Core Insights - TSMC continues to dominate the global foundry market with a market share of 71%, increasing by 3 percentage points from the previous quarter and 6 percentage points year-over-year [2][4] - The overall pure foundry market sales grew by 33% year-over-year, driven by the expansion of the AI industry and supportive policies from the Chinese government [4] - Samsung Electronics holds the second position with an 8% market share, but has seen a decline of 1 percentage point from the previous quarter and 2 percentage points year-over-year [4][6] Group 1: Market Performance - TSMC's market share in the pure foundry market reached 71% in Q2 2023, up from 68% in Q1 2023 and 65% in Q2 2022 [2][4] - The growth in the foundry market is largely attributed to the demand for AI-related semiconductors and the impact of China's subsidy policies [4] - Samsung's market share decreased to 8%, maintaining its second position due to the recovery in smartphone and consumer device markets [4][6] Group 2: Competitor Analysis - SMIC ranks third with a 5% market share, experiencing a decline of 1 percentage point from the previous quarter, but continues to benefit from government subsidies [6] - UMC and GlobalFoundries follow SMIC with market shares of 5% and 4% respectively [6] - Counterpoint Research predicts that the utilization rates of advanced processes and overall wafer shipments will continue to rise in the second half of 2025 [6]

Core Viewpoint - TSMC has become the world's largest foundry with a valuation exceeding $1 trillion, significantly ahead of competitors like Samsung and Intel, despite previous concerns about increasing competition [1] Financial Performance - TSMC reported consolidated revenue of approximately NT$933.79 billion (about RMB 228.03 billion) and a net profit of NT$398.27 billion (about RMB 97.26 billion), with earnings per share at NT$15.36 [2][3] - Revenue growth exceeded 40% year-on-year, with gross margin increasing over 5 percentage points, indicating enhanced pricing power; however, there are signs of demand slowing down in the quarter [3][4] Business Segmentation - TSMC's revenue from advanced processes includes 24% from 3nm technology and 36% from 5nm technology, while 7nm technology's revenue remains stable despite a declining percentage [4] - High-performance computing (HPC) remains a core pillar, accounting for over 60% of revenue with double-digit growth year-on-year, but there are concerns about the sustainability of AI demand [6] Cash Flow Situation - Operating cash flow for the quarter reached NT$500 billion (approximately $16 billion), with a dividend yield of only 1.2%, sufficient to cover dividends but facing high capital expenditures of $9.4 billion [8] - Projected capital expenditures for 2025 are expected to reach $40 billion, leading to an estimated annual free cash flow of about $25 billion, resulting in a free cash flow yield of less than 3% [8][9] Competitive Landscape - Intel is advancing its 18A process node and plans to expand capacity, while Samsung is accelerating its 2nm process development, posing potential threats to TSMC's market position [10] - The U.S. market's shift towards domestic manufacturing and protectionist policies may challenge TSMC's competitive edge, especially if Samsung establishes 2nm capacity in the U.S. [10] Conclusion - TSMC faces two core risks: high valuation combined with low free cash flow yield, and significant investments by Intel and Samsung aiming for key process breakthroughs that could compress profit margins [12]