As Intel (INTC) outlines its long-term plans for regaining its lost chip manufacturing technology lead -- or at least pull close to even -- Taiwan Semiconductor (TSM) is doing its best to hold onto its recently-won crown.
This week, TSMC, which is believed to have over half the chip contract manufacturing (foundry) market, said it has started volume production for the second manufacturing process to rely on its 7-nanometer (7nm) process node. Relative to its original 7nm process, known as N7, the new process, known as N7+, offers about a 10% improvement in power efficiency and a 20% improvement in transistor density. There's a good chance that Apple is using it to produce the A13 system-on-chip (SoC) expected to power this year's iPhones.
TSMC also says it's on track to start volume production for N5, the first process involving its next-gen, 5nm, process node, in Q1 of 2020. Relative to N7, N5 is expected to deliver an 80% improvement in transistor density, as well as a 15% improvement in processor clock speeds and a 20% improvement in power efficiency. The company is also pushing ahead with plans to start volume production for N6, a 6nm process that should be easy for customers using N7 to migrate to, by the end of 2020.
All of this has to be music to the ears of TSMC's blue-chip customers. This is a list that includes not only Apple, but also firms such as Nvidia (NVDA) , Qualcomm (QCOM) , Broadcom (AVGO) , AMD (AMD) , MediaTek and Xilinx (XLNX) .
Like many of its large customers, TSMC's shares have gotten a haircut in recent weeks amid a chip stock selloff. They now trade for 18 times a 2019 EPS consensus of $2.49, and 15 times a 2020 EPS consensus of $2.49.
That feels like a reasonable valuation in light of TSMC's customer list, dominant market position and current technology lead, as well as how it's poised to deliver moderate sales and earnings growth in future years as chip demand keeps growing across a number of big end-markets.