Taiwan Semiconductor Manufacturing Q4 Earnings Call Highlights

Key Points

• TSMC beat Q4 guidance with revenue of $33.7 billion, gross margin of 62.3% and operating margin of 54%, generated strong cash flow (TWD 726 billion) and held about $98 billion in cash and marketable securities while raising shareholder dividends (TWD 18 in 2025 and at least TWD 23 expected in 2026).
• Management guided Q1 2026 revenue to $34.6–35.8 billion (midpoint implying ~4% sequential growth and ~38% YoY) and forecasted near-30% full-year revenue growth for 2026 while stepping up 2026 capex to $52–56 billion, with 70–80% directed to advanced process technologies and some near-term margin dilution from overseas fabs and the 2nm ramp.
• Advanced nodes now drive the business—Q4 wafer mix was roughly 3nm 28%, 5nm 35%, 7nm 14%—with HPC accounting for 55% of Q4 revenue and AI accelerator revenue in the high-teens of 2025 expected to grow at a mid‑ to high‑50s% CAGR through 2029; N2 entered high‑volume production in 4Q25 and N2P/A16 are slated for volume production in H2 2026.

Taiwan Semiconductor Manufacturing NYSE: TSM reported fourth-quarter 2025 results that management said were supported by strong demand for leading-edge process technologies, while outlining a stepped-up investment plan and a long-term growth framework driven largely by AI-related demand.

Fourth-quarter revenue tops guidance; margins expand

Chief Financial Officer Wendell Huang said fourth-quarter revenue rose 5.7% sequentially in New Taiwan dollars and increased 1.9% sequentially in U.S. dollars to $33.7 billion, which he noted was slightly ahead of the company’s prior guidance. Gross margin improved by 2.8 percentage points from the third quarter to 62.3%, driven by cost improvement efforts, a favorable foreign exchange rate, and high capacity utilization.

Operating expenses were 8.4% of net revenue, down from 8.9% in the prior quarter, which the company attributed to operating leverage. Operating margin increased sequentially by 3.4 percentage points to 54%. Huang said fourth-quarter EPS was TWD 19.5 and return on equity was 38.8%.

Technology and platform mix highlights

Huang provided a breakdown of wafer revenue by technology node in the fourth quarter:

• 3nm: 28%
• 5nm: 35%
• 7nm: 14%

For full-year 2025, advanced technologies (7nm and below) accounted for 77% of wafer revenue. The company said 3nm represented 24% of 2025 wafer revenue, with 5nm at 36% and 7nm at 14%. Advanced technologies represented 74% of wafer revenue in 2025, up from 69% in 2024.

By end-market platform, TSMC said high-performance computing (HPC) increased 4% quarter over quarter to account for 55% of fourth-quarter revenue, while smartphone revenue rose 11% to 32%. IoT accounted for 5%, automotive for 5%, and “DCE” was 1% (with DCE down 22% in the quarter, according to the company’s commentary). For full-year 2025, TSMC said HPC rose 48% year over year and represented 58% of revenue, while smartphone accounted for 29%, IoT 5%, automotive 5%, and DCE 1%.

Balance sheet and cash flow; dividend comments

TSMC ended the fourth quarter with cash and marketable securities of TWD 3.1 trillion, or $98 billion. Huang said current liabilities increased by TWD 182 billion quarter over quarter, primarily due to increases in accrued liabilities and a reclassification of bonds payable to the current portion.

Accounts receivable days increased by one day to 26 days, while inventory days were steady at 74 days. The company generated about TWD 726 billion in cash from operations in the quarter, spent TWD 357 billion on capital expenditures, and distributed TWD 130 billion for first-quarter 2025 cash dividends. Fourth-quarter capital expenditures totaled $11.5 billion in U.S. dollar terms.

For the full year, Huang said TSMC paid TWD 467 billion in cash dividends in 2025, and that shareholders received TWD 18 in cash dividends per share in 2025, up from TWD 14 in 2024. He added that shareholders “will receive at least TWD 23 per share in 2026.”

