Will TSMC’s Q4 earnings bring back the bull for the semi-conductor sector?

The rise of AI and EV has fuelled demand for high-capacity chips as more smarter devices and services are expected for the next decade. While the global chip shortage throughout 2021 has also prompted significant changes to the industry’s landscape as soaring newcomers pour in from every corner. On top level, Chinese government has called chip independence a top national priority in its latest five-year plan to encourage more company to enter the crowed battlefield.

From the investors’ point of view, due to the expectation of tighter monetary policy, the semiconductor sector did not enjoy a great start for the New Year with most major US listed players recorded looses for the past four weeks.

However, Taiwan Semiconductor Manufacturing Co (TSMC) is one of the exceptions to demonstrate great resilience during the recent tech share’s crash with its share price posted a nearly 7% gain from early December.

The world’s top chip producer is expected to report its Q4 2021 earnings on Thursday, January 13, 2022, at 14:00 Taiwan time/1:00 Eastern Time. Will the upcoming earnings help the semi-conductor sectors to shrug off the recent clouds?

^{SOURCE: https://companiesmarketcap.com/semiconductors/largest-semiconductor-companies-by-market-cap}

What to expect for TSMC’s Q4 earnings?

TSMC’s third-quarter earnings report was a perfect beat from all the measures: Revenue increased 11.4% quarterly across all four growth platforms, including smartphone, HPC, IoT, and Automotive related applications. Net profits rose 14% from a year earlier, outperforming the estimating NT$149.42 billion by 4%. Earnings per share delivered a mouth-watering 16% jump to $1.08, another beat for the 4th straight quarter.

TSMC also continues to lead the market in terms of most advanced technology: 52% of total revenue comes from 7nanometer and below wafer. Currently, TSMC and Samsung are the only companies capable of producing the most advanced 5-nanometer chips that go into iPhones, while TSMC is one step ahead to plan on 3nm chip that is expected to start production from 2022.

^{Source : https://www.nasdaq.com/market-activity/stocks/tsm/earnings}

As the first semiconductor firm to kick off the Q4 earnings, TSMC is widely expected to present another A+ report to its shareholders and it looks unlikely that the market will be disappointed based on what we already know: according to monthly figures released by TSMC on January 10, revenue for the December quarter jumped 21% to NT$438.2 billion ($15.8 billion). That is above the company’s own forecast of $15.7 billion, also breaking its own record for the sixth consecutive quarter. In addition, gross margin is expected to move higher, around 53%, supported by the recent price rise.

^{Source: https://investor.tsmc.com/english/quarterly-results/2021/q3}

Recognized as the most valuable company in Asia, TSMC's hegemony over the semiconductor market is hardly challenged, considering that almost all the top industry giants such as Apple, Nvidia, and AMD highly rely on the chips from TSMC's factory. Moreover, Intel is expected to join that party in 2022, once TSMC's 3nm process is fully functional.

The Top Semiconductor Companies by Market Share

^{Source: https://www.visualcapitalist.com/top-10-semiconductor-companies-by-market-share/}

The only and the most crucial challenge that TSMC faces now is the capacity bottleneck to keep up with additional demand from the company like AMD, which is the leading customer for the 7nm wafers.

TSMC Technical Analysis

Boosted by the monthly revenue report early this week, the slide for TMSC’s share prices has come to a halt. The price is currently supported by the gap left from early this year in between $121 to $124, which if closed, might turn to a pressure level for the price to edge higher. However, the uplifting earnings report could introduce more buyers to bring the price toward the $127 level.

From the momentum perspective, RSI is nearing the neutral level around 50, together with the up-pointed moving average suggesting the primary trend will more likely to stay bullish.

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