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Taiwan Semiconductor Manufacturing Company (TSM) |
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WIKI ANALYSIS
Taiwan Semiconductor Manufacturing Company (Traditional Chinese: 台灣積體電路製造股份有限公司, abbrev. TSMC; NYSE: TSM (ADR) LSE: TMSD TSEC:2330) is the world's largest dedicated independent semiconductor foundry. The company manufactures chips on behalf of other companies - usually either "fabless" semiconductor companies which just design microprocessors, or integrated device manufacturers (IDMs) such as Intel (INTC) or Texas Instruments (TXN), who provide full products to end-users and often have their own manufacturing capability. Semiconductors, such as integrated circuits (ICs) and transistors, are the individual "on-off" switches that make up an electronic device. Working in tandem, semiconductors constitute an mp3 player, computer processor, or wireless network adapter.
Fabless high-tech companies such as ATI (now AMD), Broadcom, NVIDIA, and OmniVision Technologies design the ICs manufactured by TSM. Foundries like TSM occupy a specific part of the semiconductor supply chain, and the high labor and capital equipment costs in the production of semiconductors creates a niche for these companies. TSM serves both fabless and vertically integrated semiconductor manufacturers, and it has 77% share of the North American market.[1] Unlike some rivals, it is focused on miniaturizing its technology in the long-term while promoting larger wafers to its customers to earn short-term profits. However, TSM's short-term position is threatened by weak demand for consumer goods that use semiconductors in a credit crunch or slowdown in consumer spending. As a result, the company has begun shaving down capital investment for the near term to avoid having idle plants.[2]
Business Overview
TSM is a manufacturer of semiconductor chips. Its factories are primarily concentrated in Taiwan, with some capacity in China and the United States as well.[3] In addition to pure manufacturing, TSM has also expanded into other value-added services, such as aiding in the design of ICs, and other downstream activities, such as testing of chips and assembly of semiconductors into its end-use state. These activities are typically still upstream of those of their clients and thus clients are not competitors.
Business & Financial Metrics[4]
In 2009, TSM generated a net income of $93.58 billion on revenues of $266.57 billion. This represents a 26.3% decrease in net income on a 16.0% drop in revenues from 2008, when the company earned $127.01 billion on $317.41 billion in revenues.
Business Segments[5]
TSM operates through a single reportable segment.
Trends/Forces
First mover advantage in technology is the basis of past success and future strategy
While competition against other foundries is tight, TSM's scale gives it resources to deploy new technology and encourage adoption amongst its customers. It has a lead over competitors in the less than .13 micron scale manufacturing processes.[6] Its technology lead gives it a quality advantage, which leads to pricing premiums over competitors such as UMC.[7] This pricing premium contributes to its industry leading gross margin, at about 40%, double that of competitor UMC.[8]
TSM has advantages in scale and capacity
TSM's many fabs and past capital investment make it capable of creating more wafers than the competition. Hypothetically speaking, TSM's competitors would not be capable of manufacturing additional semiconductors if a large order was placed or a contract was won, simply because there is not enough excess capacity. Throughout the industry, the big 4 competitors typically achieve approximately 80-90% utilization of capacity[9], but TSM's 10-20% spare capacity is dramatically larger in absolute size. In addition, its scale gives it the capability to negotiate supply deals, particularly since it has spread out its suppliers of silicon wafers over 5 companies, which supply approximately 90% of the company's wafers.[10]
Competition
- United Microelectronics (UMC) - The industry's number #2 company by revenues, UMC and TSM are the industry's traditional duopoly. Looking forward, UMC is attempting to chart a different course than TSM, not supporting a 450mm (18 inch) wafer launch, electing to stick with 300mm (12 inch) wafers for the time being.[11]
- Semiconductor Manufacturing International (SMI) - SMI is a relative upstart in the industry, but gained share rapidly due to cost efficiencies after basing its fabrication plants in China.
- Chartered Semiconductor Manufacturing (CHRT) - CHRT is Singapore's chief semiconductor company, and offers a similar full-service approach to TSM through cooperation with its sister company, STATS ChipPAC.
There are also several other smaller manufacturers with foundry capabilities, but TSM has the largest share in the market, with over 2 times the revenue of nearest competitor UMC.
References
- ↑ Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Markets and Customers " pg. 15
- ↑ Taipei Times "TSMC posts record quarterly profits" February 1, 2008
- ↑ Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Our Facilities" pg. 13
- ↑ TSM 2009 20-F pg. 2
- ↑ TSM 2009 20-F pg. F-47
- ↑ Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Manufacturing Capacity and Technology" pg. 13
- ↑ Morningstar Analysis "Taiwan Semiconductor Manufacturing" April 28, 2008]
- ↑ Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Selected Financial and Operating Data" pg. 2
- ↑ ThinkEquity Foundry Industry Report, February 20, 2008
- ↑ Taiwan Semiconductor Manufacturing Company FY 2007 20-F "Raw Materials" pg. 20
- ↑ Electronic Engineering Times "UMC tips roadmap, questions 450-mm" June 10, 2008
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