Taiwan Semiconductor Earnings Preview: The Juggernaut's Reign Continues

Taiwan Semiconductor keeps on winning, and this coming earnings report should be continued evidence.

Jul 15, 2014 at 8:43PM

Taiwan Semiconductor (NYSE:TSM) is the world's largest contract semiconductor manufacturer. The company has enjoyed robust growth over the past several years, particularly as it -- driven by the successes of customers such as Qualcomm -- has been a key beneficiary of the sheer explosion in mobile device sales. It's worth taking a look at TSMC ahead of its July 17 earnings report.

Sell-side consensus -- expecting big things from the Apple ramp?
Taking a look at consensus estimates, we see that the sell side is expecting Taiwan Semiconductor to register $6.06 billion in sales. Now, TSMC has already reported its monthly sales for each month of the quarter, and the quarter looks like it's shaping up to be $6.092 billion at the current New Taiwan dollar-to-U.S. dollar exchange rate (up 16% year over year). As far as earnings per share goes, consensus is looking for $0.37 a share -- a healthy increase from $0.33 a share in the prior year period.

However, since the current quarter is already in the bag, the real question is what the next quarter is going to look like. It's likely that TSMC is already shipping the next-generation A8 chip to Apple for the upcoming iPhone release. (Apple does need lead time to actually build the things.) As the iPhone 6 build-out continues -- and if the iPhone 6 uses the TSMC-built 20-nanometer MDM9x35 modem -- then TSMC could continue to see very healthy growth in the coming quarters.

Commensurate with this qualitative description, the sell-side seems to be calling for guidance of $6.58 billion for the coming quarter and earnings per share of $0.43 for the third quarter of 2014. The boost associated with the iPhone 6 build-out is probably more than enough to drive this growth.

How's the valuation look?
Valuing tech stocks is often tricky because tech stocks often go up as they beat estimates and generally have a good long-term picture. TSMC, to date, has been very good about beating estimates. Further, as the leading edge of the logic foundry business has consolidated -- it's an effective duopoly between TSMC and Samsung (NASDAQOTH:SSNLF) -- the supply/demand balance has been in favor of the last players standing.

That said, if you believe the consensus, TSMC trades at about 15.3 times fiscal 2014 estimates and about 14.68 times fiscal 2015 estimates. This isn't expensive for what has become the de facto central nexus through which most important semiconductor business flows. However, the shares may be getting a discount on the threat that Samsung and GLOBALFOUNDRIES may pose at the 14/16-nanometer manufacturing technology node.

If TSMC does lose leading-edge share to Samsung and GLOBALFOUNDRIES, then this could serve as a meaningful headwind to growth. However, if TSMC ends up sweeping the high-end business as it has historically done, then this discount will have been unwarranted, estimates may go up, and the stock could trade higher.

Foolish bottom line
There's little doubt that Taiwan Semiconductor is the world's leading foundry and that it has done well by its shareholders over the past several years. Though competitive concerns from Samsung and GLOBALFOUNDRIES loom for the 14/16-nanometer generation, it seems that at 20-nanometer, TSMC is the clear winner. This should, at the very least, lead to a few more really strong quarters.

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of Apple and Qualcomm and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers