|Expense ratio (net)||N/A|
|Last cap gain||N/A|
|Morningstar risk rating||N/A|
|Beta (5Y monthly)||N/A|
|5y average return||N/A|
|Average for category||N/A|
(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. warned that a global shortage of semiconductors across industries from automaking to consumer electronics may extend into 2022, prompting the linchpin chipmaker to lift targets on spending and growth for this year.The world’s largest contract chipmaker said Thursday that its auto industry clients can expect chip shortages to begin easing next quarter, alleviating some of the supply disruptions that have forced the likes of General Motors Co. and Ford Motor Co. to curtail production. But overall deficits of critical semiconductors will last throughout 2021 and potentially into next year, Chief Executive Officer C.C. Wei told analysts on a conference call.TSMC now expects investments of about $30 billion on capacity expansions and upgrades this year, up from a previous forecast for as much as $28 billion, Chief Financial Officer Wendell Huang said. It foresees sales in the June quarter at a better-than-projected $12.9 billion to $13.2 billion, driving full-year revenue growth of 20% in dollar terms -- ahead of the “mid-teens” growth predicted in January.But the increased spending means its target for gross margins this quarter came in below expectations at 49.5% to 51.5%, spurring concerns about the longer-term impact on profitability. TSMC’s shares slipped 1.8% in Taipei on Friday, their biggest intraday loss in about three weeks.“The capex boost is a mixed bag with better long-term growth but lower margins,” Morgan Stanley analysts wrote.What Bloomberg Intelligence SaysLarge depreciation costs from new 5-nm production equipment may lower gross margin by 2%, while slower-than-expected production efficiency improvement implies that gross margin will continue to contract, possibly to under 50% in 2Q.- Charles Shum and Simon Chan, analystsClick here for the research.TSMC joins a growing number of industry giants from Continental AG to Renesas Electronics Corp. and Foxconn Technology Group that warned of longer-than-anticipated deficits thanks to unprecedented demand for everything from cars to game consoles and mobile devices. While Taiwan’s largest chipmaker has kept its fabs running at “over 100% utilization,” the firm doesn’t have enough capacity to satisfy all its customers and it has pledged to invest $100 billion over the next three years to expand.“We see the demand continue to be high,” Wei said. “In 2023, I hope we can offer more capacity to support our customers. At that time, we’ll start to see the supply chain tightness release a little bit.”Read more: See How a Chip Shortage Snarled Everything From Phones to CarsSemiconductor shortages are cascading through the global economy. Automakers like Ford, Nissan Motor Co.and Volkswagen AG have already scaled back production, leading to estimates for more than $60 billion in lost revenue for the industry this year. The situation is likely get worse before it gets better: a rare winter storm in Texas knocked out swaths of U.S. production, while a fire at a key Japan factory will shut the facility for a month. Rival chipmaker Samsung Electronics Co. warned of a “serious imbalance” in the industry.With major American carmakers and other gadget suppliers facing a prolonged shortage of chips, U.S. President Joe Biden has proposed $50 billion to bolster semiconductor research and manufacturing at home. The initiative could aid TSMC’s plan to build a cutting-edge fab in Arizona this year that could cost $12 billion.TSMC is “happy” to support chip manufacturing in the U.S., though research and development and the majority of production will continue to remain in Taiwan, executives said on Thursday. They reiterated that construction of their plant in Arizona will begin this year.Read more: Why Shortages of a $1 Chip Sparked Crisis in Global EconomyNet income for the January-March period climbed 19% to NT$139.7 billion ($4.9 billion), beating the average analyst estimate, buoyed by demand for high-performance computing (HPC) equipment and a milder seasonal effect on smartphone demand. Gross margin for the quarter eased to 52.4% from 54% in the three months prior, due in part to relatively lower levels of utilization and exchange-rate fluctuations. First-quarter revenue rose 17% to NT$362.4 billion, according to a company statement last week.The company said Thursday it now expects to be able to achieve the higher end of its compound annual growth rate target of 10% to 15% for the five years to 2025, citing its investment spending plans.“TSMC’s statement that the chip crunch may spill into 2022 will smooth over concerns that chip demand may fall on overbooking later this year and further boost investors’ confidence in the overall semiconductor demand in the long run,” said Elsa Cheng, an analyst at GF Securities.Shares of TSMC have more than doubled over the past year.TSMC’s most-advanced technologies continued to account for nearly half of revenue in the March quarter, with 5-nanometer and 7-nanometer processes contributing 14% and 35% of sales, respectively. By business segment, its smartphone business amounted for about 45% of revenue, while HPC increased to more than a third, reflecting sustained demand for devices and internet servers even as economies start to emerge from the pandemic.“We are seeing stronger engagement with more customers on 5-nm and 3-nm, in fact the engagement is so strong that we have to really prepare the capacity for it,” Wei said. Smartphones and HPC will be the main drivers for demand of 5-nm, which will contribute around 20% of wafer revenue this year.TSMC Is On Fire. Just Beware of the Flames: Tim Culpan(Updates with share action from the fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Export controls against China will not only fail to halt its technological progress but also hurt the U.S. economy, ASML Holding NV Chief Executive Officer Peter Wennink said, after trade tensions between Washington and Beijing led to restrictions on the sale of the Dutch company’s advanced chip equipment to Chinese firms.