Taiwan Semiconductor Manufacturing Co Ltd (TSM)

Taiwan Semiconductor Manufacturing Company Limited operates as a dedicated semiconductor foundry, manufacturing semiconductors using its manufacturing processes for customers based on proprietary integrated circuit designs provided by them. The company offers a comprehensive range of wafer fabrication processes, including processes to manufacture complementary metal-oxide-semiconductor logic, mixed-signal, radio frequency, embedded memory, bipolar complementary metal-oxide-semiconductor mixed-signal and others. The semiconductor industry is characterized by rapid technological changes, frequently leading to the introduction of new technologies to meet customer demand and the obsolescence of recently introduced technology and products. The electronics industries and semiconductor market are cyclical and subject to significant and often rapid fluctuations in product demand.

The company competes internationally and domestically with other foundry service providers, as well as with a number of integrated device manufacturers. Competition is primarily based on process technologies, manufacturing excellence, customer trust and service quality, such as earlier technology readiness, better quality, faster yield improvement and shorter cycle time. The company believes it is the technology leader among the dedicated foundries in terms of net revenue of advanced semiconductors of 7-nanometer and below and is one of the leaders in the semiconductor manufacturing industry for mainstream and specialty technologies. The ten largest customers accounted for approximately 70% ¹, 76% ², and 78% ³ of net revenue in 2023, 2024, and 2025, respectively. The largest customer accounted for 25% ⁴, 22% ⁵, and 19% ⁶ of net revenue in 2023, 2024, and 2025, respectively. The second largest customer accounted for 11% ⁷, 12% ⁸, and 17% ⁹ of net revenue in 2023, 2024, and 2025, respectively.

The company generates revenue primarily through wafer fabrication, which accounted for approximately 86% ¹⁰ of net revenue in 2025. The rest of net revenue was mainly derived from packaging and testing services, mask making, design, and royalty income. Revenue is recognized when performance obligations are satisfied, generally when goods are delivered to customers' specified locations. Substantially all sales are denominated in U.S. dollars while financial statements are published in New Taiwan dollars. The company counts among its customers many of the world's leading semiconductor companies, ranging from fabless semiconductor companies, system companies to integrated device manufacturers.

The company categorizes net revenue by platform: High Performance Computing, Smartphone, Internet of Things, Automotive, Digital Consumer Electronics, and Others. In 2025, High Performance Computing net revenue was NT$2,192,931 million ¹¹, Smartphone was NT$1,110,816 million ¹², Internet of Things was NT$191,047 million ¹³, Automotive was NT$186,667 million ¹⁴, Digital Consumer Electronics was NT$47,997 million ¹⁵, and Others was NT$79,596 million ¹⁶. The increase in net revenue from 2024 to 2025 mainly came from High Performance Computing of NT$716,040 million ¹⁷, or a 48% ¹⁸ year-over-year increase, and from Smartphone of NT$105,686 million ¹⁹, or an 11% ²⁰ year-over-year increase. The increase in net revenue from 2023 to 2024 mainly came from High Performance Computing of NT$542,122 million ²¹, or a 58% ²² year-over-year increase, and from Smartphone of NT$190,216 million ²³, or a 23% ²⁴ year-over-year increase.

The company offers a comprehensive range of wafer fabrication processes and also offers design, mask making, TSMC 3DFabric advanced silicon stacking and packaging services, and testing services. The principal platforms include High Performance Computing, Smartphones, Internet of Things, Automotive, and Digital Consumer Electronics. For HPC, the company provides leading-edge logic process technologies such as 2-nanometer Nanosheet Transistor, 3-nanometer Fin Field-Effect Transistor, 4-nanometer FinFET, 5-nanometer FinFET, 6-nanometer FinFET, and 7-nanometer FinFET, as well as comprehensive intellectual properties. The company also offers multiple TSMC 3DFabric advanced silicon stacking and packaging solutions, such as TSMC-SoIC manufacturing services and CoWoS advanced packaging services. For Smartphones, the company offers leading logic process technologies such as 2-nanometer Nanosheet Plus, 3-nanometer FinFET Plus, 3-nanometer FinFET Enhanced, 3-nanometer FinFET, 4-nanometer FinFET Plus, 4-nanometer FinFET, 5-nanometer FinFET Plus, and 5-nanometer FinFET. For IoT, the company provides solid logic technologies including 4-nanometer, 5-nanometer, 6-nanometer, 7-nanometer, 12-nanometer, 16-nanometer, and 28-nanometer, and builds a leading ultra-low power technology platform. For Automotive, the company offers a comprehensive spectrum of technologies and services, covering 3-nanometer, 4-nanometer, 5-nanometer, 7-nanometer, and 16-nanometer FinFET technologies. For Digital Consumer Electronics, the company provides leading 5-nanometer FinFET, 7-nanometer/6-nanometer FinFET, 16-nanometer FinFET/12-nanometer FinFET, and 22ULP/22ULL technologies.

