ChipmakerTaiwan Semiconductor (
) belongs to an elite club.
The stock has gained ground during this market correction,
even as the chip group has lost more than the indexes.
The S&P 500 has fallen about 8% since mid-September. The
semiconductor industry group has fallen 15%. Yet, Taiwan
Semiconductor is up 4% in the same period.
Why is the market avoiding chipmaker stocks while it cozies up
to Taiwan Semiconductor?
Earnings and revenue provide the simplest answer. Taiwan
Semiconductor reported Q3 earnings growth of 68% in Q3 on a 38%
revenue gain. Among the other 16 chipmaker stocks trading above
12 a share, none enjoyed a quarter even close to that sharp
In October, the strength continued. The world's biggest
contract chipmaker reported that sales in October jumped 32% from
the year-ago period.
Founder and CEO Morris Chang, who reclaimed the CEO role in
2009, said the company did better in Q3 than even management
expected. "We think the reason is the strength of mobile product
demand," he said at the Oct. 25 earnings call.
While demand for computers was soft in Q3, mobile devices
showed no slowdown, especially in China.
This played to Taiwan Semiconductor's strength. The company is
the foundry leader in mobile integrated circuits.
In the 28-nanometer space, Taiwan Semiconductor's revenue and
shipments more than doubled in the third quarter.
Tiny is boss in chips. Smaller chips are generally faster and
more power-efficient. As of late 2011, most high-end smartphones
were using 45-nanometer processors.
The move is on to 28-nanometer.
The 28-nanometer business made up 13% of Taiwan
Semiconductor's total wafer revenue in Q3, up from 7% in Q2. The
company expects 28-nanometer revenue will be more than 20% of
wafer revenue in Q4, and more than 30% in 2013.
Chang said he expects mobile products to fuel growth at Taiwan
Semiconductor "for a number of years," specifically 2013 to
The stock's annualized dividend yield is about 2.5%.