubDate>
<author>Ravikash Bakolia, SA News Editor</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Intel Corporation (INTC)</category>
<category>Samsung Electronics Co., Ltd. (SSNLF)</category>
<category>Advanced Micro Devices, Inc. (AMD)</category>
<category>NVIDIA Corporation (NVDA)</category>
<category>QUALCOMM Incorporated (QCOM)</category>
</item>
<item>
<title>Samsung to get $6B chip subsidy next week to boost U.S. production - report</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w750" alt="Samsung Electronics America Corporate office in Ridgefield Park, NJ, USA." data-id="1642600681" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1642600681/image_1642600681.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">JHVEPhoto/iStock Editorial via Getty Images</p></figcaption> </figure><p>The Biden administration is expected to award more than $6B to Samsung Electronics (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) next week to support the expansion of its chip production in Taylor, Texas, people familiar with the matter told Reuters. </p> <p>The chip subsidy will go towards the<span class="paywall-full-content invisible"> construction of four facilities in the city - a $17B chip making factory announced in 2021, another plant, an advanced packaging facility, and a research and development center. </span></p> <p class="paywall-full-content invisible">The subsidy will also include an investment in another undisclosed location, according to a source cited in the <a href="https://www.reuters.com/technology/samsung-get-6-7-billion-chip-subsidy-next-week-texas-expansion-sources-say-2024-04-08/" target="_blank">report</a>. As part of the deal, Samsung (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) will more than double its investment in the U.S. to more than $44B. </p> <p class="paywall-full-content invisible">The award is expected to be the third largest of the program aimed to boost local chip making, behind Taiwan Semiconductor Manufacturing (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>), which secured <a href="https://seekingalpha.com/news/4087818-taiwan-semiconductor-gets-up-to-116b-in-us-grants-loans-to-boost-chip-manufacturing">up to $6.6B in grants</a> and about $5B in loans from the Department of Commerce a day earlier and agreed to build a third fab in Arizona. </p> <p class="paywall-full-content invisible">The largest award in the program was for Intel (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>), which <a href="https://seekingalpha.com/news/4081469-intel-awarded-nearly-20b-in-grants-loans-by-us-to-boost-chip-production">secured $8.5B in grants</a> and up to $11B in loans to subsidize chip production. </p> <p class="paywall-full-content invisible">The subsidy for Samsung will cap off back-to-back major CHIPS and Science grants from the U.S. government as Washington aims to bolster domestic manufacturing, and reduce reliance on China and Taiwan.</p> <div class="before_last_paragraph-piano-placeholder"></div><p class="paywall-full-content invisible">The CHIPS and Science Act provides for $52.7B in R&amp;D and manufacturing subsidies, as well as $75B in loans, although Samsung (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) does not plan on taking loans.</p> <div id="more-links" class="paywall-full-content invisible"> <h2>More on Samsung Electronics</h2> <ul> <li><a href="https://seekingalpha.com/article/4666257-samsung-electronics-co-ltd-ssnlf-q4-2023-earnings-call-transcript" class="more-link">Samsung Electronics (SSNLF) Q4 2023 Earnings Call Transcript</a></li> <li><a href="https://seekingalpha.com/article/4666218-samsung-electronics-co-ltd-2023-q4-results-earnings-call-presentation" class="more-link">Samsung Electronics 2023 Q4 - Earnings Call Presentation</a></li> <li><a href="https://seekingalpha.com/article/4663224-samsung-galaxy-s24-upgrades-software" class="more-link">Samsung Focuses Galaxy S24 Upgrades On Software</a></li> <li><a href="https://seekingalpha.com/news/4087500-samsung-to-boost-texas-chip-spending-to-44b-report" class="more-link">Samsung to boost Texas chip spending to ~$44B - report</a></li> </ul> </div></description>
<link>https://seekingalpha.com/news/4088077-samsung-chip-subsidy-grant-expand-us-production</link>
<guid isPermaLink="false">https://seekingalpha.com/news/4088077-samsung-chip-subsidy-grant-expand-us-production</guid>
<pubDate>Tue, 09 Apr 2024 07:29:36 GMT</pubDate>
<author>Jessica Kuruthukulangara, SA News Editor</author>
<category>Samsung Electronics Co., Ltd. (SSNLF)</category>
<category>Intel Corporation (INTC)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
</item>
<item>
<title>Microchip Technology expands TSMC partnership to strengthen supply chain</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w750" alt="Close-up electronic circuit board. technology style concept." data-id="1216910492" data-type="getty-image" width="3605px" height="2403px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1216910492/image_1216910492.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">Jay_Zynism/iStock via Getty Images</p></figcaption> </figure><ul> <li>Microchip Technology (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/MCHP" title="Microchip Technology Incorporated">MCHP</a></span>) has expanded its partnership with the world's largest semiconductor foundry to help build resiliency in its supply chain, the Chandler, Arizona-based company announced Monday.</li> <li>Microchip's <a href="https://seekingalpha.com/pr/19679630-microchip-technology-expands-partnership-tsmc-to-strengthen-semiconductor-manufacturing" rel="nofollow">partnership</a> with Taiwan Semiconductor Manufacturing Company (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) includes enabling a<span class="paywall-full-content invisible"> specialized 40 nanometer manufacturing capacity at Japan Advanced Semiconductor Manufacturing. Japan Advanced is a manufacturing subsidiary that is majority owned by TSMC and located in Kumamoto Prefecture, Japan.</span> </li> <li class="paywall-full-content invisible">“Our expanded collaboration with Microchip will ensure that as leading technologies continue to develop, so will our collective ability to manufacture and deliver those capabilities to global customers when they are needed,” said Rose Castanares, senior vice president of business management at TSMC North America.</li> <li class="paywall-full-content invisible">The plan is also intended to establish more geographical diversity and redundancy with wafer fab, foundry, assembly, test and outsourced semiconductor assembly and test, or OSAT.</li> <li class="paywall-full-content invisible">TSMC and MCHP both <span class="green">ticked up</span> slightly by noon trading Monday.</li> <li class="paywall-full-content invisible">TSMC's primary clients include Apple (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>), Nvidia (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>), Qualcomm (<a href="https://seekingalpha.com/symbol/QCOM" title="QUALCOMM Incorporated">QCOM</a>), Advanced Micro Devices (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>) and Broadcom (<a href="https://seekingalpha.com/symbol/AVGO" title="Broadcom Inc.">AVGO</a>).</li> <li class="paywall-full-content invisible">Some of Microchip's largest customers include Boeing (<a href="https://seekingalpha.com/symbol/BA" title="The Boeing Company">BA</a>), Lockheed Martin (<a href="https://seekingalpha.com/symbol/LMT" title="Lockheed Martin Corporation">LMT</a>), Apple and Dell (<a href="https://seekingalpha.com/symbol/DELL" title="Dell Technologies Inc.">DELL</a>).</li> </ul> <div id="more-links" class="paywall-full-content invisible"> <h2>More on Microchip Technology</h2> <ul> <li><a href="https://seekingalpha.com/article/4678636-microchip-bullish-stock-price-on-analog-market-recovery" class="more-link">Microchip: Bullish Stock Price On Analog Market Recovery</a></li> <li><a href="https://seekingalpha.com/article/4669553-microchip-technology-revenue-continues-to-decline-as-inventory-destocking-persists" class="more-link">Microchip Technology: Revenue Continues To Decline As Inventory Destocking Persists</a></li> <li><a href="https://seekingalpha.com/article/4668486-microchip-stock-q3-2024-earnings-limited-visibility-recovery-timing-hold-for-now" class="more-link">Microchip: Limited Visibility In Recovery Timing, Hold For Now</a></li> <li><a href="https://seekingalpha.com/news/4067120-dalios-bridgewater-adds-apple-wells-fargo-exits-netflix-thermo-fisher" class="more-link">Bridgewater Associates adds Apple, Wells Fargo; exits Netflix, Thermo Fisher</a></li> <li><a href="https://seekingalpha.com/news/4061640-microchip-technology-non-gaap-eps-of-1_08-beats-0_04-revenue-of-1_77b-beats-10m" class="more-link">Microchip Technology Non-GAAP EPS of $1.08 beats by $0.04, revenue of $1.77B beats by $10M</a></li> </ul> </div></description>
<link>https://seekingalpha.com/news/4087975-microchip-technology-expands-tsmc-partnership-to-strengthen-supply-chain</link>
<guid isPermaLink="false">https://seekingalpha.com/news/4087975-microchip-technology-expands-tsmc-partnership-to-strengthen-supply-chain</guid>
<pubDate>Mon, 08 Apr 2024 16:25:15 GMT</pubDate>
<author>Brandon Evans, SA News Editor</author>
<category>Microchip Technology Incorporated (MCHP)</category>
<category>Apple Inc. (AAPL)</category>
<category>The Boeing Company (BA)</category>
<category>Advanced Micro Devices, Inc. (AMD)</category>
<category>NVIDIA Corporation (NVDA)</category>
<category>QUALCOMM Incorporated (QCOM)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Lockheed Martin Corporation (LMT)</category>
<category>Broadcom Inc. (AVGO)</category>
<category>Dell Technologies Inc. (DELL)</category>
</item>
<item>
<title>Applied Materials replaces GlobalFoundries in Cantor's top 5 list ahead of earnings season</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w750" alt="Close-up of Silicon Die are being Extracted from Semiconductor Wafer and Attached to Substrate by Pick and Place Machine. Computer Chip Manufacturing at Fab. Semiconductor Packaging Process." data-id="1468266144" data-type="getty-image" width="1536px" height="864px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468266144/image_1468266144.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">SweetBunFactory</p></figcaption> </figure><p>Cantor Fitzgerald upgraded Applied Materials (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/AMAT" title="Applied Materials, Inc.">AMAT</a></span>) to Overweight and downgraded GLOBALFOUNDRIES (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>) to Neutral ahead of the quarterly earnings season.</p> <p>The firm remains Overweight on Semiconductors and Semiconductor Equipment industry.</p> <p>A team of analysts led by C.J. Muse said that secular tailwinds<span class="paywall-full-content invisible"> from AI, along with cyclical recovery elsewhere combined with being only four quarters into the recovery (versus the average typical cycle of nine quarters before reaching the next fundamental peak), tells them that there remains more upside for the group.</span></p> <p class="paywall-full-content invisible">However, this does not include the potential for "more exuberance" related to AI, the analysts added.</p> <p class="paywall-full-content invisible">Cantor noted that its five best names for full year 2024 as of Jan. 22 were Nvidia (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>), Western Digital (<a href="https://seekingalpha.com/symbol/WDC" title="Western Digital Corporation">WDC</a>), ASML (<a href="https://seekingalpha.com/symbol/ASML" title="ASML Holding N.V.">ASML</a>), NXP Semiconductors (<a href="https://seekingalpha.com/symbol/NXPI" title="NXP Semiconductors N.V.">NXPI</a>), and GLOBALFOUNDRIES (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>).</p> <p class="paywall-full-content invisible">The analysts noted that since Jan. 22, these five stocks are up an average of +20% versus Philadelphia Semiconductor Index (<a href="https://seekingalpha.com/symbol/SOX" title="Philadelphia Semiconductor Index">SOX</a>) +11%, with all but GlobalFoundries outperforming the broader Semi Index.</p> <p class="paywall-full-content invisible">However, Muse and his team have now added Applied Materials (<a href="https://seekingalpha.com/symbol/AMAT" title="Applied Materials, Inc.">AMAT</a>) and removed GlobalFoundries to the list.</p> <p class="paywall-full-content invisible">Cantor's <strong>new top picks list</strong> now consists of Nvidia, Western Digital, ASML, NXP Semiconductors and Applied Materials.</p> <p class="paywall-full-content invisible">The firm upgraded Applied Materials to Overweight from Neutral and raised the price target to $260 from $220.</p> <p class="paywall-full-content invisible">Muse and his team expect positive spending reads from Taiwan Semiconductor Manufacturing (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) Capex and ASML (<a href="https://seekingalpha.com/symbol/ASML" title="ASML Holding N.V.">ASML</a>) orders to be a rising tide for SPE – add-in excellent leverage to secular opportunities within the space (i.e. High Bandwidth Memory, or HBM, Advanced Packaging, GAA, and Backside Power, among other things) and they see a clear path to share gains and 2025 earnings power approaching $11 in a $110B wafer fab equipment, or WFE, world.</p> <p class="paywall-full-content invisible">Cantor downgraded GlobalFoundries' stock to Neutral from Overweight and set a $55 price target down from $70.</p> <p class="paywall-full-content invisible">The analysts noted that, with expectations for only a gradual recovery to both top-line and margins, and any strategic benefit from Intel (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>) unlikely until 2025 at the earliest, they are hard-pressed to see any meaningfully positive catalysts to lift shares higher in 2024.</p> <p class="paywall-full-content invisible">Cantor's <strong>Best Tactical Ideas</strong> into Earnings: The analysts are Long on Nvidia, Western Digital, ASML, NXP Semiconductors (and see likely rising tide for KLA (<a href="https://seekingalpha.com/symbol/KLAC" title="KLA Corporation">KLAC</a>) Lam Research (<a href="https://seekingalpha.com/symbol/LRCX" title="Lam Research Corporation">LRCX</a>) and Applied Materials) NXPI, and Qualcomm (<a href="https://seekingalpha.com/symbol/QCOM" title="QUALCOMM Incorporated">QCOM</a>).</p> <p class="paywall-full-content invisible">The analysts see Intel and GlobalFoundries as relative underperformers as well as most of Analog, and see Long Western Digital/short Seagate Technology (<a href="https://seekingalpha.com/symbol/STX" title="Seagate Technology Holdings plc">STX</a>) as an excellent pair trade.</p> <p class="paywall-full-content invisible">In addition, Cantor has raised its price targets for Western Digital ($100 from $70); Applied Materials $260 from $220; ASML (€1,150 from €900); NXP Semiconductors ($290 from $270); Micron Technology (<a href="https://seekingalpha.com/symbol/MU" title="Micron Technology, Inc.">MU</a>) ($150 from $135); KLA ($800 from $$625); Lam Research ($1,100 from $900); Qualcomm ($190 from $150); and Texas Instruments (<a href="https://seekingalpha.com/symbol/TXN" title="Texas Instruments Incorporated">TXN</a>) $180 from $170.</p> <p class="paywall-full-content invisible">The firm reduced its price targets on Intel ($45 from $50) and GlobalFoundries ($55 from $70).</p> <div class="before_last_paragraph-piano-placeholder"></div><p class="paywall-full-content invisible">Applied Materials (<a href="https://seekingalpha.com/symbol/AMAT" title="Applied Materials, Inc.">AMAT</a>) has a <a href="https://seekingalpha.com/symbol/AMAT/ratings/quant-ratings">Hold</a> rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is more positive with a <a href="https://seekingalpha.com/symbol/AMAT/ratings/author-ratings">Buy</a> and so is the average Wall Street analysts' rating, <a href="https://seekingalpha.com/symbol/AMAT/ratings/sell-side-ratings">Buy</a>.</p> <div id="more-links" class="paywall-full-content invisible"> <h2>More on Applied Materials</h2> <ul> <li><a href="https://seekingalpha.com/article/4677249-added-applied-materials-to-our-model-portfolio-technical-analysis" class="more-link">Added Applied Materials To Our Model Portfolio (Technical Analysis)</a></li> <li><a href="https://seekingalpha.com/article/4675830-applied-materials-inc-amat-morgan-stanley-technology-media-and-telecom-conference-transcript" class="more-link">Applied Materials, Inc. (AMAT) Morgan Stanley Technology, Media &amp; Telecom Conference (Transcript)</a></li> <li><a href="https://seekingalpha.com/article/4675800-applied-materials-wfe-market-share-plummets-5-percent-below-asml-in-2023" class="more-link">Applied Materials' WFE Market Share Plummets 5% Below ASML In 2023</a></li> <li><a href="https://seekingalpha.com/news/4077895-applied-materials-inc-declares-0_40-dividend" class="more-link">Applied Materials hikes dividend by 25% to $0.40</a></li> <li><a href="https://seekingalpha.com/news/4077558-huawei-and-partner-used-us-tech-to-make-advanced-chips" class="more-link">Huawei and partner used US tech to make advanced chips - report</a></li> </ul> </div></description>
<link>https://seekingalpha.com/news/4087941-applied-materials-replaces-globalfoundries-in-cantors-top-five-list-ahead-of-earnings-season</link>
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<pubDate>Mon, 08 Apr 2024 14:41:25 GMT</pubDate>
<author>Ravikash Bakolia, SA News Editor</author>
<category>Applied Materials, Inc. (AMAT)</category>
<category>Intel Corporation (INTC)</category>
<category>Seagate Technology Holdings plc (STX)</category>
<category>Texas Instruments Incorporated (TXN)</category>
<category>Western Digital Corporation (WDC)</category>
<category>NVIDIA Corporation (NVDA)</category>
<category>QUALCOMM Incorporated (QCOM)</category>
<category>Lam Research Corporation (LRCX)</category>
<category>Micron Technology, Inc. (MU)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>ASML Holding N.V. (ASML)</category>
<category>KLA Corporation (KLAC)</category>
<category>Philadelphia Semiconductor Index (SOX)</category>
<category>NXP Semiconductors N.V. (NXPI)</category>
<category>GLOBALFOUNDRIES Inc. (GFS)</category>
</item>
<item>
<title>Nvidia, Micron, Qualcomm in focus as KeyBanc boosts estimates on China, AI hopes</title>
