Asia Tea Time - Cup 78 ☕

Author

Tim Phillips
October 20, 2024 • Estimated Reading Time: 6 minutes

This week I talk TSMC’s blowout earnings and why a certain cashback card could be worth considering. 

Macro in Asia

TSMC reports massive jump in profit on strong AI demand

The world’s top manufacturer of semiconductors – Taiwan Semiconductor Manufacturing Co (also known as TSMC) – reported a massive 54% jump in net profit for Q3 2024.

Its NT$325.1 billion (US$10.1 billion) in net profit for its latest quarter easily beat expectations, driven by demand for cutting-edge Artificial Intelligence (AI) chips.

Why it’s happening

  • The AI craze in the investment world had everyone watching TSMC’s results to see whether they were a sign of the good times continuing with other tech companies.

  • TSMC did not disappoint. Its net revenue soared 36% year-on-year to US$23.5 billion for Q3 2024 and this revenue figure was higher than the top end of what the company had projected it would bring in (when it forecast its Q3 sales in July).

  • TSMC’s New York-listed shares popped over 9% on the results – not too shabby for a company that is close to US$1 trillion in market cap.

Why it matters

  • As THE company that produces 90% of the world’s most advanced semiconductors, its results indicate what the demand for chips is like across the tech industry. Remember, TSMC’s biggest clients include the likes of Nvidia, Apple, and AMD.

  • One of the biggest companies in the semiconductor industry – ASML NV – reported some poor results earlier in the week. The maker of extreme ultraviolet (EUV) lithography machines, that are crucial for producing the most advanced chips, saw orders for its machines drop significantly – spooking investors in the process.

  • TSMC’s robust results suggest that investors aren’t done with the whole AI investment story.   

What’s next?

  • Investors will be looking towards Big Tech earnings, that will start in earnest in the next few weeks. Then it’s the turn of the one company markets obsess over – Nvidia – which is set to report on 20 November.

Tim’s Take 

  • TSMC responded to doubts over ASML’s poor showing earlier in the week with a shrug emoji. The chip giant’s results suggest all is good in the world of AI, at least on the demand side. 

  • The company is the leader in producing the world’s smallest, and most advanced, semiconductors. With its 3 nanometre (nm) chips – for context a strand of human DNA is 2.5nm) – the company is constantly pushing the boundaries of what’s possible in the semiconductor world.

  • As the company turbocharged its scale and pricing power in the 2010s, it has now left its competitors – like Intel Corp and Samsung Electronics – largely in the dust. TSMC’s gross margin of over 50% and free cash flow of US$5.75 billion in its latest quarter attest to its sheer size. 

  • It’s hard to see the likes of Intel, even with all the government backing from the US, come back to challenge TSMC’s dominance in the production of cutting-edge chips. Known as a “foundry” or “fab”, management at TSMC made the right decision early on to focus entirely on the process of producing chips rather than designing them.

  • Meanwhile, Intel tried to both design chips and produce them – doing neither very well. That’s resulted in a sinking stock price for the former tech champion in the US while TSMC shares have soared in the past 15 years or so.

  • TSMC’s New York-listed shares are up 116% over the past year and 307% in the past five years. Compare that to Intel’s shares, which are down 35% in the past year and have fallen 56% in the past five years.

  • Can the good times last, though? The geopolitical concerns (surrounding China) will always be there while TSMC is being pressured to build chip plants in more expensive countries, such as the US, Germany, and Japan. 

  • Longer term, that could hurt margins but in terms of another company coming close to matching TSMC’s scale and size, the company has no concerns.

Tim’s Money Tip of the Week

As I’ve said before, cashback cards can get a bad rep given their onerous spending requirements to get anywhere close to the headline rate the banks advertise. One exception to this rule is the DBS yuu Visa/American Express credit cards that allow you to earn a whopping 18% in yuu points.

While technically not “cash in your pocket”, the 18% credit is still cash value but it must be used at yuu merchants. These include the likes of Cold Storage, Giant, Guardian, Toastbox, 7-11, FoodPanda, and GoJek.

DBS has partnered with the yuu rewards programme to give cardholders of the DBS yuu card 5% cash back on any spend at these yuu merchants (in the form of yuu points). By spending a minimum of $600 in a calendar month at these merchants, you can actually get back $108 in yuu points – giving you an effective cash back rate of 18%.

That’s not exactly anything to turn your nose up at. But there’s more optionality now because yuu is also allowing cardholders to turn their credits into KrisFlyer miles at a rate of 3.5 yuu points to 1 KrisFlyer mile. Based on the points system and 18% cashback rate, that works out to 10 miles per dollar, by far the best effective rate on the market.

Of course, there are a couple of downsides to be aware of. First off, spending must be at yuu merchants to effectively earn that potential 18%/10mpd rate. Second, the minimum spend is $600 to reach the 18% but if you go way over (and say spend $800 at yuu merchants), you won’t be earning the 18% on that extra $200, instead just getting the customary 5% cashback. 

In other words, the 18% rate requires the minimum $600 spend but also caps out at that number. So, if you do spend $600 a month anyway at yuu merchants, then it’s definitely worth considering getting the card.

If you do get the DBS yuu card, use my referral code R457JPC0 when linking your card within the yuu app and you can get $10 worth of yuu points on your first spend. Happy shopping/cashback (miles) hunting!