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Taiwan's TSMC Eclipses Samsung Electronics in Market Capitalization
TSMC's Corporate Value Surges
Taiwan's TSMC Eclipses Samsung Electronics in Market Capitalization
  • By Michael Herh
  • November 25, 2019, 10:45
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The market capitalization of TSMC has surpassed that of Samsung Electronics.

The market capitalization of TSMC, the world’s largest foundry company in Taiwan, has surpassed that of Samsung Electronics.

TSMC's market cap stood at about US$262 billion on Nov. 22, surpassing Samsung Electronics’ US$261 billion. TSMC’s corporate value has been rising sharply in the mobile and cloud computing era with stock prices more than doubling in three years. Samsung Electronics's corporate value has nearly doubled in three years, but has not surpassed its market cap of November 2017, the beginning of a semiconductor super cycle.

The rise in TSMC’s corporate value is closely related to changes in the global semiconductor ecosystem. TSMC manufactures semiconductors for Intel, Qualcomm, and Marvell. In particular, with the advent of the mobile era, high-performance, power-efficient application processors (APs) have become important. Therefore, a slew of orders has been given to TSMC as the company is able to mass produce optimized chips. TSMC's fabs allow for not only the latest but old generation processes. For example, high-end products such as Qualcomm's Snapdragon are produced in an under-10-nm micro-fabrication process and large microcontrollers are produced in old 14-nm to 28-nm generation process.

As demand for semiconductors is diversified into microcontrollers, computer CPUs, and AI accelerators, the number of TSMC’s customers is growing. In particular, TSMC is reducing its capital expenditures by improving the size and performance of chips while reusing designs used in old processes. TSMC is cutting down on cost by continuously improving old processes and creating a derivative process and most of its 12-nm processes currently in operation were created based on 16-nm processes.

TSMC's achievements are also attributed to the fact that the semiconductor ecosystem has been clearly divided into the foundry and fabless sectors in recent years, semiconductor industry insiders say. TSMC’s corporate customers typically entrust production of their chips based on the process characteristics announced by TSMC about one year before it starts volume production on the process. Design-oriented fabless companies can reduce their fixed costs by consigning semiconductor manufacturing to TSMC without the burden of factory operations and TSMC can make additional investments with stable profits by securing regular corporate customers.

Recently, demand for micro-fabrication processes using extreme ultraviolet (EUV) exposure equipment is on the rise, increasing TSMC’s presence in the world semiconductor industry. A few years ago, GlobalFoundries, Intel, Taiwan's UMC, and China's SMIC also showed not so small market shares. But TSMC is expanding its power as the burden of investment in micro-fabrication processes forced GlobalFoundries to give up a 7-nm process.

TSMC is also aggressive in investment. The company disclosed, immediately after announcing its third-quarter earnings, a plan to ramp up its investment to US$15 billion this year, a 50 percent increase from the previous year. The company has already completed a roadmap for a 3-nm process and expects to produce 2-nm semiconductors by 2024 by investing US$6.5 billion in process development. It also bought extreme ultraviolet (EUV) exposure equipment for an under-7-nm process.

TSMC also has many friendly partners. TSMC's exclusive production of Apple's APs is expected to boost sales when a 5G iPhone model is released next year. The company earned 49 percent of its total sales from the smartphone segment in the third quarter of this year thanks to strong sales of the iPhone 11, and demand for chips for 5G-based IoT devices is expected to rise. Chinese and Taiwanese companies including Huawei are backing TSMC as well. Chinese and Taiwanese companies have contributed 20 percent of TSMC’s sales this year, up 5 percentage points from the same period last year.

Samsung Electronics has a lower market cap than TSMC even though it has a well-organized portfolio such as home appliances, mobile and semiconductors. Samsung Electronics is trailing TSMC (49.2 percent) with an 18.0 percent share in the foundry sector, but the barrier of TSMC, which have secured a stable customer base for decades, is thick and strong. Samsung is making efforts to secure a technological lead by mass-producing system semiconductors through an EUV processe for the first time in the world. It has won orders for CPUs for IBM's mainframes which were given to GlobalFoundries. But it still needs some more time and efforts to overtake TSMC.