<description><figure class="getty-figure" data-type="getty-image"> <picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w750" alt="Artificial Intelligence processor unit. Powerful Quantum AI component on PCB motherboard with data transfers." data-id="1464561797" data-type="getty-image" width="1536px" height="864px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1464561797/image_1464561797.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" referrerpolicy="no-referrer"> </picture> <figcaption class="caption" data-type="getty-image"><p class="item-credits">da-kuk</p></figcaption> </figure><p>Nvidia (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a></span>), Micron Technology (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/MU" title="Micron Technology, Inc.">MU</a></span>), Qualcomm (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/QCOM" title="QUALCOMM Incorporated">QCOM</a></span>) and a host of other semiconductor stocks were in focus on Monday as KeyBanc Capital Markets weighed in on the sector.</p> <p>"Our quarterly supply chain findings were mixed," analysts John Vinh and Jim Long<span class="paywall-full-content invisible"> wrote in a note to clients. "In analog, we’re seeing signs of life within China, while [rest of world] remains muted, but 1Q appears to be the bottom; PCs are still tracking to roughly flat for the year; while iPhone demand is weaker in China, demand in India is stronger; Android high end remains healthy, offset by softness in mid/low. AI remains robust as expected, despite plenty of cross currents, while [chip-on-wafer-on-substrate] capacity is expected to double in 2025." </span></p> <p class="paywall-full-content invisible">Vinh and Long raised their estimates and price targets on Nvidia, Micron, Qualcomm and Monolithic Power Systems (<a href="https://seekingalpha.com/symbol/MPWR" title="Monolithic Power Systems, Inc.">MPWR</a>). They also raised their price target on Arm (<a href="https://seekingalpha.com/symbol/ARM" title="Arm Holdings plc">ARM</a>), while pointing out the findings were positive for Analog Devices (<a href="https://seekingalpha.com/symbol/ADI" title="Analog Devices, Inc.">ADI</a>), Texas Instruments (<a href="https://seekingalpha.com/symbol/TXN" title="Texas Instruments Incorporated">TXN</a>) and Microchip Technology (<a href="https://seekingalpha.com/symbol/MCHP" title="Microchip Technology Incorporated">MCHP</a>).</p> <p class="paywall-full-content invisible">They tweaked estimates on AMD (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a></span>) after finding the picture was "mixed" for the Dr. Lisa Su-led company, while they believe it's negative for Skyworks Solutions (<a href="https://seekingalpha.com/symbol/SWKS" title="Skyworks Solutions, Inc.">SWKS</a>), Marvell Technology (<a href="https://seekingalpha.com/symbol/MRVL" title="Marvell Technology, Inc.">MRVL</a>), ON Semiconductor (<a href="https://seekingalpha.com/symbol/ON" title="ON Semiconductor Corporation">ON</a>) and Intel (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>).</p> <p class="paywall-full-content invisible">The firm also downgraded Skyworks to Sector Weight from Overweight noting that its ability to see content growth in smartphones is "increasingly becoming more challenging," as 5G smartphones have a 60% penetration rate. Additionally, the company is seeing increased competition in the Apple (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>) ecosystem from Murata and Qualcomm and in Androids, especially in China.</p> <p class="paywall-full-content invisible">"We are also trimming our forward estimates as we had previously anticipated content growth in the iPhone 16," the analysts wrote. "However, with QCOM able to bundle its RF FE for low band with its modem, this is unlikely. While we expect SWKS to become more active in M&amp;A, it’s difficult for us to underwrite an OW rating without a more compelling organic growth story."</p> <h2 class="paywall-full-content invisible">Nvidia </h2> <p class="paywall-full-content invisible">The firm boosted its target to $1,200 on Nvidia, noting the GB200 could generate revenue as much as $90B to $140B by itself, citing feedback from supply chain that indicates it could have an average selling price of $1.5M to $2M. Additionally, Nvidia is looking to double its CoWoS capacity at Taiwan Semiconductor (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) next year and demand for the H20 in China is "much higher than anticipated" and could generate as much as $9B to $12B in incremental revenue this year, the analysts said.</p> <h2 class="paywall-full-content invisible">AMD </h2> <p class="paywall-full-content invisible">The ramp of the MI300X is "going well," the analysts said, adding that there is a chance the first-quarter could see more than $1B in AI-related revenue, as demand is greater than what can be supplied, due in part to lack of silicon-on-insulator.</p> <p class="paywall-full-content invisible">However, Microsoft (<a href="https://seekingalpha.com/symbol/MSFT" title="Microsoft Corporation">MSFT</a>) is supposedly cutting its forecast for the MI300X to reallocate costs to the GB200 due to the higher cost of Nvidia's offering. </p> <p class="paywall-full-content invisible">The firm has an Overweight rating and $270 price target on AMD.</p> <h2 class="paywall-full-content invisible">Micron</h2> <p class="paywall-full-content invisible">The analysts raised their price target on Micron to $150, citing strong feedback on its high bandwidth memory offering, HBM3E, compared to SK Hynix's offering. </p> <p class="paywall-full-content invisible">"With Samsung currently not competitive, we believe MU is in the pole-position heading into the ramp of B100/B200," the analysts wrote. "We believe MU has enough HBM capacity to meaningfully exceed its outlook of several hundred millions in FY24 and to ship over $1B in HBM revenues in CY24. As investors increasingly will recognize how strong MU’s position is in HBM, we expect the stock to rerate and be given credit as an 'AI' play."</p> <h2 class="paywall-full-content invisible">Qualcomm </h2> <p class="paywall-full-content invisible">The analysts raised their price target on Qualcomm to $205, citing "strong" demand for high-end and flagship smartphones; market share gains in the mid-range from Mediatek; the possibility of regaining 100% of the market in next year's Galaxy S25; Microsoft cutting back on Oryon, which could boost Arm AI-based PCs; and the fact it is still receiving orders from Huawei.</p> <p class="paywall-full-content invisible">"We increasingly see an opportunity for QCOM to rerate, as the Company is well positioned to benefit from AI at the edge in both PCs and smartphones," the anal... |
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<title>TSMC: Don't Be Ruined By Over-Optimism (Downgrade)</title>
<description><h2>Summary</h2><ul> <li>Taiwan Semiconductor Manufacturing Company Limited aka TSMC is positioned as the "enabler" of the AI industry, fabricating AI chips for companies like Nvidia, AMD, Broadcom, and Marvell.</li><li>TSMC expects over 20% YoY revenue growth in 2024, driven by AI-related revenue and the scaling of its N3 process node.</li><li>The sustainability of the AI growth inflection could lead to further upside potential for TSMC's valuation.</li><li>I explain why the market isn't foolish, as it lifted TSMC's valuation since bottoming out in 2023.</li><li>With AI FOMO driving significant recent gains in TSMC, it's time to play the defensive until we get a steeper pullback.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="2042492720" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">BING-JHEN HONG</p></figcaption></figure><p></p> <h2>TSMC Is The AI "Enabler"</h2> <p>I urged <strong>Taiwan Semiconductor Manufacturing Company Limited</strong> (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>) aka TSMC investors to ignore the pessimism in <a href="https://seekingalpha.com/article/4662858-tsmc-geopolitical-fears-could-rear-its-ugly-head-again">TSM's pre-earnings pullback</a> in mid-January 2024 as the market prepared for <a href="https://pr.tsmc.com/english/news/3101" rel="nofollow">TSMC's<span class="paywall-full-content invisible"> fourth-quarter earnings</span></a><span class="paywall-full-content invisible"> release back then. I assessed robust buying sentiments heading into TSMC's pivotal earnings scorecard and forward guidance as the market contemplated TSMC's AI growth inflection.</span></p> <p class="paywall-full-content invisible">The leading pure-play foundry didn't disappoint, as <a href="https://seekingalpha.com/article/4663479-taiwan-semiconductor-manufacturing-company-limited-tsm-q4-2023-earnings-call-transcript">TSMC focused its earnings</a> conference on being the <a href="https://www.bloomberg.com/news/articles/2024-03-08/tsmc-s-sales-gain-9-4-in-first-two-months-after-ai-boost" rel="nofollow">key "enabler"</a> for the semiconductor industry's AI hype. It shouldn't surprise investors that TSMC is a critical player in the value chain in fabricating the AI chips that Nvidia (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>) customers demand. Furthermore, even <a href="https://www.bloomberg.com/news/articles/2024-04-02/intel-financial-update-shows-losses-at-factories-widened-in-2023" rel="nofollow">arch-rival</a> Intel (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>) outsources its foundry requirements, given its current lack of process leadership. With Advanced Micro Devices (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), Broadcom (<a href="https://seekingalpha.com/symbol/AVGO" title="Broadcom Inc." class="paywall-full-content no-summary-bullets invisible">AVGO</a><span class="paywall-full-content no-summary-bullets invisible">), and Marvell (</span><a href="https://seekingalpha.com/symbol/MRVL" title="Marvell Technology, Inc." class="paywall-full-content no-summary-bullets invisible">MRVL</a><span class="paywall-full-content no-summary-bullets invisible">) leveraging TSMC as its key foundry partner, TSMC investors can be assured that the Taiwan-headquartered company will continue to play a vital role in the AI future.</span></p> <p class="paywall-full-content invisible no-summary-bullets">Accordingly, TSMC expects to deliver more than 20% YoY growth in revenue for 2024, driven by the surge in AI-related revenue. In addition, it also expects its N3 process node to continue scaling, with revenue "expected to triple in 2024 and account for a mid-teens percentage of total wafer revenue." Notably, TSMC is on track to achieve volume production of its N2 node in 2025, heaping more pressure on Intel to catch up. Based on the latest announcement by the Biden Administration on grants and <a href="https://www.bloomberg.com/news/articles/2024-04-08/tsmc-gets-11-6-billion-in-us-grants-loans-for-three-chip-fabs" rel="nofollow">loans provided to TSMC</a>, the foundry is expected to build a third domestic fab for the N2 node "before the end of the decade." While N2 is scheduled to go into volume production in 2025, I don't expect it to be the bleeding edge node when TSMC's third Arizona fab is ready for volume production. Therefore, I believe the most advanced manufacturing technologies will remain in Taiwan, securing its silicon shield while mitigating geopolitical risks with its ex-Taiwan production (including in Japan and Germany).</p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, the sustainability in the AI growth inflection could persist over the next few years, spurring further potential upside that might not have been baked into its valuation.</p> <h2 class="paywall-full-content invisible no-summary-bullets">TSM Valuation Remains Reasonable</h2> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/8/51630113-1712582573976396.png" alt="TSM Quant Grades" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption">TSM Quant Grades <span>(Seeking Alpha)</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">As seen above, Seeking Alpha Quant assigns TSM a "C" <a href="https://seekingalpha.com/symbol/TSM/valuation/metrics">valuation grade</a>, suggesting it's still reasonable. Buying momentum on TSM is also highly robust, with an "A" <a href="https://seekingalpha.com/symbol/TSM/momentum/performance">momentum grade</a>. Therefore, the market has lifted TSM's bullish thesis, seeing the foundry as a vital cog in fulfilling the AI ambitions of its fabless AI chips designers.</p> <p class="paywall-full-content invisible no-summary-bullets">Can TSM continue to drive a further valuation re-rating? Why not? Valued at a forward adjusted P/E of just over 22x, it's well above its 10Y average of 18x. Therefore, investors must consider why the market could lift its valuation much higher than its long-term average. The 20+% growth recovery in its top line momentum corroborates TSM's bullish thesis that the leading-edge foundry will underpin the industry's push toward accelerated computing.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Is TSM Stock A Buy, Sell, Or Hold?</h2> <p class="paywall-full-content invisible no-summary-bullets">Moreover, with Intel not expected to supplant TSMC as the world's largest foundry through 2030, it suggests <a href="https://seekingalpha.com/article/4681951-intel-foundry-is-getting-ready-to-challenge-tsmc-upgrade">Intel might face more</a> intense challenges to grab market share against TSMC. The significant losses undertaken by Intel Foundry in the near term behoove robust financial execution as Intel attempts to defend against market share losses against AMD and Nvidia. As a result, I gleaned that TSMC has a less complicated roadmap, bolstered by its solid execution as it continues to ramp toward N2 volume production next year.</p> <p class="paywall-full-content invisible no-summary-bullets">Geopolitical headwinds that hampered TSMC's valuation in 2023 are expected to taper as it diversifies its production base away from Taiwan. Investors will likely be increasingly confident in affording TSM a higher valuation multiple, consistent with its exposure and position as a key "enabler" of the AI growth cycle.</p> <p class="paywall-full-content invisible no-summary-bullets">As a result, I view steep pullbacks in Taiwan Semiconductor Manufacturing Company Limited's price action as solid opportunities to add exposure. However, I also assessed that the surge from TSM's 2023 lows has been likely priced in significant near-term optimism as it struggled to overcome the $150 resistance level. With selling pressure expected to intensify as earlier investors take profit to lock in gains, I move back to the sidelines as I await another, more attractive opportunity to buy more shares. Notwithstanding my caution, I remain confident about TSM's long-term thesis and will consider buying aggressively if we get a solid retracement to dissipate the recent optimism.</p> <p class="paywall-full-content invisible no-summary-bullets"><em>Rating: Downgrade to Hold.</em></p> <p class="paywall-full-content invisible no-summary-bullets"><em>Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing, unless otherwise specified.</em></p> <h4 class="paywall-full-content invisible no-summary-bullets">I Want To Hear From You</h4> <p class="paywall-full-content invisible no-summary-bullets">Have constructive commentary to improve our thesis? Spotted a critical gap in our view? Saw something important that we didn’t? Agree or disagree? Comment below with the aim of helping everyone in the community to learn better!</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.</p></description>
<link>https://seekingalpha.com/article/4682754-tsmc-dont-be-ruined-by-over-optimism-downgrade</link>
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<pubDate>Tue, 09 Apr 2024 15:30:00 GMT</pubDate>
<author>JR Research</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
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<title>Taiwan Semiconductor: The Revolution Is Just Getting Started</title>
<description><h2>Summary</h2><ul> <li>TSMC's revenue growth is expected to pick up due to the demand for AI-capable products from prominent players in the industry.</li><li>The company's financial position is strong, with no risk of insolvency or liquidity issues.</li><li>TSMC's largest clients, including Apple, Nvidia, Qualcomm, AMD, and Broadcom, are driving the demand for AI innovations, presenting an opportunity for TSMC's growth.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture><img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="2042492720" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042492720/image_2042492720.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"></picture><figcaption><p class="item-credits">BING-JHEN HONG/iStock Editorial via Getty Images</p></figcaption></figure><p></p> <h2><strong>Introduction</strong></h2> <p>I wanted to come back to Taiwan Semiconductor Manufacturing Company Limited (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>) to see how it has progressed through 2023, which was arguably a very tough environment for many semiconductor companies. Unsurprisingly, TSMC's profitably took<span class="paywall-full-content invisible"> a hit, but we are seeing a resurgence in revenue growth. I believe that the future is very bright for TSM, due to the AI hype that other prominent players in the industry are leading the demand for AI-capable products, which should directly influence TSMC's top line.</span></p> <p class="paywall-full-content invisible">Since <a href="https://seekingalpha.com/article/4638960-tsmc-arizona-plant-delay-is-just-short-term-noise">my last article</a> on the company, the shares have advanced over 60%, outpacing S&amp;P500 (<a href="https://seekingalpha.com/symbol/SPY" title="SPDR S&amp;P 500 Trust ETF">SPY</a>) by a large margin. At that point, I argued that the potential in AI is vast, and the company is trading at a ridiculous valuation, which doesn't reflect its potential. My stance hasn't changed.</p> <h2 class="paywall-full-content invisible"><strong>Briefly<span class="paywall-full-content no-summary-bullets invisible"> on Performance</span></strong></h2> <p class="paywall-full-content invisible no-summary-bullets">The company has <a href="https://seekingalpha.com/symbol/TSM/balance-sheet">around $55B in</a> cash and equivalents, against around $30B in long-term debt. I don't think this is particularly a bad position to be in. The company can easily pay it off if it wants to, but there is no need, especially since the company's interest income easily covers the annual interest expense on debt. Safe to say, the company is at no risk of insolvency and has no liquidity issues. Now, let's look at how the other important metrics progressed over the last year, which was a tough year, to say the least, so I am not expecting miracles. Starting with revenues.</p> <p class="paywall-full-content invisible no-summary-bullets">We can see the company had a tough time at the beginning of the year, due to the negative sentiment of the semiconductor industry, which was plagued with oversupply. It is no surprise that the top line took a hit, however, we can see it has bottomed out in Q3 of the year and is starting to pick back up, showing signs of recovery.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-1712174044028887_origin.png" rel="lightbox" data-width="2038" data-height="804" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-1712174044028887.png" alt="Revenues" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Revenues (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Given the tough environment throughout the year, it is also not surprising to see the company's profitability taking a slight hit. Nevertheless, these are still very impressive margins, and it seems that the worst is behind for the industry for now, so I would expect to see these pick back up over the next year.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440961525_origin.png" rel="lightbox" data-width="2396" data-height="782" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440961525.png" alt="Margins" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Margins (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Continuing with efficiency and profitability, the company's ROA and ROE took a hit since its bottom line deteriorated slightly. The same applies to these as with margins, once the business starts to pick back up, the company's assets and shareholder capital will be put to better use.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440540352_origin.png" rel="lightbox" data-width="2464" data-height="786" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440540352.png" alt="ROA and ROE" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">ROA and ROE (SA)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Overall, we can see what I have been saying in the previous articles. A tough year was not unexpected, and the management mentioned this many times in their previous earnings calls. What matters now is the upcoming year, which I think is going to be pivotal, in terms of revenue acceleration, and innovation by the company's largest clients.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>What to expect from upcoming Earnings</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">Earnings are going to be announced on the 18th of April after the market closes. Analysts are expecting around $18B in revenues and EPS of $1.31. That is around an 8% y/y increase, which is good to see given the last year of negative comparisons. The company slowly returning to growth.</p> <p class="paywall-full-content invisible no-summary-bullets">The management is looking at around the same revenue growth of $18.4B at the midpoint. The management expects to see gross margins in the range of 52% to 54% and 40% to 42% for EBIT margins.</p> <p class="paywall-full-content invisible no-summary-bullets">I don't think it would be hard for the company to beat these estimates. But if it does miss, I would expect some profit-taking to take place as it had a nice run-up since the lows.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Comments on the Outlook</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">Being the pickaxe merchant, TSMC has not been lifted very high in this current gold rush of AI hype, which I think presents an opportunity. The company's top clients, like Apple Inc. (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>), NVIDIA Corporation (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>), QUALCOMM Incorporated (<a href="https://seekingalpha.com/symbol/QCOM" title="QUALCOMM Incorporated">QCOM</a>), Advanced Micro Devices, Inc. (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), and Broadcom Inc. (<a href="https://seekingalpha.com/symbol/AVGO" title="Broadcom Inc.">AVGO</a>), all are somehow involved in the gold rush craze, and to see that it is not reflected with revenue growth currently at TSM is baffling. The company's share price did go up from its lows back in October of last year, right about when I wrote my last bullish article on it. This could mean that investors are already pricing in an eventual turnaround in cyclicality, and the return of the positive sentiment in the semiconductor industry, fueled by the aforementioned "gold rush" in AI.