SINGAPORE – Employment pressure could face Taiwan Semiconductor Manufacturing Co. (TSMC) after the company announced plans for major capital expenditures this year, an analyst told CNBC.
After posting its fourth-highest earnings on Thursday, the world’s largest contract maker said it expected to spend between $ 25 billion to $ 28 billion in 2021 to make advanced chips.
That figure surprised Mehdi Hosseini, a senior analyst at Susquehanna Financial Group.
“We have been expecting a steady revenue management with a double-digit revenue growth target for the entire year. But it was the capex that surprised him and was far above the was expected, “Hosseini said on CNBC ‘s” Squawk Box Asia “Friday.
He said part of TSMC’s decision cites such a high figure for capital spending due to a greater competitive threat from Samsung’s chip-making furnace industry.
The potential value for TSMC’s planned capital spending this year lies in long-term growth opportunities, he said. “They are the best in the class, they have proven to us that they are the leading semiconductor manufacturer. But when you come up with this type of large capex, there are some understandable risks in my opinion,” said Hosseini.
He explained that there were two potential problems that plagued TSMC’s future employment. Initially, there seemed to be a greater impact from Samsung’s decision on TSMC’s decision. Hosseini said revenues related to capital costs allocated to deal with competition will not come until the end of 2022.
“This, combined with the fact that margins are coming down, suggests to me that employment is going to be under pressure,” Hosseini said.
The second problem is related to the diversification of TSMC’s revenue sources, according to the analyst. For a long time, the chipmaker’s revenue was driven by chipsets made for iPhones.
“Now that revenue is diversifying and cloud infrastructure is starting to make a big impact, it is extremely difficult to predict the contribution of cloud revenue, Hosseini said, adding that it increases volatility and profitability on future cloud-related revenue growth, which makes business planning more challenging.
Hosseini said its 12-month price target for the stock is 425 New Taiwan dollars ($ 15.18), about 28% lower than the stock closing price on Thursday.
For its part, TSMC said it expects growth for the first quarter in 2021 to be driven by demand for chipsets to support high-performance computing – the ability to process complex data and calculations at high speed – as well as getting past the car sector and quieter seasonal demand from smartphones than a few years ago.
Recently, Reuters also announced that US chipmaker Intel plans to tap into TSMC to make a unique second – generation graphics chip for PCs in a bid to help combat Nvidia ‘s rise. Companies including Intel, Nvidia, Qualcomm and Apple rely on Asian furnaces to make their chips. TSMC has more than half of the total market for contract manufacturing chips, including a strong grip on advanced chips.
Analysts have said chip prices are expected to recover in 2021 as demand improves due to a long-term need for remote work as well as the adoption of new technologies such as 5G and artificial intelligence.