Pacific Crest Upgrades Taiwan Semiconductor Manufacturing (TSM) to Sector Weight
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Pacific Crest upgraded Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) from Underperform to Sector Weight. Analyst Michael McConnell sees balanced risk/reward and pointed out more favorable outlook for the company's gross margin, reduced competition, and share gains at the 10 nm node.
"Revenue of $8.20 billion (+20% q/q) was above consensus of $8.10 billion (+17% q/q), driven by stronger-than-expected smartphone demand. Gross margin of 50.7% was below consensus of 51.6% due to margin dilution from higher 16 nm mix and an unfavorable exchange rate, partially offset by an increase in the utilization rate and cost reductions. EPS of $0.59 was slightly above consensus of $0.58," said McConnell.
"We note that TSMC has missed its gross margin guidance for two of the past three quarters, likely due to pricing pressure from regaining Apple foundry share and lower 16 nm yields. As 16 nm yield has improved, we believe secular pressure on the company’s gross margin should be mitigated going forward. We note that TSMC expects 16 nm gross margin to reach the corporate average in 1Q17 and overall gross margin to be close to 50% in 2017," continued the analyst.
McConnell added, "We are upgrading TSM to Sector Weight from Underweight given a more favorable outlook for the company's gross margin, as well as reduced competition and share gains at the 10 nm node. We believe the risk/reward on the shares to be balanced."
Shares of Taiwan Semiconductor Manufacturing Co. Ltd. closed at $30.53 yesterday.
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