</p> <p class="paywall-full-content invisible no-summary-bullets">The company's largest client, Apple, is starting to embrace this trend, and now that the EV project has been scrapped, which I think was a good idea, given the hindsight of EV troubles and slowdown, the company can fully focus on AI innovations. Apple has been quietly acquiring <a href="https://www.cdomagazine.tech/aiml/ai-shopping-spree-apple-leads-charge-with-32-startup-acquisitions-in-2023" rel="nofollow">over 30 AI startups in 2023,</a> and I don't think this trend is going to stop. I guess it is better late than never. With such decisions, the company is looking to improve its upcoming handsets to be more than just a run-of-the-mill slight upgrade as it has been in the recent past. I am excited to see what the AI revolution will bring to the iPhones in the future. I haven't been impressed by the company since they introduced Apple Silicon with its revolutionary M chip.</p> <p class="paywall-full-content invisible no-summary-bullets">Continuing with handsets, QCOM is another exciting company for me, which I covered <a href="https://seekingalpha.com/article/4681587-qualcomm-still-a-believer-but-i-need-proof-of-future-growth-downgrade">recently</a>, looks to have a lot to prove but the innovations in handsets, for example, on-device AI should fuel the company's top line considerably, as AI is simply too hot to ignore and many enterprises and individuals are looking for the next big breakthrough. The company's upcoming ARM-based processor is specifically designed for Windows laptops and looks to be very power efficient, and a real contender to already established players like Intel Corporation (<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a>), and AMD. If I hadn't just upgraded my Windows laptop of 8 years for an M2 MacBook, I would have most likely bought the one with the next processor of QCOM, unfortunately, it's not available yet.</p> <p class="paywall-full-content invisible no-summary-bullets">Let's not forget the star of AI, Nvidia. The company saw its revenue transform and turn into a data center powerhouse focused on AI capabilities. In some quarters, the company saw over 200% y/y growth. I don't think this is going to be sustainable for very long, however, I wouldn't be surprised if it persists for another year or two, with continual improvements on their data center products like Blackwell and the current top product Hopper H100 and the upcoming H200. With TSMC being <a href="https://www.techpowerup.com/320679/nvidia-ceo-reiterates-solid-partnership-with-tsmc#:~:text=TSMC%20is%20sole%20maker%20of%20Nvidia%20AI%20GPUs&amp;text=The%20upcoming%20RTX%2050%20series,nm%20processes%2C%20the%20sources%20said." rel="nofollow">the sole maker</a> of Nvidia AI GPUs, there is a lot to be excited about over the next while. The company may not see such growth as NVDA, but if the demand for these new products continues to be strong, revenues at TSMC will certainly pick up.</p> <p class="paywall-full-content invisible no-summary-bullets">TSMC is not standing still and is actively looking to <a href="https://seekingalpha.com/news/4063087-taiwan-semiconductor-and-partners-team-up-to-build-2nd-chip-facility-in-japan">increase capacity</a> to meet the demand for innovations regarding semiconductors. The company is looking to spend around $30B on capex "to support customers' growth". The company also said that they "<em>have sharply increased our Capex spending in preparation to capture and harvest the growth opportunities from HPC, AI, and 5G megatrends."</em> Going further to say that the company is well on track to grow between 15% and 20% CAGR over the next several years, which gives me a good starting point for valuation. I believe that this range is still on the more conservative side, given the potential mentioned above. So, it looks like it is great being the merchant of pickaxes in the modern gold rush. The opportunities are there, it's just a matter of whether TSMC is going to capitalize on it but being one of the most important semiconductor companies in the world, with a highly skilled labor force, the edge is on its side to succeed.</p> <p class="paywall-full-content invisible no-summary-bullets">Let's look at my updated valuation model.</p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Valuation</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">For revenues, I decided to go with around 13% CAGR over the next decade, which I think is more than reasonable, given how hot the industry has become. The semiconductor industry's sentiment is once again turning positive, the smartphone and PC markets are returning to growth, which will help TSM return to robust growth, on top of AI hype. The management back in 2022 said they were looking for around 15% to 20% CAGR over the next several years, so if we take revenue numbers from FY23 to FY26 assumptions, we get around 14% CAGR, which is on the lower end of their estimates for conservatism sake. After that, we didn't have any numbers, so what I like to do is linearly grow the growth down over time, ending up with around 13% CAGR over the period. I also went ahead and modeled a more conservative case, and more optimistic one. Below are those estimates.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122434358168325_origin.png" rel="lightbox" data-width="1596" data-height="182" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122434358168325.png" alt="Revenue Assumptions" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Revenue Assumptions (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In terms of margins and EPS, over time, I see capex subsiding, leading to better profitability once investments in capacity upgrades are through. The management has mentioned that they see capex <a href="https://seekingalpha.com/article/4663479-taiwan-semiconductor-manufacturing-company-limited-tsm-q4-2023-earnings-call-transcript">"leveling off"</a> already after an intense few years of ramp-up. The leveling off starts at around $30B a year in capex, so for the next decade, I am modeling around a 10% increase in capex per year, just to be more conservative, as I don't think $30B per year for the next decade is going to be sufficient. The value of money reduces so the amounts will increase. To keep it even safer, the management also mentioned that they expect to reach over 53% in gross margins over the long term, so I have modeled that the company over the next decade will achieve 55% margins by FY32, which fits well with what the management said. The improvements in gross margins will bring improvements to EBIT and Net margins. Below are those estimates.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122456990692258_origin.png" rel="lightbox" data-width="1504" data-height="173" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122456990692258.png" alt="Margins and EPS Assumptions" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Margins and EPS Assumptions (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">For the DCF model, I went with the company's WACC of around 9.3% as my discount and 2.5% terminal growth rate for the base case scenario. I didn't think I needed to add more margin of safety here, as the company's financial position is very strong.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440581038_origin.png" rel="lightbox" data-width="1236" data-height="762" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/48589448-17121740440581038.png" alt="WACC calculations" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">WACC calculations (Author)</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, just to be on a bit more conservative end, I am adding another 10% discount to the final intrinsic value, which should be enough for the same reason as above, its balance sheet. With that said, TSMC's intrinsic value is $164 a share, meaning the company is still trading at a discount to its fair value.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122457325133808_origin.png" rel="lightbox" data-width="1248" data-height="252" data-og-image-twitter_small_card="false" data-og-image-twitter_large_card="false" data-og-image-twitter_image_post="false" data-og-image-msn="false" data-og-image-facebook="false" data-og-image-google_news="false" data-og-image-google_plus="false" data-og-image-linkedin="false"><img src="https://static.seekingalpha.com/uploads/2024/4/4/48589448-17122457325133808.png" alt="Fair Value" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption">Fair Value (Author)</p></figcaption></figure><p></p> <h2 class="paywall-full-content invisible no-summary-bullets"><strong>Risks and Closing Comments</strong></h2> <p class="paywall-full-content invisible no-summary-bullets">We may see some profit taking if the company misses earnings, which are due in the next couple of weeks. The company has run up over 60% since my last article and October lows, so I wouldn't be surprised if the company doesn't deliver great numbers and the shares see a 10% slide. I would say it would be an opportunity to get in at an even better entry point.</p> <p class="paywall-full-content invisible no-summary-bullets">If the demand for AI-related products isn't as robust as I predict, that will affect the company's top-line, and certainly its fair valuation and share price. Furthermore, there is still a lot of uncertainty in the geopolitical sense. A lot of investors are not keen on investing in a company that is somehow related to China, as it is perceived as very risky. To that I say, it is overblown in my opinion, and I <a href="https://seekingalpha.com/article/4596211-taiwan-semiconductor-invasion-narrative-overblown-company-buy">covered that</a> in more detail in one of my earlier articles.</p> <p class="paywall-full-content invisible no-summary-bullets">The company's plans for expansion may come with some unforeseen extra costs, which could bring down its profitability further, but I would say it's short-term pain for long-term gain.</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">I believe the company has a lot of room for further growth, well passed my conservative fair value, however, I would be cautious if it climbs over that very quickly, and you miss the entry point. I reiterate my strong buy recommendation, but it wouldn't be a bad idea to wait for the next quarter's results before adding to a current position or starting a new one. It is up to you to do further due diligence, and whether you are fine with taking on the risks mentioned.</p></description>
<link>https://seekingalpha.com/article/4682193-taiwan-semiconductor-revolution-getting-started</link>
<guid isPermaLink="false">https://seekingalpha.com/article/4682193-taiwan-semiconductor-revolution-getting-started</guid>
<pubDate>Thu, 04 Apr 2024 17:09:12 GMT</pubDate>
<author>Gytis Zizys</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Gytis Zizys</category>
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<category>Taiwan</category>
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<title>TSMC: Continues To Trade Cheap Heading Towards Q1 2024</title>
<description><h2>Summary</h2><ul> <li>TSMC's stock rose by 37.13% since my previous article, now it stands at $140.45, near the lower end of my fair price estimate range of $146.4- $220.1.</li><li>TSMC expands fabs and innovates to maintain market dominance, holding 61% share. This last one represents pricing advantages.</li><li>TSMC remains undervalued with a fair price estimate of $238.47, suggesting 33% annual returns throughout 2029, offering opportunity even with consensus projections.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w750" alt="View of the Taiwan Semiconductor Manufacturing Company (TSMC) plant." data-id="1879125119" data-type="getty-image" width="1536px" height="1024px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1879125119/image_1879125119.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">BING-JHEN HONG</p></figcaption></figure><p></p> <h2>Thesis</h2> <p>In <a href="https://seekingalpha.com/article/4660737-tsmc-i-should-have-sticked-to-my-model-rating-upgrade">my previous article</a> about Taiwan Semiconductor Manufacturing Company Limited (<span class="ticker-hover-wrapper">NYSE:<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a></span>), I updated my models and got a fair price estimate ranging from $146.4 to $220.1.</p> <p>That article was published after <a href="https://seekingalpha.com/news/4021820-taiwan-semiconductor-gaap-epadr-of-129-beats-by-013-revenue-of-1728b-beats-by-580m">Q3 2023</a> (which was released<span class="paywall-full-content invisible"> on October 19, 2023. At that time the stock was trading at $104, which prompted a rating upgrade from "Hold" to "Strong Buy". Since then the stock price has increased by 37.13%, and now the stock price stands at $140.45, therefore being close to the lower end of the fair price estimate range.</span></p> <p class="paywall-full-content invisible">TSMC released <a href="https://seekingalpha.com/news/4055856-taiwan-semiconductor-beats-q4-top-and-bottom-line-estimates">Q4 2023 earning</a>s on January 18. For that quarter, TSMC beat top EPS estimates by $0.05 and revenue by 50M. The company also disclosed that 3nm and 5nm accounted for 15% and 35% respectively, 50% in total.</p> <p class="paywall-full-content invisible">After updating my models again, I arrived at a<span class="paywall-full-content no-summary-bullets invisible"> fair price estimate of $238.47 and a future price estimate for 2029 of $418.49. Both of these targets mean an upside of 69.8% and annual returns of 33% throughout 2029.</span></p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712136042920807.png" alt="Performance since my previous article" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Seeking Alpha</span></p></figcaption></figure><p></p> <h2 class="paywall-full-content invisible no-summary-bullets">Overview</h2> <h4 class="paywall-full-content invisible no-summary-bullets">TSMC's Growth Plan</h4> <p class="paywall-full-content invisible no-summary-bullets">TSMC's business is manufacturing, therefore its growth plan is essentially expanding its existing fabs and <a href="https://www.taipeitimes.com/News/biz/archives/2022/08/31/2003784445" rel="nofollow">building new ones</a>. Aside from that, they are very focused on innovation, which is one of the reasons why they have managed to keep their dominance.</p> <h4 class="paywall-full-content invisible no-summary-bullets">How does TSMC compare against Peers?</h4> <p class="paywall-full-content invisible no-summary-bullets">TSMC is the largest semiconductor manufacturing company by capacity and market share. This last one <a href="https://www.statista.com/statistics/867223/worldwide-semiconductor-foundries-by-market-share/#:~:text=Semiconductor%20foundries%20revenue%20share%20worldwide%202019%2D2023%2C%20by%20quarter&amp;text=In%20the%20fourth%20quarter%20of,11.3%20percent%20of%20the%20market." rel="nofollow">stands at around 61%</a>, which is far superior to the second place, Samsung Electronics Co., Ltd. (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) which holds 11.3% of the market. The third and fourth places are GLOBALFOUNDRIES Inc. (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>), and United Microelectronics Corporation (<a href="https://seekingalpha.com/symbol/UMC" title="United Microelectronics Corporation">UMC</a>) with 5.8% and 5.4% respectively.</p> <p class="paywall-full-content invisible no-summary-bullets">TSMC's size is, in my opinion, a moat by itself since with a higher volume, TSMC can offer reduced pricing per unit as well as preferential pricing for lithography machines and fab equipment.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121731202773843.png" alt="Market Share of foundries" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Statista</span></p></figcaption></figure><p></p> <h4 class="paywall-full-content invisible no-summary-bullets">Industry Outlook</h4> <p class="paywall-full-content invisible no-summary-bullets">The<a href="https://www.statista.com/outlook/tmo/semiconductors/worldwide" rel="nofollow"> worldwide semiconductor market</a> is expected to grow at a CAGR of 6.30% throughout 2027. At the end of 2023, the market generated revenues of $553B, and it's expected to reach $736.4B by 2027.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526_origin.png" rel="lightbox" data-width="1698" data-height="902" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"> <picture> </picture></a></span><span><a href="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526_origin.png" rel="lightbox" data-width="1698" data-height="902" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/1/1/57268399-17041379809873526.png" alt="Semiconductors - Worldwide" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Statista</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">However, that is taking all semiconductors sales which is beyond foundry services. This last one <a href="https://www.alliedmarketresearch.com/semiconductor-foundry-market-A124887" rel="nofollow">was valued at $106.9B in 2022</a> and is expected to reach $231.5B by 2032, which is an 8.1% annual growth rate throughout that period.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Valuation</h2> <p class="paywall-full-content invisible no-summary-bullets">To value TSMC I will employ a DCF model. Below you can see the list of financial figures that will be needed to build the model. The equity market price is the market cap of TSMC at the time I started writing the article.</p> <p class="paywall-full-content invisible no-summary-bullets">The WACC will be calculated with the already-known formula. In this case, it came out at 10.50%. If you want to see a more detailed procedure, you can see the section labeled "WACC Calculation" in the DCF model.</p> <p class="paywall-full-content invisible no-summary-bullets">Lastly, CapEx will be left fixed at $35.68B, which is around $5B higher than the FY2023 CapEx of $ 30.94 B. Interest expenses will grow at a 9% rate at pace with the 2021-2023 average growth of total debt, which was 9%. Then, D&amp;A will be calculated with a margin tied to revenue, which is 24.37%.</p> <span class="table-responsive paywall-full-content invisible no-summary-bullets"><span class="table-scroll-wrapper"><span data-intersection-boundary="start"></span><table> <colgroup> <col> <col> </colgroup> <tbody><tr><td colspan="2">TABLE OF ASSUMPTIONS</td></tr> <tr> <td>(Current data)</td> <td> </td> </tr> <tr> <td>Assumptions Part 1</td> <td> </td> </tr> <tr> <td>Equity Market Price</td> <td>622,940.00</td> </tr> <tr> <td>Debt Value</td> <td>32,132.50</td> </tr> <tr> <td>Cost of Debt</td> <td>4.90%</td> </tr> <tr> <td>Tax Rate</td> <td>7.22%</td> </tr> <tr> <td>10y Treasury</td> <td>4.365%</td> </tr> <tr> <td>Beta</td> <td>1.06</td> </tr> <tr> <td>Market Return</td> <td>10.50%</td> </tr> <tr> <td>Cost of Equity</td> <td>10.87%</td> </tr> <tr> <td>Assumptions Part 2</td> <td> </td> </tr> <tr> <td>CapEx</td> <td>30,940.70</td> </tr> <tr> <td>Capex Margin</td> <td>43.94%</td> </tr> <tr> <td>Net Income</td> <td>27,314.40</td> </tr> <tr> <td>Interest</td> <td>1,573.20</td> </tr> <tr> <td>Tax</td> <td>4,606.30</td> </tr> <tr> <td>D&amp;A</td> <td>17,163.40</td> </tr> <tr> <td>Ebitda</td> <td>50,657.30</td> </tr> <tr> <td> </td> <td> </td> </tr> <tr> <td>D&amp;A Margin</td> <td>24.37%</td> </tr> <tr> <td>Interest Expense Margin</td> <td>2.23%</td> </tr> <tr> <td>Revenue</td> <td>70,419.4</td> </tr> </tbody></table> <span data-intersection-boundary="end"></span></span><button class="table-enlarge-button"><svg viewBox="0 0 16 16" xmlns="http://www.w3.org/2000/svg" class="table-enlarge-icon"><path fill-rule="evenodd" clip-rule="evenodd" d="M16 11a5 5 0 0 1-5 5H5a5 5 0 0 1-5-5V5a5 5 0 0 1 5-5h6a5 5 0 0 1 5 5v6zm-4.5-2.5h2v-6h-6v2h4v4zm-9-1h2v4h4v2h-6v-6z"></path></svg>Click to enlarge</button></span> <p class="paywall-full-content invisible no-summary-bullets">The first step to arrive at the fair value estimate is to calculate revenue. For doing this I will rely on historical data concerning <a href="https://www.wsts.org/61/MARKET-STATISTICS" rel="nofollow">Worldwide Semiconductor Shipments from WSTS</a> and the historical quarterly revenue of TSMC since Q1 20218.</p> <p class="paywall-full-content invisible no-summary-bullets">Analyzing the trend below, you can observe that the average quarterly growth of semiconductor shipments since 2018 has been 5.80% and the average contraction has been 5.68%. Meanwhile, TSMC has been growing 2.16% more and contracting 4.31% less than the overall market. These are the proportions I will keep for the overall projection of worldwide semiconductor shipments and TSMC's quarterly revenue.</p> <p class="paywall-full-content invisible no-summary-bullets">Furthermore, contractions in semiconductor shipments usually last 1 quarter. The only exception has been the period of Q1 2022-Q1 2023, which was later resolved thanks to the increased demand for AI-capable GPUs and CPUs. Then, periods of growth usually last three quarters.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145236722433_origin.png" rel="lightbox" data-width="1182" data-height="652" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145236722433.png" alt="COmparisson" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In the table below you can see my projections for worldwide semiconductor shipments as well as for TSMC's quarterly revenue throughout 2029. In red you can see the periods where both metrics contracted. You may observe that for some periods TSMC followed a distinct path from the market, however, for the protection (which is marked in green) I made that every three quarters there would be a quarterly contraction.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145903541842_origin.png" rel="lightbox" data-width="1441" data-height="1327" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-1712145903541842.png" alt="Historical Data + Projections" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Finally, the model is also going to suggest which could be the stock price for 2029. To do this I will try to predict which could be the value of each of the elements that compose equity. To do this I will rely on the average evolution displayed by these elements in 2021-2023.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121465173553262_origin.png" rel="lightbox" data-width="1316" data-height="1524" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121465173553262.png" alt="DCF" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span><figcaption><p class="item-caption"><span>Author's Calculations</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">As you can see, the model yields a present fair price estimate of $238.47, which implies a 69.8% upside from the current stock price of $140.45. Then, the future price estimate of $418.49 translates into 33% annual returns throughout 2029.</p> <h4 class="paywall-full-content invisible no-summary-bullets">How do my Estimates Compare with the Average Consensus?</h4> <p class="paywall-full-content invisible no-summary-bullets">If I did a model completely based on <a href="https://seekingalpha.com/symbol/TSM/earnings/estimates">average estimates</a>, I would get a fair price per share of $162.88, which is a 16% upside from the current stock price of $140.45. Then, the future price yielded by this hypothetical model would be $284.10, which translates into 17% annual returns throughout 2029.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/57268399-17121466454955733_origin.png" rel="lightbox" data-width="1012" data-height="765" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true&quo... |
