Pros and Cons of Investing in Taiwan Semiconductors

PHOTO CREDIT: Taiwan Semiconductors

OVERVIEW

Taiwan Semiconductors Manufacturing Limited is a company based in Taiwan. The company manufactures semiconductor chips mainly found in mobile devices and other electronics. The company operates foundries (manufacturing facilities where semiconductor products are made). The company was founded in 1987.

PROS:

1. Taiwan Semiconductors is a great reopening play in an investor’s portfolio. The company saw some headwinds caused by the pandemic, primarily shipping and parts shortages. Once this pandemic is over, the company will be able to normalize its operations, something that will also benefit investors.
2. The COVID-19 pandemic has also shifted consumer trends. Consumers have bought more devices (like phones, smartwatches, etc.), something that has increased the demand for semiconductor chips around the world. This acceleration in growth has benefited the company and its investors in the future.
3. The semiconductor industry continues to grow at strong double-digits (and sometimes even triple digits) year over year. This growth fueled by the transition to digital offerings in a modernizing economy has caused Taiwan Semiconductors to see a rise in demand for its services. This has also benefited investors in the company.
4. The company operates an extremely profitable business model. In the most recent financial year, the company has had a gross profit margin of over 50%, something that is better than Apple’s 42.5%. This strong profitable business model has benefited the company and its investors.
5. The company has reported rising revenues and profits over the past couple of financial years due to the reasons mentioned above. This has helped the company grow and expand its operations and business. This has also benefited investors in the company. In the financial year of 2020, the company reported revenues of 48 billion, higher than the 36 billion the company reported in the financial year of 2019.

PHOTO CREDIT: Yahoo Finance

CONS:

1. The company has reported rising revenues and profits over the past couple of financial years due to the reasons mentioned above. This has helped the company grow and expand its operations and business. This has also benefited investors in the company.
2. Geopolitical risks are some of the largest reasons to not invest in an otherwise great company like Taiwan Semiconductors. Taiwan has been heavily influenced by China which looks to aggressively and expand its territory. If China continues to pressure Taiwan, it might negatively impact the company’s stock price in the future

MY OPINION

I think that Taiwan Semiconductors is a great long-term investment option due to its position as a good reopening play, positive impacts from the pandemic, its position as a strong growth play, a profitable business model, as well as rising revenues and profits. However, tough competition and negative impacts from geopolitical risks might hurt the company and its investors.