Forget about bitcoin. Cash Is TSMC's real future

[TAIPEI] If you're hung up on the potential upside (or pitfalls) of bitcoin mining for Taiwan Semiconductor Manufacturing Co, then you may be missing an even bigger story.

Cash.

Yup, good old cash. You remember the stuff; it's used for tipping bellhops, filling red envelopes and shoving under mattresses.

TSMC 2018 expected revenue growth of 10-15 per cent for TSMC, which makes chips for Apple and for bitcoin miners, is set to pull in cash by the bucket load. And you know what else cash is good for: dividends.

CFO Lora Ho told investors on Thursday that capex over the next few years will stay around the US$10.5 billion to US$11 billion level it hit in 2017. That's a heck of a lot of money. At the same time, the world's largest custom chipmaker expects revenue this year to climb about 10 to 15 per cent in US dollar terms, and rise an average of 5 to 10 per cent going forward.

In fact, TSMC expects the ratio of capex to revenue - known as capital intensity - to fall. I calculate that figure was 33.8 per cent last year, down from 34.7 per cent the year before. TSMC sees it declining in coming years, and ranging between 20 per cent and 30 per cent.

Flat spending and rising revenue mean one thing: more cash.

TSMC isn't the kind of outfit that invests in startups or plays the stock market. Chairman Morris Chang, who retires this year after 31 years at the helm, has created a company that's about as conservative as any when it comes to fiscal discipline. That's resulted in a huge pile of money sitting on its books, and only a whiff of debt.

In a way, that's a good thing. But for investors, it's probably getting a little out of hand, and certainly isn't an efficient way to manage a balance sheet. I suspect TSMC understands this and has been hearing from shareholders wanting a bit more back.

TSMC has already been doing that, having raised its dividend payout since 2015, but there's room for more.

With all the hullabaloo about revenue getting a bump from bitcoin mining chips, it's important to remember that such a surge is likely short term, and limited. TSMC's cash generation, on the other hand, has a long-term future.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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