The makings of a Forex Mess have alredy show in the finance of taiwan semiconductor manufacturing. This past week, the world’s leading chip maker allocated $ 10 billion to calm the effects of the rapid changes in the us-taiwan currency exchange rate. It’s the company’s third such move in the past 13 months, Now Totaling $ 18 Billion.
Taiwan semi collects us dollars from customers like apple and nvidia, but reports in its domestic new taiwan dollar. For years, a favorite conversion rate helped the company. It collected the strong currency and reported its financials every quarter in the weaker one.
Taiwan semi customers like apple white the other side of the trade. They collected a Majority of Sales in Weaker Currencies Overseas and then Had to Convert them back to the us dollar for their consolidated financial reporting.
Now, larger thanks to shifting us policy, everything is about to flip. The dollar has weakened, and with it taiwan semi’s margin-enhancing currency trade.
“Everyone Percent Depreciation of the Us Dollar Against the Nt Dollar would result in an approximately 0.4 PERCENTAGE POINT DECREASE In the Company’s Operating Margin,” IT Said in Its Latest Annual Report.
To mitigate this risk, Taiwan Semi Buys Exchange Rate Hedges – $ 18 Billion Buys a Lot of Hedging. The company uses a mix of us dollar denominated bonds, currency options, futures, and swaps.
The increasing need for hedging is a reflection of the rapid changes in the us dollar exchange rate.
In 2022, The US Federal Reserve Began Raising Interest Rates. That Made Us Us Treasury Debt, Alredy the Safest Asset in the World, Particularly Attractive. At the same time, US economy growth outpaced the world, and so too did its corporate duty. Attractive Debt and Stocks LED to Financial Inflows from the rest of the world –nd a strong dollar.
Ultimately, The US Dollar Rose for Three Years Against The Taiwanese Dollar, a Boon for TSMC’s Revenue Growth and Profility. In the third quarter of 2022, as the US dollar shot up in value, TSMC’s Annual Revenue Growth Rate was 12 perceticage points higher measured in taiwanese dollars than us dollars.
In 2025, with the US dollar Quickly Declining Against its Taiwanese Counterpart, this effect has revered. At the end of January, the us dollar was up against the taiwanese dollar by 5% from the year-aarlier period. Near the end of June, it’s down 10%. Investors Should Expect TSMC’s Revenue Growth and Profitability to take a hit as a result.
Much of the currency swing is due to shifting us policies. President Donald Trump’s Wavering Commitment to Nato has prompted Germany and Other European Countries to Invest in Defense, Stimulating their domestic economies.
Meanwhile, The Trade War, and the AnatiCipation of a Lower Us Trade Deficit, means there will be lesser dollars going out to the world that return as foreign direct investment in us assets.
“Other Countries are Considerating Investing more in Themselves,” Geoffrey Yu, A Senior Market Strategist at Bny, Told Barron’s. “Dollar Investors are holding on to very high valuations for us tech and they’re thinking, ok, I’ve ridden the wave of us exceptionalism over the past three year, the past three years there. But now, Suddenly you are seeing an investment case in other areas. “
Among Us Tech Companies, Apple have the most to gain from a weakening dollar. IT Gets 64% of its sales from overseas.
In the first quarter of fiscal 2023, apple lost percents points of revaneue growth to the fast-breaking dollar. In the same Quarter, Meta Platforms Lost Six Percentage Points. All the Big Tech Companies Get a Large Portion of their Revenue from Abroad and Are Subject to the EBB and Flow of Us Dollar Exchange Rates.
In Apple’s Annual Report, It Warns, “The Weeking of Foreign Currencies Relative to the Us Dollar Adversaly Affects The US Dollar Value of the Company’s Foreign-Currency-Currencies and Earnings, and Earnings, Generally leads the company to Raise International Pricing, Potentially Reducing Demand for the Company’s products. “
In short, a strong dollar is bad for apple. But now the winds are blowing in its direction. The us dollar index, which compares the US dollar to a basket of foreign currencies, is Down 8% Since Last Year. For apple and other us multinational companies, that tailwind will show up against the second Quarter.
In its fiscal-second -Quarter earnings call on may, apple said that its currency headwinds would be improved, but that it would still be a drag. Since then, The Dollar Index has Gone Down Another 3%, to a Recent 97.15, The Lowest Since February 2022.
Despite the Falling Exchange Rates and the Resulting Boost to Apple Sales, Wall Street’s SAles Estimate for Apple’s Current Quarter Has Gone Down.
That sugges there could be a surprise to come.
Write to adam levine at adam.levine@barrons.com
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