Shares of Taiwan Semiconductor Manufacturing (TSM 0.10%), better known as TSMC, surged on Thursday. The company reported fourth-quarter results that beat Wall Street's estimates and, perhaps more importantly, provided some impressive details on its plans for 2022.
Not surprisingly, given the global shortage of semiconductors and the company's market-leading position, TSMC's Q4 results were excellent. Strong demand for 5-nanometer chips gave the company tremendous operating leverage, helping drive its operating margin to 41.7% for the quarter, above its own guidance.
As for the current (first) quarter, CFO Wendell Huang said that chip investors can expect incremental sequential gains in revenue and margins, supported by recovering demand from automotive clients and "milder smartphone seasonality than in recent years."
It was all good stuff. But it was TSMC's spending plans for 2022 that got investors' attention on Thursday. Simply put, if you think the $30 billion that TSMC spent on capital expenditure (capex) in 2021 was a lot -- and it was! -- wait'll you hear about its plans for this year: $40 billion to $44 billion in new capex spending.
"Every year, our capex is spent in anticipation of the growth that will follow in the future years," Huang said. "We are witnessing a structural increase in underlying semiconductor demand underpinned by the industry megatrends of 5G-related and HPC applications."
That's all true, and it has led to tight supplies of semiconductors around the world as anyone who has tried to buy a car recently knows. But the big spending is also about keeping TSMC atop the global chip rankings -- and ahead of key rivals like Intel and Samsung -- as new products like connected vehicles and ever-more-advanced gaming devices will continue to drive chip demand higher in coming years.