Trump lays bare TSMC's inherent vulnerabilities
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add graphic.
By Robyn Mak
HONG KONG, July 17 (Reuters Breakingviews) -Taiwan Semiconductor Manufacturing 2330.TW may be one of the most dominant technology companies in the world, but it is also the most vulnerable.
In an interview published on Tuesday, U.S. presidential candidate Donald Trump said Taiwan took America's chip business and complained about the island's chipmakers taking subsidies to build new factories stateside. He wants Taipei to pay the U.S. for its defence too. For the island's $840 billion semiconductor giant, it's a brutal reminder of how Washington and Beijing can overshadow its fortunes.
Trump's comments mark a potential departure from the current administration's support for Taiwan, which China claims sovereignty over. Taipei counts Washington as its most important ally and arms supplier; President Joe Biden has even said he does not rule out using U.S. military force in the event of a Chinese invasion. Trump's blunt criticism that Taiwan does not give the U.S. anything and should buy protection comes at a delicate time. Since Taiwanese President Lai Ching-te, who Beijing sees as a separatist, took office in May, China has been ratcheting up pressure including sending near-daily air force missions close to island.
No wonder investors promptly wiped $23 billion off TSMC's market value, or nearly 3%, on Wednesday morning. True, that pales against the stock's surge by over three-quarters since the start of the year thanks to TSMC's dominance in making cutting-edge chips. But it spotlights a growing concern that the worsening Sino-American relationship is holding back the shares at a time when those of peers are enjoying a bigger artificial intelligence-related boom.
Analysts at Fubon Research estimate the company's AI revenue, including from manufacturing and packaging chips for Nvidia, will more than quadruple to $21 billion by 2025, making up a fifth of TSMC's top line. But even after this year's rally, TSMC trades at a multiple of less than 24 times its 12-month forecast earnings, up to one quarter lower than the multiple of the SOX semiconductor index comprised of 30 major chip companies, per Bernstein. And while TSMC's American Depositary Receipts rose to a record high this month, briefly surpassing $1 trillion in market capitalisation, its Taiwan-traded shares didn't hit the same mark.
Even if some of the former president's comments can be discounted as pre-election rhetoric, the reiteration of his enthusiasm for using tariffs and resentment for handing out subsidies ought to unnerve C.C. Wei. The TSMC boss is spearheading an ambitious global expansion, including building three factories in the United States to take advantage of the $6.6 billion in subsidies on offer to the company from Washington. Trump is adding considerably to uncertainty about TSMC's place in the world.
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CONTEXT NEWS
Taiwan Semiconductor Manufacturing shares fell more than 2% to T$1,030 ($31.60) during morning trading on July 17 following remarks from U.S. presidential candidate Donald Trump that Taiwan should pay the United States for defence.
"I know the people very well, respect them greatly. They did take about 100% of our chip business. I think, Taiwan should pay us for defence," Trump said in interview with Bloomberg Businessweek on June 25 but published on July 16.
"You know, we're no different than an insurance company. Taiwan doesn't give us anything," Trump said.
Graphic: AI hype has pushed up TSMC's stock https://reut.rs/3y0p4Ru
Editing by Una Galani and Aditya Srivastav
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