Description

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s leading foundry with a ~60% market share of the global semiconductor foundry segment, representing ~30% of the world semiconductor output value in 2022 (excluding memory). The company has a near-monopoly in the most advanced node sizes, with a ~90% market share.

The company has a market cap of $501 billion, has generated $75 billion of revenue in the last twelve months, and its balance sheet has $23 billion in net cash.

Financial highlights (these are all on a TTM basis as of Q1 2023):

• Revenue CAGR of 15.9% since 2009 and 15.6% over the last 10 years

• FCF / share CAGR of 9.6% since 2009 and 35.3% over the last 10 years

• Net income / share CAGR of 20.6% since 2009 and 19.5% over the last 10 years

• Median ROE of 24% since 2009 and over the last 10 years

• Median P/E since 2009 from 14-16x and from 16-18x over the last 10 years

• Currently trades for 15.1x TTM EPS (stock is at 593 TWD)

• 6.6% earnings yield, 3.3% FCF yield

• On enterprise value, a 7.0% earnings yield, 3.5% FCF yield

The drivers of TSMC’s revenues are how many wafers its fabs can ship per year, and what price TSMC gets on those wafers. Quality and throughput matter, and TSMC is the best at both. The company has a demonstrated ability to remain competitive at ever-smaller node processes, which are more complex and difficult to fabricate.

Over the last 9 years, wafer throughput at TSMC has grown at 9.2% CAGR and revenue has grown at 16% CAGR (in TWD), demonstrating rising wafer ASP as TSMC has shifted revenue to smaller node sizes.

For example, 10 years ago this is what TSMC’s revenue by technology looked like:

And this is what it looks like now:

During that time revenue grew from NT$ 0.5 billion to NT$ 2.3 billion.

We can observe this rising ASP and benefits of specialization in TSMC’s margins over the years: