TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD (TSMWF)

How it makes money

TSMC is paid per wafer it fabricates. Wafer fabrication accounted for approximately 86% of net revenue in 2025; the rest came mainly from packaging and testing services, mask making, design services and royalty income. Prices are set with customers for defined periods and can be adjusted during the period for market conditions. Revenue therefore depends on how many wafers customers order, on the price per wafer, and on the technology mix: leading-edge nodes command far higher prices per wafer than mature ones, and in 2025 the 3-nanometer node alone was 24% of wafer revenue, 5-nanometer 36% and 7-nanometer 14%. Because the fabs are owned and extremely capital-intensive — capital expenditure was NT$1,272,411 million in 2025 — utilisation of that capacity drives margins as much as revenue does.

Revenue by segment

TSMC's advantage rests on scale that competitors struggle to match. Staying at the technology frontier requires capital spending of the order of NT$1,272,411 million a year (2025) and research and development that rose 20.7% in 2025 alone; only a company that can spread that cost over more than 17 million 12-inch equivalent wafers of annual capacity can fund it and still earn a return. The company states that it competes primarily on process technology, manufacturing excellence, customer trust and service quality — earlier technology readiness, better yield, shorter cycle time. Its neutrality helps too: as a dedicated foundry it designs no chips of its own, so it does not compete with the customers who entrust it with their designs. The advantage is not permanent by construction: the company itself warns that if it fails to remain a technological leader, or if rivals gain better access to government financial incentives, it may lose customers and see margins fall.

TSMC describes itself as dependent on the highly cyclical semiconductor and electronics industries, which have gone through significant and sometimes prolonged downturns and periods of overcapacity, so revenue, margins and earnings may fluctuate significantly. Demand ultimately comes from end products that contain chips: when their unit sales and average selling prices fall, orders for wafers fall with them. The cycle is amplified by the capital intensity of the business — capacity is committed years ahead, so a downturn leaves expensive fabs underused, while a sharp upturn can arrive faster than capacity can be restored. Within that cycle the mix has shifted markedly: the company identifies data explosion and AI application innovation as the key growth driver, with HPC rising from 43% of revenue in 2023 to 58% in 2025 while smartphone fell from 38% to 29%.

Key risks

• Geopolitics, tariffs and trade restrictions — The company warns that global political, economic and financial crises could hurt its results, and describes an unusually fluid trade environment: a 10% U.S. baseline tariff announced in April 2025, reciprocal tariffs later struck down by a U.S. Supreme Court ruling in February 2026, a replacement tariff under Section 122, a 25% ad valorem tariff on certain advanced computing chips following a Section 232 investigation concluded in December 2025, and Section 301 investigations initiated in March 2026 that target economies including Taiwan. Tariffs on chips or on manufacturing equipment and materials raise costs and may reduce demand.
• Conditions in Taiwan and across its global footprint — TSMC states that its global manufacturing, design and sales activities expose it to political, economic, financial and military conditions in various jurisdictions, and in particular in the Republic of China (Taiwan), where most of its capacity sits. It separately warns that it may fail to manage the complexity of its global operations and the challenges of overseas expansion, with adverse effects on its business, financial condition and results.
• Cyclicality of the semiconductor industry — The company describes itself as dependent on the highly cyclical semiconductor and electronics industries, which have gone through significant and sometimes prolonged downturns and periods of overcapacity, so that its revenue, margins and earnings may fluctuate significantly. It also flags that falling demand and average selling prices for products containing semiconductors may reduce demand for its own services.
• Customer concentration — Having one or more large customers account for a significant share of revenue makes the company vulnerable to their loss or to a sharp cut in their orders, and customer consolidation may increase that concentration further. The filing notes that a more concentrated base exposes revenue to the seasonal patterns of a few large buyers, and that export controls aimed at major customers could restrict TSMC's ability to supply them.
• Loss of technological leadership and competition — TSMC warns that if it cannot remain a technological leader, respond quickly to changing market dynamics or keep its edge in product quality, it will become less competitive; and that if it cannot compete effectively in the foundry segment — including through equal access to the government financial incentives available to rivals — it may lose customers and see profit margins and earnings decline. It also flags the risk of failing to manage capacity and production facilities effectively.
• Cyberattacks on information systems — The company states that if its information technology systems, or those of service providers with whom it shares confidential information, fall to cyberattacks, its business and operations could be severely interrupted or even shut down, with material adverse effects on results, financial condition, prospects and reputation.
• Equipment, raw materials and utilities — TSMC may be unable to obtain, in time and at a reasonable cost, the equipment it needs to stay competitive, or adequate supplies of raw materials at commercially reasonable prices. It separately warns that power or other utility outages, shortages or price increases could interrupt its operations, limit its expansion and hurt its financial results, and that disruptive events or industrial accidents at its own, its customers' or its suppliers' sites could materially affect results.
• Talent, intellectual property, currency and regulation — The filing lists further risks: failure to recruit and retain key executives, managers and skilled technical staff could hold back planned growth; an inability to obtain, preserve, enforce and defend technologies, intellectual property rights and third-party licences could harm its competitive position; adverse exchange-rate moves could cut operating margin and revenue; and non-compliance with export control, antitrust, environmental and climate laws, or delays in approvals such as fab land and construction permits, could bring significant legal liability. Impairment charges, failures of internal control, and changes to tax rules in Taiwan, the United States or elsewhere are also disclosed as risks to net income.

Top customers account for 78% of revenue

TSMC serves hundreds of customers worldwide, but the top of the list is heavy: the ten largest accounted for approximately 78% of net revenue in 2025, up from 76% in 2024 and 70% in 2023. The single largest customer was 19% of net revenue in 2025 (25% in 2023, 22% in 2024) and the second largest 17% (11% in 2023, 12% in 2024) — the second name has been closing the gap fast. The company attributes the concentration to the structural shift towards HPC and smartphone applications, where only a limited number of customers operate at that scale, and to consolidation among its customers.