Taiwan's new incentives allow chip companies to convert 25% of R&D expenses into tax credits
In December 2022, our AI analytics system recognized the stock TSM's profit potential in multiple time horizons giving subscribers advanced notice of the impending bullish run. Subscribers who bought TSM stock based on our AI stock prediction for the 3-month time frame on Dec. 22nd, 2022 would have yielded a profit of 21.42% on this single position. For reference, the SP 500 did just over 3% over the same time frame. Taiwan Semiconductor Manufacturing Company aka TSMC with the stock ticker TSM, situated in Hsinchu, Taiwan, is a prominent provider of sophisticated semiconductor manufacturing services, having made substantial contributions to the industry throughout the years. TSMC is one of the world's leading semiconductor firms, offering a diversified variety of products and services to a diverse range of clients, including tech titans such as Apple and Qualcomm. In essence, a client, such as Apple, develops a semiconductor (known as fabless design), and TSMC fabricates it. So, when Apple made headlines with its new M1 chip design, it outsourced production to TSMC.
Over the years, the company has developed numerous groundbreaking technologies that have helped to shape the semiconductor industry. TSMC has also been a leader in sustainability, and it has been recognized for its efforts to reduce its carbon footprint and promote sustainable business practices. The semiconductor industry is highly competitive and is constantly changing, which means that TSMC must constantly adapt in order to remain at the forefront. Additionally, TSMC has faced some difficulties with supply chain disruptions, which have impacted its production capabilities. However, it has proven to be highly resilient, and it has been able to navigate these challenges effectively.
Semiconductors are the building blocks of modern electronics, and they play a crucial role in enabling the development of many of the devices and technologies that we rely on in our daily lives. Semiconductors are essential components in a wide range of products, including smartphones, computers, and other consumer electronics, as well as in more advanced technologies such as artificial intelligence, the Internet of Things (IoT), and autonomous vehicles. They are responsible for performing critical functions such as processing, storing, and transmitting data, and they are key factors in determining the performance and capabilities of these devices.
TSMC's pioneering efforts in semiconductor technology have helped to shape the industry and to bring many of these advancements to market. The company has been a leader in developing cutting-edge technologies, such as advanced fabrication processes, new materials, and innovative device designs, which have helped to push the boundaries of what is possible in the field of semiconductors. One of TSMC's key strengths is its advanced fabrication processes, which allow it to produce smaller, more efficient chips with better performance than its competitors. This is accomplished through the use of cutting-edge technologies such as extreme ultraviolet (EUV) lithography, which allows TSMC to produce chips with finer features and more densely packed transistors, resulting in higher performance and lower power consumption.
Another factor contributing to TSMC's competitive advantage is its investment in research and development. The company invests heavily in developing new technologies and refining its fabrication processes, which helps it to stay ahead of the competition and maintain its leadership position in the industry. Furthermore, TSMC's focus on cost-effectiveness also helps to give it a competitive edge. By consistently improving its processes and making them more efficient, TSMC is able to offer its customers high-quality chips at a lower cost, which is an important consideration for many companies in the tech industry. Regarding real competition for technology, Samsung is the only other manufacturer making 3 nanometers (nm) or 5 nm chips, which even Intel cannot match. The more transistors these businesses can cram onto a compact chip, the more powerful the device. TSMC expects to invest more than $32 billion in the production of its breakthrough 3nm processors. As clients strive to upgrade their goods with faster processors, this is projected to remain its gold nugget for the foreseeable future.
TSMC 4Q22
On January 12th, 2023, TSMC announced its impressive financial results for the fourth quarter of 2022, with a consolidated revenue of $19.93 billion, a net income of NT$295.90 billion, and diluted earnings per share of NT$11.41. Despite the overall weak end market demand and inventory adjustments, TSMC saw a significant increase in their year-over-year revenue and net income by 42.8% and 78.0% respectively. Advanced technologies, including the production of 5 and 7-nanometer chips, accounted for the majority of the company's success, with 54% of total wafer revenue.
However, TSMC is anticipating a decline in its business performance in the first quarter of 2023 and is forecasting revenue of $16.7 billion to $17.5 billion. Despite this, the company is still expecting a lower but positive gross profit margin of 53.5% to 55.5% and an operating profit margin of 41.5% to 43.5%. To continue its success, TSMC plans to invest between $32 billion and $36 billion in 2023 for its capital budget.
Overall, TSMC demonstrated impressive financial results in the fourth quarter of 2022, and despite the anticipated slowdown in the first quarter of 2023, the company is still planning for future growth and success.
The Ever Looming "One China" Policy
The ongoing Taiwan-China dispute has had a significant impact on Taiwan Semiconductor Manufacturing Company (TSM) and has created uncertainty and potential risks for TSMC, which has significant operations in both countries. Taiwan and China have long been in a political and economic dispute, with Taiwan seeking greater independence from the mainland while China asserts its claim over the island. This has created significant tensions between the two countries and has raised concerns about the stability of the region.
