TSMC pioneered the pure-play foundry business model when it was founded in 1987, and has been the world’s leading dedicated semiconductor foundry ever since. The Company supports a thriving ecosystem of global customers and partners with the industry’s leading process technologies and portfolio of design enablement solutions to unleash innovation for the global semiconductor industry. With global operations spanning Asia, Europe, and North America, TSMC serves as a committed corporate citizen around the world.
For entire decades it was completely unthinkable to have the business model that TSMC developed. Leading historical companies in the chip market, such as Intel or Texas Instruments, vertically integrated their business model. That is, these companies carried out from the design of the chips to their manufacture.
However, TSMC revolutionized the semiconductor market by focusing exclusively on the manufacture of chips, and letting different companies in the ecosystem focus only on designing.
Today TSMC has a complete monopoly on the high end spectrum of chips. By not competing with their customers (which is the case, for example, Intel), they have made companies that formerly manufactured chips – Nvidia or AMD – now only focus on the design part, leaving it in the hands of this Taiwanese company everything that has to do with manufacturing.
TSMC was founded in 1983 with The only strength that existed in taiwan at the moment: manufacturing capabilities. But while normally a company that manufactures has very low operating margins, the specialization that TSM has reached is so high that it has operating margins above 60%, even above technology companies that do not have manufacturing processes.
The only way to achieve this is with high investments in research and development and a CAPEX like no other company in the sector. INTEL currently has a $ 20 billion investment plan in place to create a high-tech plant that will allow it to manufacture chips of a similar size and performance to TSMC. The response from the Taiwan giant was $ 100 Billion for the next 3 years.
From Apple to Nvidia, any company that truly requires the latest technology for their devices will depend exclusively on TSMC. With a growing market, a monopoly on the high end spectrum of chips and an impressive cash flow that gives you to pay dividends and reinvest in new factories, what is the bearish outlook for this company?
China. After China’s intervention in Hong Kong, it seems that the chances of a possible intervention in Taiwan have increased. It is very difficult to estimate with certainty if this will happen or when it could happen, but without a doubt, since the Chinese Government has prohibited the acquisition of the machines that TSMC uses in its factory (which come from ASML of the Netherlands), the most viable option for The medium term for China to be a mega power in the semiconductor market would be the intervention of Taiwan and the subsequent acquisition of TSMC.
In DATATISTIC, we analyzed the risk return profile of this semiconductor giant at the center of every high end tech device in the world. Subscribe to our Patreon to see the full report.