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<title>Taiwan Semi, Spirit Airlines rise; Paramount Global, Occidental Petroleum fall, Monday, 4/8/2024</title>
<description><div>
<p>
</p>
<p><span class="location" value="LU/us.ny.nyc">NEW YORK</span> (AP) — Stocks that traded heavily or had substantial price changes <a href="https://apnews.com/article/stock-markets-inflation-earnings-812eda3ed641e66e438a6d59944ea43f">on Monday:</a></p>
<p>Taiwan Semiconductor Manufacturing Co., up $1.43 to $142.79.</p>
<p>The White House pledged to provide up to $6.6 billion for the chipmaker to expand facilities in <span class="location" value="LS/us.az">Arizona</span>. </p>
<p>Apartment Income REIT Corp. (<a href="https://seekingalpha.com/symbol/AIRC">AIRC</a>), up $7.03 to $38.38.</p>
<p>The real estate investment trust agreed to be acquired by Blackstone for $39.12 a share in cash. </p>
<p>Paramount Global (<a href="https://seekingalpha.com/symbol/PARAA">PARAA</a>), down 91 cents to $11.06.</p>
<p>Controlling shareholder <span class="person" value="APIN:0399314009">Shari Redstone</span> could net $2 billion in cash in a buyout deal reportedly being discussed for the owner of CBS.</p>
<p>JPMorgan Chase &amp; Co. (<a href="https://seekingalpha.com/symbol/JPM">JPM</a>), up $1.03 to $198.48.</p>
<p>CEO <span class="person" value="APIN:0028030657">Jamie Dimon's</span> annual shareholder letter said he continues to expect the <span class="location" value="LC/us">U.S.</span> economy to grow this year.</p>
<p>Model N Inc. (<a href="https://seekingalpha.com/symbol/MODN">MODN</a>), up $2.73 to $29.82.</p>
<p><span class="location" value="">The Silicon Valley</span> software company agreed to be acquired for $30 a share in cash by Vista Equity Partners. </p>
<p>Perion Network Ltd. (<a href="https://seekingalpha.com/symbol/PERI">PERI</a>), down $8.61 to $12.50.</p>
<p>The digital advertising company cut its full-year sales and profit forecasts, citing a drop in search ads on Microsoft (<a href="https://seekingalpha.com/symbol/MSFT">MSFT</a>)'s Bing search engine. </p>
<p>Spirit Airlines, Inc. (<a href="https://seekingalpha.com/symbol/SAVE">SAVE</a>), up 29 cents to $4.72.</p>
<p>The discount airline is deferring deliveries of aircraft from Airbus and plans to furlough 260 pilots effective Sept. 1. </p>
<p>Occidental Petroleum Corp. (<a href="https://seekingalpha.com/symbol/OXY">OXY</a>), down 52 cents to $68.73.</p>
<p>Energy companies fell along with crude oil prices. </p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
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<link>https://seekingalpha.com/pr/19680123-taiwan-semi-spirit-airlines-rise-paramount-global-occidental-petroleum-fall-monday-4-8-2024</link>
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<pubDate>Mon, 08 Apr 2024 16:37:00 GMT</pubDate>
<author>Associated Press</author>
<category>Microsoft Corporation (MSFT)</category>
<category>JPMorgan Chase & Co. (JPM)</category>
<category>Occidental Petroleum Corporation (OXY)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Spirit Airlines, Inc. (SAVE)</category>
<category>Perion Network Ltd. (PERI)</category>
<category>Model N, Inc. (MODN)</category>
<category>Paramount Global (PARAA)</category>
<category>Apartment Income REIT Corp. (AIRC)</category>
<category>Microsoft Corporation (MSFT:CA)</category>
<category>JPMorgan Chase & Co. (JPM:CA)</category>
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<item>
<title>Biden administration announces $6.6 billion to ensure leading-edge microchips are built in the US</title>
<description><div>
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<p><span class="location" value="LU/us.de.wilmtn">WILMINGTON, Del.</span> (AP) — The Biden administration pledged on Monday to provide up to $6.6 billion so that a Taiwanese semiconductor giant can expand the facilities it is <a href="https://apnews.com/article/arizona-taiwan-microchip-construction-oversight-a0de9d389d6859a466289d740f4955e0">already building in <span class="location" value="LS/us.az">Arizona</span></a> and better ensure that the most-advanced microchips are produced domestically for the first time. </p>
<p>Commerce Secretary <a href="https://apnews.com/hub/gina-raimondo"><span class="person" value="">Gina Raimondo</span></a> said the funding for <a href="https://apnews.com/article/taiwan-tsmc-processor-chip-china-chang-smartphone-f4831293c2c9a528cab0958ba6dad0ff">Taiwan Semiconductor Manufacturing Co.</a> means the company can expand on its existing plans for two facilities in <span class="location" value="LU/us.az.phonix">Phoenix</span> and add a third, newly announced production hub. </p>
<p>“These are the chips that underpin all artificial intelligence, and they are the chips that are the necessary components for the technologies that we need to underpin our economy," Raimondo said on a call with reporters, adding that they were vital to the "21st century military and national security apparatus.” </p>
<p>The funding is tied to <a href="https://apnews.com/article/inflation-covid-science-technology-health-fdcb2db42f91dcdbdd844d6dd463f95a">a sweeping 2022 law</a> that President <a href="https://apnews.com/hub/joe-biden"><span class="person" value="">Joe Biden</span></a> has celebrated and which is designed to revive <span class="location" value="LC/us">U.S.</span> semiconductor manufacturing. Known as the <a href="https://apnews.com/article/biden-science-technology-united-states-economy-2fa651c540c9869890dfe670bcdcb7ea">CHIPS and Science Act</a>, the $280 billion package is aimed at sharpening the <span class="location" value="LC/us">U.S.</span> edge in military technology and manufacturing while minimizing the kinds of supply disruptions that occurred in 2021, after the start of the coronavirus pandemic, when <a href="https://apnews.com/article/computer-chips-shortage-explained-c4eec42c97364908d60a35fcc0e11ea5">a shortage of chips</a> stalled factory assembly lines and <a href="https://apnews.com/article/technology-business-congress-asia-economy-2868a5c494e99a2050a3f9495ba2b544">fueled inflation</a>.</p>
<p>The Biden administration has promised <a href="https://apnews.com/article/technology-production-facilities-united-states-government-business-covid-2650c21c0a33672dc033610da17a13ec">tens of billions of dollars</a> to support <a href="https://apnews.com/article/biden-science-technology-united-states-economy-2fa651c540c9869890dfe670bcdcb7ea">construction of <span class="location" value="LC/us">U.S.</span> chip</a> foundries and reduce reliance on Asian suppliers, which <span class="location" value="LU/us.dc.wash">Washington</span> sees as a security weakness.</p>
<p>“Semiconductors – those tiny chips smaller than the tip of your finger – power everything from smartphones to cars to satellites and weapons systems," Biden said in a statement. “TSMC’s renewed commitment to <span class="location" value="LC/us">the United States</span>, and its investment in <span class="location" value="LS/us.az">Arizona</span> represent a broader story for semiconductor manufacturing that’s made in America and with the strong support of America’s leading technology firms to build the products we rely on every day.” </p>
<p>Taiwan Semiconductor Manufacturing produces nearly all of the leading-edge microchips in the world and plans to eventually do so in the <span class="location" value="LC/us">U.S.</span> </p>
<p>It began construction of its first facility in <span class="location" value="LU/us.az.phonix">Phoenix</span> in 2021, and started work on a second hub last year, with the company increasing its total investment in both projects to $40 billion. The third facility should be producing microchips by the end of the decade and will see the company’s commitment increase to a total of $65 billion, Raimondo said. </p>
<p>The investments would put the <span class="location" value="LC/us">U.S.</span> on track to produce roughly 20% of the world’s leading-edge chips by 2030, and Raimondo said they should help create 6,000 manufacturing jobs and 20,000 construction jobs, as well as thousands of new positions more indirectly tied to assorted suppliers in chip-related industries tied to <span class="location" value="LS/us.az">Arizona</span> projects. </p>
<p>The potential incentives announced Monday include $50 million to help train the workforce in <span class="location" value="LS/us.az">Arizona</span> to be better equipped to work in the new facilities. Additionally, approximately $5 billion of proposed loans would be available through the CHIPS and Science Act. </p>
<p>“TSMC's commitment to manufacture leading-edge chips in <span class="location" value="LS/us.az">Arizona</span> marks a new chapter for America's semiconductor industry,” <span class="person" value="">Lael Brainard</span>, director of the White House National Economic Council, told reporters. </p>
<p>The announcement came as <span class="location" value="LC/us">U.S.</span> Treasury Secretary <a href="https://apnews.com/article/treasury-yellen-china-economics-trade-cbeef6b23ffb6c6cf6cb11dab25ed08b"><span class="person" value="">Janet Yellen</span> is traveling in <span class="location" value="LC/cn">China</span></a>. Senior administration officials were asked on the call with reporters if the Biden administration gave <span class="location" value="LC/cn">China</span> a head’s up on the coming investment, given the delicate geopolitics surrounding <span class="location" value="LC/tw">Taiwan</span>. The officials said only that their focus in making Monday’s announcement was solely on advancing <span class="location" value="LC/us">U.S.</span> manufacturing. </p>
<p>“We are thrilled by the progress of our <span class="location" value="LS/us.az">Arizona</span> site to date,” <span class="person" value="APIN:1404272691">C.C. Wei</span>, CEO of TSMC, said in a statement, "And are committed to its long-term success.” </p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
</div></description>
<link>https://seekingalpha.com/pr/19679273-biden-administration-announces-6_6-billion-to-ensure-leading-edge-microchips-are-built-in-us</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19679273-biden-administration-announces-6_6-billion-to-ensure-leading-edge-microchips-are-built-in-us</guid>
<pubDate>Mon, 08 Apr 2024 09:03:00 GMT</pubDate>
<author>Associated Press</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
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<title>Japanese leader visits new chip factory, stressing ties with Taiwan and support for key technology</title>
<description><div>
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<p><span class="location" value="LU/jp..tokyo">TOKYO</span> (AP) — Japanese Prime Minister <span class="person" value="">Fumio Kishida</span> visited a new semiconductor plant for which his government has pledged more than 1 trillion yen ($7 billion) of support to secure a steady supply of chips on Saturday. </p>
<p>“I believe this project will have positive ripple effects throughout <span class="location" value="LC/jp">Japan</span>. It is key for not only the semiconductor industry but also a wide range of businesses such as electric vehicles and electronics,” he said while touring the facility. </p>
<p>The new plant on the southwestern island of Kyushu, majority owned by the Taiwan Semiconductor Manufacturing Co., is the Taiwanese semiconductor giant's first in <span class="location" value="LC/jp">Japan</span>.</p>
<p>Kishida also expressed sympathy to <span class="location" value="LC/tw">Taiwan</span> <a href="https://apnews.com/article/taiwan-hualien-earthquake-taroko-shakadang-a20431a309e21d74f9ec62e097efa530">following an earthquake</a> that left at least 12 people dead. </p>
<p>Japanese companies like Sony, Denso and Toyota are investing in the TSMC subsidiary that <a href="https://apnews.com/article/tsmc-semiconductor-chips-taiwan-sony-japan-toyota-2b42cfe27047f68c5edc5228eb27e0c1">opened the plant in February</a>, although the Taiwanese giant retained an 86.5% stake in the Japan Advanced Semiconductor Manufacturing Company. The project underlines Japan’s hopes to regain its presence in the computer chips industry.</p>
<p>Four decades ago, <span class="location" value="LC/jp">Japan</span> dominated in chips, with Toshiba and NEC controlling half the world’s production. That’s declined to under 10%, amid competition from South Korean, <span class="location" value="LC/us">U.S.</span> and European manufacturers, as well as TSMC.</p>
<p><span class="location" value="LC/jp">Japan</span> has recently earmarked about 5 trillion yen ($33 billion) to revive its chips industry, seeking to become less dependent on imports in the wake of pandemic-era shortages that affected auto production and other industries for months. </p>
<p>Ensuring an ample supply of the most advanced chips is vital with the growing popularity of electric vehicles, as well as artificial intelligence.</p>
<p>Private sector investment totals $20 billion for the plants in the Kumamoto region, southwestern <span class="location" value="LC/jp">Japan</span>. The second plant is set to be up and running in three years. The two plants are expected to create 3,400 high-tech jobs directly, according to TSMC.</p>
<p>The plant is a bright spot for Kishida, whose popularity has plummeted amid a corruption scandal in his ruling Liberal Democratic Party.</p>
<p>Highlighting Japan’s ties with <span class="location" value="LC/tw">Taiwan</span> and the <span class="location" value="LC/us">U.S.</span>, Japan’s most important ally, is one way the prime minister can hope to boost flagging poll numbers. Kishida is scheduled to meet President <span class="person" value="">Joe Biden</span> in <span class="location" value="LU/us.dc.wash">Washington</span> next week.</p>
<p><span class="location" value="LC/cn">China</span> claims the self-governing island of <span class="location" value="LC/tw">Taiwan</span> as its own territory and says it must come under Beijing’s control. The long-running divide is a flashpoint in <span class="location" value="LC/us">U.S.</span>-<span class="location" value="LC/cn">China</span> relations.</p>
<p>Semiconductors have more recently become a strategic battleground in the <span class="location" value="LC/us">U.S.</span>-<span class="location" value="LC/cn">China</span> relationship, as <span class="location" value="LU/us.dc.wash">Washington</span> has imposed export controls that limit sales of advanced microchips to Chinese companies, citing possible uses of such chips for military applications that include the hypersonic missiles and artificial intelligence.</p>
<p>TSMC is now building a <a href="https://apnews.com/article/arizona-taiwan-microchip-construction-oversight-a0de9d389d6859a466289d740f4955e0">second plant in the <span class="location" value="LC/us">U.S.</span></a> and has announced a plan for its first in <span class="location" value="LR/eur">Europe</span>. But <span class="location" value="LC/jp">Japan</span>, geographically closer to <span class="location" value="LC/tw">Taiwan</span>, is an attractive option.</p>
<p><span class="location" value="LU/jp..tokyo">Tokyo</span> is supporting other semiconductor projects nationwide, involving players including Western Digital (<a href="https://seekingalpha.com/symbol/WDC">WDC</a>) and Micron of the <span class="location" value="LC/us">U.S.</span>, and Japanese companies like Renesas Electronics, Canon and Sumitomo.</p>
<p>___</p>
<p><span class="person" value="">Yuri Kageyama</span> is on X: <a href="https://twitter.com/yurikageyama">https://twitter.com/yurikageyama</a></p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
</div></description>
<link>https://seekingalpha.com/pr/19679036-japanese-leader-visits-new-chip-factory-stressing-ties-taiwan-and-support-for-key-technology</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19679036-japanese-leader-visits-new-chip-factory-stressing-ties-taiwan-and-support-for-key-technology</guid>
<pubDate>Sat, 06 Apr 2024 05:50:00 GMT</pubDate>
<author>Associated Press</author>
<category>Toyota Motor Corporation (TM)</category>
<category>Sony Group Corporation (SONY)</category>
<category>Western Digital Corporation (WDC)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Renesas Electronics Corporation (RNECY)</category>
</item>
<item>
<title>Rescuers in Taiwan search for those missing or stranded after major earthquake kills 10</title>
<description><div>
<p>
</p>
<p>HUALIEN, <span class="location" value="LC/tw">Taiwan</span> (AP) — Rescuers searched Thursday for missing people and worked to reach hundreds stranded when <span class="location" value="LC/tw">Taiwan's</span> <a href="https://apnews.com/article/taiwan-earthquake-tsunami-f086aac0c3082036d1ca77c01828fb28">strongest earthquake in 25 years</a> sent boulders and mud tumbling down mountainsides, blocking roads. Ten people died and more than 1,000 were injured.</p>
<p>The powerful quake struck during the morning rush hour a day earlier, sending schoolchildren rushing outdoors and families fleeing their apartments through the windows. The ground floors of some buildings collapsed, leaving them leaning at precarious angles. Though the island is <a href="https://apnews.com/article/taiwan-earthquake-explainer-hualien-8c3de7d63c964ae460424aa7e52581a2">regularly rattled by earthquakes</a> and generally well prepared, authorities did not send out the usual alerts because they were expecting a smaller temblor.</p>
<p>Some 200 residents of <a href="https://apnews.com/article/b730bead10114f268c5e5ce59da1717d">Hualien County near the epicenter</a> were staying in temporary shelters, and the main road linking the county to the capital, <span class="location" value="LU/tw..taipei">Taipei</span>, was still closed Thursday afternoon, but much of Taiwan’s day-to-day life returned to normal. Some local rail service to Hualien resumed, and Taiwan Semiconductor Manufacturing Co., one of the world’s most important manufacturers of computer chips, restarted most operations, the Central News Agency reported. </p>
