Sanford Bernstein’s Mark Li today reiterates an Outperform rating on contract chip maker Taiwan Semiconductor Manufacturing (TSM), and a $15 price target, in part one of a two-part report that he bills as an “in-depth analysis” of competition facing the company.
In particular, Li discusses the relative standing of TSM and Samsung Electronics (SSNLF) and privately held GlobalFoundries, the former manufacturing arm of Advanced Micro Devices (AMD), which was spun off in 2009.
TSM has a three-quarter lead on GlobalFoundries in producing chips with 28-nanometer feature sizes, concludes Li, and GlobalFoundries is experiencing delays in its roadmap for 20-nanometer feature sizes as well, he writes. He includes a handy-dandy chart purporting to show TSM’s lead, which I’ve included below. (If you can’t read all of the chart, you can download the graphic to your computer and view it more easily.)
TSM also “will be the first to offer a technology specifically tailored for high-end smartphones and tablets in the foundry industry,” writes Li.
In particular, TSMC leads the industry to offer a technology specifically tailored for mobile computing. The technology is called 28HPM and is getting very good traction in tablet and smartphone applications. GlobalFoundries, presumably Samsung as well since the two sharing technology, will offer a similar technology, 28LPH. This is an addition to its offerings as it was not in the roadmap announced in 2010. We estimate TSMC enjoys a lead of three quarters in this technology.
Li thinks TSM has an edge over the other two in that it develops no parts for itself but is a “pure play” contract manufacturing. Samsung services the Samsung chip business as well as its foundry customers, producing conflicts of interest.
“Samsung’s non-memory p! resence is bigger than many leading IC companies’ including nVidia’s (NVDA) & Marvell [Technology Group's (MRVL)]. Its competition with its customers is more substantial and direct than most people realize.”
Li writes that press reports focusing on Samsung and Global’s respective work for Apple (AAPL) and Advanced Micro Devices (AMD) give the mistaken impression that the two get more of the cutting-edge chip work than does TSM. He argues the opposite is true: “We think TSMC’s revenue from 45nm and below is about 4~5x of Samsung’s and GlobalFoundries’ revenue from the same technologies.”
Lastly, although TSM uses a semiconductor manufacturing process called “gate-last,” which is more complex than the other two, the semiconductor wafer yields are generally better than either Samsung or GlobalFoundries can achieve with “gate-first” technology.
TSM’s American Depository Receipts today are down 26 cents, or 2%, at $12.15.
- Bernstein’s Mark Li says Taiwan Semi has a several-quarter lead versus Samsung and GlobalFoundries in various chip manufacturing aspects.
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