What Management Said
Read the full Q4 2025 transcript ↗Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. Wendell Huang, will summarize our operations in the fourth quarter 2025, followed by our guidance for the first quarter 2026. Wendell Huang for the summary of operations and the current quarter guidance. My presentation will start with financial highlights for the fourth quarter of 2025 and a recap of full year 2025 after that.
Fourth quarter revenue increased 5.7% sequentially in NT$ supported by strong demand for our leading-edge process technologies. dollar terms, revenue increased 1.9% sequentially to $33.7 billion, slightly ahead of our fourth quarter guidance. Gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to cost improvement efforts, favorable foreign exchange rate, and the high capacity utilization rate. The operating expenses accounted for 8.4% of net revenue compared to 8.9% in third quarter of 2025 due to operating leverage.
Thus, operating margin increased sequentially by 3.4 percentage points to 54% overall. 3 nm process technology contributed 28% of wafer revenue in the fourth quarter while 5 nm and 7 nm accounted for 35% and 14% respectively. Advanced technologies defined as 7 nm and below accounted for 77% of wafer revenue on a full year basis. 3 nm revenue contribution came in at 24% of 2025 wafer revenue, 5 nm 36% and 7 nm 14%.
What went well
- Full-year 2025 revenue grew 35.9% in USD to $122 billion (31.6% in TWD to TWD 3.8 trillion), outperforming the Foundry 2.0 industry's 16% growth.
- Fourth quarter gross margin rose 280 basis points sequentially to 62.3%, exceeding the high end of guidance by 130 basis points on better-than-expected cost improvement and favorable FX; full-year gross margin improved 3.8 points to 59.9%.
- Full-year EPS increased 46.4% to TWD 66.25, ROE rose to 35.4%, and free cash flow reached TWD 1 trillion, up 15.2% year over year.
- Raised the AI accelerator revenue CAGR to approach mid-to-high 50s% for 2024-2029 and lifted the overall long-term revenue CAGR to approach 25% (from 2024); AI accelerator was high-teens % of 2025 revenue.
- Cash dividend raised to TWD 18 per share for 2025 (from TWD 14 in 2024), with at least TWD 23 per share committed for 2026.
- N2 entered high-volume manufacturing in Q4 2025 with good yield at both Hsinchu and Kaohsiung, with a fast ramp expected in 2026 on strong smartphone and HPC AI demand.
What went wrong
- Fourth quarter revenue rose only 1.9% sequentially in USD to $33.7 billion, a modest sequential step-up.
- DCE platform revenue fell 22% sequentially and automotive slipped 1% in the quarter.
- The 2nm ramp will begin diluting gross margin in the second half of 2026 (2%-3% full-year dilution), and overseas fab dilution is forecast at 2%-3% early stage widening to 3%-4% later.
- 2026 depreciation expense is expected to rise by a high-teens percentage year over year, mainly from the 2nm ramp.
- Management flagged uncertainties from potential tariff policies and rising component (memory) prices, especially in consumer-related and price-sensitive segments, and will be prudent in planning.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue | Q1 2026 | $34.6B-$35.8B (+4% QoQ / +38% YoY at midpoint) |
| Gross margin | Q1 2026 | 63%-65% (+170 bps at midpoint) |
| Operating margin | Q1 2026 | 54%-56% |
| Effective tax rate | FY 2026 | 17%-18% (higher) |
| Full-year revenue growth | FY 2026 | close to 30% (USD) |
| Capital budget | FY 2026 | $52B-$56B (higher) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Full-year revenue | +35.9% (USD) | Reached $122B on strong demand for leading-edge process technologies, outperforming the foundry industry. |
| HPC platform revenue | +48% | Driven by AI accelerator demand; HPC was 58% of full-year revenue. |
| Automotive revenue | +34% | Recovery in the automotive end market. |
| IoT revenue | +15% | Growth across the IoT platform in 2025. |
| Smartphone revenue | +11% | Growth supported by leading-edge adoption in high-end smartphones. |
| Full-year EPS | +46.4% | Reached TWD 66.25 on revenue growth and operating leverage. |
| Full-year gross margin | +3.8 pts | Rose to 59.9% on higher utilization and cost improvement, partially offset by unfavorable FX and overseas fab dilution. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| AI demand and long-term CAGR | Strong AI demand; mid-40s% AI accelerator CAGR | AI accelerator CAGR raised to mid-to-high 50s%; overall CAGR approaching 25%; AI accelerator high-teens % of 2025 revenue | Increasing |
| CapEx step-up | $40.9B spent in 2025 (up from $29.8B in 2024) | 2026 budget $52B-$56B; next three years significantly higher than prior $101B | Increasing |
| N2 / A16 ramp | On track for volume production | N2 in high-volume manufacturing since Q4 2025 with good yield; N2P and A16 volume production in H2 2026 | Increasing |
| Arizona / overseas expansion | Speeding up Arizona; ~30% of 2nm+ capacity targeted in US | Fab 2 tool-in in 2026 with HVM pulled forward to H2 2027; fab 3 under construction, fab 4 permitting; second land purchased | Expanding |
| Foundry competition | — | Acknowledges a formidable US IDM competitor but confident, citing 2-3 year build plus 1-2 year ramp lead times | Stable |
| Memory prices / non-AI demand | Non-AI bottomed with mild recovery | Rising memory prices pressure price-sensitive PC/smartphone units; high-end demand still healthy | Mixed |
Q&A Summary
Is the AI demand real and how long can this cycle last given the big CapEx step-up?
CC Wei spent months validating with cloud service providers, who showed evidence AI is growing their business; he believes the AI megatrend is real and could last many years, underpinning the ~25% long-term CAGR.
How should we think about US/Arizona expansion, including the ~30% of advanced capacity target?
TSMC is speeding up Arizona, where yield and defect density are almost equal to Taiwan; it bought a second parcel to build many fabs into an independent GigaFab cluster, but most advanced capacity still stays in Taiwan.
Is power/electricity a constraint for data-center-driven demand?
Customers say they planned power supply 5-6 years ago and that TSMC silicon is the real bottleneck; TSMC still monitors power, turbines, racks and cooling, but sees no near-term constraint.
What was advanced packaging revenue and where is the CapEx focused?
Advanced packaging was about 8% of 2025 revenue, expected to exceed 10% and grow faster than the corporate average; 10%-20% of 2026 CapEx goes to advanced packaging, mask making and others.
Is a formidable US foundry competitor a market-share risk?
No major concern; advanced technology takes 2-3 years to design in and 1-2 years to ramp, and after 30-plus years of competition TSMC is confident it can keep growing as planned.
Is ~20% wafer ASP growth the new normal and what drives profitability?
Blended ASP rises with each new node, but pricing benefit mainly covers input-cost inflation; profitability is driven more by high utilization, manufacturing excellence and cross-node capacity optimization.
Can the next three years of CapEx reach roughly $200B?
TSMC would not give a number but said the next three years' CapEx will be significantly higher than the prior three years' $101B, with 2026-2027 focused on productivity and 2028-2029 volume from today's investment.
More on Taiwan Semiconductor Manufacturing Co Ltd
Reported 2026-01-15 · figures from the Taiwan Semiconductor Manufacturing Co Ltd Q4 2025 earnings call.
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