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In some parts of the country where cable access is restricted, Dish and DirecTV remain the only way to get pay-TV subscriptions.
Daniel Acker / Bloomberg
For 20 years now,
dish network
and rival DirecTV have played a game of footsie. On the surface, the logic of merging satellite TV services has long been obvious, even more so in recent years, as both services have lost subscribers.
Businesses are in serious difficulty – at least outside rural areas, where cable is not an option – and merging can provide a better chance of survival. Admittedly, speculation about a deal resurfaced last week when the New York Post reported that the two sides were holding merger negotiations.
The companies declined to comment on the report. I doubt the merger will ever happen. My skepticism goes back to 2002, when the Federal Communications Commission killed an attempt to merge the two satellite TV services on the grounds that it would significantly reduce competition, especially in more rural areas.
“At best, this merger would create a duopoly in areas served by cable; at worst, it would create a merger of monopoly in unoccupied areas,” said then-FCC chairman Michael Powell, calling it “the opposite of what the public interest requires. “
Admittedly, much has happened in the last two decades that changes the calculation of an agreement, including
AT&T
(ticker: T) paid $ 67 billion for DirecTV in 2015, before selling a 30% stake in the private equity firm last year
TPG
(TPG). This agreement valued DirecTV at around 75% below AT & T’s purchase price.
What has not really changed is that there are still parts of the country that have not been reached with conventional broadband. While the Biden administration’s recently signed $ 1 trillion infrastructure bill is partly aimed at expanding rural broadband access, Dish (DISH) and DirecTV remain the only pay-TV options in some parts of the country. This is probably enough to prevent regulators from approving any agreement.
And while satellite sharing can reduce costs, telecom analyst Craig Moffett, founder of boutique research firm MoffettNathanson, notes that the two systems are incompatible, meaning both companies will have to keep their satellite constellations in place. None of the services have added satellites in the last five years, Moffett says, and three to four years from now, Dish will only have one satellite within its life expectancy. Moffett believes both services will eventually disappear as their satellites fail. “No one thinks there is any economic sense in launching new satellites,” he says.
“We have a fleet of satellites and part of our business is managing their lifecycle,” Dish told me last week.
Satellites can already be a problem for investors. Moffett says Dish “has not really been a satellite TV stock for years,” with the market focused on the company’s beginning wireless business and the value of its underlying spectrum.
Dish has agreed to expand the wireless service by 2025, but it will initially operate as an AT&T dealer. Moffett, who has a neutral rating on Dish shares, says the stock will trade on sentiment rather than fundamentals until the wireless service goes live, making it a “difficult stock to call.” What is not a difficult call is this: A Dish / DirecTV deal still seems like wishful thinking.
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Given the persistent chip shortage, this is surprising
Taiwan semiconductor
(TSM), the world’s largest producer of contract chips, outperformed the broad market in 2021. The stock rose a modest 12%, up from 27% for
S&P 500.
(My colleague Reshma Kapadia wrote an insightful profile of the company last June, predicting the stock’s weakness.)
Several factors have weighed on the stock, including the threat of increased competition from
Intel
(INTC), which plans to build its own contract chip manufacturing business. The TSMC also faces geopolitical risks, with growing fears that the Chinese mainland could assert more authority over Taiwan – both sides have conducted military exercises in recent months.
But the mood may be about to change. TSMC shares have risen 17% since the end of December. That includes a 5% increase on Thursday after the company had a better-than-expected fourth-quarter result. Revenue rose 24.1% in the quarter to $ 15.7 billion, driven by strong demand from smartphones, PCs, servers and cars. The company sees strong trends in the current quarter and also raised its long-term goals for revenue and gross margins.
A sign of TSMC’s optimism is that it expects $ 40 billion to $ 44 billion in capital expenditures by 2022, up from $ 30 billion in 2021 and above Wall Street estimates. This is good news for the semiconductor equipment sector – and good news for companies such as
Apple
(AAPL) and
Qualcomm
(QCOM), which rely on TSMC to produce key chips.
New Street Research analyst Pierre Ferragu recently named TSMC one of its top picks for 2022. He believes the company will eventually top $ 100 billion in revenue, up from $ 54.8 billion in 2021.
Citi analyst Ronald Shu, another bull, believes the stock is up 50% from its current level.
TSMC recently surpassed
Nvidia
(NVDA) as the world’s most valuable chip company with a market value of around $ 700 billion. If I had to pick the next company to join the $ 1 trillion club, I would go with Taiwan Semi, which controls 60% of the global chip manufacturing market. It’s perhaps just the world’s most important technology company.
Write to Eric J. Savitz at eric.savitz@barrons.com
.
