TSMC's (TSM) good-but-not-amazing Q2 outlook seems to be driving some profit-taking. But there's still a lot for investors in both TSMC and other chip companies to like within the foundry giant's Q1 report and earnings call commentary.
TSMC's Q1 revenue of $12.92 billion (up 25% annually) was already known via monthly sales reports. And Q2 sales guidance of $12.9 billion to $13.2 billion was only moderately above a $12.96 billion consensus at its midpoint. TSMC indicated a seasonal drop in smartphone-related chip sales will partly offset strength in "high-performance computing" (used by TSMC as a catch-all term to cover a variety of processors going into homes, offices and data centers, including the ones it makes for AMD (AMD) and Nvidia (NVDA) ).
But TSMC also guided on its call for full-year revenue to be up about 20% in dollars, and for full-year global chip sales (excluding memory) to be up 12%. That's up from January guidance for mid-teens TSMC revenue growth and 8% chip sales growth, respectively.
Also: In what's both music to chip equipment makers' ears and another sign that industry demand is expected to remain strong through year's end, TSMC hiked its 2021 capex guidance to $30 billion from an already steep $25 billion to $28 billion. For comparison, TSMC spent a relatively modest $17.2 billion on capex in 2020 and just $10.5 billion on capex in 2018.
The guidance comes two weeks after TSMC said it would spend $100 billion on capex and R&D from 2021 to 2023. With 80% of TSMC's 2021 capex set to involve advanced manufacturing process nodes, such as its current 5nm and 7nm nodes and its next-gen 3nm node, its capex plans arguably say a lot about the demand that it expects over the next couple of years from major advanced-node clients such as Apple (AAPL) , AMD, Nvidia, Qualcomm (QCOM) and MediaTek.
Intel (INTC) is also probably factoring into TSMC's capex plans some. Though Intel unveiled plans to re-enter the foundry market -- and invest heavily to do so -- last month, the company also said it would rely on TSMC to help launch some of the advanced PC and server CPUs it plans to roll out in 2023.
Meanwhile, much like many other chip manufacturers, TSMC suggested the supply constraints it's seeing for mature process nodes -- driven in large part by automotive demand -- won't be eliminated soon. Indeed, CEO C.C. Wei indicated that TSMC's mature-process supply constraints might not go away until 2023. This fits with what rival GlobalFoundries, which focuses on mature and specialty processes, shared about its own supply constraints two weeks ago.
Overall, as dozens of chip industry names get set to report over the next few weeks, TSMC's guidance and commentary don't do anything to temper hopes that chip demand will on the whole remain strong for the rest of 2021, and quite possibly longer.
With the Philadelphia Semiconductor Index up 17% year-to-date and 98% over the last 12 months, a lot of this optimism has already been priced into chip stocks. And one can't forget that chip stocks typically peak before a boom cycle reaches its end.
But I think there's still value to be found here and there. For example, memory makers Micron (MU) and Western Digital (WDC) still don't look expensive given industry supply, demand and pricing trends, and certain chip equipment makers still look reasonably-priced given how much TSMC, Intel and others are set to invest over the next two to three years.
And for that matter, TSMC, which currently trades for 25 times a 2022 EPS consensus that looks beatable, might be worth a look if it pulls back a little more, given its market position, process technology leadership and near and intermediate-term growth drivers.
