TSMC announces record Capex

TSMC has published strong Q4-21 results, with growth in all reported endmarkets and especially in High Power Computing and Automotive. Both segments are expected to grow the fastest in FY22 and TSMC has announced that the shortage on edge technology would remain throughout the year. It has also announced an expected Capex plan of between $40-44bn for FY22! This tremendous increase will benefit our machine equipment producers ASML and ASMI.

The tightness in production is expected throughout FY22. Customer companies are expected to build up a larger inventory than last year, which should emphasize the tightness in the supply. Its most advanced nodes (7nm and below) now represent 50% of sales vs 40% last year with solid growth in 5nm chips. Sales are expected to grow at a mid-20 percentage this year. This impressive industry outperformance (foundry market expected to grow by mid-teens) comes at a cost of massive Capex.

Consensus stands at $35bn of Capex for 2022 and the previous guidance had indicated that TSMC was going to invest $100bn over three years. FY21 Capex amounted to $30bn, in-line with expectations. However, the guidance on FY22 Capex is for $40-44bn! – some 20% above the consensus at a mid-point. Of this Capex, 70-80% will be used on the most advanced technology: 5nm and below production facility.

For our IDMs (STM, Infineon, NXP), the tight supply that is expected to last throughout the year in foundries confirms our theory that the shortage will last into FY23. As these companies are cyclical, this is positive news as it suggests at least another year of strong pricing and operational maximization.

In addition, TSMC has confirmed that Auto should be one of the two main growth drivers for the year ahead. As more than 40% of sales come from Auto in the IDMs we cover, FY22 will be another strong growth year.

We are already bullish on Dutch WFE companies ASMI and ASML, and we expect this news to push the share prices closer to our targets. However, we have probably underestimated the growth potential of the IDMs under our coverage and especially STMicro which has released impressive preliminary sales figures for FY21.

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