TSMC’s new chips will leave Samsung in the dust

New chips are a gamechanger. Quarterly earnings at Taiwan’s semiconductor maker TSMC slumped 32 percent from a year earlier, to $2 billion. But cutting-edge technology means the $220 billion giant will benefit first as 5G handsets start to come into use. The company’s South Korean rival, Samsung Electronics, will struggle to catch up.

A tech slowdown has been painful for the world’s top contract chipmaker. Revenue in the three months to March fell 12 percent year-on-year. That’s largely due to shrinking global demand for smartphones, which accounted for nearly half of TSMC’s total revenue in the quarter. High fixed costs combined with a factory contamination incident earlier this year further weighed on earnings.

Even so, the company founded by Morris Chang is on track for an epic 5G windfall. Apple and rivals are all vying to launch the world’s first smartphone powered by the newest wireless technologies. These devices, though, will require faster and smaller processors that are getting more complex and expensive to make. Last year, California-based Global Foundaries dropped out of the costly race to manufacture so-called 7-nanometre chips, leaving only TSMC, Samsung and Intel battling it out.

The Taiwanese group is already far ahead. The company beat its competitors to debut the next generation chip in the market last year. The first mover advantage helped it secure orders from early adopters including Apple, Huawei and Qualcomm, analysts reckon. TSMC Chief Executive C.C. Wei in January estimated those semiconductors will bring in over a quarter of the company’s annual revenue this year, up from less than 10 percent in 2018. In contrast, Intel has delayed production, while Samsung’s own launch a few months after TSMC has barely dented the market leader’s dominance.

Shares of TSMC have rallied by a fifth over the past three months, and now trade at over 19 times forward earnings – well above the roughly 12 times at Samsung and Intel, Refinitiv shows. With TSMC having bested its rivals, the battle is shifting to the future of even smaller, denser processors where the South Korean giant is making strides. For now, though, TSMC’s 5G supremacy is unchallenged.

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