By Crystal Hsu / Staff reporter
Moody’s Ratings yesterday upgraded Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) credit rating to “Aa2” from “Aa3,” citing its technological leadership in advanced chipmaking, exceptionally strong financial position and strong demand for artificial intelligence (AI) chips.
The agency also revised its outlook for TSMC from “positive” to “stable,” reflecting expectations that the world’s largest contract chipmaker would maintain its dominant foundry position and robust financial profile over the next two to three years.
The upgrade applies to senior unsecured debt issued by TSMC’s wholly owned subsidiaries, TSMC Arizona Corp and TSMC Global Ltd, and guaranteed by TSMC, Moody’s said.
The Taiwan Semiconductor Manufacturing Company logo is pictured at the company’s second-quarter earnings conference in Taipei on July 16.
Photo: Ann Wang, Reuters
With the company’s technological edge, manufacturing excellence, diversified customer base and sustained AI demand, TSMC’s revenue is forecast to grow 30 to 45 percent annually over the next 12 to 18 months, the agency said.
TSMC reported 51 percent year-on-year revenue growth in the third quarter, with advanced technologies of 7 nanometers and below accounting for 79 percent of revenue, company data showed.
The company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin are projected to rise to about 75 percent over the next 12 to 18 months, up from 72 percent last year, Moody’s said, citing higher capacity utilization and productivity gains that offset costs associated with new technologies and overseas facilities.
Despite rising investment needs, TSMC is expected to maintain positive free cash flow and a strong net cash position, it said.
The company’s adjusted debt-to-EBITDA ratio is projected to remain at about 0.3 times, reflecting low leverage, it said.
As of Sept. 30, TSMC held about NT$4 trillion (US$123.1 billion) in cash and marketable securities, enough to cover short-term debt, projected capital spending and dividends over the next 12 months, Moody’s said.
However, as semiconductor manufacturing is capital-intensive and cyclical, it requires continued heavy investment in technology and production capacity in the US, Japan and Germany, the agency said.
A further upgrade in TSMC’s credit rating is unlikely in the near term given the company’s substantial investment needs and the geographic concentration of its manufacturing operations. Its rating is also closely linked to Taiwan’s sovereign rating, because most of its production facilities remain in Taiwan, Moody’s said.
However, a downgrade could follow if the company faces a material loss of technological leadership or market share, sustained deterioration in profitability and cash flow, or investment and shareholder payouts that significantly weaken its net cash position, the agency said.