“I believe that export controls are not the right way to manage your economic risks if you have determined that there is an economic risk,” Wennink said during an online industry event on Wednesday, arguing that if “you close China from access to technology, that will also cost non-Chinese economies a lot of jobs and a lot of income.”While it will take a long time for China to build its own semiconductor equipment and technology due to a lack of access to foreign technology, eventually non-Chinese companies will be shut out of one of the largest chip markets, Wennink said.If American business with China on semiconductors is cut off completely, it will probably cost anywhere between $80 billion to $100 billion in sales and 125,000 jobs in the U.S., Wennink added, citing U.S. Commerce Department estimates.ASML, which has a de facto monopoly on advanced extreme ultraviolet lithography equipment needed to make cutting-edge chips, is a crucial supplier to Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., but it has plans to drive deeper into China. Beijing wants to build a world-class home-grown chip industry to wean itself off foreign imports -- an effort that would need ASML’s one-of-a-kind EUV machines. Yet the company faced difficulty getting the Dutch government to renew a license to export the systems to China amid ongoing trade tensions.Wennink said in January that ASML hasn’t shipped its latest EUV machines to China because the request for an export license is still with the Dutch government, adding that there have been ongoing talks between Dutch, the European and the U.S. governments.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- In the unfathomably fast realm of high-frequency trading, a South Korean startup’s plan to build a microchip that speeds markets up by a few microseconds is bound to get some attention.The company, Rebellions Inc., was set up six months ago in Seoul by Park Sunghyun, who used to work as a quant developer at Morgan Stanley in New York, with two partners. The chip they’re developing aims to run artificial intelligence more efficiently, which could cut precious millionths of a second off the reaction times of automatic-trading machines.That’s a bold claim in the absence of a completed prototype, but fitting for a company named Rebellions because Park wants to disrupt the industry like the French Revolution upended the European country more than two centuries ago.It could also be a big deal if it pans out. Such is the state of speed in financial markets after traders spent the past decade shaving milliseconds -- or thousandths of a second, an eternity compared with the time scale Rebellions operates in -- off their reaction times by constructing nearly light-speed wireless networks spanning continents and crossing oceans.Since those networks are bumping up against the limits of physics -- nothing in the universe, not even traders’ wireless signals, can go faster than the speed of light -- edges are being found elsewhere. That includes traders trying to coax their machines to process data faster, so orders can be placed quicker.“An AI chip could halve the microseconds needed to make the orders,” said Park, 37, the chief executive officer of Rebellions and holder of a Ph.D. from the Massachusetts Institute of Technology. “There are some companies that just continue to stick to the technology they are used to -- we want to change that.”Quicker AlgoThe technology Rebellions is developing is called an application-specific integrated circuit, or ASIC -- a chip designed to do a single thing well, as opposed to general purpose microprocessors like the ones Intel Corp. made famous. This focus could help the Rebellions product run traders’ algorithms more efficiently than alternatives.That’s the idea, anyway.Rebellions is on an “unlimited” hiring spree, aiming to quadruple its 20-person workforce by 2023, Park said. It has gotten 5.5 billion won ($4.9 million) of investments from firms including Kakao Ventures, which is part of messaging giant Kakao Corp., and Shinhan Capital Ltd., a subsidiary of one of Korea’s biggest financial holding companies.“There’s a lot of money in the market with rates so low,” said Park. “South Korea is home to chip giants like Samsung, and the age of artificial intelligence is coming -- it is the perfect time to do business.”Rebellions plans to have a prototype ready in the second half of the year. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, has agreed to begin making the ASICs in 2022. A few investment banks and quantitative trading firms are in talks to use them, Park said. He declined to identify them.Major Competition“Anything that reduces latencies and improves speed will be important and be adopted by the industry,” said Richard Repetto, an analyst at Piper Sandler & Co. in New York. However, with trading speeds already so fast, creating a faster chip “is just not the arms race it was before,” he added.Major traders have in the past taken steps to get microseconds faster. CME Group Inc. runs one of the world’s biggest exchanges out of a data center in Aurora, Illinois, a town near Chicago. DRW Holdings LLC, a big derivatives trader, about half a decade ago attached an antenna on a utility pole beside the CME facility, gaining something like a microsecond edge on competitors whose wireless rigs were on a tower further away.To catch up, another Chicago-based heavyweight, Jump Trading LLC, spent $14 million buying land across the street from the data center -- setting a new benchmark for the value of a microsecond in modern markets.Firms using the Rebellions ASIC could see “significant P&L improvement” from speeding up each trade, Park said, speaking from his experience as one of the operators behind Morgan Stanley’s trading machines for two years.High-speed trading is still in its early stages in Rebellions’ home country of South Korea. But, according to Larry Tabb, head of market structure research at Bloomberg Intelligence, in 2021 it’s accounted for as much as 57% of U.S. stock market volume, where high-frequency traders Citadel Securities and Virtu Financial Inc. are dominant.Park faces competition from other AI-focused ASICs. They include Google’s Tensor Processing Unit, a chip that helps power products like Gmail and Google Translate, and Groq Inc., founded by former members of Google’s TPU team. Intel acquired Habana Labs Ltd. in 2019 to boost its AI-chip prowess.Park is thinking big. After high-frequency trading, he wants to next create chips that speed up cloud services and enable autonomous driving.“Deep learning is going to be a mega trend, and we want to be ready before it comes,” said Park.(Updates with Park’s comments in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.