<p>Nearly 1,100 people were injured in the quake. Of the 10 dead, at least four were killed inside <span class="location" value="">Taroko National Park</span>, a tourist attraction famous for canyons and cliffs in mountainous Hualien about 150 kilometers (90 miles) from <span class="location" value="LU/tw..taipei">Taipei</span>. One person was found dead in a damaged building and another was found in the Ho Ren Quarry. Rescuers also carried out the body of a man, who had severe wounds on his head, from a hiking trail.</p>
<p>Hundreds of people were stranded when rocks and mud blocked the roads leading to their hotel, campground or work site — though most were safe while they awaited rescue. It wasn’t clear Thursday if any people were still trapped in buildings. </p>
<p><span class="person" value="">Liu Zhong-da</span>, a 58-year-old construction worker, and his colleague were on their way to work on a road in the national park and were inside a tunnel when the quake hit. A boulder blocked their exit and they were trapped along with some other people.</p>
<p>“We almost got covered up,” Liu said. “No communication could be made (to the outside world).” Liu and his colleague were rescued Thursday afternoon and received a quick medical checkup outside the park.</p>
<p>About 60 workers who had been unable to leave a quarry because of damaged roads were also freed, authorities said. Six workers from another quarry were airlifted out.</p>
<p>Some 700 people remain cut off, the vast majority of them employees and guests at a hotel in the national park. Authorities said they were safe and had food and water, and that work to repair the roads to the hotel was nearly finished. Another 10 workers from the same hotel were stranded elsewhere in the park, after most of the others in the group were rescued or managed to walk out.</p>
<p>Authorities said they were unable to contact about 15 people, and their condition was not known. Numbers have fluctuated frequently as authorities have learned of more people in trouble and rescued others.</p>
<p>In the city of Hualien on Thursday, workers used an excavator to stabilize the base of a damaged building, as chickens pecked among potted plants on the flat roof slanting at a severe angle.</p>
<p>Mayor <span class="person" value="">Hsu Chen-wei</span> previously said 48 residential buildings were damaged in the quake. <span class="person" value="">Hendri Sutrisno</span>, a 30-year-old professor at Hualien Dong Hwa University, spent Wednesday night in a tent inside a shelter with his wife and baby, fearing aftershocks.</p>
<p>“We ran out of the apartment and waited for four to five hours before we went up again to grab some important stuff such as our wallet. And then we’re staying here ever since to assess the situation,” he said.</p>
<p>Others also said they didn’t dare to go home because the walls of their apartments were cracked or they lived on higher floors. Taiwanese Premier <span class="person" value="">Chen Chien</span>-jen visited some earthquake evacuees in the morning at a temporary shelter.</p>
<p>The earthquake was the strongest to hit <span class="location" value="LC/tw">Taiwan</span> in 25 years, measured at magnitude 7.4 by the U.S. Geological Survey. </p>
<p><span class="person" value="">Huang Shiao</span>-en was in her apartment when the quake struck. “At first the building was swinging side to side, and then it shook up and down,” she said.</p>
<p>The Central Weather Administration recorded more than 400 aftershocks from Wednesday morning into Thursday night. The national legislature and sections of Taipei’s main airport suffered minor damage. </p>
<p>Hualien was last <a href="https://apnews.com/general-news-83f281d6b39248ca98e30f665789d75a">struck by a deadly quake</a> in 2018 which killed 17 people and brought down a historic hotel. Taiwan’s worst recent earthquake struck on Sept. 21, 1999, a magnitude 7.7 temblor that caused 2,400 deaths, injured around 100,000 and destroyed thousands of buildings. </p>
<p>___</p>
<p>This story has been corrected to say that Huang was in “her” apartment, not “his."</p>
<p>___</p>
<p>Leung reported from <span class="location" value="LC/hk">Hong Kong</span>. Associated Press video journalist Taijing Wu contributed to this report. </p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
</div></description>
<link>https://seekingalpha.com/pr/19676588-rescuers-in-taiwan-search-for-those-missing-stranded-after-major-earthquake-kills-10</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19676588-rescuers-in-taiwan-search-for-those-missing-stranded-after-major-earthquake-kills-10</guid>
<pubDate>Thu, 04 Apr 2024 03:17:00 GMT</pubDate>
<author>Associated Press</author>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
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<item>
<title>Stock market today: Asian shares mostly rise cheered by Wall Street finish</title>
<description><div>
<p>
</p>
<p><span class="location" value="LU/jp..tokyo">TOKYO</span> (AP) — Asian shares mostly rose Thursday after a firm finish on <span class="location" value="">Wall Street</span>, as expectations remained solid for <span class="location" value="LC/us">U.S.</span> interest rate cuts this year.</p>
<p><span class="location" value="LC/jp">Japan's</span> benchmark Nikkei 225 jumped 1.7% to 40,120.11. <span class="location" value="LU/au..sydney">Sydney's</span> S&amp;P/ASX 200 rose 0.4% to 7,813.80. <span class="location" value="LC/kr">South Korea's</span> Kospi added 0.8% to 2,728.82. <span class="location" value="LC/hk">Hong Kong's</span> Hang Seng declined 1.2% to 16,725.10, and the Shanghai Composite slipped nearly 0.2% to 3,069.30. </p>
<p>Analysts say Taiwan Semiconductor Manufacturing Co’s (TSMC) facilities may get quicker-than-expected relief — easing concerns about production halts — after a powerful earthquake struck Wednesday, killing at least nine people. Trading was closed in <span class="location" value="LC/tw">Taiwan</span> on Thursday and Friday for national holidays.</p>
<p>“Market participants took comfort in the weaker-than-expected <span class="location" value="LC/us">U.S.</span> services purchasing managers index overnight, which offset the surprise rebound in manufacturing activities earlier in the week and suggest that overall demand may still remain tame for the Federal Reserve’s inflation fight,” said <span class="person" value="">Yeap Jun Rong</span>, market analyst at IG.</p>
<p>On <span class="location" value="">Wall Street</span>, the S&amp;P 500 inched up by 5.68 points, or 0.1%, to 5,211.49 The Dow Jones Industrial Average slipped 43.10, or 0.1%, to 39,127.14, and the Nasdaq composite added 37.01, or 0.2%, to 16,277.46.</p>
<p>GE Aerospace helped lead the S&amp;P 500 with a jump of 6.7%. It was the second day of trading for the company after splitting off its power and energy business to mark <a href="https://apnews.com/article/ge-aerspace-vernova-culp-e8082c6bfc29441210b358852b049620">the end of the General Electric (</a><a href="https://seekingalpha.com/symbol/GE">GE</a>) conglomerate. Cal-Maine Foods (<a href="https://seekingalpha.com/symbol/CALM">CALM</a>) rose 3.6% after reporting stronger-than-expected profit for the latest quarter by selling a record number of eggs. </p>
<p>They helped offset an 8.2% drop for Intel (<a href="https://seekingalpha.com/symbol/INTC">INTC</a>), which disclosed financial details about key parts of its business for the first time, including its money-losing foundry business. The Walt Disney Co. (<a href="https://seekingalpha.com/symbol/DIS">DIS</a>) fell 3.1% after <a href="https://apnews.com/article/disney-trian-iger-shareholder-vote-b1c406a9c988cb35f651c1dd4eb6f72f">shareholders voted against installing an activist investor</a> to its board who had promised to shake up the company to lift its stock price. The pair's drops were a large reason the Dow lagged other indexes. </p>
<p>Stocks have broadly slowed their roll since screaming 26% higher from November through March. Worries are rising that a remarkably resilient <span class="location" value="LC/us">U.S.</span> economy could prevent the Federal Reserve from delivering as many cuts to interest rates this year as earlier hoped. Critics have also been saying a pullback is overdue as stock prices have grown expensive by several measures.</p>
<p>The Fed has indicated it may still cut its main interest rate three times this year, which would relieve pressure on the economy. But Fed officials say they will do so only if more evidence arrives to show inflation is heading down toward their goal of 2%. </p>
<p>Chair <span class="person" value="">Jerome Powell</span> <a href="https://apnews.com/article/federal-reserve-powell-inflation-economy-rates-jobs-f9c65fb1b8116168f825657bc5f5c117">reiterated that message</a> in a speech Wednesday, spelling out the risks of cutting rates either too early or too late. "Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," he said. </p>
<p><span class="location" value="">Wall Street</span> has been worried by a litany of reports showing the economy remains <a href="https://apnews.com/article/economy-inflation-federal-reserve-gdp-unemployment-22f096fe881d4a48314c67d6f4cc67ba">stronger than expected</a>. That's encouraging because it means the economy continues to avoid a recession, and it should provide support for corporate profits. But it could also add upward pressure on inflation and discourage <a href="https://apnews.com/article/federal-reserve-powell-inflation-economy-rates-jobs-13b18fbabc63ae2fc396f7e0ab4f2955">the Fed from cutting rates</a>.</p>
<p>Markets took encouragement from a report on Wednesday morning showing growth in construction, retail and other <span class="location" value="LC/us">U.S.</span> services businesses cooled last month. The report from the Institute from Supply Management also said an index of prices paid was at its lowest level since March 2020, an encouraging trend for inflation.</p>
<p>That calmed <span class="location" value="">Wall Street's</span> nerves following a report earlier in the morning that markets found more discouraging. It suggested stronger gains than expected in hiring within the private sector. That report from the ADP Research Institute said employers accelerated their hiring last month, when economists were forecasting a slowdown.</p>
<p>A more comprehensive report on the job market for March will arrive from the <span class="location" value="LC/us">U.S.</span> government on Friday, and it will likely be the week’s headline economic data.</p>
<p>Traders have already drastically reduced their expectations for how many times the Federal Reserve will cut interest rates this year, halving them from a <a href="https://apnews.com/article/federal-reserve-wall-street-rate-cuts-b100590f67b81c0d298493a66607537a">forecast of six at the start of the year</a>. That has them on the same page with Fed officials generally. Some investors, though, are preparing for two or even zero cuts this year because the Fed may not want to begin lowering rates too close to November's election out of fear of appearing political. </p>
<p>But the Fed's Powell said Wednesday the central bank has the independence that “both enables and requires us to make our monetary policy decisions without consideration of short-term political matters.” </p>
<p>In the bond market, Treasury yields fell. The 10-year yield slipped to 4.34% from 4.36% late Tuesday. The two-year yield, which more closely tracks with expectations for Fed action, fell to 4.67% from 4.70%.</p>
<p>In energy trading, benchmark <span class="location" value="LC/us">U.S.</span> crude rose 34 cents to $85.77 a barrel. Brent crude, the international standard, gained 34 cents to $89.69 a barrel. </p>
<p>In currency trading, the <span class="location" value="LC/us">U.S.</span> dollar inched up to 151.68 Japanese yen from 151.65 yen. The euro cost $1.0843, little changed from $1.0837. </p>
<p>__</p>
<p>AP Business Writer <span class="person" value="">Stan Choe</span> contributed.</p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
</div></description>
<link>https://seekingalpha.com/pr/19674991-stock-market-today-asian-shares-mostly-rise-cheered-wall-street-finish</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19674991-stock-market-today-asian-shares-mostly-rise-cheered-wall-street-finish</guid>
<pubDate>Wed, 03 Apr 2024 06:28:00 GMT</pubDate>
<author>Associated Press</author>
<category>The Walt Disney Company (DIS)</category>
<category>GE Aerospace (GE)</category>
<category>Intel Corporation (INTC)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>Cal-Maine Foods, Inc. (CALM)</category>
</item>
<item>
<title>4 Stocks Poised To Pop With The AI Surge</title>
<description><div>
<p>(via NewsDirect)</p>
<p>Investors keen to seize the potential of artificial intelligence (AI) are eyeing a select group of stocks poised to flourish in the midst of the AI revolution. As AI continues to revolutionize industries and drive innovation, these companies stand ready at the forefront, positioned to harness the immense growth opportunities presented by this transformative technology.</p>
<p>The recent surge in investments in AI-related ventures, coupled with forecasts predicting exponential market growth, highlights the burgeoning enthusiasm for AI's potential. Analysts project the AI industry to expand nearly 20-fold by 2030, reaching an astonishing value of $1.8 trillion, fueling a growing interest in AI stocks.</p>
<p>From software developers unlocking AI's capabilities to semiconductor manufacturers fueling AI applications with cutting-edge chips, these stocks offer diverse opportunities for investors seeking to ride the wave of AI innovation.</p>
<p>In this article, we'll explore four stocks poised to reap significant benefits from the rise of AI, examining their strategic positioning, technological advancements, and growth potential in the dynamic AI landscape.</p>
<p>&lt;b&gt;SKYX Platforms Corp. (<a href="https://seekingalpha.com/symbol/SKYX">SKYX</a>)&lt;/b&gt; is at the forefront of integrating advanced technology into everyday living spaces, aiming to make homes and buildings safer, smarter, and more efficient. With a robust portfolio of 77 U.S. and global patents and patent-pending applications, SKYX boasts a comprehensive suite of platform technologies designed to revolutionize the way we interact with our environments.</p>
<p>The cornerstone of SKYX's innovation lies in its commitment to high-quality and user-friendly designs, spanning various domains from lighting to home décor. In September 2023, SKYX achieved a significant milestone with the issuance of five new utility patents in the <span class="location" value="LC/us">U.S.</span> and international markets, solidifying its position as a trailblazer in advanced and smart technologies.</p>
<p>One of SKYX's most notable achievements is its initiative to standardize safety with the National Electrical Code (NEC), revolutionizing electrical installations and enhancing overall safety standards. Spearheaded by industry leaders <span class="person" value="">Mark Earley</span> and <span class="person" value="">Eric Jacobson</span>, SKYX's code team is dedicated to mitigating hazards and ensuring unparalleled safety across residential and commercial environments.</p>
<p>Financially robust, &lt;b&gt;SKYX&lt;/b&gt; boasts $23.7 million in cash, cash equivalents, restricted cash, and investments, providing a solid foundation for growth and innovation as of June 30, 2023. The renewal of a five-year global licensing master service agreement with GE Technology Development, Inc. further amplifies SKYX's reach and influence in the industry, enabling effective monetization of its technologies while safeguarding intellectual property rights.</p>
<p>At CES 2024, SKYX unveiled its patented All-In-One Smart Platform, a groundbreaking solution designed to transform homes into smart living environments seamlessly. This comprehensive platform integrates scheduling, energy-saving modes, and emergency functionalities, offering unparalleled convenience and efficiency.</p>
<p>In addition to its technological advancements, SKYX's commitment to safety and innovation extends to its proprietary patented platform technologies for smart home and electrical installations. Notably, SKYX’s Sky Plug-Smart technology revolutionizes electrical installations with its "plug and play" installation of weight-bearing electronics, significantly simplifying and enhancing safety standards.</p>
<p>The inclusion of the Sky Ceiling Receptacle in the NEC Code Book marks a significant milestone, reinforcing SKYX's commitment to safety and innovation. The receptacle's unique design reduces potential exposure to wires and streamlines installation processes, setting a new standard for electrical installations.</p>
<p>With endorsements from professional bodies like ANSI/NEMA and the American Institute of Architects, SKYX's proprietary technology is poised to become the new standard for home and building electrical installations.</p>
<p>Additionally, &lt;b&gt;SKYX&lt;/b&gt; revealed that management will participate in the 36th Annual ROTH Conference, taking place from March 17 to 19, 2024, in <span class="location" value="LU/us.ca.danint">Dana Point, California</span>. Founder and Executive Chairman <span class="person" value="">Rani Kohen</span> and Co-CEO <span class="person" value="">Lenny Sokolow</span> will host one-on-one and group meetings with institutional investors and analysts on Monday, March 18th, and Tuesday, March 19th.</p>
<p><a href="https://skyplug.com/">&lt;u&gt;For investors seeking opportunities in AI and smart home technology, SKYX presents a compelling investment opportunity&lt;/u&gt;</a>. The company's disruptive technologies, strategic partnerships, and relentless pursuit of innovation position SKYX as a frontrunner in the smart living revolution, promising unparalleled safety, convenience, and efficiency for generations to come.</p>
<p>The surge in demand for AI services has propelled chip stocks into the spotlight, with graphics processing units (GPUs) playing a crucial role in training and running AI models. While Nvidia has dominated the GPU market, competitors like &lt;b&gt;Advanced Micro Devices (NASDAQ: AMD)&lt;/b&gt; present compelling investment opportunities with their strong foothold and promising outlook in AI.</p>
<p>For over 50 years, AMD has been at the forefront of innovation in high-performance computing, graphics, and visualization technologies. Its products are trusted by billions of people, leading Fortune 500 companies, and cutting-edge research institutions worldwide.</p>
<p>As Nvidia's biggest threat in AI, AMD commands the second-largest market share in GPUs. Despite joining the AI landscape later than its rival, AMD has refocused its efforts to prioritize this burgeoning industry, positioning itself for significant growth in the years ahead.</p>
<p>In December, &lt;b&gt;AMD&lt;/b&gt; unveiled its MI300X AI GPU, directly challenging Nvidia's offerings. This move has already attracted attention from tech giants like Microsoft and Meta Platforms, signaling a promising start for AMD in the AI market.</p>
<p>AMD's ambitions extend beyond GPU market share. The company aims to carve its own niche within AI by emphasizing AI-powered PCs. With AI integration driving a projected surge in PC shipments, AMD stands to benefit from this trend.</p>
<p>Analysts project a bright future for AMD, with its free cash flow exceeding $1 billion last year. Projections indicate potential earnings of over $7 per share in the next two fiscal years, translating to a stock price of $383 based on forward price-to-earnings ratio (P/E) metrics.</p>
<p>With a forward-looking approach and growing prospects in AI, AMD offers investors the opportunity for substantial returns. Considering its current trajectory, AMD could see its stock price surge by 96% by fiscal 2026, making it a compelling investment choice for those seeking to capitalize on the AI revolution.</p>
<p>&lt;b&gt;Taiwan Semiconductor Manufacturing Company Limited (<a href="https://seekingalpha.com/symbol/TSM">TSM</a>)&lt;/b&gt; stands as a global leader in the semiconductor foundry business, providing cutting-edge integrated circuit solutions. With its state-of-the-art facilities and unparalleled expertise, TSM plays a crucial role in enabling the advancement of artificial intelligence (AI) technologies worldwide.</p>
<p>As the demand for AI services continues to surge, TSM's position in the market remains robust. The company's specialization in complementary metal oxide silicon (CMOS) wafer fabrication processes allows it to produce high-performance chips tailored for AI applications, including logic, mixed-signal, radio frequency, and embedded memory semiconductors.</p>
