Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (TSM), Microchip Technology Inc. (MCHP): The Chip Rebound Continues

Another issue to keep in mind about Taiwan Semiconductor is that it is trying to branch out into lighting and solar energy. There are clear synergies between these industries and chip making, but jumping into new markets can be costly and difficult.

The second tier

United Microelectronics Corp (ADR) (NYSE:UMC) is among the largest microchip foundries in the world. Although it spends heavily to ensure its factories are cutting edge, new entrants have increased the competitive pressure and hurt United’s industry position.

Moreover, while United Microelectronics is a large player, it is still relatively small compared to industry giant Taiwan Semiconductor. So, United remains at a cost disadvantage as it tries to keep up with technology changes. That often leaves it as the second choice, not the first. However, as the chip business recovers, more and more business will flow down to the second choice companies. So, United should see a notable benefit.

In the first-quarter earnings release, CEO Po-Wen Yen noted that “[f]ollowing several months of inventory correction in the semiconductor market, demand has stabilized. With increasing demand led by the communication sector, we anticipate 2Q foundry operating results to improve, with wafer shipments projected to exceed 10% growth.”

The top and bottom lines have fallen for two years, but look set to pick up over the near-term. Now could be a good time for aggressive investors to step in. The shares yield around 2.70%.

A rebound is upon us

Recent news from each of the companies above suggest that the chip market is ready to turn upward again. While these stocks aren’t right for the faint of heart, more aggressive investors might want to take a look. Foundry giant Taiwan Semi is probably the most conservative name, though Microchip Technology Inc. (NASDAQ:MCHP) sounds the most positive about the future.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article The Chip Rebound Continues originally appeared on Fool.com and is written by Reuben Brewer.

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