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TSMC And Sony Join Denso to Build Chip Factory in Japan

Taiwan Semiconductor (TSM) joins Sony Group (SONY) in a joint venture that will help Denso Corp. build its first chip plant in Japan. Bloomberg reports that Toyota (TM) will invest $350 million in the joint venture for the construction of the plant in Kumamoto. TSM shares rose 3.97% to close at $124.52 on February 15.

Taiwan Semiconductor designs, manufactures, and sells integrated circuits and wafer semiconductor devices. Its products are used to power personal computers, servers, tablets, and game consoles. Taiwan Semiconductor’s earnings report for Q1 2022 is scheduled for April 21, 2022.

Chip Plant Construction

Denso Group will take a 10% stake in the new joint venture and will become a major customer once the plant is up and running. Construction of the plant is poised to start this year, with production expected to start by the end of 2024.

The plant will seek to address semiconductor and parts shortages that have triggered output delays in the consumer electronics and automobile market. Persistent disruptions of chips supplies are pushing countries to try and bolster their supply chains.

Taiwan remains a hub for chip production amid supply chain issues. Denso joining the joint venture led by Taiwan Semiconductor and Sony should help it mitigate the risk of supply chain disruptions and stabilize car production.

Stock Rating

Last week, Morgan Stanley analyst Charlie Chan upgraded Taiwan Semiconductor to a Buy from a Hold. According to the analyst, the company will spend $140 billion between 2019 and 2023 to extend its lead over rivals, giving it a monopoly on cutting-edge chip-making technology. He expects the company to have nearly 100% market share for chips produced at 3-nanometer linewidths.

Consensus among analysts is a Moderate Buy based on 3 Buys and 2 Holds. The average Taiwan Semiconductor price target of $142 implies 14.04% upside potential to current levels.

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