<p>TSM's strategic partnerships with industry giants such as Apple, NVIDIA, and Qualcomm underscore its significance in the AI ecosystem. These collaborations leverage TSM's advanced manufacturing capabilities to develop AI hardware solutions that deliver superior computational performance and efficiency.</p>
<p>Recent financial reports highlight TSM's strong performance amidst the growing demand for AI chips. In its February revenue announcement, TSM reported NT$181.65 billion (US$5.78 billion), representing a month-over-month decrease of 15.8% due to the Lunar New Year holiday. However, this figure marked an 11.3% increase compared to the previous year. Additionally, consolidated revenue for the first two months of the year amounted to NT$397.43 billion, reflecting a 9.4% year-over-year growth.</p>
<p>Looking ahead, TSM remains optimistic about its prospects in the AI market. While seasonal effects may impact first-quarter results, strong demand for high-performance computing solutions is expected to drive future growth. The company projects first-quarter revenue in the range of US$18 billion to US$18.8 billion, underscoring its confidence in its ability to capitalize on the growing AI trend.</p>
<p>As AI continues to reshape industries and drive innovation, TSM stands poised to play a pivotal role in shaping the future of semiconductor technology. With its track record of excellence and commitment to innovation, TSM remains a key player in the AI revolution, offering investors a compelling opportunity to participate in this transformative trend.</p>
<p>&lt;b&gt;Snowflake Inc. (NASDAQ: SNOW)&lt;/b&gt; is a leading provider of cloud-based data platforms serving organizations worldwide. Its flagship product, the Data Cloud, empowers customers to consolidate data into a single source of truth, enabling actionable business insights, data-driven applications, and seamless data sharing.</p>
<p>In the realm of AI, where data reigns supreme, &lt;b&gt;SNOW&lt;/b&gt; plays a pivotal role in facilitating efficient data collection, storage, and processing. By providing a robust infrastructure for managing structured, semi-structured, and unstructured data, Snowflake empowers organizations to harness the full potential of AI models.</p>
<p>Snowflake stands out as a clear beneficiary of the AI revolution for several reasons. Firstly, its data cloud business model allows customers to collect and store data efficiently, regardless of its structure. This data can then be utilized internally for AI models, integrated into other software applications, or monetized through the Snowflake marketplace.</p>
<p>Moreover, Snowflake's seamless integration with major cloud providers offers flexibility and mitigates vendor lock-in risks. This neutrality enables clients to switch between providers or maintain multiple contracts, ensuring optimal terms and avoiding unreasonable agreements.</p>
<p>Customer satisfaction is paramount for SNOW, evident in its impressive financial performance. In the fourth quarter of fiscal year 2024, Snowflake achieved a net revenue retention rate of 131%, indicating strong spending expansion among existing customers. Additionally, the company boasts a high Net Promoter Score (NPS) of 67, reflecting exceptional customer satisfaction levels.</p>
<p>In a significant development, Snowflake announced a global partnership with Mistral AI, a leading provider of AI solutions in <span class="location" value="LR/eur">Europe</span>. This multi-year partnership aims to deliver Mistral AI's powerful language models directly to Snowflake customers in the Data Cloud.</p>
<p>Through this collaboration, Snowflake customers gain access to Mistral AI's cutting-edge language models, including Mistral Large and Mixtral 8x7B. These models offer unparalleled performance in tasks such as code processing, document analysis, and multilingual communication.</p>
<p>Snowflake's commitment to advancing AI innovation extends beyond its customer base. The company recently joined the AI Alliance, an international community dedicated to promoting open, safe, and responsible AI development. Through this alliance, Snowflake aims to foster AI innovation while addressing ethical and societal implications.</p>
<p>CapitalGainsReport (CGR) is not operated by a licensed broker, a dealer, or a registered investment adviser. This content is for informational purposes only and is not intended to be investment advice. The Private Securities Litigation Reform Act of 1995 provides investors a safe harbor in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions, or future events or performance are not statements of historical fact may be forward looking statements. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as projects, foresee, expects, will, anticipates, estimates, believes, understands, or that by statements indicating certain actions &amp; quote; may, could, or might occur. Understand there is no guarantee past performance will be indicative of future results. Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investors investment may be lost or impaired due to the speculative nature of the companies profiled. CapitalGainsReport (CGR) is owned by RazorPitch Inc. and has been retained by SKYX Platforms Corp. to assist in the production and distribution of content related to SKYX. 'CGR' is responsible for the production and distribution of this content. It should be expressly understood that under no circumstances does any information published herein represent a recommendation to buy or sell a security. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by CapitalGainsReport/RazorPitch or any third party service provider to buy or sell any securities or other financial instruments. All content in this article is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in this article constitutes professional and/or financial advice, nor does any information in the article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. CGR/RazorPitch is not a fiduciary by virtue of any persons use of or access to this content.</p>
<h3>&lt;b&gt;Contact Details&lt;/b&gt;</h3>
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<h3>&lt;b&gt;Company Website&lt;/b&gt;</h3>
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<p>Copyright (c) 2024 TheNewswire - All rights reserved.</p>
Copyright (c) 2024 TheNewswire - All rights reserved.
</div></description>
<link>https://seekingalpha.com/pr/19658890-4-stocks-poised-to-pop-ai-surge</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19658890-4-stocks-poised-to-pop-ai-surge</guid>
<pubDate>Tue, 19 Mar 2024 09:00:00 GMT</pubDate>
<author>TheNewswire.ca</author>
<category>Advanced Micro Devices, Inc. (AMD)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>SKYX Platforms Corp. (SKYX)</category>
<category>Snowflake Inc. (SNOW)</category>
<category>Advanced Micro Devices, Inc. (AMD:CA)</category>
</item>
<item>
<title>Taiwan giant chipmaker TSMC opens first plant in Japan as part of key global expansion</title>
<description><div>
<p>
</p>
<p><span class="location" value="LU/jp..tokyo">TOKYO</span> (AP) — Chip giant <a href="https://apnews.com/article/tsmc-ai-chips-nvidia-semiconductors-490e150c7227318970b9744235ee9cd9">Taiwan Semiconductor Manufacturing Co.</a> opened Saturday in an official ceremony its first semiconductor plant in <span class="location" value="LC/jp">Japan</span> as part of its ongoing global expansion. </p>
<p>“We are deeply grateful for the seamless support provided by you at every step,” TSMC Chairman <span class="person" value="APIN:2918895299">Mark Liu</span> said after thanking the Japanese government, local community and business partners, including electronic giant Sony and auto-parts maker Denso. The company's founder <span class="person" value="APIN:0488098252">Morris Chang</span>, was also present. </p>
<p>This comes as <span class="location" value="LC/jp">Japan</span> is trying to regain its presence in the chip production industry. </p>
<p>The Japan Advanced Semiconductor Manufacturing, or JASM, is set to be up and running later this year. TSMC also announced plans for a second plant in <span class="location" value="LC/jp">Japan</span> earlier this month, with production expected to start in about three years. Private sector investment totals $20 billion for both plants. Both plants are in the Kumamoto region, southwestern <span class="location" value="LC/jp">Japan</span>.</p>
<p>Prime Minister <span class="person" value="">Fumio Kishida</span> sent a congratulatory video message, calling the plant’s opening “a giant first step.” He stressed <span class="location" value="LC/jp">Japan's</span> friendly relations with <span class="location" value="LC/tw">Taiwan</span> and the importance of cutting-edge semiconductor technology.</p>
<p><span class="location" value="LC/jp">Japan</span> had previously promised TSMC 476 billion yen ($3 billion) in government funding to encourage the semiconductor giant to invest. Kishida confirmed a second package, raising <span class="location" value="LC/jp">Japan's</span> support to more than 1 trillion yen ($7 billion). </p>
<p>Although TSMC is building its second plant <a href="https://apnews.com/article/taiwan-tsmc-processor-chip-china-chang-smartphone-f4831293c2c9a528cab0958ba6dad0ff">in the <span class="location" value="LC/us">U.S.</span></a> and has announced a plan for its first in <span class="location" value="LR/eur">Europe</span>, <span class="location" value="LC/jp">Japan</span> could prove an attractive option.</p>
<p>Closer to <span class="location" value="LC/tw">Taiwan</span> geographically, <span class="location" value="LC/jp">Japan</span> is an important <span class="location" value="LC/us">U.S.</span> ally. Neighboring <span class="location" value="LC/cn">China</span> claims <a href="https://apnews.com/article/taiwan-china-politics-tsai-ing-wen-peace-db344d155e1b33b02a9ab18cc9e7e8de">the self-governing island</a> as its own territory and says it must come under Beijing’s control. The long-running divide is a flashpoint in <span class="location" value="LC/us">U.S.</span>-<span class="location" value="LC/cn">China</span> relations</p>
<p>The move is also important for <span class="location" value="LC/jp">Japan</span>, which has recently earmarked about 5 trillion yen ($33 billion) to revive its chips industry.</p>
<p>Four decades ago, <span class="location" value="LC/jp">Japan</span> dominated in chips, headlined by Toshiba Corp. and NEC controlling half the world’s production. That’s declined lately to under 10%, due to competition from South Korean, <span class="location" value="LC/us">U.S.</span> and European manufacturers, as well as from TSMC.</p>
<p>The coronavirus pandemic has negatively affected the supply of electronic chips, stalling plants, including automakers, with <span class="location" value="LC/jp">Japan</span> almost entirely dependent on chip imports. This has pushed <span class="location" value="LC/jp">Japan</span> to seek chip production in pursuit of self-sufficiency. </p>
<p>Sony Semiconductor Solutions Corp. — wholly owned by Sony Corp. — Denso Corp. and top automaker Toyota Motor Corp. are investing in TSMC’s <span class="location" value="LC/jp">Japan</span> plant, with the Taiwanese giant retaining an 86.5% ownership of JASM.</p>
<p>Once the two plants are up and running, they’re expected to create 3,400 high-tech jobs directly, according to TSMC.</p>
<p>Ensuring access to an ample supply of the most advanced chips is vital with the growing popularity of electric vehicles, as well as artificial intelligence. Some analysts note <span class="location" value="LC/jp">Japan</span> still leads in crucial aspects of the industry, as seen in Tokyo Electron, which manufactures the machinery used to produce chips.</p>
<p>Still, it’s clear the Japanese government is intent on playing catchup. <span class="location" value="LU/jp..tokyo">Tokyo</span> is supporting various semiconductor projects nationwide, such as those involving Western Digital (<a href="https://seekingalpha.com/symbol/WDC">WDC</a>) and Micron of the <span class="location" value="LC/us">U.S.</span>, and Japanese companies like Renesas Electronics, Canon and Sumitomo.</p>
<p>___</p>
<p><span class="person" value="">Yuri Kageyama</span> is on X: <a href="https://twitter.com/yurikageyama">https://twitter.com/yurikageyama</a></p>
Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
</div></description>
<link>https://seekingalpha.com/pr/19633018-taiwan-giant-chipmaker-tsmc-opens-first-plant-in-japan-part-of-key-global-expansion</link>
<guid isPermaLink="false">https://seekingalpha.com/pr/19633018-taiwan-giant-chipmaker-tsmc-opens-first-plant-in-japan-part-of-key-global-expansion</guid>
<pubDate>Sat, 24 Feb 2024 08:03:00 GMT</pubDate>
<author>Associated Press</author>
<category>Toyota Motor Corporation (TM)</category>
<category>Sony Group Corporation (SONY)</category>
<category>Western Digital Corporation (WDC)</category>
<category>Taiwan Semiconductor Manufacturing Company Limited (TSM)</category>
<category>DENSO Corporation (DNZOY)</category>
<category>Renesas Electronics Corporation (RNECY)</category>
<category>Toshiba Corporation (TOSYY)</category>
<category>Tokyo Electron Limited (TOELY)</category>
</item>
<item>
<title>CEOs of OpenAI and Intel cite artificial intelligence's voracious appetite for processing power</title>
<description><div>
<p>
</p>
<p><span class="location" value="LU/us.ca.sanjse">SAN JOSE, Calif.</span&... |
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<title>Understanding Intel's Foundry Situation</title>
<description><h2>Summary</h2><ul> <li>Intel Corporation stated they lost $7B on their foundries in 2023, and 2024 will be worse.</li><li>This was not unexpected, as entering the external foundry business is very expensive, and takes time to generate profits. It was also necessary.</li><li>Although things will improve after 2024, it will be several years before the foundry is a strong contributor to earnings.</li><li>The potential benefit to Intel is enormous, and justifies the cost, long term.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture> <img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w750" alt="Intel headquarters in silicon valley" width="4928px" height="3264px" data-id="458652825" data-type="getty-image" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458652825/image_458652825.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"> </p> <p class="item-credits">maybefalse</p></figcaption></figure><p></p> <p>I <a href="https://seekingalpha.com/author/technology-investing?ticker=INTC">have been long</a> <strong>Intel Corporation</strong> (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a></span>) stock for a few years, and was a bit surprised by the reaction of the stock price on the recent news where Intel broke down the losses on their foundry<span class="paywall-full-content invisible"> business. </span><a href="https://seekingalpha.com/news/4086589-intel-foundry-built-for-the-ai-era-hopes-to-achieve-break-even-margins-before-2030" class="paywall-full-content invisible">Intel announced</a><span class="paywall-full-content invisible"> their foundry lost $7 Billion dollars last year, and will lose more this year. While it certainly has some meaning, some of it is also how Intel uses their accounting, and it just means their other divisions are much more profitable. It is not damning for the company; we already knew the company isn't where it needs to be in manufacturing maturity, technology and efficiency. The enormous investments in new sites and process R &amp; D were always going to be a huge drag on the company until they could translate into benefits. Those benefits are, and were always intended to be, in the future.</span></p> <p class="paywall-full-content invisible no-summary-bullets">I want to start with a lot of this article is not based on cold facts, because we are looking forward to nodes that we don't have full information for, and the future is also never certain. Stock prices look forward, so do I, and so we have to make the best of what we have now to try to best estimate the future.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Some Basics</h2> <p class="paywall-full-content invisible no-summary-bullets">So, let's start with some basics. Intel not only designs their chips, but they also manufacture (most of) them. They will use outside companies, namely TSMC (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>), when it makes sense. Many consider TSMC to be ahead technologically, and although that's not completely true, it is close. Intel's 7 is better than anything TSMC has in terms of raw performance at fairly absurd power scenarios (which Intel does use), but in almost every other way, Intel 7 is behind. And this is important, because it's an indication of what Intel values, or at least did, and what TSMC does.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel 4 is hard to categorize, but it doesn't seem any more efficient than Intel 7 in power use, as Meteor Lake uses essentially the same architecture as Raptor Lake, and doesn't demonstrate clear clock speed improvements in laptop chips. It also doesn't seem to have the raw performance of Intel 7, based on the <a href="https://www.tomshardware.com/laptops/intel-core-ultra-meteor-lake-u-h-series-specs-skus" rel="nofollow">maximum clock speeds</a> we see. It is far more dense though.</p> <p class="paywall-full-content invisible no-summary-bullets">I should point out, names like 3nm, or 10nm, are not meaningful. As Intel said, they could just as easily call their node "George," as it's not an actual measurement anymore, but just a name. So, for example, it's doubtful anything in Intel 7, or TSMC 3nm, is actually 7nm, or 3nm, and if there is, it's purely coincidental. Companies will try to make the name meaningful, so, you would expect Intel 4 to be more dense than Intel 7 (which it is), but at the end of the day, it's just a name. And processes with the same number are not equal; Intel 3 and TSMC's 3nm will be significantly different, as each company places a different emphasis on their design goals.</p> <p class="paywall-full-content invisible no-summary-bullets">Even now, no one makes processors that clock as high as those based on <a href="https://www.tomshardware.com/pc-components/cpus/intel-core-i9-14900ks-cpu-review" rel="nofollow">Intel's 7 process</a>. It's likely TSMCs processes are not as well suited for this, although clock speed is also based on architecture, so it's not a certainty. But this is a clear indicator of what Intel has historically considered the most important, and which TSMC does not prioritize to the same extent. I mention this because this pattern will extend into the future, although I suspect to a lesser extent.</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>Intel's Current and Future Nodes</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Intel has proudly talked about the 5N4Y plan, which means five nodes in four years. While it nice Intel has released two real nodes in those four years, it's far less impressive than they would have you believe. Intel 7 is a (spectacular in some ways) derivation of 10nm, so isn't a new node. It's an improved node. <a href="https://www.xda-developers.com/intel-roadmap-2025-explainer/" rel="nofollow">Intel 4 and Intel 3</a> are essentially the same, or if you prefer, two half nodes, but either way count as one real node. Intel 20a and 18a are similar. It's still an impressive achievement, considering their issues with 14nm and 10nm nodes, but it's really nonsense in how it's presented, and to dilute the accomplishment by being misleading.</p> <p class="paywall-full-content invisible no-summary-bullets">Right now, Intel 7 is the dominant node used by Intel, with Intel 4 now ramping up with Intel's Meteor Lake processors (but only for the CPU part of the chiplet; a lot is made by TSMC). Intel 4 is essentially an internal node, although it does have at least <a href="https://www.techpowerup.com/316184/ericsson-first-to-market-with-processors-made-on-intel-4-technology" rel="nofollow">one external customer</a>. Intel 3 is very closely related to Intel 4, and will be the node Intel offers to external customers, and will also be Intel's last FinFET node. Intel 7 uses what is called DUV (Deep Ultraviolet Lithography), which is a relatively approach on leading edge processes, and requires additional steps (multi-patterning) to create the tiny transistors in modern nodes. This adds cost, and can lower yields, making Intel 7 a very expensive node.</p> <p class="paywall-full-content invisible no-summary-bullets">Did Intel care? Not that much, since they were selling expensive processors, and that largely masked (forgive the pun) the expense of the node. Intel 4 partially uses EUV, which is an abbreviation of Extreme Ultraviolet Lithography, to a limited extent, which simplifies the process compared to a pure DUV approach. A very crude way of thinking about it is cutting with a sharper knife. Intel 3 will increase the use of EUV, which lowers the amount of steps needed even further, and thus lower cost.