TSMC Overtakes Samsung Electronics in Market Cap Again

Taiwanese foundry company TSMC's market capitalization has exceeded that of Samsung Electronics again. Samsung Electronics' share price plunged nearly 20 percent in the past month due to concerns about a drop in semiconductor demand because of the COVID-19 outbreak, while TSMC succeeded in buttressing its stock price to some degree. TSMC enjoyed sales growth of 53,4 percent (US$3.1 billion) in February thanks to a steady increase in demand for system semiconductors such as application processors (APs).

Samsung Electronics' market value based on common stocks stood at 298.19 trillion won on March 13, which is equivalent to US$246 billion. On the other hand, TSMC's market cap hit US$249.7 billion on March 13. TSMC's market cap eclipsed that of Samsung Electronics by about US$ 3.7 billion. Last year, TSMC surpassed Samsung Electronics in market cap for the first time in 17 years since November 2002. However, Samsung Electronics' share price has since gained nearly 30 percent widening the gap with that of TSMC.

Some experts note that when Samsung Electronics' preferred stocks (US$28.9 billion) are included, its market cap outweighs that of TSMC. However, when comparing general market values, preferred stocks are often excluded.

In fact, Samsung Electronics ranked 18th in Bloomberg's list of global market cap leaders released earlier this year. The ranking was based on the market capitalization of Samsung Electronics' common stocks as of Jan. 9, 2020. Bloomberg excluded preferred stocks in counting market values. On the other hand, stocks of companies such as Berkshire Hathaway and Alphabet (the parent company of Google) are traded after being divided into A and B stocks, and market values are calculated by combining A and B stocks. These cases are different from that of Samsung Electronics as their stocks were listed after they were divided based on whether differential voting rights are included. On March 13, the price of Berkshire Hathaway A reached US$289,000 per share while that of Berkshire Hathaway B stood at only US$196.

TSMC could overtake Samsung Electronics in market cap due to a tough management environment surrounding Samsung Electronics. With the proliferation of 5G services this year, prices of DRAMs for mobile devices, servers, and PCs were expected to rise sharply, but the momentum has slowed down due to the novel coronavirus outbreak. TrendForce, a market research firm, has lowered the growth rate of DRAMs and NAND flashes this year by 10 percentage points, considering the impact of the epidemic. Some analysts forecast that the PC and mobile memory semiconductor markets, excluding the server memory market, will record a decline this year. A semiconductor market slump is directly related to a decline in Samsung Electronics' operating profit as the Korean tech giant’s semiconductor division accounted for more than a half of its total operating profits last year.

Another key business division of Samsung Electronics is the consumer electronics division. The division is also unlikely to post higher earnings than 2019 because sales of its key products such as 8K TVs are expected to fall short of expectations due to the possibility of a delay in the Tokyo Olympic Games scheduled for July this year. The smartphone division is also expected to see a decrease in sales due to slumps in emerging markets such as Brazil and Indonesia, which are highly dependent on crude oil exports, due to a recent drop in oil prices. Europe and the United States are also concerned about economic downturns and launch schedules for new smartphones are being delayed little by little, so demand for smartphones is likely to remain low in developed markets. Such declines in TV and smartphone demand also led to a decrease in sales of Samsung Display, which accounts for more than 80 percent of the mobile organic light emitting diode (OLED) panel market, leading to a decrease in Samsung Electronics’ overall sales.

TSMC, on the other hand, is ramping up its profits through its monopoly position in the foundry sector despite a negative impact from the novel coronavirus spread. In the case of DRAMs, Samsung Electronics occupies half of the entire DRAM market, but its DRAMs can be replaced by SK Hynix or Micron products. On the other hand, under-7 nanometer micro-fabrication processes can be implemented by TSMC and Samsung Electronics only and fabless companies such as Qualcomm, Nvidia, and HiSilicon are reluctant to outsource their semiconductor production to Samsung Electronics due to concerns about a leak of semiconductor design assets. This is the reason why TSMC can win against Samsung Electronics.

TSMC is widening its gap with Samsung Electronics. It is expected to begin mass production of 5-nm Apple and Qualcomm semiconductors next month. TSMC is leading a transition to micro-fabrication processes in the semiconductor industry with bold preemptive investments. It swept away UV exposure equipment from AMSL last year. TSMC has secured enough 5-nm product demand, and is also in the midst of developing a 3-nm process so the company is expected to further elevate its profits. According to TrendForce, TSMC' share of the foundry market in the fourth quarter of last year was 52.7 percent, which was about three times that of Samsung Electronics (17.8 percent) and the gap would be even greater when orders from the System LSI Division of Samsung Electronics are excluded.

“TSMC posted 1.7 trillion Taiwanese dollars (about 43 trillion won) in sales and 373 billion Taiwanese dollars (15 trillion won) in operating profit of last year, while Samsung Electronics 239.4 trillion won in sales and 27.77 trillion won in operating profit. The difference in their sizes is large,” said an official in the Korean business community. “In the sense that a stock price reflects the company's future value, investors’ concern about Samsung Electronics' growth potential, such as management risk, affected its stock price.”