Headquartered in Hsinchu, Taiwan, the Taiwan Semiconductor Manufacturing Company Limited (TSM) manufactures and sells integrated circuits and semiconductor products. Its products are applied to personal computers and peripheral products, information applications, wired and wireless communication systems, industrial equipment, digital TVs, and others. In comparison, Himax Technologies, Inc. (HIMX) is a fabless semiconductor solution provider based in Tainan, Taiwan. The company manufactures display driver integrated circuits and timing controllers used in televisions, laptops, monitors, mobile phones, and other devices. It operates in the Driver IC and Non-driver products segments.

The COVID-19 pandemic led to a substantial demand-supply imbalance in the semiconductor chip industry. So, chip companies are investing in new facilities to increase their productivity to address the global shortage. According to the Semiconductor Industry Association, the semiconductor industry has announced nearly $80 billion in new investments in the United States through 2025.

The ever-growing use of chips in consumer electronics and electric vehicles (EVs) is further fueling demand. According to a Fortune Business Insights report, the global semiconductor industry is expected to grow at a 8.6% CAGR to $803.15 billion by 2028. Gokul Hariharan, a top semiconductor analyst at JPMorgan, is also bullish on the long-term prospects of the semiconductor industry. He said, “I think we are expecting it to grow maybe double-digit–15% to 20%–over the next three to five years.” TSM’s shares have declined 16% in price over the past year, while HIMX has declined 18.6%. In terms of year-to-date performance, TSM has lost 17.4%, while HIMX has declined 36.5%.

Click here to checkout our Semiconductor Industry Report for 2022

Which stock is a better buy now? Let’s find out.

Latest Developments

On Dec. 16, 2021, TSM announced its N4X process technology, which has been tailored to fulfill the workloads of high-performance computing (HPC) products. N4X is the first of its HPC-focused technology offerings, representing ultimate performance and maximum clock frequencies in the 5-nanometer family. TSMC’s Senior VP of Business Development, Kevin Zhang, said, “HPC is now TSMC’s fastest-growing business segment, and we are proud to introduce N4X, the first in the ‘X’ lineage of our extreme performance semiconductor technologies.”

On Jan. 14, 2022, HIMX introduced the industry’s first 288hz 8K TV TCON solution for the ultra-high-resolution 8K gaming TV market. It has collaborated with world-class TV panel makers to emerge as a leader in this rapidly growing gaming TV segment. HIMX’s President and CEO, Jordan Wu, said, “The successful introduction of 288hz 8K TV TCON demonstrates our leadership capabilities to answer what customers and the market crave. Himax will continue to push the envelope and drive innovation in display technology in support of our partners and customers.”

Recent Financial Results

TSM’s net sales increased 21.2% year-over-year to NT$438.18 billion ($15.37 billion) for the fourth quarter, ended Dec. 31, 2021. The company’s net income increased 16.4% year-over-year to NT$166.23 billion ($5.83 billion). Also, its EPS came in at NT$6.41, representing a  16.4% increase year-over-year.

HIMX’s revenues increased 63.8% year-over-year to $451.89 million for the fourth quarter, ended Dec. 31, 2021. Its profit attributable to its shareholders increased 318.7% year-over-year to $142.39 million. Also, its EPS came in at $0.815, representing a 317.9% increase year-over-year.

Past and Expected Financial Performance

TSM’s revenue and EPS have grown at CAGRs of 15.4% and 19.3%, respectively, over the past three years. Analysts expect TSM’s revenue to increase 28.2% in the current year and 16.6% next year. The company’s EPS is expected to grow 34.4% in the current quarter, 36.4% in the current year, and 13.3% next year. Furthermore,  its EPS is expected to grow at a rate of 20.2% per annum over the next five years.

In comparison,  HIMX’s revenue and EPS have grown at CAGRs of 28.8% and 296.7%, respectively, over the past three years. Analysts expect the company’s revenue to increase 11.2% in the current year and decline 3.6% next year. The company’s EPS is expected to grow 87.5% in the current quarter, 0.3% in the current year, and decline 16.5% next year.

Profitability

TSM’s trailing-12-month revenue is 36.92 times what HIMX generates. TSM’s gross profit margin and net income margin of 51.63% and 37.58%, respectively, are higher than HIMX’s 48.3% and 28.2%.

Furthermore, TSM’s 67.2% EBITDA margin is higher than HIMX’s 36.61%. Thus, TSM is more profitable.

Valuation

In terms of forward EV/Sales, TSM’s 7.12x is 634% higher than HIMX’s 0.97x. And TSM’s 7.35x forward Price/Sales  is 613.5% higher than HIMX’s 1.03x.

Thus, HIMX is more affordable here.

POWR Ratings

TSM has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. In contrast, HIMX has an overall C rating, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

TSM has a Quality grade of A. This is justified given TSM’s 52.87% trailing-12-month Capex/Sales, which is 2,226.5% higher than the 2.27% industry average. In comparison, HIMX has a Quality grade of C, which is in sync with its 0.49% trailing-12-month Capex/Sales, which is 78.4% lower than the 2.27% industry average.

TSM has a B grade for Stability, which is in sync with its 1.02 beta. In comparison, HIMX has a D grade for Stability, consistent with its 1.99 beta.

Among the 97 stocks in the B-rated Semiconductor & Wireless Chip industry, TSM is ranked #42. In comparison, HIMX is ranked #62.

Beyond what I have stated above, we have also rated the stocks for Growth, Value, Momentum, and Sentiment. Click here to view all the TSM ratings. Also, get all the HIMX ratings here.

The Winner

The semiconductor industry is expected to witness solid growth in the coming years with the gradual easing of the global chip shortage. So, both TSM and HIMX should benefit. However, we think it is better to bet on TSM now because of its higher profitability and robust financials.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

Click here to checkout our Semiconductor Industry Report for 2022

TSM shares were trading at $101.19 per share on Tuesday afternoon, up $1.89 (+1.90%). Year-to-date, TSM has declined -15.89%, versus a -10.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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