uploads///TSM_Revenue Breakdown

Oaktree Capital Ups Stake in Taiwan Semiconductor Manufacturing


Apr. 9 2015, Updated 4:06 p.m. ET

Oaktree Capital’s Holdings in Taiwan Semiconductor Manufacturing

Oaktree Capital increased its holdings in Taiwan Semiconductor Manufacturing (TSM) from 4,415,484 shares in 3Q14 to 4,887,784 shares in 4Q14. This is an 11% increase. The company formed 1.17% of the fund’s 4Q14 portfolio.

Taiwan Semiconductor Manufacturing is a 15.68% part of the VanEck Vectors Semiconductor ETF (SMH) and a 3.99% part of the iShares PHLX Semiconductor ETF (SOXX).

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Overview of Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing (TSM) is involved in the distribution, manufacturing, development, and research of products related to IC (integrated circuits). The company’s operations involve packaging components, wafer testing, mask production, and wafer manufacturing. Design services, customer services, and production management are also provided by TSMC, as the company is also known.

TSMC products are used in several consumer electronic products, industrial and automobile equipment, wireless and wired communication systems, personal computers, and peripherals.

As you can see in the graph below, communication applications dominated the company’s 4Q14 revenues.

Favorable outlook for growth

According to the company’s business overview report, the global market for semiconductors is expected to grow at an annual rate of 3% to 5% over the next five years. Taiwan Semiconductor Manufacturing is expected to significantly outgrow the market for semiconductors, as it has done over the past 25+ years since its founding.

The company has become the basic supplier of capacity and technology to the global semiconductor industry, specifically the high-growth segment. The company is on its way to completing highly competitive 10-nanometer technology, and it has already started developing 7-nanometer technology.

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Epistar to acquire 94% of TSMC Solid State Lighting

TSMC Solid State Lighting recently developed LED (light-emitting diode) lighting products using an innovative technology involving “Phosphor-on-Die (PoD) chip-scale packaging.” But, the products have struggled to become profitable owing to an oversupply of LED products in the market.

TSMC Solid State Lighting was also a late entrant. So, it faced difficulties in establishing sales channels sales and overcoming obstacles related to patents. Enter Epistar—the world’s largest manufacturer of “LED epitaxial wafers and dies.” It has patents that are recognized by major players in the industry as well as a broad array of global sales channels.

Epistar’s 94% acquisition of TSMC Solid State Lighting is believed to be a win-win situation for both players. The deal provides benefits to TSMC Solid State Lighting shareholders and gives Epistar an edge with respect to LED technology.

4Q14 financial highlights

Net 4Q14 revenue was $222.52 billion New Taiwan dollars (~$7.15 billion), an increase of 52.6% over 4Q13 and 6.4% over 3Q14. The company’s operating margin was 39.6%, 6.8% higher than in 4Q13 but 0.8% lower than in 3Q14. Strong demand for 20-nanometer wafers resulted in sequential revenue growth in 4Q14.

The DE (debt-to-equity) ratio for Taiwan Semiconductor Manufacturing is 0.2x, which is comparable to Intel’s (INTC) 0.2x but lower than Texas Instruments’ (TXN) 0.4x and Avago Technologies’ (AVGO) 1.5x.

In the next part of this series, we’ll look at Oaktree Capital’s reduced position in American International Group (AIG).


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