A DirecTV-Dish Merger Won’t Save Satellite TV. Here’s Why.

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In some parts of the country where cable access is limited, Dish and DirecTV are the only ways to get a pay-TV subscription.

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Daniel Acker/Businesshala

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For the past 20 years, Dish Network and rival DirecTV have been playing the game of footsie. On the surface, the rationale for merging satellite TV services has been clear for a long time, even more so in recent years as the two services shed customers.

At least outside rural markets, where cable isn’t an option, companies are in serious trouble—and teaming up may have a better chance of surviving. Sure enough, speculation about a deal resurfaced last week when The New York Post reported That the two sides were negotiating a merger.

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The companies declined to comment on the report. I doubt the merger ever happens. My suspicion goes back to 2002, when the Federal Communications Commission killed an effort to merge the two satellite TV services on the grounds that it would substantially reduce competition, especially in more rural areas.

“At best, this merger would create a monopoly in areas served by cable; at least it would create a merger for monopolies in unserved areas,” said then-FCC chairman Michael Powell. said, He called it “contrary to the demand of the public interest”.

To be sure, a lot has happened over the past two decades that changed the count of a deal, including AT&T (ticker: T), which paid $67 billion for DirecTV in 2015, Before selling a 30% stake to private equity firm TPG (TPG) last year. ) The value of that deal was about 75% less than DirecTV’s purchase price for AT&T.

What hasn’t really changed is that some parts of the country are still untouched by traditional broadband. While the Biden administration’s recently signed $1 trillion infrastructure bill aims to expand rural broadband access, Dish (DISH) and DirecTV are the only pay-TV options in some parts of the country. That’s enough to stop regulators from approving any deals.

And while sharing satellites can reduce costs, Craig Moffett, telecommunications analyst and founder of boutique research firm MoffettNathanson, notes that the two systems are incompatible, meaning the two companies need to keep their satellite constellations in place. Will be No service has added satellites in the past five years, says Moffett, and three to four years from now, the dish will only have one satellite over its expected useful lifetime. Moffett thinks that both services will eventually fade 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 may already be a turning point for investors. Moffett says that Dish “has not really been a satellite TV stock for years,” adding that the market is focused on the company’s nascent wireless business and the value of its underlying spectrum.

Dish has agreed to build out the wireless service by 2025, but it will initially operate as an AT&T reseller. Moffett, who has a neutral rating on Dish shares, says that until the wireless service goes live, the stock will trade on sentiment rather than fundamentals, which makes it a “tough stock to call”. What isn’t a tough call is this: A Dish/DirecTV deal still sounds like wishful thinking.

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Given the ongoing chip shortage, it is unsurprising that Taiwan Semiconductor (TSM), the world’s largest contract chip maker, dramatically underperformed the broader market in 2021. The stock was up a modest 12%, compared to a 27% gain for the S&P 500.,
(My colleague Reshma Kapadia wrote an insightful profile of the company last June, predicting the stock’s weakness.)

Several factors weighed on the stock, including the threat of increased competition from Intel (INTC), which plans to build a contract chip-making business of its own. The TSMC also faces geopolitical risks, with fears that mainland China could assert greater authority over Taiwan – both sides have been conducting military exercises in recent months.

But the sentiment can change. TSMC shares have risen 17% since the end of December. That includes a 5% gain on Thursday after the company posted better-than-expected fourth-quarter results. Revenue rose 24.1% to $15.7 billion in the quarter, driven by strong demand for smartphones, PCs, servers and cars. The company sees strong trends in the current quarter and also raises its long-term targets for revenue and gross margin.

One sign of TSMC’s optimism is that it expects to exceed $40 billion to $44 billion in capital spending in 2022, $30 billion in 2021, and more than Wall Street estimates. That’s good news for the semiconductor equipment sector — and good news for companies like Apple (AAPL) and Qualcomm (QCOM) that rely on TSMC to produce flagship chips.

New Street Research analyst Pierre Ferragu recently named TSMC one of his top picks for 2022. He thinks the company will eventually top $100 billion in revenue, up from $54.8 billion in 2021.

Ronald Shu, another Bull City analyst, believes the stock is up 50% from current levels.

TSMC recently overtook Nvidia (NVDA) as the world’s most valuable chip company with a market cap of nearly $700 billion. If I had to choose 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 just might be the most important technology company in the world.

Write Eric J. at [email protected] savitz

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