Wary consumer wallets present biggest risk to chip titan TSMC

Chip titan TSMC looks immune to trade and supply chain disruptions, but not to consumer wallets. A heady valuation multiple for the $295 billion supplier to Apple, Huawei and others reflects its relentless march on rivals in developing cutting-edge semiconductors. Rising retail prices for ever-fancier smartphones, though, may soon spoil the party.

After shrinking for three consecutive years, the smartphone market is finally on track to grow this year. That’s largely thanks to 5G-powered models, which promise mobile data speeds as much as 100 times faster than the current wireless technology. Industry tracker IDC reckons smartphone shipments worldwide will top 1.4 billion units by the end of the year, up 1.5 percent.

That bodes well for the world’s top contract-chipmaker, which research firm TrendForce reckons dominates with over half the market. The company, formally known as Taiwan Semiconductor Manufacturing, is at the forefront of the manufacturing of semiconductors used in smartphones, personal computers, and even crypto-currency mining machines.

TSMC’s lead over rival chipmakers – South Korea’s Samsung Electronics and USbased Intel – is considerable, and the company’s customers are probably wary that it might gain too much pricing power. Still, it means the outfit is less vulnerable to customers moving production or shifting supply chains to avoid tariffs and security concerns.

Expectations are high. TSMC, which will report fourth quarter results on Thursday and provide guidance for the three months to March, is forecast to deliver some NT$430 billion ($14.4 billion) of net profit this year, a 26 percent rise, according to analyst forecasts on Refinitiv. After rocketing nearly 60 percent over the past year, the company’s shares now trade at over 20 times forward earnings, well above their five-year average of 14.5 percent.

The biggest risk for this seemingly unstoppable giant is perhaps any waning desire of consumers to pay increasingly large sums out of their disposable incomes for handheld devices. Smartphone users, for instance, may not want to fork out some $1,000, the latest price tag of Samsung’s Galaxy Note 5G model in the US, on the latest model. For TSMC, that’s not the worst problem to have.

The author is Robyn Mak, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn