tmcs - print - nyupages.stern.nyu.edu/~iag/presentations/2006-2007/tms.pdf · • the semiconductor...
TRANSCRIPT
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Agenda
• Brief EVA explanation• A Semi what?!!!!!• Business Model• Management• Competition• Risks• Q and A
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What?! EVA?! The airline?!• EVA stands for Economic Value Added.• This is also known as Economic Profit.• While growth is an important driver to bottom line profit,
cost efficiency is another driver to bottom line profit.• This presentation is geared towards an EVA valuation,
as such we will be examining management style
Goal: to present a way to value a company without looking solely at growth numbers.
EVA driven points:
Remember: EVA looks at management style and efficiency!
• This important distinction of cost efficiency is important to understanding how TSM is undervalued.
• In theory, Discounted Cash Flow Valuation and EVA should equal each other. Though we all know we don’t live in a theoretical world.
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EVA Formula
EVA = IC *(ROIC-WACC)
• EVA = Economic Value Added• IC = Invested Capital• ROIC = Return on Invested Capital• WACC = Weighted Average Cost of Capital
What is a semiconductor?
• -Semi: half; partial; incomplete; having some of the characteristics of
• Conductor: one that conducts
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Science for Idiots!Business Students
+ -
The glass is half full!
The glass is half empty...
And the water’s poisoned
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What is a Semiconductor?
• Electrical conductance is more than a conductor and less than an insulator
• Electrical conductance decreases with temperature
• Allows for precise control of flow of electricity
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How it’s made
• Pure silicon• Doping• Phosphorus or arsenic to produce N-Type• Boron or Gallium to produce P-Type
• Process takes 6-8 weeks• Ingot sliced into wafers about .75mm thick
What Next?
• Transistor
• Chips
• Light emitting diode
• Solar Panels
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What are semiconductors used in?
• Computers• TVs• Digital Cameras• Almost anything that uses electricity
What TSM does• Make semiconductors• Used in
– Computers and peripherals– Information appliances– Wired and wireless communications systems– Automotive and industrial equipment– Consumer electronics
• DVDs• Digital TVs• Game consoles• Digital cameras
• Other– Photo-Masks– Packing– Testing– Design
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Customers• Altera Corporation• ATI Technologies Inc.• Broadcom Corporation• Marvell Semiconductor Inc.• nVIDIA Corporation• Qualcomm Inc.• VIA Technologies Inc. • Analog Devices, Inc.• Freescale Semiconductor Inc.• Philips
New Technologies• Mixed-Signal / Radio Frequency Technology
– Combine wireless frequencies• Silicon Germanium BiCMOS Technology
– High performance power amplifier• 0.13μm CMOS Image Sensor Technology
– >3 Megapixel cameras• Embedded High Density Memory Technology
– Storage (HD)• Flash / Embedded Flash Technology
– To be used in automobile industry• Mask Technology
– Photolithography
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Semiconductor Industry Growth Forecast
• The semiconductor market is forecasted to continue growing in 2007 with the consensus forecast close to 10%.
• Industry analysts forecast that by 2010, 30% of global semiconductor revenue will come from dedicated foundries, as compared to 18% in 2005.
• TSMC plans to continue capacity expansion in the year 2006, with capital investment of approximately US$2.6 billion to US$2.8 billion.
Supply Chain
• TSM has roughly 15 various suppliers to provide materials for them.
• Supplies are: Wafers, chemicals, gases, and photoresist
• Their main five suppliers primarily supply them with Wafers
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Supply Chain
• Their five wafer suppliers provide roughly 85% of the world’s wafer supply.– Since wafers account for the majority of their
raw supplies, its important they have great relationships with them.
• Also, silicon is very plentiful and the purification, while costly, will not diminish.
Margins
• They have roughly 35% EBITDA Margin in 2005, trend is expected to continue into 2006.
• They also have roughly 33.4% net income margin in 2005.
• They also pay on average 10% in taxes!
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Innovation• Have created the 65 nanometer wafer for placing into
GPU’s (Graphics processing unit)• Leading in capacity utilization, coming close to roughly
100% utilization of all factories.• Industry Turnover is: 45 Days. TSM’s industry turnover
is 37 Days• Make use of cluster factories to maximize output.
– By placing factories next to each other, specialization of factories can occur.
– This minimizes cost per factory and maximizes value!
Management!!!!!!!!!• Awards they’ve won:
– Most admired company in Taiwan (source: Commonwealth Magazine)
– Best Managed Company in Taiwan (Source: Asiamoney)
• They Spend roughly 10% of their sales on R and D expenditures.– This has yielded roughly 800 patents, which
translates to a little over $500,000 per patent.
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A Non EVA point?!• Average growth roughly 20% over the last four years!
• While industry is cyclical in nature, a well diversified and strong customer base hedge a lot of the cyclicality.– Only ATi accounts for over 10% of its revenue.– With over 500 corporate customers, they have a fairly
well diversified customer base to prevent a slowdown in specific industries.
Semiconductor IC Market
United Microelectron12%
Amkor Technology9%
Marvell Tech Group7%
Agere Systems Inc.6%
Fairchild Semi Intl6%
Semiconductor MFG In5%
MEMC Electronic MTRL5%
Intl Rectifier4%
Conexant Systems3%
Taiwan Semiconductor35%
Others8%
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Competition• UMC, 3.3bn• Amkor 2.5bn• Marvell 1.7bn
• Compared to TSMC at 9.3bn
Competition - UMC
• Located in Taiwan• Similar product offerings as TSMC• Operations not as efficient• Has experienced losses
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Competition - Amkor
• Based in US• Primarily in Assembly and Testing• Poor historical profitability
Competition - Marvell
• Based in US• Many developed product offerings• Restating financials• Currently in a class-action suit
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Competition
• TSMC is in all stages of semiconductor production
• TSMC produces both semiconductors as well as developed chipsets
• The competition is much less profitable• The competition is also smaller
Country Risk Factors
• Risk of Chinese Invasion and Missiles– Economic integration across Taiwanese Strait– Preferential treatment for Taiwanese business
• Political Instability– Economy remained robust after insider
trading scandal– President has 5.8% approval rating; i.e. things
can only get better– Government owns major holding in TSMC
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Conclusion
• TSM is strong fundamentally and financially
• Country risk is minimal• Room for future growth
Questions?