Taiwan Semiconductor Manufacturing Company Limited Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Profitability: Fourth quarter gross margin increased due to cost improvement, favorable forex, and high capacity utilization. First quarter 2026 gross margin guided 63%-65%.
• 2026 Capital Budget: CapEx expected to be between USD 52 billion and USD 56 billion, with ~70-80% allocated to advanced process technologies, ~10% to specialty technologies, and ~10-20% to advanced packaging, testing, etc.
• Global Manufacturing Footprint: Progress in Arizona, Japan, Europe, and Taiwan; N2 and A16 technologies ramping with strong customer demand.
• AI Demand and Growth: Strong AI-related demand, conviction in multiyear megatrend, expecting ~25% CAGR revenue growth from 2024-2029.

Segment Performance

• Fourth Quarter 2025 Financials: Revenue increased 5.7% sequentially in NT and 1.9% in USD to TWD 33.7 billion. Gross margin was 62.3%, operating margin 54%, EPS TWD 19.5, ROE 38.8%.
• Revenue by Technology: 3-nanometer contributed 28% of wafer revenue in Q4 2025; advanced technologies (7-nanometer and below) accounted for 77% of wafer revenue. Full year 2025: 3-nanometer 24%, 5-nanometer 36%, 7-nanometer 14%, advanced technologies 74% of total wafer revenue.
• Revenue by Platform: HPC accounted for 55% of Q4 2025 revenue and 58% of 2025 revenue; Smartphone 32% Q4 2025 and 29% 2025; IoT 5% Q4 2025 and 5% 2025; Automotive 5% Q4 2025 and 5% 2025; DCE 1% Q4 2025 and 1% 2025.

Guidance

• First Quarter 2026: Revenue expected between USD 34.6 billion and USD 35.8 billion (4% seq, 38% yoy). Gross margin 63%-65%, operating margin 54%-56%.
• 2026 Effective Tax Rate: Expected 17%-18%.
• CapEx: 2026 CapEx to be between USD 52 billion and USD 56 billion, focusing on advanced processes, specialty, and advanced packaging.

Risks

• Gross margin dilution from overseas fab ramp, 2-nanometer ramp impact, and foreign exchange rate volatility.
• Foundry competition from Intel, potential market share loss to competitors.
• Memory price inflation and its impact on consumer electronics demand.

Question and Answer Q: Gokul Hariharan from JPMorgan asked about customer feedback on AI demand and semiconductor cycle.

A: C.C. Wei responded that AI demand is real, driven by customer and end-customer evidence of business growth, and believes the megatrend is long-term.

Q: Laura Chen from Citibank inquired about advanced packaging revenue contribution and CapEx focus.

A: Jen-Chau Huang stated advanced packaging revenue contribution was ~8% in 2025, expected over 10% in 2026, with CapEx focusing on 3DIC, SoIC, etc.

Q: Charlie Chan from Morgan Stanley asked about Intel foundry competition.

A: C.C. Wei stated no concern, emphasizing long-term technology complexity and TSMC's ability to support customers.

Q: Brett Simpson from Arete asked about CapEx and engineering talent.

A: C.C. Wei and Jen-Chau Huang discussed CapEx timing for capacity and focus on productivity improvement, noting engineering talent is a focus but TSMC is working to address it.

Q: Sunny Lin from UBS asked about 2-nanometer revenue contribution and technology adoption.

A: Jen-Chau Huang noted 2-nanometer is a larger node but less meaningful in percentage terms, with value driven by lower power consumption and high-speed performance for customers.