</p> <p class="paywall-full-content invisible no-summary-bullets">Wafer cost is very important outside of the context of Intel selling its own processors. It's been estimated the expense of an Intel 7 wafer is roughly the same as what TSMC charges for theirs, even with their profits, so it's very inefficient. Intel 3 should be better, but according to Intel, still more expensive than TSMC's 3nm nodes (of which there are several).</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>What to Expect</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Does this really matter? Not that much, because the battle of Intel 3 and TSMC's 3nm is essentially over before Intel even released their node. Companies have to start designs well in advance, so we know TSMC has largely won this round. The "2" (meaning Intel 18A vis-a-vis TSMC/Samsung 2nm) is where there will be some sort of battle, and clearly where Intel will do better. For that reason, I'm not going to waste too much time on Intel 3, it's not going to generate a lot of money or interest, although it could generate interest as Intel improves the process with new derivations, and for those who wish to stick to FinFETs. But, it will never be a big node.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel 18a, however, looks promising in some ways. CEO Pat Gelsinger has indicated he is betting the company on it, although with his penchant for needless drama, it's not that important a statement. A lot has to be determined in terms of how it will match up against TSMC 2nm. Intel will be ahead by using PowerVia, which should improve efficiency and performance. But, that's not a clear indicator of superiority, as there are other characteristics that are probably more salient.</p> <p class="paywall-full-content invisible no-summary-bullets">Below is Intel's image describing how they view the competitive landscape going forward.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture> <img src="https://static.seekingalpha.com/uploads/2024/4/8/saupload_Intel-leadership.jpg" alt="IFS Roadmap" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"> </picture><figcaption><p class="item-caption"><span>Intel</span></p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">For one, Intel is in some ways a prisoner of its own success. TSMC has never had super high performing nodes, since it's a relatively small market compared to the phone market, for example. Intel wants really good clock speeds, because they sell products which benefit from them. Outside of Advanced Micro Devices (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>), which is lucky to have <a href="https://www.techspot.com/news/102231-intel-shipped-50-million-pc-cpus-q4-2023.html" rel="nofollow">20% market share in the PC segment</a>, they don't have many customers that require this. Efficiency? Yes. Density? Yes. This is not to say TSMC cares nothing about performance, and it's dreadful. It's not. It's just not as good as Intel's, and likely won't be. And they are fine with that.</p> <p class="paywall-full-content invisible no-summary-bullets">Intel has historically cared about performance first. And probably second as well. Of course, the others matter, even to Intel, but when it comes down to it, they'll take clock speed. Even now, Intel's CCG group <a href="https://www.intc.com/news-events/press-releases/detail/1672/intel-reports-fourth-quarter-and-full-year-2023-financial" rel="nofollow">dominates their revenue</a>, so it's not a misplaced priority. But, for external customers? It's not as widely useful as other factors.</p> <p class="paywall-full-content invisible no-summary-bullets">My guess, based on information and estimates by people who know more than I do, and information given by Intel, is 18A will lead in performance, be roughly equivalent in power efficiency, at least as cost-efficient, but significantly less dense (which is why I think cost efficiency will be good; they are related).</p> <p class="paywall-full-content invisible no-summary-bullets">I think it fairly obvious that density will be more important than absolute performance in more scenarios that external customers are involved in, but certainly 18A will have advantages, and will be competitive. It's not even that important in the greater scheme of things though. Intel has a big advantage over TSMC in that almost everyone outside of TSMC wants another leading edge fab to choose from, as competition can only help them. That's where it ends though. TSMC has the advantage of being a known partner, and one that has many successful partnerships. No major company will risk their major line on Intel yet, and even Intel has indicated this. On top of this, TSMC is not a competitor in any market their customers are in. And of course, their PDKs are more mature, and Intel is still learning things TSMC has known for years.</p> <p class="paywall-full-content invisible no-summary-bullets">With this reality, Intel can't possibly even come close to TSMC in attracting as many external customers in the 18A era. I think a realistic way to look at it is, Intel 3 is going to be quite unsuccessful in attracting external customers, and that battle has pretty much been fought, and lost. If it's even been fought. This is not to say it won't help Intel sell their own products, at least servers, but for external customers, it's already been decided.</p> <p class="paywall-full-content invisible no-summary-bullets">18A is really the first step. It's probably more attractive from a technical perspective vis-a-vis TSMC 2nm, than Intel 3 is when compared to TSMC's multiple 3nm nodes. But, more than that, companies have had more time to evaluate it, and Intel has had more time to pursue them. It's almost a pipe-cleaner node (not technically, 20A actually is) for new customers in the sense that companies will likely commit relatively lower volume parts to it, but not their most important products; the risk is too high. But, if these relationships work out and have success, it could start a pattern where Intel can gain momentum as their relationships mature, as well as their experience in operating as a foundry.</p> <p class="paywall-full-content invisible no-summary-bullets">I think it's premature to talk about 14A outside of this context. I haven't really seen much on its technological merits, so won't comment much about it. Intel will likely be using <a href="https://www.tomshardware.com/pc-components/cpus/intel-receives-first-high-na-euv-chipmaking-tool-from-asml-intel-is-the-first-pathfinder-for-revolutionary-new-lithography-tech" rel="nofollow">High-NA EUV</a>, but not much beyond that is known about it yet. I think they have a greater opportunity with it than 18A, if for no other reason than those stated above; more mature relationships, and greater experience. But, if they screw up, that could easily work against them as well.</p> <h3 class="paywall-full-content invisible no-summary-bullets"><strong>Is Intel's Strategy Sensible?</strong></h3> <p class="paywall-full-content invisible no-summary-bullets">Many people consider this whole thing as too risky, either in investing too much in new fabs and such, or in even keeping the fabs as part of the company. I would say these are exactly why it's such a winning formula; it's extremely difficult for anyone else to enter this industry, although <a href="https://www.anandtech.com/show/21332/rapidus-to-get-39-billion-in-government-aid-for-2nm-multichiplet-technologies" rel="nofollow">Rapidus</a> seems to be trying. It's extremely capital intensive, it takes a very long time to build the fabs and fill them, and it's also difficult to develop the experience and supporting technology that allows external customers to efficiently make processors.</p> <p class="paywall-full-content invisible no-summary-bullets">Then, you have to build trust. Compare that with processor designs, where we see cloud providers coming out with new internal only designs all the time. There's also a synergy with having your own fabs and designs, one that benefits Intel processors, even with their current fab technology being largely behind.</p> <p class="paywall-full-content invisible no-summary-bullets">It's going to take time, and money. If you're a patient investor, the payoff can be huge. If you're not, it probably seems like Intel is killing itself. Even Intel is giving indications they are not meeting expectations (which they will not come out and say directly), by first saying they won't have any major product line on 18A, the <a href="https://www.tomshardware.com/tech-industry/manufacturing/intel-18a-based-cpus-will-ramp-to-high-volume-in-2026" rel="nofollow">18A ramp being in 2026</a>, and in their foundry news indicating the company does not have to increase external revenue to make their manufacturing profitable.</p> <p class="paywall-full-content invisible no-summary-bullets">No doubt there is some truth to this, as they can certainly improve their efficiency and technological position. The company also indicated they expect to move from outsourcing 30% of their manufacturing to 20%, which is related to the previous remark. We also see <a href="https://www.cleveland.com/news/2024/03/intels-ohio-plants-delayed-2-years-will-start-production-in-2027-or-later.html" rel="nofollow">delays in construction</a> of Intel's new fabs. Put together, it's difficult for me to not see this as Intel thinking they would get much more business by this time, or at least much stronger interest, than they have. And now they have to put together a business plan that more realistically assesses the slower external revenue growth than was expected.</p> <p class="paywall-full-content invisible no-summary-bullets">One company I have left out is Samsung (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>). Yes, they kind of, sort of, well, make advanced transistors. In theory. At least according to their published papers. And numbers they come up with. Except, they have no enjoyed success, regardless of their rhetoric. Whereas history records Intel as often having the best processes, with TSMC currently having extremely strong product lines. Even so, we can't say for sure Samsung will continue to be non-competitive, but Intel has to aim higher than this flightless bird, so I focused primarily on TSMC. Intel may not have to pass TSMC in every metric, but they have to be competitive, and have advantages in some scenarios. I think they will (and do), particularly in performance. But they also better not be so severely disadvantaged in everything else.</p> <p class="paywall-full-content invisible no-summary-bullets">However you look at it, the foundry business is going to be a painful grind. It's super expensive, it's time consuming, and it's going to take a long time before it's very profitable. Companies are not going to jump ship en masse to the great Intel foundries. They aren't great anymore; it's not 2010. They not only have to improve capacity and technology, but also have all the tools in place for their customers. They need experience, which only happens slowly. After that, they need trust, and that is even a slower process. Intel has a lot of smart people, and I think they are better understanding this market now, and are being more realistic about it. But even if they execute very well, it's still a very long process to become very profitable. It is realistic to expect improvement in the losses with the new nodes and better focus, nearer term, however.</p> <p class="paywall-full-content invisible no-summary-bullets">Of course, this article is largely about their foundry, and does not reflect the overall opportunities of the company. Of course, nodes like Intel 3 will impact their server line, for example, and presumably very favorably, but I wanted to focus more on the external foundry business. I am still very optimistic on Intel as a whole, and even on the foundry business. I think it's a very difficult business to get into, but it also allows Intel to profit in far more scenarios than selling their own processors directly. It also will generate income that will allow further development costs possible, as each node is enormously expensive. It will also allow Intel to use equipment much longer for trailing nodes that external customers will still need long after Intel's products would not find them meaningful.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Conclusion</h2> <p class="paywall-full-content invisible no-summary-bullets">All of this convinces me this is the right strategy for Intel Corporation. I never expected the foundry business to be a quick payoff, and always just wanted to see iterative improvement. We're still really early in the game, and while we see the technology becoming more competitive, we don't see significant design wins yet, or major customers producing important product lines at IFS. Nor would we expect to yet, so that part is inconclusive. We should see some uptake on 18A, and hopefully continued momentum going forward. But however you look at it, it's going to be slow, and will take time for Intel Corporation to fully develop it.</p> <div class="before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets"></div> <p class="paywall-full-content invisible no-summary-bullets">Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.</p></description>
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<pubDate>Mon, 08 Apr 2024 20:30:35 GMT</pubDate>
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<title>Intel Reveals Groundbreaking Financial Roadmap Through 2030</title>
<description><h2>Summary</h2><ul> <li>Intel Corporation has revealed an ambitious financial roadmap through 2030, targeting a nearly 70% improvement in Intel Foundry's operating margin. A monumental turnaround indeed.</li><li>The stock market reacted negatively to the long-term outlook, but this was unfounded as the overall financial targets remained unchanged. Intel will likely also increase its process leadership with 14A.</li><li>The internal foundry model exposes the manufacturing group as the main cause of Intel's deteriorating margins, which the turnaround will reverse. The product groups remain profitable.</li><li>The turnaround could be likened to AMD's, with the 2017 Zen launch only marking the beginning of a new era of long-term growth and investor returns. Restoring tech leadership is only a prerequisite for investors.</li><li>Overall, the webinar provided a strong case for returning the manufacturing side to profitability (and beyond), solidifying the case for a long-term investment.</li> </ul><p></p><figure class="getty-figure" data-type="getty-image"><picture><img src="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w750" alt="Entrance of The Intel Museum in Silicon Valley." data-id="1002010996" data-type="getty-image" width="4841px" height="3227px" srcset="https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1002010996/image_1002010996.jpg?io=getty-c-w240 240w" sizes="(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px" fetchpriority="high" referrerpolicy="no-referrer"></picture><figcaption><p class="item-credits">JHVEPhoto/iStock Editorial via Getty Images</p></figcaption></figure><p></p> <h2>Investment Thesis</h2> <p>At its highly anticipated "New segment reporting <a href="https://seekingalpha.com/article/4681836-intel-corporation-intc-new-segment-reporting-webinar-transcript">webinar</a>," <b>Intel Corporation</b> (<span class="ticker-hover-wrapper">NASDAQ:<a href="https://seekingalpha.com/symbol/INTC" title="Intel Corporation">INTC</a></span>) revealed an ambitious financial roadmap through 2030, with as its headline the target for a nearly 70 percentage point improvement<span class="paywall-full-content invisible"> in Intel Foundry's operating margin through the period.</span></p> <p class="paywall-full-content invisible">However, as the stock market doesn't like to look forward so far, the stock sunk because of this long-term reality, not unlike when the financial details of the turnaround were first disclosed in late 2021 ahead of the (early 2022) investor meeting. While there are certainly risks in succeeding in this aggressive goal, the main (high-level) takeaway is the incredible potential for improved profitability as Intel moves into the EUV era and regains process leadership.</p> <h2 class="paywall-full-content invisible">Background</h2> <p class="paywall-full-content invisible">Intel first announced its plan to create the so-called "internal foundry model" in fall 2022. The aim was to split up<span class="paywall-full-content no-summary-bullets invisible"> the company in products and manufacturing without actually splitting up the company. In that way, the Intel product groups would become foundry customers just like any external foundry customer would. In that way, Intel Foundry would have to compete for Intel Products business just like any other foundry would, on equal footing (i.e., on price and process PPAC or power-performance-area-cost).</span></p> <p class="paywall-full-content invisible no-summary-bullets">The idea was that this would more clearly expose the underlying financials, allowing for like-for-like comparisons of both businesses against their respective competitors, which would not only give more clarity to investors, but also to Intel's management. After all, the idea behind being an IDM was to get "margin stacking": instead of having to buy a foundry wafer at 50% gross margin (=2x the actual manufacturing cost), the so-called "foundry tax," Intel as IDM only had to pay the actual manufacturing cost, and could then either undercut fabless competitors in pricing at the same gross margin at one end, or achieve higher gross margins at similar pricing. Add in Intel's process leadership, which provided even more flexibility in power-performance and cost-gross margins, and Intel had a great recipe for industry domination, and hence shareholder returns.</p> <p class="paywall-full-content invisible no-summary-bullets">However, looking at Intel's more recent financials in the wake of the 10nm and 7nm delays and then the post-COVID-19 downturn, not much of this supposed IDM advantage seems to remain. Indeed, in leaked slides, Intel had done the exercise of cooking up a virtual Taiwan Semiconductor aka Taiwan Semiconductor Manufacturing Company Limited (<a href="https://seekingalpha.com/symbol/TSM" title="Taiwan Semiconductor Manufacturing Company Limited">TSM</a>) - Advanced Micro Devices, Inc. (<a href="https://seekingalpha.com/symbol/AMD" title="Advanced Micro Devices, Inc.">AMD</a>) or TSMC - NVIDIA Corporation (<a href="https://seekingalpha.com/symbol/NVDA" title="NVIDIA Corporation">NVDA</a>) IDM, which showed that it would achieve much higher gross margins than either of them separately, and (perhaps even more worryingly) also much higher than peak Intel. So, IDM should still have an advantage in principle, but that just hasn't been realized by Intel: besides loss of process leadership, the lack of scale is also detrimental as Intel overall has to absorb over $20B in R&amp;D and SG&amp;A fixed costs. This is, of course, the main thesis behind starting the foundry business. Nevertheless, as just mentioned, the TSMC-AMD virtual IDM comparison also showed Intel just seemed inefficient in its operation.</p> <p class="paywall-full-content invisible no-summary-bullets">Overall, the internal foundry model doesn't change the strategy, which is the 5N4Y to regain process leadership to strengthen long-term competitiveness and cost structure, as well as the foundry business as one of the new areas for long-term growth. Indeed, in my previous coverage (which in hindsight was a bit too pessimistic), I <a href="https://seekingalpha.com/article/4546197-intel-introduces-internal-foundry-model">called it</a> mostly a financial engineering gimmick.</p> <p class="paywall-full-content invisible no-summary-bullets">However, for the first time in Intel history, it will quantify the extent to which the IDM margin stacking is actually realized, which might uncover previously unseen inefficiencies.</p> <h2 class="paywall-full-content invisible no-summary-bullets">New segment reporting webinar</h2> <p class="paywall-full-content invisible no-summary-bullets">On April 2, Intel held its internal foundry model webinar. The released material, including press release, presentation, and webcast can be found here: <a href="https://www.intc.com/news-events/ir-calendar/detail/20240402-new-segment-reporting-webinar" rel="nofollow">New Segment Reporting Webinar</a>. The recast financial results for the last three years are shown below.