Whether a consumer buys an Apple Inc iPhone, a Samsung Electronics Co Galaxy or a ZTE Corp (中興) Grand, one company benefits — Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).
TSMC gets US$7 in sales for every smartphone sold worldwide, according to chief executive officer Morris Chang (張忠謀), because it is the only company with the technology to make the chips used in the latest handsets.
That ubiquity let Hsinchu-based TSMC post the best risk-adjusted returns among the world’s top 20 chipmakers over the past three years, according to the Bloomberg Riskless Return Ranking. It also beat Apple, Samsung, Nokia Oyj and ZTE, the biggest smartphone makers.
Shares of the world’s largest contract maker of chips doubled over the period and had the lowest volatility as the company was unaffected by market share swings between smartphone makers that sold 722 million units last year.
TSMC’s size and financial strength means it can maintain a technology lead of at least 12 months over rival outsourcers United Microelectronics Corp (UMC, 聯電) and Globalfoundries Inc.
“As long as smartphones are growing, TSMC wins,” Jeffrey Toder, a Taipei-based Royal Bank of Scotland PLC analyst, said by phone. “TSMC is the single most dominant supplier across all products.”
He rates the company as “hold.”
TSMC makes chips designed by clients including Nvidia Corp, Qualcomm Inc, Texas Instruments Inc and Broadcom Corp. The components it produces include ones that let Apple’s iPhone and Samsung’s Galaxy devices control touch-screen displays and communicate with mobile networks.
The company’s grip also extends to tablet computers. It gets about US$11 from every unit sold worldwide, according to chief financial officer Lora Ho (何麗梅).
Global smartphone sales will probably rise 22 percent this year, with tablets climbing 41 percent to 172 million units, according to forecasts from Bloomberg Industries and IDC.
TSMC shares returned 4.7 percent when adjusting for volatility in the three years ended Monday. That’s ahead of California-based Apple, which posted an adjusted return of 4.2 percent and Samsung’s 3.7 percent.
Qualcomm, the second-best performing dedicated chipmaker, rose 3 percent on an adjusted basis. Intel Corp, the world’s biggest chipmaker, had a 0.3 percent return as it missed out on the growth in mobile devices.
While TSMC’s cumulative 105 percent gain over the three years trailed Apple’s 122 percent increase, it topped the ranking because its volatility of 22.1 was the lowest of all suppliers and smartphone makers surveyed. TSMC’s New York-listed American depositary receipts (ADRs) also posted lower volatility than Apple’s 28.9 score and Suwon, South Korea-based Samsung’s 30.5.
Its shares have advanced at more than six times the pace of the MSCI World Technology Hardware & Equipment Index over the past three years.
Still, the shares are not trading at a big premium compared to the index: TSMC’s shares have a price-to-earnings ratio of 16.2, compared with 14 for the MSCI World Technology Hardware & Index, according to data compiled by Bloomberg.
Since Apple’s founder Steve Jobs put the iPhone on sale in June 2007, TSMC has had an adjusted return of 2.9 percent.
That is the best performance among pure chipmakers, helped by the lowest volatility among all companies surveyed. Apple had a 6.9 percent adjusted return in the period and Samsung posted 5.2 percent.
TSMC’s annual net income rose 86 percent over the past three years because of surging demand for smartphones and tablets.
It forecast sales this quarter that surpassed analysts’ estimates.
“TSMC is now being viewed as a profitable growth company, whereas previously it was seen as just a profitable company,” Ho told Bloomberg News last month.