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2 Growth Opportunities for This Top Apple Inc. Supplier

By Ashraf Eassa - Jul 21, 2017 at 5:30PM

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High-performance computing and the mobile market present solid growth opportunities for this contract chip manufacturing giant.

Taiwan Semiconductor Manufacturing Company (TSM 1.53%) is believed to be the sole supplier of the A10 Fusion chips that power Apple's (AAPL -0.14%) current iPhone 7 series smartphones. In addition, TechInsights recently revealed that TSMC is the manufacturer of the A10X Fusion chips found inside of Apple's newly released 10.5-inch and 12.9-inch iPad Pro models.

Apple is also expected to be the sole manufacturer of the A11 Fusion processors that'll power this year's iPhone 7s, 7s+, and premium OLED iPhone.

A person using Apple's latest iPad.

Image source: Apple.

Though TSMC's success in securing Apple chip orders has certainly helped to boost its financial performance as well as, potentially, its perception among investors, there's so much more to the company than just being an Apple supplier.

Here are two growth opportunities for TSMC beyond the long-term growth potential that the Apple relationship brings to the table.

High-performance computing

TSMC has repeatedly stated that, beginning with its 7-nanometer technology generation, the market for high-performance computing technologies could be a real growth opportunity for the company.

Now, to be clear, TSMC is a contract manufacturer; it doesn't design products for specific market segments. Instead, it develops manufacturing technologies -- think of these as technologically marvelous canvases -- that its customers use to craft products.

So, what's going on here is that TSMC's customers have indicated that they're aggressively going after the market for high-performance computing technologies (e.g., data center processors, deep learning accelerators, virtual reality/augmented reality chips, and so on) and TSMC is planning to enable them.

TSMC pegs the total addressable market for this market at between "$10 billion to $11 billion" in 2017 and expects that this market will grow at a 10% annual clip going forward.

"We strive to grow several [percentage points] above that," TSMC co-CEO Mark Liu said on the most recent earnings call.

Mobile computing

Although TSMC already benefits immensely from the mobile chip market -- after all, many of the mobile chip vendors rely on TSMC to build their chips -- this is likely to continue to be a source of growth for the company in the years ahead.

TSMC can benefit from mobile growth simply by a growing mobile market. If TSMC maintains roughly the same market segment share that it does today and doesn't see an increase in its dollar content per device, it should grow roughly as the mobile market grows.

That's not likely to be a ton of growth, but it's something.

However, TSMC may potentially amplify its mobile-related growth here in two ways. First, to the extent that the dollar content within mobile devices grows, TSMC should benefit.

For example, if it turns out that Apple's rumored dedicated artificial intelligence chip is, in fact, a stand-alone chip, and if TSMC is the manufacturer, then it might see a rather nice bump in the amount of silicon it sells to Apple.

Then, to the extent that other smartphone chipmakers copy Apple, TSMC could be well positioned to capture a solid portion of those orders, too.

Even if the functionality of such artificial intelligence chips are integrated into future applications processors, that should still lead to an increase in chip size and, therefore, TSMC's wafer revenues. 

Furthermore, TSMC might be able to increase its market share among the mobile chip vendors, which could allow the chip manufacturing giant to enjoy see some acceleration in its mobile-related revenue.

TSMC lost major mobile chipmaker Qualcomm (QCOM -0.53%) as a manufacturer of its high-end Snapdragon mobile processors, but there was a recent report that claimed that Qualcomm was moving its stand-alone modem tech back to TSMC.

That's not huge in and of itself, but if TSMC can win back at least a portion of Qualcomm's Snapdragon applications processor orders, then that could -- at least over the next couple of years -- help TSMC to accelerate its mobile-related growth.

Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$89.77 (1.53%) $1.35
Apple Inc. Stock Quote
Apple Inc.
$165.35 (-0.14%) $0.23
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$150.21 (-0.53%) $0.80

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