TSMC’s Surging Profit Cements Kingpin Role in Global Chip Crunch

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Taiwan Semiconductor Manufacturing Co. likely chalked up its fastest pace of profit growth in a decade, after the Taiwanese company cemented its role as chipmaker of choice to the world’s technology and auto giants.

The world’s largest contract chipmaker is projected to report a 48.6% rise in 2020 net income Thursday, its speediest rate of expansion since 2010. Investors have sent its stock soaring 70% since the start of 2020, betting that the likes of Apple Inc. will continue to lean on its widening technological lead over Samsung Electronics Co. On Tuesday, Bernstein analysts raised their target on its shares to NT$800, anticipating a further gain of more than 30%.

Taiwan’s largest company has spent billions in past years ensuring it remains at the forefront of chipmaking technology -- a costly exercise that paid off after Covid-19 sent millions online and powered demand for smartphones and computers. With chips becoming ubiquitous in everything from cars to fridges, it’s now become a lynchpin in a plethora of sectors including automaking.

As rivals like United Microelectronics Corp. fall behind and Semiconductor Manufacturing International Corp. struggles with American sanctions, TSMC’s pivotal role is likely to expand in 2021. Already, its preference for larger-volume electronics clients is exacerbating a severe shortage of automotive chips that’s forcing firms like Honda Motor Co. and Volkswagen AG to curtail production. Even Intel Corp. is now said to be considering outsourcing to the Asian firm after a series of inhouse technology slip-ups.

“The world needs advanced silicon and only TSMC has that,” Bernstein’s Mark Li wrote. “There is risk if Intel regains and keeps tech superiority, but scale & execution record make it unlikely.”

Read more: TSMC’s Quarterly Revenue Hits Record on Strong iPhone Demand

Apple’s main chipmaker has predicted that the industry “mega trends” of 5G and high performance computing-related products will continue to drive growth over the long term. It’s expected to report a 14% rise in net income for the December quarter off record sales, moderating from the heady pace of expansion in previous months.

On Thursday, investors will want to see if TSMC will set aside another record amount for capital spending in 2021, after shelling out an estimated $17 billion last year to maintain its edge. And the auto industry would also be keen to hear whether TSMC has a solution to the shortages now plaguing its biggest names.

Foundries such as TSMC, UMC and Globalfoundries Inc. aren’t expanding fast enough to meet the pandemic-induced spike in demand for gadgets. Those bottlenecks snarled the flow of chips not just to cars, but also Xboxes and PlayStations and even certain iPhones. TSMC is by far the most advanced of the foundries responsible for making a significant portion of the world’s semiconductors, serving the likes of Qualcomm Inc. and NXP Semiconductors NV, which also supply the mobile and auto industries.

Read more: Missing Chips Snarl Car Production at Factories Worldwide