TSMC 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. Although the request refers to 2019 Q4, this filing reports annual results; it does not provide a clear standalone fourth-quarter financial summary. Financial statements are prepared under IFRS as issued by the IASB and reported primarily in New Taiwan dollars (NT$). U.S. dollar amounts are convenience translations.
Business context
TSMC is a dedicated semiconductor foundry, manufacturing chips to customers’ designs, with a reported 52% share of the global foundry market in 2019. Wafer fabrication generated about 87% of revenue. The company commenced volume production of 7-nanometer Plus, entered risk production of 5-nanometer, and continued development of 3-nanometer technology.
Financial and operating metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Net revenue | NT$1,069,985 million (US$35,774 million) | NT$1,031,474 million | Up 3.7% |
| Gross profit / gross margin | NT$492,702 million / 46.0% | NT$497,874 million / 48.3% | Gross profit down 1.0%; margin down 2.3 percentage points |
| Operating income / operating margin | NT$372,701 million / 34.8% | NT$383,624 million / 37.2% | Operating income down 2.8%; margin down 2.4 percentage points |
| Net income | NT$354,027 million | NT$363,106 million | Down 2.5% |
| Net income attributable to parent shareholders | NT$353,948 million | NT$363,053 million | Down 2.5% |
| EPS / equivalent ADS EPS | NT$13.65 / NT$68.25 | NT$14.00 / NT$70.01 | Lower year over year |
| Operating cash flow | NT$615,139 million | NT$573,954 million | Up NT$41,185 million |
| Investing cash flow | NT$(458,802) million | NT$(314,269) million | Higher investment spending; capex was NT$460,422 million |
| Financing cash flow | NT$(269,639) million | NT$(245,124) million | Primarily dividends and bond repayments, partly offset by short-term borrowing |
| Cash and cash equivalents | NT$455,399 million | NT$577,815 million | Cash decreased NT$122,416 million |
| Total assets / total liabilities | NT$2,264,725 million / NT$650,338 million | NT$2,090,031 million / NT$428,926 million | Liabilities rose, including current liabilities |
| Short-term loans / bonds payable | NT$118,522 million / NT$56,900 million | NT$88,755 million / NT$91,800 million | Short-term loans increased; bonds declined |
Cash, cash equivalents and current marketable financial assets totaled NT$583,449 million at year-end, compared with NT$695,182 million a year earlier. Current assets were NT$822,614 million and current liabilities NT$598,364 million. Long-term bonds carried fixed rates of 1.35%–2.10%; short-term debt was floating-rate. TSMC said available liquidity and capital-market access should cover working capital, capex, debt service, dividends and other requirements for the next 12 months.
Material changes versus 2018
- Revenue growth reflected higher 7-nanometer demand, a favorable NT-dollar exchange-rate effect and a richer advanced-node mix; wafer shipments fell 6.4%, to about 10.1 million 12-inch-equivalent wafers from 10.8 million.
- Average selling price increased 6.9%, principally due to advanced-technology mix. 7-nanometer rose to 27% of wafer revenue from 9%; technologies at 16-nanometer and below reached 50% of wafer revenue from 41%.
- Lower capacity utilization weighed on gross margin. Annual billing utilization fell to 81% from 87%.
- Smartphone revenue increased 12% and IoT revenue increased 33%; high-performance-computing revenue declined 8%. China accounted for 20% of revenue, up from 17%, while North America accounted for 60%, down from 62%.
- Top ten customers represented approximately 71% of revenue, versus 68% in 2018. The largest customer accounted for 23%; the second-largest accounted for 14%.
- Capital expenditures increased to NT$460,422 million from NT$315,582 million, primarily for 7-nanometer and 5-nanometer capacity, advanced packaging, Fab 18 and technology R&D.
- Current liabilities increased to NT$598,364 million from NT$356,837 million; notable year-end balances included NT$129,652 million of cash dividends payable and NT$140,811 million payable to contractors and equipment suppliers.
Outlook, risks and unusual items
- Outlook: Management forecast 2020 capital expenditures of US$15–16 billion, subject to market conditions, focused chiefly on 5-nanometer and 3-nanometer capacity, advanced packaging, mask operations, Fab 18 and R&D. Funding was expected mainly from operating cash flow and partly from corporate bonds. TSMC expected 5-nanometer volume production in 2020 and planned continued significant R&D investment.
- Unusual operating items: A January 2019 unqualified-photoresist contamination issue led to an estimated NT$3,400 million charge to cost of revenue in Q1 2019. A 2018 computer-virus incident disrupted Taiwan production and resulted in a NT$2,596 million cost-of-revenue loss. TSMC also reversed NT$301 million of prior machinery impairment in 2019 after redeploying idle equipment.
- COVID-19: The filing, dated April 15, 2020, said results had not been materially affected as of that date, but warned of possible supply-chain interruptions, weaker demand, production delays and closures. Management said the pandemic’s eventual effects were uncertain.
- Key risks: Semiconductor cyclicality, demand and pricing pressure, fixed-cost utilization, customer concentration, technology execution and competition, equipment and materials availability, export controls and trade tensions, Taiwan geopolitical exposure, power and water constraints, natural disasters, cybersecurity, and foreign-exchange movements. Management estimated that a 1% U.S.-dollar depreciation against the NT dollar would reduce operating margin by about 0.4 percentage point based on 2019 results.
- Legal and contingencies: The European Commission’s preliminary inquiry into alleged anticompetitive semiconductor sales practices remained open; the filing said outcome and impact could not yet be predicted. TSMC and GlobalFoundries dismissed all litigation in October 2019. An Innovative Foundry Technologies dispute was also terminated and dismissed in October 2019. The filing reported no material off-balance-sheet arrangements.
- Accounting and audit: TSMC first applied IFRS 16 leases in 2019, recognizing NT$17,232 million of right-of-use assets at year-end; comparisons with 2018 are not fully on the same lease-accounting basis. The auditor issued an unqualified opinion on the financial statements, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How 2020 demand, capacity utilization and wafer shipments developed relative to the filing’s assumptions, and whether the planned US$15–16 billion capex was completed or revised.
- Whether margin pressure eased as advanced-node revenue grew, including the utilization and cost effects of 5-nanometer and 3-nanometer ramps.
- Customer concentration and exposure to export controls, trade restrictions and changes in major customers’ sourcing decisions.
- Cash generation, cash balances, near-term contractual payments and the funding mix for expansion and dividends.
- The financial and operational effects of the photoresist incident, COVID-19, and any subsequent developments in the European Commission inquiry.