Volatile stock to watch: Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM)

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Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM) stock rose 0.62% on January 16th, 2020 (Source: Google finance) after the company posted better-than-expected fourth quarter earnings, forecast an increase in near-term sales, amid a 5G-lead resurgence in global smartphone demand and raised its capex plan for the year. The fourth quarter business grew due to strong demand for high-end smartphones, initial 5G deployment and high-performance computing related applications using TSMC’s industry-leading 7-nanometer technology. Fourth quarter smartphone-related sales, rose 16% from last year, with north American sales comprising 59% of total revenues.

However, despite short term rally, the stock corrected over 0.7% on 17th January, 2020 (as of 10:52 am GMT-5 ; Source: Google finance). HPC grew 6% to account for 29%, IoT declined 4% to account for 8% and Automotive remained flat and accounted for 4%. Investor sentiment is expected get a further boost from a Phase 1 trade deal agreed recently between the United States and China that is anticipated to defuse their 18-month trade war, which has weighed on the global economy and the tech industry.

TSMC for the fourth quarter has reported the profits of T$116.035 billion ($3.88 billion), which is up 16.1% from the same period last year and beaten the Refinitiv-collected forecast of $T111.41 billion. The company had reported the adjusted revenue growth of 10.6 percent to $10.39 billion in the fourth quarter of FY 19, versus the company’s estimate of US$10.2 billion to US$10.3 billion and an average US$10.55 billion estimate from 21 analysts. Gross margin expanded 2.6% sequentially to 50.2%, due to a higher level of capacity utilization and continuous cost improvement, partially offset by an unfavorable foreign exchange rate.

Further, during the fourth quarter, the company has generated about TWD203 billion in cash from operations, incurred TWD170 billion in capex and distributed TWD52 billion for first quarter ’19 cash dividend. The company has also increased TWD36 billion in short-term loans for hedging purpose. Overall, the company’s cash balance has slightly increased TWD3 billion to TWD455 billion at the end of the quarter.

For the first quarter 2020, despite mobile product seasonality, the company expects the business to be supported by the continued ramp of 5G smartphones.

TSMC has raised its estimate for capital expenditure to US$15-16 billion for 2020, compared to an earlier forecast of a level similar to its estimated capex for 2019, which was US$14-15 billion. TSMC projects the global market for foundry chipmaking – contract chip manufacturing – to grow 17% this year, outstripping an 8% rise in the semiconductor market worldwide. Industry tracker IDC expects the global smartphone shipments to be 1.4 billion units in 2020, up 1.5% on year, which should bode well for chipmaker TSMC

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