Forget Bitcoin. Cash Is TSMC's Real Future

(Bloomberg Gadfly) -- 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, which makes chips for Apple Inc. 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 $10.5 billion to $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 percent in U.S. dollar terms, and rise an average of 5 to 10 percent going forward.

Forget Bitcoin. Cash Is TSMC's Real Future

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

Forget Bitcoin. Cash Is TSMC's Real Future

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.

Forget Bitcoin. Cash Is TSMC's Real Future

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.

Forget Bitcoin. Cash Is TSMC's Real Future

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.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

To contact the author of this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

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