What the Wall Street pros are expecting from chip giant TSMC’s earnings

Published Tue, Oct 12 20217:26 PM EDTUpdated Tue, Oct 12 20218:28 PM EDT

Tech analysts have been busy predicting what's in store for TSMC this Thursday, when the world's largest contract chip maker is set to unveil its third-quarter results. The highly anticipated earnings release from TSMC, or Taiwan Semiconductor Manufacturing Company, comes on the back of a stellar performance in September. Sales topped $5.5 billion last month, a record for the company. Taiwan-listed shares of TSMC, a major supplier to Apple, are up 8.5% so far this year and were trading at roughly 575 Taiwan dollars ($20.44) on Tuesday. The earnings release is set against the backdrop of a global semiconductor shortage that has reverberated across the supply chain, impacting production of a broad range of products in recent months. In response, TSMC plans to invest $100 billion over the next three years to ramp up capacity . Investors will be closely watching the company's outlook on wafer demand amid reports that it's seeking to raise chip prices by up to 20% in the near term. Other key issues to look out for include the company's guidance on capital expenditure and views on supply chain inventory. Goldman Sachs The Wall Street firm is expecting TSMC to post revenue growth of 12.7% from the previous quarter, with gross profit and operating margins to come in at 50.9% and 40.5%, respectively. The firm has a "buy" rating on the stock, with a target price of 1,014 Taiwan dollars. Goldman is keeping a close eye on TSMC's longer-term gross margin outlook, as well as visibility on the company's "mid-term capex plans" for a glimpse into TSMC's "topline and profitability in the next couple of years." The investment bank said TSMC could raise its capex guidance, noting "substantial silicon demand growth in key mega trends" as well as "more green field capacity expansion plans going forward." "With rising market speculation on potential demand peaking, especially on consumer products such as PC, TV and smartphones, we could see inventory correction in 2022. We will look for detail on TSMC's forecast for the end demand outlook in each application, and its view on foundry tightness continuing to 2023," the Goldman analysts added. Morgan Stanley Morgan Stanley analysts, led by Charlie Chan, believe that investors should focus on the "coming cyclical downturn" rather than gross margin. Amid "growing cyclical concerns," the investment bank is "staying on the sidelines" on TSMC. It is equal weight on the company with a target price of 580 Taiwan dollars. Chan and his team will seek to understand the rationale behind the wafer price hike, as well as its impact on the company's long-term financial guidance. While the analysts expect TSMC to maintain its full-year capex guidance of $30 billion, they will also be looking to the company for further capex guidance and its views on its overseas fabrication strategy. Needham Needham has a buy rating on the stock, with a target price of 690 Taiwan dollars. "TSMC's competitor — Samsung Foundry — announced availability of 3nm in [the first half of 2022], while TSMC has been sticking to a [second half of 2022] timeline, which on paper puts Samsung ahead of TSMC. I expect TSMC to provide an update on 3nm schedule and look for any pulling forward of the schedule," said Needham analyst Charles Shi, in response to queries from CNBC. 3nm relates to a more advanced chip than the ones on the market today. Shi expects TSMC to provide guidance on its 2nm production given the "mounting competitive pressure" from rival Intel's 20A product, "a node that is equivalent to TSMC's 2nm." He will also be paying attention to management's comments on pricing and supply chain inventory going into 2022. Wedbush Following TSMC's record sales in September, Wedbush is doubling down on the company's target price of 700 Taiwan dollars ahead of the earnings release. Analyst Matt Bryson expects his estimates to be in-line with TSMC's guidance, though he noted some "modest potential margin headwinds tied to a strong Taiwanese dollar." Looking ahead, Bryson believes the company could see a "modest tick up in sales" in the fourth quarter on "continued semi shortages" and "strong initial demand for the iPhone." TSMC could also benefit from the current supply squeeze to increase average selling price and expand revenue and margin expansion this year or next, he added.

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Tech analysts have been busy predicting what's in store for TSMC this Thursday, when the world's largest contract chip maker is set to unveil its third-quarter results.