Taiwan Semiconductor to Build $3B Wafer Plant in China

Taiwan Semiconductor Manufacturing Company Limited TSM recently signed an agreement with the Nanjing City Government to build an advanced wafer manufacturing facility in China.

In this regard, Taiwan Semiconductor plans to invest $3 billion. The new wafer manufacturing facility is expected to add 20,000 12-inch wafers every month, beginning the second half of 2018.

This initiative is part of the company's goal to expand its operations in China which was restricted for a long time due to the political tension between the two countries.

China represents the largest and fastest growing market for U.S. semiconductors. According to the International Trade Administration ("ITA"), China represents 27% of the world's floor space for semiconductor packaging and testing.

Also, China offers several tax benefits to ensure a conductive environment for fab construction. Many semiconductor companies, such as Intel Inc. INTC and Samsung, have announced plans to build fabs in China. This could result in the country's spending on fab equipment to rise 9.1% year over year to $5.3 billion in 2016 according to Semiconductor Equipment and Materials International ("SEMI").

As China's chip consumption is the largest in the world — more than 50% — the semiconductor giants are looking toward this growing market.

According to Taiwan Semiconductor's Chairman, Morris Chang, "With our 12-inch fab and our design service center in Nanjing, we look forward to stronger collaboration with our customers to further expand our market share in China".

Taiwan Semiconductor is the world's largest dedicated integrated circuit foundry and plans to become one of the top semiconductor companies supported by its strength. The company manufactures ICs based on its proprietary designs using advanced processes.

In the fourth quarter of fiscal 2015, Taiwan Semiconductor's revenues of NT$203.52 billion were up both sequentially as well as year over year. However, earnings were down sequentially but beat the Zacks Consensus Estimate by 7.5%.

The company raised its first-quarter revenue guidance range to NT$201 billion ($6.19 billion) to NT$203 billion ($6.29 billion) from NT$198 billion–NT$201 billion.

Taiwan Semiconductor sports a Zacks Rank #1 (Strong Buy).

A couple of other stocks that are performing well at current levels are Groupon, Inc. GRPN and Gaiam Inc. GAIA, both carrying a Zacks Rank #2 (Buy).

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