Taiwan Semi (TSM) Q4 Earnings Beat On Strong Product Ramp Up

Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) reported fourth-quarter 2017 earnings of 64 cents per ADR, which exceeded the Zacks Consensus Estimate. Further, it increased 13% sequentially and 5% year over year.

Moreover, revenues increased 5.9% year over year and 10.1% sequentially. The increase was primarily driven by major mobile product launches and strong sales from cryptocurrency mining boom.

Notably, shares of Taiwan Semiconductor have returned approximately 50.4% in the past year, outperforming the industry’s growth of 45.6%.

Quarter Details

North America accounted for 67% of the total revenues. Asia Pacific, China, EMEA (Europe, Middle East, and Africa) and Japan accounted for 7%, 13%, 7%, and 6% of the total revenues, respectively.

By application, Communication, Industrial/Standard, Computer and Consumer increased 62%, 22%, 11% and 5%, respectively.

The 10-nanometer (nm) process technology contributed 10% of the total wafer revenues. The combined 16/20-nm contribution was 25% of the total wafer revenues. The 65-nm contribution was 10% of the total wafer revenues.

Margins

Per the press release, gross margin was 50%, up 10 basis points (bps) sequentially but down 230 bps from the year-ago quarter. The increase was due to a higher level of capacity utilization and inventory valuation adjustment, partially offset by margin dilution from higher 10nm contribution and an unfavorable exchange rate.

Operating margin was 39.2%, up 30 bps sequentially but down 270 bps year over year.

Balance Sheet

At the end of the fourth-quarter, cash and marketable securities were NT$649.4 billion compared with NT$501.8 billion at the end of third-quarter.

Cash flow from operating activities was NT$204.13 billion against NT$116.8 billion in the previous quarter. Capital expenditures amounted to $61.2 billion in the fourth quarter.

First Quarter Guidance

For first-quarter 2018, Taiwan Semi expects revenues to be in the range of $8.40-$8.50 billion.

The Zacks Consensus Estimate is pegged at $8.24 billion.

Gross margin is anticipated to be between 49.5% and 51.5%, while operating margin is expected to be in the range of 38-40%.

Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise

Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise | Taiwan Semiconductor Manufacturing Company Ltd. Quote

Zacks Rank & Stocks to Consider

Taiwan Semiconductor carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are PetMed Express, Inc. (NASDAQ:PETS) , SMART Global Holdings, Inc. (NASDAQ:SGH) and Applied Materials, Inc. (NASDAQ:AMAT) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for PetMed Express, SMART Global and Applied Materials is projected to be 10%, 15% and 12.7%, respectively.

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