My last newsletter covered some of the companies shaping the #AI chip market for premium subs.

I walk through what the main players are doing and the advantages of their approach.

The article covers both public and emerging private companies. Enjoy!

We are excited to announce that event registration for the FinTwit Summit is now open! You can access the event registration page by clicking here. Early birds get discount prices. I will note here, that @dhaval_kotecha and I will not be making a single dollar from the event. All proceeds are used to fund the event, the remainder will be donated to St. Jude Children's Research Hospital.

The event will occur over two days, the weekend of March 20-21. The speaker lineup is nothing short of incredible. The keynote speaker is the great Morgan Housel! Our speakers include:

Brian Feroldi

Simon Erickson

Peter Offringa (Software Stack Investing)

Daniel Sparks

Stock Novice

Ophir Gottlieb

Ram Bhupatiraju

Borrowed Ideas

Kris (From Growth to Value)

Muji

Ryan Reeves

Richard Chu

Beth Kindig

Last, but certainly not least. Our anchor sponsor for the event is our very own CommonStock!!! This event would not be possible without our fearless leader @mcd! !

I hope you all sign up and enjoy the event! Please message me with any questions.

I'm going to make this quick, but more than happy to answer any specific questions in the comments or Semiconductor group chat.

This product heat map from VLSI research provides insights into the S/D imbalance in the microchip market by different industry vertical.

Given the weakening in order flow around the middle of 2020, the bull case would be slack appearing in Q1 2021. But that assumes no additional demand... this will most likely continue throughout much of 2021 given the existing light inventory levels.

Note - pricing is on the rise, which should help the situation (and improve short-term profitability throughout the value chain).

I can't overemphasize the tailwinds the industry has. And there is value to be had across the food chain. I love some of the WFE companies ($AMAT $LRCX $KLIC) and even more so, the memory-based companies given 30% expected growth in DRAM with compressed supply ($MU / SK Hynix / Samsung).

I am way too lazy, so I am just going to link to what I just posted on Twitter.

Jim Keller is maybe the greatest mind in semiconductor history - his investment and subsequent joining of the Tenstorrent team is almost all I need to know.

Thank you everyone who organized and participated tonight. That was a lot of fun and I enjoy learning from you all 🙌

Looking forward to the next one and I recommend that everyone checks it out!

I forgot to post this last week when I sent out a newsletter article covering $TSM Q4 2020 earnings results. While I am not a buyer at these levels (17% above its 10 WMA), the roadmap for TSMs dominance into the future is quite clear.

You can read the full post on either:

To conclude - I am sure most of you have heard about the current chip shortage. Guess what this will do for industry pricing? Yes, it will go higher. TSMC's pricing power is remarkable and will only be augmented by the current shortage.

I posted this in the AI group but wanted to share with the broader community. A couple of weeks back I published the final part of my series / primer on Artificial Intelligence.

The first three parts dove into the details and sub-components of Artificial Intelligence. However, when I tried to understand the impact AI had on a company's value, I couldn't find any sort of system for doing so online.

So, (with the huge assist from our own @tyler) I developed an analytical framework for determining if and how much of a competitive advantage a company has from its usage of AI. I laid out this framework in the final part of my series on AI.

You can read the article on my website or my substack.

You can sign up for the newsletter here.

I hope you all enjoy and it is helpful in your investment process.

$TSM: Fueling the Future of Computing

Taiwan Semiconductor Mfg. Co. (TSMC) has become the leading manufacturer (fab) of semiconductor chips by capitalizing on a series of egregious missteps at $INTC

This is not a buy rec, but rather info for when it's actionable

A thread👇

1/ The Basics

The first "pure-play" foundry -> enabled the rise of the "fabless" (i.e. design-only) industry

A foundry ("Fab") manufactures microchips (integrated circuits "IC") for customers such as fabless chip companies.

