Thread by @agrawalmohit12

A thread on Taiwan Semiconductor Manufacturing Company (TSMC) and basics of semiconductors

#TSMC #semiconductors #semiconductorshortage #Taiwan

Given the importance and buzz around semis, a timely thread on TSMC --> One of the most important companies in the world!

1/ Semis basics

Semiconductor is a tiny electronic device composed of
billions of components that store, move, and process data.

Chips are fundamental to emerging technological applications such as AI, Cloud, Metaverse, 5G, IoT, large-scale data processing and supercomputing

2/ Semi fabs are characterized by size of wafer and the transistor

The leader in chip mfg. is the fab that can produce the next “Tech node” first

Fabs have to make continuous R&D and capital investments to produce the most advanced semis with reduced feature size

3/ Three major business models in the semiconductor industry

1. Integrated Device Manufacturers (IDM): $INTC, $TXN, $MU, $NXPI

2. Fabless (design only / asset light): $NVDA, $AMD, $QCOM, $AVGO

3. Fabs (manufacturing): $TSM, $UMC, $SMIC, Global Foundries

4/ Semiconductors are a unique global industry with the production and supply chain process spanning multiple countries

5/ Who are TSMC?

Estd. in 1987, TSMC pioneered the dedicated semi foundry business model, enabled fabless IC design industry to flourish and unleashed innovations

Foundry or Fab manufactures chips for fabless (design only) companies by focussing on better process tech

6/ Why TSMC?

Fabs are too expensive to build ($5 - $15bn), manufacturing chips is a very hard process and difficult to scale, so fabless firms are happy to hire TSMC.

TSMC, has tons of customers -> can spread its cost and continuously invest in tech

theedgemarkets.com/article/tech-w…

7/ TSMC is the tech leader which other foundries find it difficult to keep up with (GF dropped out at 7nm).

This tech advantage creates network effects bringing in customers from other fabs

- 5nm already in prod
- 57% foundry market share
- built largest semi design ecosystem

8/ Financials

Since listing
1. >20% ROE
2. 17.2% Rev CAGR
3. 16.7% earnings CAGR

Guidance 2020 - 2025
1. Rev CAGR b/w 10% - 15%
2. Gross margin ~50%
3. Operating margin ~40%
4. ROE > 20%

# Solid balance sheet with industry's highest credit rating
# FCF to fund organic growth

9/ Revenue by Technology (4Q 2020)

# 7nm bringing max revenue
# 5nm has the highest growth rate (bringing 2% revenues in just 2 quarters since the introduction)
# first fab to bring in 5nm technology in production
# planning to introduce 2nm in 2025

10/ Revenue by Platform (4Q 2020)

# Smartphone continues to dominate
# Main growth areas: HPC, Smartphone and IoT
# HPC - main growth driver

11/ Capital Expenditure

# 2021 Guidance: $25bn - $28bn vs. $17bn in 2020 (+47% - 65% yoy)
# announced plans to spend $100bn on new prod facilities and R&D over next 3 yrs. Decision was partially influenced by an increased competitive threat from Samsung.

bloomberg.com/opinion/articl…

12/ Resources:

# techwireasia.com/2021/02/the-do…

# Story of man who built TSMC @SahilBloom

https://sgp.fas.org/crs/misc/R46581.pdfhttps://twitter.com/SahilBloom/status/1353369463190560773?s=20

# TSMC thread by @2ChaseGreatness

https://twitter.com/2ChaseGreatness/status/1354148200475721731?s=20

# @GavinSBaker on $INTC gavin-baker.medium.com/investing-mist…

# Acquired podcast on TSMC - podcasts.apple.com/us/podcast/tsm…

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