Which Semiconductor Stock Leads the Pack in Earnings?
A company with the highest revenues may not be the most profitable company. Profits depend on several factors, including cost optimization, product mix, and ASP (average selling price). Samsung (SSNLF) has the largest revenue share in the mobile market, for instance, but Apple (AAPL) has the largest profit share in the mobile market.
A company’s EBIDTA (earnings before interest, tax, depreciation, and amortization) shows the profits earned by a company purely from its operating decisions. It excludes the impact of financial decisions such as debt and taxes and business decisions such as depreciation on assets. EBITDA makes profits of companies from different countries and different capital structures comparable.
Interested in TSM? Don't miss the next report.
Receive e-mail alerts for new research on TSM
Top five semiconductor stocks by EBITDA (in dollar terms)
In calendar 2Q17, Intel (INTC) was the most profitable semiconductor company, with a last-12-month EBITDA of $25 billion, followed by TSMC (TSM) at $20.9 billion, Micron (MU) at $9.9 billion, Broadcom (AVGO) at $9.5 billion, and Qualcomm (QCOM) at $8.2 billion.
Qualcomm’s profits were severely impacted by the licensing lawsuit with Apple (AAPL). In calendar 2Q17, Qualcomm’s operating profit fell by $1billion, as Apple did not pay licensing fee. If Apple wins the lawsuit, it will likely impact Qualcomm’s revenues and profits. However, Qualcomm is looking to avoid this by completing its acquisition of NXP Semiconductors (NXPI) by the end of 2017.
The top semiconductor stocks by EBITDA margin
A company’s operational efficiency is determined by its profit margins. The difference between the top five companies by EBITDA and by EBITDA margin shows that TSMC overtook Intel in terms of operational efficiency, likely because Intel spends 21% of its revenues on R&D (research and development), whereas TSMC spends only 7.5% of its revenue on R&D.
Texas Instruments ranks among the top companies by EBITDA margin because its cost of producing analog chips is low. All analog chip makers enjoy high margins, and Texas Instruments is the largest analog chipmaker in the world. Skyworks, another analog chip maker, is in a similar position.
NXP has a high EBITDA margin as it earns 45% of its revenues from automotive products, which command a higher price. Its rich product mix helps it earn higher profits, and higher profits lead to more cash.