Fab only = sole focus on better process technologies

Image

2/ First Mover

The leader in chip mfg. is the fab that can get to the next “process node” first

Process Node (“Tech”): Used to indicate feature size of transistor - > now marketing tool for chip generation

As @gavinsbaker wrote in Jan '19, TSMC passed INTC at the 7nm node

3/ Market Overview

All electronics = powered by semis

3 Types of Companies:

Integrated Device Mfgs. (“IDM”): $INTC, KOSE: A005930, $TXN, $MU

Fabless: $NVDA, $AMD, $QCOM, $AVGO

Fabs: $TSM, $UMC, $SMICY, GF

Market Size: Semis power all electronics…

4/ Technology Advantage

Tech dominance while other foundries can’t keep up (GF dropped out at 7nm)

Tech advantage -> customer additions ($AMD from GF)

1) 5nm already in production

2) Specialty tech (5G)

3) Advanced Packaging

TSM: 52% market share

Manu leader + Ecosystem

5/ Technology Platforms

Automotive Electronics: IP ecosystem & RF tech driven by autonomous & EV

High Performance Computing: Cloud datacenters and communication infrastructures

IoT: Fueled by wearables, smart homes / cities / industries

Smartphone: Mobile proliferation

6/ Q4 2020 Financial Results

Accelerating Rev growth YoY: 16%, 22%, 24.2%

Expanding EBIT %: 35%, 37.7%, 40%, 41.3%

2x FCF YoY

Accelerating EPS Growth YoY: 24.2%, 43.5%, 49.2%

ROA: 10.7%, 12.1%, 13.1%, 14%

ROE: 20.9%, 23.4%, 27.8%, 29.1%

7/ Capital Expenditures

2021 Guidance: $25B-$28B vs. 7B in 2020 (47% - 65% YoY Increase)

LT Capital Intensity: mid-30%

Accelerates CapEx spend to prep for higher growth

2021 Capital Intensity est.: ~48.5%

On conf. call: to support expected higher Revenue CAGR next 5 years

8/ Revenue Composition

5nm shipments accelerated in Q4 – now 20% of Rev

Advanced Tech (< 16nm tech) = 62% vs. 56% Q4 2019

Smartphone continues to dominate

Main HPB growth areas: CPU, networking & AI accelerator

HPC - main growth driver

9/ Next Step: N3

2021 Rev Driver = HPC & Auto

HPC: “We see a stronger innovation is coming our way on N3 as well as on N5.”

N3: Volume production 2H 2022

N3: 70% logic density gain, up to 15% performance gain & up to 30% power reduction vs. N5 (175MM transistors / mm^2)

10/ Future R&D Leadership

3nm logic tech platform & apps (2021): 6th gen 3D platform

Beyond 3nm by 2023 – 2nm in pipeline

Projects: Beyond-2nm node, 3D transistors, new memory, etc.

Focus: novel materials, processes, devices, nanowires & memories (+8-10 yrs away)

11/ Conclusion

$TSM is fueling the world of ubiquitous computing and interconnected devices

Has overtaken $INTC in mfg. leadership -> economic benefits

Positioned to benefit and capitalize on hyper-growth trends: AI / autonomous driving, 5G, IoT

12/ Resources

@gavinsbaker on INTC: https://gavin-baker.medium.com/investing-mistakes-chapter-1001-9f0b7dbc6637

Anything written by @foolallthetime (Twitter)

$TSM R&D: https://www.tsmc.com/english/dedicatedFoundry/technology/future_rd

TSMC 2020 Q4 Quarterly Results -

Today I sent out the 2nd half of my investment research process. Still a lot to learn but hope some of it is helpful for you.

I discuss how I analyze management & financials, build a model & valuation, then pitch the stock.

You can read the post here.

I covered the first part of my process last week here.

You can view the entire post on my website.

I would love to hear your feedback. Is this overkill? Am I not doing enough? How would you improve it?

Stay ever vigilant and diligent!

This week's edition of the SCM Newsletter features Part I of my investment research process. Over this week and next I will provide insight into the process I have developed for myself - everything from idea generation to "the Pitch".

You can read the article here: https://seifelcapital.substack.com/p/scm-investment-research-process-part?r=8g8ag&utm_campaign=post&utm_medium=web&utm_source=copy

If you haven't already, you can sign up for my newsletter here: https://seifelcapital.substack.com/

I will be maintaining all newsletters, along with a lot of other content, on my website: http://seifelcapital.com

I hope you all enjoy and find this helpful - looking forward to feedback!