TSMC: Bearish Hathaway’s getaway puts crack in the mirror trade

The motto of veteran US investor Warren Buffett is supposed to be “hold for the long term”, not “hello, I must be going”. But his company Berkshire Hathaway has slashed its stake in Taiwan Semiconductor Manufacturing Company hard and fast. That bearish signal is compounded by the weak outlook for chips.

Berkshire has cut its holding in the world’s largest contract chipmaker by 86 per cent to 8.3mn American depositary shares, according to a filing. It announced the purchase of more than $4.1bn worth of the stock of the Taiwanese company just three months ago.

The investor may have made a return of a third on the shares, depending on timing and estimated purchase prices. But that hardly compares with longer-term gains on the likes of Apple. Berkshire evidently fears TSMC revisiting the lows of November. Shares had fallen more than 40 per cent from January to trade below 11 times forward earnings — a more than decade low.

TSMC expects sales to drop this quarter. Costs are rising as it starts to build plants in the US and Japan. Demand is falling globally for devices, including the smartphones and “internet of things” gadgets that have been hot products for TSMC.

US bans on Chinese access to chip technologies is another issue. Smaller Chinese companies such as Biren Technology rely on contract manufacturers like TSMC for production of advanced chips. The bans impede this.

Defying the Sage of Omaha, Lex still believes TSMC is a good long-term investment. Operating margins are an impressive 52 per cent, higher than those of peers. More than half of sales come from advanced chips that are 7nm or below, a market where Samsung is the only competitor. Free cash flow is strong and growing.

Shorter term, Buffet’s selldown may kill TSMC’s buzz. BYD shares fell by a quarter after Berkshire cut its stake in the Chinese electric-car maker last year, despite little change in fundamentals. Long-termists should meanwhile ponder whether mirror trading Berkshire buys and sells makes sense for them.