SINGAPORE – Taiwan Semiconductor Manufacturing Co. (TSMC) could come under pressure on earnings after the company announced plans for a massive capital expenditure this year, an analyst told CNBC.
After making record fourth-quarter earnings on Thursday, the world’s largest chip maker said it expects to spend between $ 25 billion and $ 28 billion in 2021 to make advanced chips.
This figure surprised Mehdi Hosseini, senior analyst at financial group Susquehanna.
“We’ve been waiting for a flat revenue guide with a double-digit revenue growth goal for the whole year. But it was the capex that surprised and was well above expectations,” Hosseini said. Friday on CNBC’s “Squawk Box Asia.”
He added that part of TSMC’s decision to announce such a significant figure for likely capital spending is due to the rising competitive threat from Samsung’s chip-making foundry business.
The potential value of capital spending projected by TSMC this year lies in long-term growth opportunities, he said. “They are the best in the class, they have shown us that they are the leading semiconductor manufacturer. But when it comes to this type of big capex, in my opinion, there are some implicit risks,” Hosseini added.
He explained that there were two possible issues that could put pressure on TSMC’s future earnings. First, TSMC’s decision was likely influenced by Samsung’s increased competitive threat. Hosseini said the revenue associated with capital expenditures allocated to deal with competition will not materialize until the end of 2022.
“This, combined with the fact that margins are going down, suggests to me that gains will be under pressure,” Hosseini said.
The second problem has to do with the diversification of TSMC’s revenue sources, according to the analyst. For a long time, the chip maker’s revenue was driven by chipsets made for iPhones.
“Now that revenues are diversifying and cloud infrastructure is starting to have a big impact, it’s extremely difficult to predict the contribution of cloud revenue,” said Hosseini, who added that volatility and speculation about future growth is increasing of the revenue associated with the cloud, which makes business planning more difficult.
Hosseini said its 12-month target price of the shares is $ 425 new from Taiwan ($ 15.18), about 28% lower than the closing price of the shares on Thursday.
For its part, TSMC said it expects first-quarter growth in 2021 to be driven by demand for chips to support high-performance computing (the ability to process data and complex calculations at high speed). as well as a recovery in the automotive segment and softer seasonal demand for smartphones than in recent years.
Recently, Reuters also reported that U.S. chip maker Intel plans to take advantage of TSMC to manufacture a discrete second-generation graphics chip for personal computers, with the goal of fighting the rise of Nvidia. Companies such as Intel, Nvidia, Qualcomm and Apple rely on Asian foundries to manufacture their chips. TSMC has more than half of the global contract manufacturing chip market, including a strong position in advanced chips.
Analysts have said chip prices are expected to recover in 2021 as demand improves due to the prolonged need for remote work, as well as increased adoption of new technologies such as 5G and intelligence. artificial ligency.