In 2025, the company's 2-nanometer technology entered volume production. The development of 16-angstrom technology is on track, and its risk production is expected in 2026. Capital expenditures in 2025 were NT$1,272,411 million ²⁵ (US$40,895 million ²⁶, translated from a weighted average exchange rate of NT$31.11 ²⁷ to US$1.00). Capital expenditures in 2026 are expected to be between US$52 billion ²⁸ and US$56 billion ²⁹. In November 2024, TSMC Arizona Corporation entered into agreements with the U.S. Department of Commerce for the receipt of certain incentives pursuant to the U.S. CHIPS Act, which includes up to US$6.6 billion ³⁰ in total direct funding and up to US$5 billion ³¹ of proposed loans. In December 2024, ESMC, the subsidiary in Germany, entered into an agreement with the Federal Republic of Germany for the receipt of up to EUR5 billion ³² state aid under the European Chips Act. In 2025, the company issued NT dollar-denominated corporate bonds totaling NT$86,900 million ³³ (US$2,770 million ³⁴).

Net revenue in 2025 was NT$3,809,054 million ³⁵ (US$121,423 million ³⁶), an increase of 31.6% ³⁷ from NT$2,894,308 million ³⁸ in 2024. Net income attributable to shareholders of the parent was NT$1,697,604 million ³⁹ (US$54,116 million ⁴⁰) in 2025, compared to NT$1,158,380 million ⁴¹ in 2024, an increase of 46.5% ⁴². Gross margin increased to 59.9% ⁴³ of net revenue in 2025 from 56.1% ⁴⁴ in 2024. Operating margin was 50.8% ⁴⁵ in 2025, compared to 45.7% ⁴⁶ in 2024. Net margin attributable to shareholders of the parent was 44.6% ⁴⁷ in 2025, compared to 40.0% ⁴⁸ in 2024.

Capital expenditures in 2026 are expected to be between US$52 billion ⁴⁹ and US$56 billion ⁵⁰, which, depending on market conditions, may be adjusted later. The company anticipates capital expenditures in 2026 to focus primarily on installing and expanding capacity, mainly for 2-nanometer and 3-nanometer nodes, including building/facility expansion for Fab 20, Fab 21 and Fab 22; expanding capacity for specialty technologies and advanced packaging, including building/facility expansion for Fab 24; and investing in research and development projects for new process technologies.

The company is entering a period of higher growth as the multiyear megatrends of 5G, AI and high performance computing are expected to fuel strong demand for semiconductor technologies in the next several years. The company is working closely with customers to address their needs in a sustainable manner. The company's 2-nanometer technology entered volume production in 2025, and the development of 16-angstrom technology is on track, with risk production expected in 2026. The company expects to further advance process technologies to 16-angstrom and below in the coming years to sustain technology leadership.

The company plans to continue significant investment in research and development in 2026 to maintain leadership in advanced process technologies. Research and development expenses in 2025 were NT$246,427 million ⁵¹ (US$7,855 million ⁵²), representing 6.5% ⁵³ of net revenue. The increases in research and development expenses were mainly attributed to a higher level of research activities for 10-angstrom, 14-angstrom, and 16-angstrom process technologies, as the company continued to advance to smaller processing nodes.

The company manages overall capacity and technology upgrade plans based on long term market demand forecasts. In 2025, annual capacity (in 12-inch equivalent wafers) exceeded 17 million ⁵⁴ wafers, compared to approximately 17 million ⁵⁵ wafers in 2024. This increase was primarily from the expansion of 3-nanometer advanced technologies. The company has multiple expansion projects underway, including the design and construction of new fabs worldwide, including in Taiwan, Arizona in the U.S., Kumamoto in Japan, and Dresden in Germany.

Research and development spending in 2025 was NT$246,427 million ⁵⁶ (US$7,855 million ⁵⁷). Capital expenditures in 2025 were NT$1,272,411 million ⁵⁸ (US$40,895 million ⁵⁹). Capital expenditures in 2026 are expected to be between US$52 billion ⁶⁰ and US$56 billion ⁶¹. In 2025, the company issued NT dollar-denominated corporate bonds totaling NT$86,900 million ⁶² (US$2,770 million ⁶³). The company's primary source of liquidity is cash flow from operations, and capital expenditures for 2026 are expected to be funded by operating cash flow and proceeds from the issuance of corporate bonds.

The company faces headwinds from global systemic political, economic and financial crises, including political and trade tensions among major economies that have resulted in tariffs, non-tariff trade barriers, sanctions, and export controls. In April 2025, the U.S. President announced a 10% ⁶⁴ baseline tariff on imports into the U.S. from all countries. The U.S. issued a proclamation imposing a 25% ⁶⁵ ad valorem tariff on the import of certain advanced computing chips and derivative products. In January 2026, the U.S. announced a trade and investment agreement with Taiwan which would reduce U.S. reciprocal tariff rates on Taiwanese goods to no more than 15% ⁶⁶. The company also faces risks from export controls, including the October Rules adopted by the U.S. in October 2022 and October 2023, and new rules issued in January 2025 that may require an export license prior to shipping products using 16-nanometer or below process to specified destinations.

