Business Context and Reporting Period
Company: Taiwan Semiconductor Manufacturing Company Limited (TSMC)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: TSMC is the world's leading dedicated semiconductor foundry, manufacturing integrated circuits for customers based on proprietary designs. The company operates a global network of fabrication plants (fabs) in Taiwan, the United States, China, Japan, and Germany. In 2025, the company entered volume production of its 2-nanometer technology and continued expansion of 3-nanometer capacity.
Key Financial Metrics (2025)
| Metric | 2025 (NT$ Millions) | 2025 (US$ Millions) | 2024 (NT$ Millions) |
|---|---|---|---|
| Net Revenue | 3,809,054 | 121,423 | 2,894,308 |
| Gross Profit | 2,281,294 | 72,722 | 1,624,354 |
| Gross Margin | 59.9% | - | 56.1% |
| Operating Income | 1,936,092 | 61,718 | 1,322,053 |
| Operating Margin | 50.8% | - | 45.7% |
| Net Income (Parent) | 1,697,604 | 54,116 | 1,158,380 |
| Net Margin (Parent) | 44.6% | - | 40.0% |
| Operating Cash Flow | 2,274,976 | 72,521 | 1,826,177 |
| Capital Expenditures | 1,272,411 | 40,561 | 956,007 |
| Cash & Equivalents (End of Period) | 2,767,856 | 88,233 | 2,127,627 |
| Total Debt (Long-term + Current) | 1,169,914 | 37,294 | 1,018,286 |
Note: US$ amounts are translated at the exchange rate of NT$31.37 to US$1.00 as of December 31, 2025.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 31.6% year-over-year to NT$3.81 trillion, driven by a 48% increase in High Performance Computing (HPC) revenue and an 11% increase in Smartphone revenue. Wafer shipments rose to approximately 15 million 12-inch equivalent wafers.
- Margin Expansion: Gross margin improved to 59.9% from 56.1%, attributed to higher capacity utilization, cost improvements, and a favorable product mix (advanced technologies accounted for 74% of wafer revenue). This was partially offset by an appreciation of the NT dollar against the US dollar.
- Capital Expenditure Surge: Capital expenditures increased 33% to NT$1.27 trillion, primarily funding the expansion of 2nm and 3nm nodes and facility construction in Arizona, Japan, and Germany.
- Disaster Losses: The company recognized approximately NT$5.3 billion in net losses in Q1 2025 due to earthquake damage to inventories and equipment, compared to NT$3 billion in Q2 2024.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- 2026 Capital Expenditures: Expected to be between US$52 billion and US$56 billion, focusing on 2nm/3nm capacity expansion and advanced packaging.
- Technology Roadmap: 2-nanometer technology is in volume production. 16-angstrom technology risk production is expected in 2026.
- Market Drivers: Continued strong demand from HPC (AI, data centers) and smartphones is anticipated to fuel growth.
Risks and Contingencies
- Geopolitical and Trade Risks: Significant exposure to US-China trade tensions, export controls, and tariffs. The filing notes a 25% ad valorem tariff on certain advanced computing chips imported into the US and ongoing investigations regarding manufacturing overcapacity. TSMC's Nanjing fab operations rely on an annual export license which is not guaranteed for renewal.
- Customer Concentration: The top 10 customers accounted for 78% of net revenue in 2025. The largest single customer accounted for 19%.
- Regulatory and Environmental: New carbon fees in Taiwan will apply starting in 2026 for emissions exceeding regulatory thresholds, potentially increasing manufacturing costs.
- Cybersecurity: Ongoing risks of cyberattacks targeting manufacturing operations and intellectual property, with the company noting the use of AI by attackers to develop sophisticated threats.
- Legal Proceedings: An ongoing investigation by the U.S. International Trade Commission (ITC) regarding patent infringement allegations filed by Marlin Semiconductor; the outcome and potential liability are currently indeterminable.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top 10 customers (78% of revenue) and the impact of potential demand shifts in the AI/HPC sector.
- Export License Renewal: Monitor the status of the annual export license for the Nanjing, China fab and any changes in US export control regulations.
- Capital Expenditure Execution: Track the progress of the US$52-56 billion 2026 capex plan, specifically the ramp-up of 2nm capacity and the timeline for new fabs in Arizona and Japan.
- Geopolitical Tariffs: Assess the financial impact of the 25% US tariff on advanced chips and the potential for broader trade restrictions.
- Carbon Fee Impact: Evaluate the projected cost increase from Taiwan's new carbon fee system effective in 2026.
- Patent Litigation: Follow the developments of the ITC investigation initiated by Marlin Semiconductor regarding five U.S. patents.