TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD

What they do

TSMC operates as a pure-play semiconductor foundry, manufacturing integrated circuits for a diverse customer base including fabless companies and IDMs. The company offers a range of process technologies, from mature to leading-edge nodes, and provides design, mask, and packaging services. Its production is concentrated in Taiwan, with newer fabs in the U.S., Japan, and Europe.

Revenue drivers

• Leading-edge process technologies — Revenue from advanced nodes (e.g., 3nm, 5nm) constitutes a significant portion of total wafer revenue, driven by demand for high-performance computing and smartphones.
• High-performance computing (HPC) — HPC is a major application segment, contributing over 50% of total revenue, fueled by AI, data center, and networking demand.
• Smartphone segment — Smartphone applications generate a substantial share of revenue, with high-end devices using advanced nodes, though growth is mature compared to HPC.

Recent performance

For fiscal year 2025, TSMC reported net revenue of TWD 3,646.9 billion (approximately USD 117.4 billion), up 33.5% from 2024. Net income rose to TWD 1,585.1 billion (USD 51.0 billion), with diluted EPS of TWD 61.12. Gross margin improved to 59.0% from 56.1% in 2024, reflecting strong pricing and mix. Operating margin also expanded to 48.8% from 45.0%.

Strategy

TSMC continues to invest heavily in leading-edge capacity, including 3nm and 2nm technology, with fabs in Taiwan and Arizona (U.S.). It is expanding global manufacturing to mitigate geopolitical risks, with fabs operational or under construction in Japan, Europe, and the U.S. The company emphasizes technology leadership and R&D, with capital expenditures guided at USD 52-56 billion for 2026.

Risks

• Geopolitical concentration — Most fabrication is in Taiwan, creating risk from cross-strait tensions or supply-chain disruptions.
• Cyclical demand volatility — Semiconductor demand is cyclical, and downturns in HPC or smartphone markets could reduce utilization and profitability.
• Intense competition — Competes with Samsung and Intel in leading-edge foundry; customer in-sourcing (e.g., Apple, Intel) could reduce demand.
• FX and geopolitical costs — Global expansion raises operational costs and exposes to currency fluctuations, impacting profitability.

Outlook

Management expects continued growth driven by AI-related demand across all end markets, with HPC as the primary growth engine. They forecast 2026 revenue growth in the mid-to-high 20% range in USD, maintaining clouded visibility but strong momentum. Capital expenditures of USD 52-56 billion are planned to secure leading-edge capacity.