The company faces constraints from potential shortages or increased prices of power and other utilities. The company has occasionally experienced power outages, dips or surges caused by difficulties encountered by the electricity supplier or other power consumers on the same power grid. Due to changes in government energy policy, the growth of manufacturers in Taiwan's Science Parks, and droughts that Taiwan experiences from time to time, there are ongoing concerns regarding future availability of sufficient electricity and water for production in Taiwan. The company has encountered and anticipates continued increases in utility prices, and higher electricity prices could increase manufacturing costs and adversely impact financial results.

Management's message emphasizes the company's position as a leader in the foundry segment, with net revenue and net income attributable to shareholders of the parent of NT$2,894,308 million ⁷⁴ and NT$1,158,380 million ⁷⁵ in 2024, and NT$3,809,054 million ⁷⁶ (US$121,423 million ⁷⁷) and NT$1,697,604 million ⁷⁸ (US$54,116 million ⁷⁹) in 2025, respectively. The company is entering a period of higher growth as the multiyear megatrends of 5G, AI and high performance computing are expected to fuel strong demand for semiconductor technologies in the next several years. Management plans to continue significant investment in research and development in 2026 to maintain leadership in advanced process technologies, with capital expenditures in 2026 expected to be between US$52 billion ⁸⁰ and US$56 billion ⁸¹. The company's 2-nanometer technology entered volume production in 2025, and the development of 16-angstrom technology is on track with risk production expected in 2026.

Net revenue was NT$3,809,054 million ⁸² (US$121,423 million ⁸³) in 2025, compared to NT$2,894,308 million ⁸⁴ in 2024, an increase of 31.6% ⁸⁵. Net income attributable to shareholders of the parent was NT$1,697,604 million ⁸⁶ (US$54,116 million ⁸⁷) in 2025, compared to NT$1,158,380 million ⁸⁸ in 2024, an increase of 46.5% ⁸⁹. Diluted earnings per share were not explicitly stated in the filing text provided, but basic earnings per share can be derived from net income and outstanding shares. Income from operations was NT$1,936,092 million ⁹⁰ (US$61,718 million ⁹¹) in 2025, compared to NT$1,322,053 million ⁹² in 2024, an increase of 46.4% ⁹³. Gross margin was 59.9% ⁹⁴ in 2025, compared to 56.1% ⁹⁵ in 2024. Operating margin was 50.8% ⁹⁶ in 2025, compared to 45.7% ⁹⁷ in 2024. Net margin attributable to shareholders of the parent was 44.6% ⁹⁸ in 2025, compared to 40.0% ⁹⁹ in 2024. Cash, cash equivalents and current marketable securities were NT$3,068,595 million ¹⁰⁰ (US$97,820 million ¹⁰¹) as of December 31, 2025, compared to NT$2,422,019 million ¹⁰² as of December 31, 2024. Net cash generated by operating activities was NT$2,274,976 million ¹⁰³ (US$72,521 million ¹⁰⁴) in 2025, compared to NT$1,826,177 million ¹⁰⁵ in 2024. The company recognized approximately NT$3 billion ¹⁰⁶ and NT$5.3 billion ¹⁰⁷ in losses from earthquakes, net of insurance claim, in the second quarter of 2024 and the first quarter of 2025, respectively. For segment performance, wafer fabrication accounted for approximately 86% ¹⁰⁸ of net revenue in 2025. Advanced technologies (7-nanometer and below) accounted for 74% ¹⁰⁹ of total wafer revenue in 2025, up from 69% ¹¹⁰ in 2024.

The company faces material risks from global trade tensions and export controls, including the U.S. imposition of a 25% ⁶⁷ ad valorem tariff on certain advanced computing chips and derivative products, and new rules requiring export licenses for products using 16-nanometer or below process to specified destinations. Customer concentration is a significant risk, with the ten largest customers accounting for 78% ⁶⁸ of net revenue in 2025, and the largest customer accounting for 19% ⁶⁹. The company is exposed to foreign exchange risk, as every 1% ⁷⁰ depreciation of the U.S. dollar against the NT dollar would result in an approximately 0.3 ⁷¹ percentage point decrease in operating margin based on 2025 results. Natural disasters pose a material threat, as evidenced by earthquake losses of approximately NT$3 billion ⁷² in the second quarter of 2024 and NT$5.3 billion ⁷³ in the first quarter of 2025. The company also faces risks from potential power outages or shortages, having experienced occasional power outages, dips or surges that have resulted in interruptions to operations.