TSMC / ASML: alphabet soup Pity that Scrabble does not permit company acronyms. Imagine all the points that could be racked up by TSMC and ASML. The former makes chips that go into the smartphones that process all that information so quickly. The latter designs and makes the equipment that makes the chips that go into the smartphones that process all that information so quickly. So growth at Taiwan's TSMC, the world's biggest foundry, depends on economic cycles in the here and now, while growth at ASML, the Dutch technology group, depends on investment in expected demand further into the future. Smartphone demand helped drive TSMC's sales up 19 per cent in 2012 while net income jumped by 23 per cent. Although its inventory has built up as the fall in PC demand hurt the appetite for related chips, it has scaled back its manufacturing capacity to ease the problem. TSMC is therefore poised for a bounce in margins as utilisation rates improve into the second quarter. Deutsche Bank estimates that capacity utilisation could return to 98 per cent this year, from 93 per cent in 2012. What is more, as smartphone makers compete to deliver faster, more efficient products, demand for higher-margin (28-nanometre) chips is expected to improve, too. Even so, TSMC needs this support for margins to offset depreciation on big capital expenditure. And this is where ASML comes in. Its growth now depends on the race among TSMC, Intel and Samsung to build up manufacturing capabilities to roll out smaller and faster chips for gadgets in the future. TSMC will spend a record $9bn this year to build facilities which make 20nm and 16nm chips, among others. The problem for ASML is that it has few other sources of growth as foundries rein in investment in struggling PC memory chips. Thursday's 9 per cent share price jump looks a tad over excited.