In recent years, this dispute has become increasingly relevant to TSMC, as the company is heavily dependent on the Chinese market for its sales. TSMC supplies a significant portion of the chips used in products made in China, including electronics, smartphones, and computers. However, the ongoing tensions between Taiwan and China have raised concerns about the security of TSMC's supply chain and its ability to continue operating in China.
In response to these concerns, TSMC has taken steps to mitigate the risks posed by the Taiwan-China dispute. For example, the company has diversified its operations and is expanding into other markets, including the United States and Europe, to reduce its dependence on the Chinese market. It has also invested in research and development to develop new technologies and processes that can help it to remain competitive in the face of rising costs and increasing competition.
Despite these efforts, TSMC remains exposed to the risks posed by the Taiwan-China dispute, and the company's financial performance may be impacted if the situation worsens. However, TSMC's strong track record of innovation, cost-effectiveness, and excellent customer relationships suggest that it will be able to navigate these challenges and continue to thrive in the semiconductor industry.
Chip Shortage
The ongoing global chip shortage has had a significant impact on the electronics industry and the broader economy. The shortage has been caused by a combination of factors, including increased demand for electronics products due to the COVID-19 pandemic, production disruptions caused by the pandemic, and other supply chain issues.
The chip shortage has resulted in higher prices for electronic products, reduced production and sales for manufacturers, and longer wait times for consumers. The impact has been felt across a wide range of industries, including consumer electronics, automotive, and industrial equipment.
This also had a ripple effect throughout the economy, affecting the supply chain and reducing economic activity. For example, manufacturers have been forced to slow production or halt it altogether, which has reduced demand for raw materials and other components. This has reduced economic activity and jobs in industries that are dependent on the electronics industry.
The shortage has also put pressure on governments and businesses to invest in the semiconductor industry and increase production capacity. This has led to increased investment in research and development and the construction of new fabrication facilities, which will help to address the current shortage and ensure that the industry remains competitive in the future.
Tax Incentives for Chip Manufacturers
Taiwan has implemented a new set of tax incentives for chip manufacturers. These regulations, which are similar in nature to the incentives provided by the CHIPS Act in the United States, are set to take effect this year.
According to a report by Bloomberg, the newly enacted incentives in Taiwan allow local chip companies to convert 25% of their annual research and development expenses into tax credits. Additionally, these companies are also eligible to claim tax credits on 5% of the annual costs of purchasing new equipment for advanced process technologies. It is worth noting that the total amount of credits earned cannot exceed 50% of the firm's annual income tax obligation.
Another Successful TSM Stock Prediction
Subscribers who took advantage of the AI analytics stock prediction for TSM based on our 90-day stock forecast published on December 22nd successfully recorded a profit of 21.42%. You can improve decision-making, outcome modeling and forecasting, and market information by combining big data analytics with our AI-powered stock prediction system. The main advantage of using AI for stock market analysis is that it can examine more assets objectively and continuously at all times of the day guiding you on how to make a profit even when the markets are as bearish as they are these days.
Our subscribers get exclusive market insights based on artificial intelligence and are updated daily about the best market opportunities before they happen. When combined with machine learning, these incredibly intricate mathematical functions for statistical programming and modeling are capable of comparing their current coefficients and algorithms to newly added data and then adapting to improve the models' accuracy through a process of validation and reflection. Below is our stock pick from our 3-month stock prediction announcing TSM as a buy on December 2nd, 2022.
The Signal Confidence (SC) in this stock forecast is 73%. The AI-powered stock market analysis computes the Signal Confidence (SC), which is expressed as a percentage out of 100%, based on the historical accuracy of each previous financial asset prediction, as well as current market factors relevant to stock pricing. The AI stock prediction system analyzes empirical data on financial market irregularities linked to trader overreaction and underreaction to produce circadian forecasts in various frames. Every day, you will be updated with the best potential stock opportunities identified by AI that are offered from the short-term to longer-term time frames
This stock pick has been available in multiple forecasts continuously over various time frames. As a subscriber, when you view your forecasts published daily, you can recognize better opportunities by looking for repetition of certain stock picks repeatedly remaining in the AI forecasts. Another indicator is when you see the stock pick appear in multiple forecasted time frames, especially over multiple forecasts published each morning EST.
Stock Ticker | Open: Dec 22nd, 2022 | Close: March 22, 2023 | ROI% |
TSMC (TSM) | $76.28 | $92.62 | 21.42% |
Discretion should always be used when analyzing the market. Your own due diligence is always required and you should always get advice from a certified financial counselor prior to implementing any financial plans.
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Sources: 1. Bloomberg, "Taiwan Passes Its Chips Act, Offers Tax Credits to Chipmakers" (2023)
2. TSMC Investor Relations, "TSMC Reports Fourth Quarter
EPS of NT$11.41" (2023)
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