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Wall Street Does NOT Know Semiconductors!

Wall Street Does NOT Know Semiconductors!
by Daniel Nenni on 01-20-2013 at 6:00 pm

 In my never ending quest to promote the fabless semiconductor ecosystem I cannot pass up a discouraging word about one of the oldest financial services companies. You can consult with me for $300 per hour to answer your questions about the semiconductor industry on the phone or you can buy me lunch and get it in person (lunch will probably cost you more). The people who hire me are usually financial types (hedge fund managers etc…) but I also get called by semiconductor companies for market strategies and such. SoCs are a popular topic now and things get busy when quarterly results come in for TSMC, Intel, and the fabless guys in the mobile market segment. The fun part is taking apart analyst reports like the recent one from Morgan Stanley about TSMC.

Since its founding in 1935, Morgan Stanley and its people have helped redefine the meaning of financial services. The firm has continually broken new ground in advising our clients on strategic transactions, in pioneering the global expansion of finance and capital markets, and in providing new opportunities for individual and institutional investors. Click below to see a timeline of Morgan Stanley’s growth, which parallels the history of modern finance.

To start, look at the Morgan Stanley Wikipedia page which lists controversies and lawsuits with fines in the hundreds of millions of dollars.

TSMC released Q4 2012 numbers during last week’s conference call. You can read the Seeking Alpha transcript HERE. I’m a big fan of the Seeking Alpha transcripts, reading is much better than listening, unfortunately the Seeking Alpha analysts don’t know semiconductor either but more on that later.

Per Morgan Stanley:

[LIST=1]

  • 28nm is surprising on the upside (DUH)
  • 28nm Margins above expectations (DUH)
  • 20nm node to be bigger than 28nm (WRONG)
  • TSMC 6.5% Q1 revenue drop (WRONG)

    Disclaimer: This information came from a phone call so it may not be 100% accurate but it has been repeated by other analysts so they are valid discussion points.

    Morgan Stanley and others were surprised at the TSMC Q4 financial numbers which they should not have been. As I blogged before, 28nm will be the most successful node we have seen in a long time (in all regards) and TSMC owns it, thus the high margins. To be fair, TSMC warned that Q4 could be soft but I blogged otherwise. TSMC is a conservative company and can certainly play the Wall Street game. On the other hand, I would rather see ACCURATE forecasts from analysts so we can do business without shortages, layoffs, and the other things that go along with bad business decisions.

    In what way will 20nm be bigger than 28nm? Compare the value proposition of 28nm and 40nm versus 20nm and 28nm in regards to price, performance, and power consumption. The value proposition of 20nm is less than half of 28nm meaning some companies will do limited tape-outs at 20nm, some are even skipping 20nm completely in favor of 14nm FinFETs which should ramp shortly after 20nm. Samsung, GLOBALFOUNDRIES, and TSMC will all use Gate-Last HKMG and have 20nm production simultaneously so heated competition will be a factor. TSMC has the advantage of being on their second generation of the Gate-Last HKMG experience since Samsung and GLOBALFOUNDRIES used Gate-First at 28nm which did not yield as well. Samsung has the “Brute Force” 20nm advantage with what seems like unlimited resources and fab capacity. Samsung is also an IDM with internal SoC/VLSI design experience. GLOBALFOUNDRIES has the advantage of being the designated second source foundry by companies like Qualcomm and other big fabless companies that see Samsung as a ruthless competitor. The GLOBAFOUNDRIES New York fab is 20nm so customers can keep their IP protected under American law.

    Bottom line: 20nm is a completely different game than 28nm so any comparison will be much more complicated, be very careful who you listen to, my opinion.

    Q1 will be like Q4, underestimated, but that is all part of the Wall Street game. There is no stopping the mobile market, 28nm owns mobile, TSMC owns 28nm, simple as that. Seeking Alpha is still perpetuating the Apple at TSMC 28nm misinformation and, in general, I’m not impressed at all with their semiconductor coverage. If you read them do a quick author look up on LinkedIn. If they don’t have a profile there is probably a good reason for it. If they do, look for at least some semiconductor experience before investing your hard earned money their way.

    Also read: TSMC Apple Rumors Debunked!


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