Kate Lin: Welcome to Morningstar. We think the oversupply in semiconductor chips is somewhat priced in and investor sentiment for Taiwanese chipmaking stocks have much improved from its October lows. Our analyst, Phelix Lee, is looking at what other upside potential could counter the excess supply and would be supportive of stocks like TSMC. He is with us today to share his view.
Hi, Phelix. In your investment thesis for TSMC you suggest that an upgrade in data centers globally could increase the adoption of advanced chips, which would benefit TSMC. Can you tell us more about it?
Phelix Lee: Hi, Kate. Sure. So, TSMC we expect it would benefit from a multiyear trend of chip upgrades, especially on the data center side, which we think would be the largest growth drivers for the company in the next couple of years. We think parts of this advanced chip upgrade are fueled by two main drivers. The first is performance, which is the computing power of such data centers to handle more and more data. The second is energy efficiency. So, even though chips are becoming more and more expensive, and we expect it to be even more expensive for the coming years, we believe customers will be still willing to take on these more expensive chips because the way that these chips save power in general. So, for example, we expect upcoming chips in 2023 would be about 25% to 30% more energy efficient compared to similar chips that are released back in 2020. So, I think, we believe that this kind of energy saving would translate into lower energy costs to customers over the lifecycle of the chip, which we would expect to be about five to eight years.
Lin: Right. So, riding on this energy saving theme, do you think it is going to play out in Apple because you've been closely following Apple's product launch every year?
Lee: Well, I think apart from data center chips, if we look at the consumer electronics side, a lot of these smartphones or personal gadgets have reached a point where additional performance would be less noticeable for consumers. So, one new direction of these gadget companies would be reducing the power consumption of their devices. So, we have long noted that battery life or energy consumption is a very important attribute which consumers value. And we believe that as chip technologies improve device makers are also able to roll out devices that can support a longer battery life of daily use, and this should drive the demand both for new devices and reduce the potential energy footprint of the supply chain as a whole.
Lin: So, both of these are very positive developments for foundries. But how much do you think it will help consume the excess inventory, and are there adjustments that you made on the original estimate of an oversupply by 2023?
Lee: Well, we would say, energy saving chips would be a long-term driver for the company, for TSMC and other foundries as well. But as for the excess inventories, because they are based on orders that are confirmed at least half a year ago, we think it would still take at least the upcoming quarter, the June quarter, in order to clear such inventories. So, we would look at the energy saving thesis more on a forward-looking perspective, namely a multi-year energy saving driver, rather than a catalyst that can speed up the consumption of excess inventories.
Lin: Wonderful. Thank you, Phelix. For Morningstar, I'm Kate Lin.
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