What the business is
Taiwan Semiconductor Manufacturing Company Limited (TSMC) turns other companies’ chip designs into tested, packaged chips. Customers pay for wafer manufacturing and related services, not a standard TSMC-branded chip range. In 2025, TSMC made 12,682 products for 534 customers and reported NT$3,809,054.3 million in revenue. Most revenue comes from wafer fabrication; packaging, testing, masks—patterned templates that transfer designs to silicon—and engineering support add services around the wafer.
- Wafer economics: Wafer fabrication was approximately 86% of 2025 net revenue. A wafer is a thin silicon slice carrying many chip copies; yield is the share that passes testing.
- Chip economics: A die is one individual chip cut from a wafer. Wafer and die size, processing time and yield determine saleable output from a production run.
- Capacity commitments: TSMC builds capacity before demand is certain. Temporary customer receipts may reserve capacity, but can be refundable or offset against receivables under agreed conditions; they are not guaranteed final orders.
The challenges
- Process economics: A two-nanometer process is a label for advanced chipmaking, not a direct feature measurement. It must win designs, reach competitive yields and recover research and equipment costs; its ramp reduced gross margin by 1.3 percentage points in Q3 2026.
- Fab loading and investment returns: A fab is a chip factory with fixed costs even when underused. Construction and equipment spending comes before revenue; 2026 capital spending is guided at US$60–64 billion.
- Advanced packaging capacity: CoWoS places multiple chips close together in one package. Finished wafers cannot ship as complete AI systems unless packaging, substrates, memory and testing keep pace; CoWoS demand remained above supply in Q3 2026.
- Geographic concentration and overseas costs: Taiwan remains the center of TSMC’s manufacturing system. Overseas fabs take time to qualify and may earn lower returns at first; overseas expansion is expected to dilute 2026 gross margin by about 2 percentage points.
The numbers
Revenue fell in 2023, then grew strongly in 2024 and 2025 as operating margin recovered. The company’s real free cash flow, computed from its cash-flow statement as cash from operations minus capital spending and stock pay, turned sharply higher in 2025 while net cash increased. Diluted EPS and real free cash flow per ADS also rose in 2025; the key valuation number is a 1.5% free cash flow yield amid continuing fab investment.
How it earns, and what can hurt it
NT$ millions
What one share gets
NT$ per ADS