TSMC made $14.9 billion in 3 months and the good times are set to continue

The world’s largest contract semiconductor manufacturer has reported very strong third-quarter results, as global demand for computer chips continues to surge.

TSMC said it’s third quarter revenue had increased to US$14.88 billion – a 22.6% year-on-year increase and 12% increase on the previous quarter of this year.

Of that, the chip-marker recorded a staggering net profit for the three months to 30 September 2021 of US$5.56 billion, with gross margins sitting at around 51%.

These result were a beat on most analysts expectations.

What chips behind TSMC’s big profits?

In 2020, TSMC began producing 5-nanometers chips – the most advanced semiconductor chips in the world.

These are now used in most Apple iPhones and various applications known as High Performance Computing (HPC) applications.

Development of the fabrication facility to produce these small but powerful chips cost around $10 billion.

But it’s clear the investment is paying off.

Shipments of 5-nanometer chips accounted for 18% of TSMC’s total wafer revenue in the third quarter of 2021.

7- nanometer chips, which were first developed in 2016, accounted for 34% of revenue.

Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 52% of total wafer revenue.

“Our third quarter business was mainly supported by strong demand across all four growth platforms, which are smartphone, HPC, IoT and Automotive-related applications,” said Wendell Huang, VP and Chief Financial Officer of TSMC.

“Moving into fourth quarter 2021, we expect our business to be supported by strong demand for our industry-leading 5nm technology.”

TSMC stock outlook

TSMC management remains bullish – buoyed by huge demand as many major tech companies continue to experience semiconductor chip shortages.

It said it expects to record revenue of between US$15.4 billion and US$15.7 billion in the fourth quarter of 2021, with gross profit margins to remain between 51% and 53%

In a recent Asia Markets article looking at semiconductor stocks, Alison Savas, a portfolio manger at Antipodes Partners (which has been a long-term holder of TSMC stock) explained why she believes TSMC remains an attractive stock to buy.

“What’s great about investing in a business like this is you’re making a longer-term play on the ongoing digitisation of modern economies as opposed to taking a bet on which individual tech companies will be the future market share winners.”

“Looking forward over the next one to two years, we see TSMC valued at around 20x earnings, but where the business is compounding those earnings at over 20% p.a.”

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