2026 outlook: Q1 guidance, CapEx step-up, and margin puts-and-takes

For the first quarter of 2026, Huang guided revenue to a range of $34.6 billion to $35.8 billion, which he said implies about 4% sequential growth and 38% year-over-year growth at the midpoint. With an exchange rate assumption of $1 to TWD 31.6, TSMC expects gross margin of 63% to 65% and operating margin of 54% to 56%.

Management also discussed multiple factors affecting profitability in 2026. Huang said the company expects utilization to “moderately increase,” and that N3 gross margin is expected to cross over to the corporate average sometime in 2026. At the same time, he said the ramp of overseas fabs is expected to dilute gross margin by 2%–3% in early stages and 3%–4% in later stages, while the initial ramp of 2nm is expected to begin diluting gross margin in the second half of 2026, with 2%–3% dilution expected for the full year.

TSMC’s 2026 capital budget is expected to rise to $52 billion to $56 billion. Huang said 70%–80% will be allocated to advanced process technologies, about 10% to specialty technologies, and 10%–20% to advanced packaging, testing, mask making and other areas. Depreciation is expected to increase by a high-teens percentage year over year in 2026, mainly due to the 2nm ramp.

Chairman and CEO C.C. Wei said TSMC expects the Foundry 2.0 industry to grow 14% year over year in 2026, and forecast TSMC’s own full-year 2026 revenue to increase by close to 30% in U.S. dollar terms. Wei also cited uncertainties tied to tariff policies and rising component prices, particularly in consumer-related and price-sensitive segments, and said the company would be prudent in its planning while focusing on fundamentals.

Wei said AI accelerator revenue accounted for a high-teens percentage of total revenue in 2025 and raised TSMC’s forecast for AI accelerator revenue growth to approach a mid- to high-50s% CAGR from 2024 to 2029. He added that the company expects its overall long-term revenue growth to approach a 25% CAGR over the five-year period starting from 2024.

Manufacturing footprint and 2nm/A16 updates

Wei provided updates on overseas expansion. In Arizona, he said the first fab entered high-volume production in 4Q24, and that construction of a second fab is complete with tool installation planned in 2026. He said TSMC now expects the second fab to enter high-volume manufacturing in the second half of 2027, adding that construction of a third fab has started and the company is applying for permits to begin construction of a fourth fab and a fourth advanced packaging fab. Wei also said TSMC completed the purchase of a second large piece of land nearby to support the expansion plan.

In Japan, Wei said the first specialty fab in Kumamoto began volume production in late 2024 with “very good yield,” and that construction of the second fab has started, with the ramp schedule to be based on customer needs and market conditions. In Germany, he said construction of a specialty fab in Dresden is progressing as planned, again noting the ramp schedule will depend on customer needs and market conditions. In Taiwan, Wei said TSMC is preparing multiple phases of 2nm fabs in both Hsinchu and Kaohsiung Science Park.

On process technology, Wei said N2 entered high-volume manufacturing in 4Q 2025 at both the Hsinchu and Kaohsiung sites with good yield, and that the company is seeing strong demand from smartphone and HPC AI applications with expectations for a fast ramp in 2026. He said N2P is scheduled for volume production in the second half of 2026, and that A16—featuring Super Power Rail (SPR)—is on track for volume production in the second half of 2026.

During Q&A, Wei said he had spent significant time speaking with customers and cloud service providers to validate AI demand and said he believed “AI is real.” He also said capacity remained “very tight” and emphasized efforts to improve productivity and narrow the supply-demand gap. On advanced packaging, Huang said revenue contribution was “close to 10%,” about 8% in 2025, and expected to be “slightly over 10%” in 2026, adding that the company is investing in advanced packaging areas based on customer needs.

About Taiwan Semiconductor Manufacturing NYSE: TSM

Taiwan Semiconductor Manufacturing Company (TSMC) is a leading pure-play semiconductor foundry that provides wafer fabrication and related services to the global semiconductor industry. Founded in 1987 by Morris Chang and headquartered in Hsinchu, Taiwan, TSMC manufactures integrated circuits on behalf of fabless and integrated device manufacturers, offering contract chip production across a broad set of technologies and products.

TSMC's service offering covers logic and mixed-signal process technologies, specialty processes for radio-frequency, power management and embedded memory, and advanced nodes used in mobile, high-performance computing and AI applications.

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