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165317693333_origin.png" rel="lightbox" data-width="2006" data-height="1328" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165317693333.png" alt="Intel internal foundry model" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Obviously, the overall P&amp;L doesn't change. Instead, what happens is that the internal Foundry "revenue" and "profit/loss" is at the end are subtracted as intersegment revenue and expenses.</p> <p class="paywall-full-content invisible no-summary-bullets">The main result of this exercise is that it exposes that the manufacturing group is the main culprit for Intel's deteriorating margins and earnings. Specifically, in the past, manufacturing costs would be split among the various product groups. Instead, now these costs are solely allocated to the manufacturing group. Besides wafers, there are still some other costs for the product groups, such as wafer expedites and samples, but these too are now priced similarly as at other foundries.</p> <p class="paywall-full-content invisible no-summary-bullets">Overall, for 2023 the operating margin of the product groups (CCG-DCAI-NEX) under this model would have been 24% instead of 10%, mainly (as just discussed) due to the near-complete elimination of allocated manufacturing costs.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342009834_origin.png" rel="lightbox" data-width="2414" data-height="1280" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342009834.png" alt="Intel PC client revenue operating margin" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Hence, Intel's product groups actually remain reasonably profitable despite the process technology issues in the last half a decade. Although, looking closer shows that it is mainly the client group that is quite profitable, with NEX and DCAI struggling much more. Of course, this is not that unexpected, as this was already to some extent visible in the prior financials, and DCAI has been most impacted by the loss of process leadership (substantial core count deficit).</p> <p class="paywall-full-content invisible no-summary-bullets">So instead, as the manufacturing costs are now solely incurred by Foundry, it shows that Foundry is operating at a stunning -37% operating margin. As has been widely reported, Foundry had a $7B operating loss in 2023 on $19B revenue. Intel expects this loss to peak this year, followed by a linear improvement towards the 2030 target of 40% gross margin and 30% operating margin.</p> <p class="paywall-full-content invisible no-summary-bullets">Note that this target is a new disclosure. It is some 10+ percentage points below TSMC, perhaps reflecting some higher price aggressiveness as a new entrant and challenger, but still respectable, especially as it is roughly similar to TSMC's results prior to COVID-19. Intel expects to reach breakeven for the manufacturing business midway during this period, so around 2027. Overall, this target represents around a 67-percentage point swing in operating margin in 6 years, which is ambitious (and indeed worthy of the term turnaround).</p> <p class="paywall-full-content invisible no-summary-bullets">Looking at this from a higher level, the stock reacted to the downside on this webinar, which was quite reminiscent of when Intel first disclosed the financial implications of the turnaround in October 2021 during its earnings call at the time, after a year of mainly technological and business-related disclosures and discussions.</p> <p class="paywall-full-content invisible no-summary-bullets">However, the plan Intel presented is a simple reality, and is aligned with what I have been discussing as the Intel thesis since (at least) Pat Gelsinger's return in 2021: while the technological turnaround (5N4Y: 5 nodes in 4 years to return to industry process technology leadership) is slated to be completed by the end of the year by finishing the development of 18A, the first products are planned for the second half of 2025. Then, like pretty much all companies except the likes of Apple Inc. (<a href="https://seekingalpha.com/symbol/AAPL" title="Apple Inc.">AAPL</a>) and Samsung Electronics Co., Ltd. (<a href="https://seekingalpha.com/symbol/SSNLF" title="Samsung Electronics Co., Ltd.">OTCPK:SSNLF</a>) with their blockbuster smartphone launches, it will take another year or so until these products are really established in the marketplace (launching in various PCs and data centers, replacing old products), and hence for the manufacturing output to become more substantial.</p> <p class="paywall-full-content invisible no-summary-bullets">As such, as I have been arguing for years, there is a clear distinction between the technological turnaround and the financial one. In the past, I have compared this to AMD and its Zen turnaround. Looking at the stock price shows that the launch of Zen was only the beginning of the financial implications of completing the turnaround, with the stock continuing to rise for many years thereafter. What Intel showed, with the (Foundry) operating margin (loss) bottoming in 2024 before recovering over the next half a decade or longer, is very similar if not exactly the same.</p> <p class="paywall-full-content invisible no-summary-bullets">For example, when Pat Gelsinger launched IFS in early 2021, which was before the 5N4Y announcement, even if Intel had revealed its roadmap under NDA, potential customers at that time were indeed just buying into a roadmap from a company with questionable execution (at best) in the half a decade prior. At the webinar, Pat Gelsinger said it now has 50 test chips on 18A in the pipeline (and 5 customers), so progress is steadily mounting.</p> <p class="paywall-full-content invisible no-summary-bullets">As confirmed during the Q&amp;A, besides the lower revenue expectations, there really isn't much of a change in the margin profile expectations and goals compared to the investor meeting two years ago: although the near- to mid-term might be a bit below prior expectations, the long-term goal is actually <em>more</em> ambitious than the 2022 investor meeting long-term model.</p> <p class="paywall-full-content invisible no-summary-bullets">In the near term, by the time Foundry reaches breakeven, the overall operating margin will be around 25%. For comparison, the 2021/22 goal was to reach a 20% FCF margin by 2026. Under Bob Swan, the goal was for FCF to be 80% of net income, with net income itself being around 80% of operating income. Hence, assuming this holds, the operating margin would have to be about 31% to reach the 20% FCF target, a bit higher than the new target.</p> <p class="paywall-full-content invisible no-summary-bullets">On the other hand, the new long-term goal (although one which Intel has talked about before, but without any explicit deadline) of 40% operating margin would likely result in more than 20% FCF margin. In fact, even during the heydays of milking the 14nm node from 2018-2020, the operating margin only topped out at 33%, at the high-end of Intel's official target at the time. The new target is actually the most ambitious in Intel's history, making the selloff a bit baffling when viewed in this light.</p> <p class="paywall-full-content invisible no-summary-bullets">As such, investors should see the stock reaction as rather a reflection of the time it will take to reach this target, which is far longer than what the stock market usually tends to discount. While, as mentioned, some headlines were focusing on the $7B foundry loss, obviously this re-slicing of the financials doesn't change those that Intel has reported over the last year (and 2024 was announced to be the year of peak loss, which is also in-line with the 2022 investor meeting).</p> <p class="paywall-full-content invisible no-summary-bullets">Some investors might remember that around the 7nm delay in mid-2020, there were a lot of discussions regarding whether Intel would have to spin off/sell its uncompetitive fabs, as it seemed Intel was falling irrecoverably far behind (which the turnaround has now finally disproven).</p> <p class="paywall-full-content invisible no-summary-bullets">However, as the disastrous foundry P&amp;L shows, this actually doesn't seem possible without Intel Foundry sooner or later going bankrupt. Either Foundry tries to optimize costs like stopping node development like GLOBALFOUNDRIES Inc. (<a href="https://seekingalpha.com/symbol/GFS" title="GLOBALFOUNDRIES Inc.">GFS</a>), but then rather soon it would lose the Intel manufacturing business to TSMC as Intel Products seeks to remain competitive by buying leading-edge wafers. So it would have fabs, but no customers.</p> <p class="paywall-full-content invisible no-summary-bullets">Alternatively, if Foundry had operated as it has in the last few years (investing in the expensive turnaround), then it too would have gone bankrupt, as shown by those multibillion-dollar ("$7B") losses visible in the Foundry P&amp;L. Hence, as a standalone company, Foundry simply would not (have) be(en) able to fund the turnaround.</p> <p class="paywall-full-content invisible no-summary-bullets">Put differently, what this effectively means is that the product groups have and are subsidizing (paying for) the turnaround. In other words, instead of the "margin stacking" theory of why an IDM is superior to a fabless company, Intel is currently experiencing "margin subtraction" from its highly unprofitable, trailing edge manufacturing business.</p> <p class="paywall-full-content invisible no-summary-bullets">To be sure, some might note or argue that all this is simply financial engineering trickery, as Intel could vastly change the P&amp;L of both groups depending on the wafer price it (arbitrarily sets) for those internal wafers. Of course, the P&amp;L of both groups would be correlated as the overall Intel P&amp;L cannot change, but the idea is that Foundry could have been made to look a lot more profitable by setting a higher wafer price that Products would have to pay.</p> <p class="paywall-full-content invisible no-summary-bullets">However, while technically correct, in practice this is wrong, or at least against the whole idea of the model (being a realistic model). As the Product groups are free to choose any foundry for their designs, if the Foundry raised its prices, it would be uncompetitive against wafers of competitive foundries, so Products would switch foundries. Foundry has to charge market prices.</p> <p class="paywall-full-content invisible no-summary-bullets">Note that this switching has already happened to some extent over the last few years (and will continue for the next year with Arrow and Lunar Lake), with Intel increasing its outsourcing. This is yet another reason (or confirms the aforementioned one) why Intel Foundry wouldn't (have) survive(d) as a standalone business, as outsourcing has increased from around 20-25% to 30%. At least, it is also one of the reasons for the decline in Foundry's revenue and profitability. Given the meager profitability of 10nm, it might be beneficial to leverage foundries instead (even for chiplets on the same node, i.e., using N6 instead of 10nm/I7).</p> <p class="paywall-full-content invisible no-summary-bullets">This is indeed what Intel seems to have done, with some Meteor/Arrow/Lunar Lake tiles being built by TSMC (although for the GPU tile, one might argue that this was done because Intel 4 does not have a higher-density library that the GPU would use, which was done to speed up Intel 4 development). Going forward, Intel has said that its goal is to reduce its reliance on foundries, and from the graph in the presentation, it seems the target is even below the amount it was doing prior to Pat Gelsinger (i.e., far below 20%).</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342218247_origin.png" rel="lightbox" data-width="2456" data-height="1374" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342218247.png" alt="Intel Foundry profitability" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In any case, as the reported P&amp;L shows, a standalone Intel Foundry would have seen a large decrease in volume/revenue and a further increase in. This would only be exacerbated if it had raised prices. So, in the model, Intel is using wafer prices conforming to those of similar nodes from competitors. Either way, going forward Intel Products will simply be charged the same price as any other Foundry customer. Hence, this model is indeed a valid and real representation of the underlying foundry economics.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Cost reductions</h2> <p class="paywall-full-content invisible no-summary-bullets">Since, as discussed, Foundry is currently not profitable, being a trailing edge IDM is indeed a net drag on the company currently. The margin stacking will only occur and become a reality when Foundry becomes profitable. The only way for Foundry to become profitable (in a real way, not by arbitrarily charging unrealistically high, uncompetitive wafer prices) is by regaining process (cost-density) leadership and achieving high yield.</p> <p class="paywall-full-content invisible no-summary-bullets">Of course, as mentioned in the introduction, this model ultimately does not change the underlying economics, as those dynamics are ultimately just a function of regaining process leadership. Nevertheless, one point that is amplifying the turnaround is EUV, which Intel referred to as the "EUV wall," and mentioned a cost per transistor delta of 2x. As a reminder, due to EUV less multiple patterning steps are required. So, while the tool is much more expensive, ultimately the reduced process flow makes up for that.</p> <p class="paywall-full-content invisible no-summary-bullets">Hence, the combination of EUV introduction and the accelerated 5N4Y cadence (moving quickly past Intel 4/3 to the second-gen 20/18A shrink) should make for a very large improvement in cost structure and economics. Again, though, it will take several years for these nodes to become a majority in terms of volume.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653174525547_origin.jpg" rel="lightbox" data-width="1381" data-height="726" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653174525547.jpg" alt="Intel wafer fab capacity 2030" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure> <figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653419238603_origin.png" rel="lightbox" data-width="2468" data-height="1292" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653419238603.png" alt="Intel Foundry wafer fab capacity 2030" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">In addition, with Foundry now being tasked with becoming as efficient as possible as a standalone business, it turns out (as Intel had discussed previously already as part of its $8-10B spending reduction plan) there are some hidden costs/inefficiencies in the business. For example, for Intel wafer expedites are/were very common compared to the foundry space, where those kinds of wafers are very expensive. In practice/essence, this results in lower utilization, so several billion dollars can be saved simply by improving utilization to best-in-class levels (i.e. phasing out expedites by charging appropriate costs to customers, conforming to standard market practices).</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342165631_origin.png" rel="lightbox" data-width="2464" data-height="1376" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-1712165342165631.png" alt="Intel fab efficiency cost" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure> <figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653178389776_origin.jpg" rel="lightbox" data-width="1380" data-height="776" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653178389776.jpg" alt="Intel Internal Foundry Model Webinar - SemiWiki internal foundry model cost reduction" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">Doing the math, reducing costs by several billion from such efficiencies would indeed be a large contributor towards (and beyond) breakeven. As shown above, the three other ones are transistor leadership, scale (including from insourcing outsourced products/chiplets), and opex leverage. Regarding insourcing, Pat Gelsinger said two whole fab modules worth of wafer capacity would be brought back. From the graph, it seems outsourcing will be reduced from around 30% to 10%.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Process comparison</h2> <p class="paywall-full-content invisible no-summary-bullets">Pat Gelsinger also provided a qualitative overview of Intel's process node benchmarking, showing that it expects to only further extend its regained leadership with 14A.</p> <p class="paywall-full-content invisible no-summary-bullets"></p><figure class="regular-img-figure paywall-full-content invisible" contenteditable="false"><picture><span><a href="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653421370695_origin.png" rel="lightbox" data-width="2512" data-height="1384" data-og-image-twitter_small_card="true" data-og-image-twitter_large_card="true" data-og-image-twitter_image_post="true" data-og-image-msn="true" data-og-image-facebook="true" data-og-image-google_news="true" data-og-image-google_plus="true" data-og-image-linkedin="true"><img src="https://static.seekingalpha.com/uploads/2024/4/3/13402352-17121653421370695.png" alt="Intel TSMC process technology node comparison 20A 18A N3 N2" contenteditable="false" loading="lazy" referrerpolicy="no-referrer"></a></span></picture><figcaption><p class="item-caption">Intel</p></figcaption></figure><p></p> <p class="paywall-full-content invisible no-summary-bullets">It wasn't mentioned if this comparison is based on what is available at the point of node introduction into the market or based on the same name. For example, clearly, Intel 7 was compared against TSMC N5, as I7 has a higher density than N7. However, during the presentation, Pat Gelsinger said 14A would be both earlier to market and also superior in power, performance, area, and cost, which (the time to market part) implies it is compared against A14. So it isn't sure if 18A is compared to N3(P) or N2, but presumably N2.</p> <p class="paywall-full-content invisible no-summary-bullets">Either way, the density comparison is actually a bit surprising. Intel 3 should already be quite close to N3, and presumably, 18A represents a full-node shrink (2x). As TSMC is hardly scaling at N2, 18A should be meaningfully denser than both nodes, i.e., more than just a wavy sign.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Risks</h2> <p class="paywall-full-content invisible no-summary-bullets">While, as discussed, all the fundamentals for the turnaround are in place, the main "risk" is that the 2030 target for 60/40 gross and operating margin might be too ambitious, especially the operating margin target, as Intel only achieved about 33% OM at its highest point.</p> <p class="paywall-full-content invisible no-summary-bullets">More in general, while the line of sight in terms of modelling towards these goals should be straightforward, it still needs to be executed. In any case, while those operating margin targets are encouraging, one of the main drivers for investor returns (in any stock) is revenue growth, which Intel has so far not demonstrated. Intel did state $15B in annual external foundry revenue as its 2030 target.</p> <h2 class="paywall-full-content invisible no-summary-bullets">Investor Takeaway</h2> <p class="paywall-full-content invisible no-summary-bullets">Ultimately, having a separate P&amp;L for both foundry and products is very logical and perhaps could or should have been done years or decades ago already. Specifically, doing this exercise has uncovered multiple inefficiencies in the manufacturing organization that will likely save multiple billions of dollars. This is not different from (i.e., it is part of) the $8-10B cost reduction plan that was announced in the wake of the downturn, which at the time was cheered on by investors.</p> <p class="paywall-full-content invisible no-summary-bullets">In addition, the technological turnaround also remains just as valid, with 18A completing development by the end of the year, ramping in 2025 and starting to hit the P&amp;L more meaningfully in 2026. More broadly, by quickly advancing through two full process nodes (and two further intra-nodes) over the course of 2024-25, regaining process leadership, and which also coincides with the very important introduction of EUV, Intel's inherent cost structure should improve dramatically.</p> <p class="paywall-full-content invisible no-summary-bullets">Nevertheless, even when Foundry is projected to breakeven by around 2027, the EUV nodes collectively still will not represent even half of Intel's wafer volume, although quite a la |
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