Semiconductor foundry giant Taiwan Semiconductor Manufacturing (TSM +5.08%) reported fourth-quarter results this Wednesday evening. The company, often referred to as Taiwan Semiconductor or TSMC, delivered a mixed report compared to analyst projections, but investors largely liked what they saw. TSMC's share prices rose as much as 2.2% in Thursday's morning session.
Taiwan Semiconductor Manufacturing's fourth-quarter results by the numbers
|
Metric |
Q4 2019 |
Q4 2018 |
Change |
Analyst consensus |
|---|---|---|---|---|
|
Revenue |
$10.4 billion |
$9.40 billion |
11% |
$10.46 billion |
|
GAAP net income |
$3.80 billion |
$3.27 billion |
16% |
N/A |
|
GAAP earnings per American Depositary Receipt (diluted) |
$0.73 |
$0.63 |
16% |
$0.71 |
Data source: Taiwan Semiconductor Manufacturing. GAAP = generally accepted accounting principles.
From a full-year perspective, TSMC's dollar-denominated revenue rose 1.3% to $34.6 billion. Full-year earnings fell 4% to $2.15 per ADR. Both of these metrics faced a currency conversion headwind of 2.4%.
The company enjoyed solid revenue growth in key markets such as high-end smartphone components, early products for the 5G wireless standards, and high-performance computing chips using TSMC's advanced 7-nanometer manufacturing process. 7-nm production accounted for 35% of total wafer revenue in the fourth quarter and 27% of full-year sales. That's up from 23% of fourth-quarter sales and 9% of full-year revenue in the year-ago period.
For the record, chip giant Intel (INTC +23.60%) currently plans to release the first 7-nanometer chip made on its own process lines in 2021. Taiwan Semi has been doing it for more than a year.
Image source: Getty Images.
Guidance and color commentary
Looking ahead, TSMC expects the next few quarters to outperform their typical seasonal patterns. To support this rising demand, Taiwan Semi is boosting its own infrastructure budget. In fiscal 2019, management had expected to spend about $10 billion on capital expenditures. The final bill came in at $14.9 billion instead.
"Our 2020 capital budget is expected to be between $15 billion and $16 billion," CFO Wendell Huang said in TSMC's fourth-quarter earnings call. "Out of the $15 billion to $16 billion capex for 2020, about 80% of the capital budget will be allocated for advanced process technologies, including 3 nanometers, 5 nanometers, and 7 nanometers."
CEO C.C. Wei reminded analysts and investors how 5G gives unprecedented access to fast network connection for a nearly unlimited number of devices, and how this revolution will serve as the game-changing foundation of many growth drivers for the chip industry.
"The significant performance improvement of 5G networks will drive AI applications and unlock new usage cases, such as real-time response and control across many different types of connected end devices," Wei said. "We believe 5G is a multiyear megatrend that will enable a world where digital computation is increasingly ubiquitous, which will fuel the growth of all four of our growth platforms in the next several years."
The four growth platforms are mobility, high-performance computing, the Internet of Things, and automotive computing. All of these end markets should benefit greatly from 5G-powered networking, which will drive TSMC's business growth for years to come.
