Critical Survey: Taiwan Semiconductor Manufacturing (TSM) versus ON Semiconductor Corporation (ON)

Taiwan Semiconductor Manufacturing (NYSE: TSM) and ON Semiconductor Corporation (NASDAQ:ON) are both mid-cap technology companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitability, dividends, valuation, institutional ownership and earnings.

Insider and Institutional Ownership

19.3% of Taiwan Semiconductor Manufacturing shares are held by institutional investors. Comparatively, 95.4% of ON Semiconductor Corporation shares are held by institutional investors. 1.1% of Taiwan Semiconductor Manufacturing shares are held by insiders. Comparatively, 1.4% of ON Semiconductor Corporation shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Taiwan Semiconductor Manufacturing and ON Semiconductor Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Taiwan Semiconductor Manufacturing 0 4 2 0 2.33
ON Semiconductor Corporation 1 6 11 0 2.56

Taiwan Semiconductor Manufacturing presently has a consensus target price of $27.00, indicating a potential downside of 36.03%. ON Semiconductor Corporation has a consensus target price of $21.44, indicating a potential downside of 1.28%. Given ON Semiconductor Corporation’s stronger consensus rating and higher probable upside, analysts clearly believe ON Semiconductor Corporation is more favorable than Taiwan Semiconductor Manufacturing.

Volatility and Risk

Taiwan Semiconductor Manufacturing has a beta of 0.77, meaning that its share price is 23% less volatile than the S&P 500. Comparatively, ON Semiconductor Corporation has a beta of 2.06, meaning that its share price is 106% more volatile than the S&P 500.

Profitability

This table compares Taiwan Semiconductor Manufacturing and ON Semiconductor Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Taiwan Semiconductor Manufacturing 35.71% 24.48% 17.90%
ON Semiconductor Corporation 7.22% 22.97% 6.91%

Valuation and Earnings

This table compares Taiwan Semiconductor Manufacturing and ON Semiconductor Corporation’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Taiwan Semiconductor Manufacturing $29.43 billion 7.44 $10.24 billion $2.25 18.76
ON Semiconductor Corporation $3.91 billion 2.36 $182.10 million $0.92 23.61

Taiwan Semiconductor Manufacturing has higher revenue and earnings than ON Semiconductor Corporation. Taiwan Semiconductor Manufacturing is trading at a lower price-to-earnings ratio than ON Semiconductor Corporation, indicating that it is currently the more affordable of the two stocks.

Dividends

Taiwan Semiconductor Manufacturing pays an annual dividend of $0.92 per share and has a dividend yield of 2.2%. ON Semiconductor Corporation does not pay a dividend. Taiwan Semiconductor Manufacturing pays out 40.9% of its earnings in the form of a dividend. Taiwan Semiconductor Manufacturing has raised its dividend for 2 consecutive years.

Summary

Taiwan Semiconductor Manufacturing beats ON Semiconductor Corporation on 9 of the 17 factors compared between the two stocks.

Taiwan Semiconductor Manufacturing Company Profile

Taiwan Semiconductor Manufacturing Company Limited (TSMC) is a semiconductor foundry. The Company is engaged in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. It operates through foundry segment. The foundry segment is engaged in manufacturing, selling, packaging, testing and computer-aided design of integrated circuits (IC) and other semiconductor devices and the manufacturing of masks. It operates three 12-inch wafer fabs, four eight-inch wafer fabs, one six-inch wafer fab (fab 2) and two backend fabs (advanced backend fab 1 and 2). It also manages two eight-inch fabs at its subsidiaries, WaferTech, LLC in the United States and TSMC China Company Limited. Its exploratory work focuses on transistors and technologies, such as three dimensional (3D) structures, strained-layer complementary metal-oxide semiconductor (CMOS), high-mobility materials and 3D IC devices.

ON Semiconductor Corporation Company Profile

ON Semiconductor Corporation offers a portfolio of sensors, power management, connectivity, custom and system on chip (SoC), analog, logic, timing, and discrete devices. The Company’s segments include Power Solutions Group, Analog Solutions Group and Image Sensor Group. The Power Solutions Group offers a range of discrete, module and integrated semiconductor products. The Analog Solutions Group designs and develops analog, mixed-signal and logic application specific integrated circuits (ASICs) and application specific standard products (ASSPs), and power solutions. The Image Sensor Group designs and develops complementary metal oxide semiconductor (CMOS) and charge-coupled device (CCD) image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for various end users in the automotive, industrial, consumer, wireless, medical, and aerospace/defense markets.

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