TSMC(US:TSM)2026-01-15 07:02Financial Highlights - Fourth quarter revenue increased by 5.7% sequentially in NT$ and by 1.9% in U.S. dollar terms to $33.7 billion, slightly exceeding guidance [3] - Gross margin rose by 2.8 percentage points sequentially to 62.3%, driven by cost improvements and favorable foreign exchange rates [3] - Operating margin increased by 3.4 percentage points to 54%, with operating expenses at 8.4% of net revenue [3] - Full year 2025 revenue increased by 35.9% in U.S. dollar terms to $122 billion, with gross margin at 59.9% [9] Business Line Performance - 3 nm process technology contributed 28% of wafer revenue in Q4, while 5 nm and 7 nm accounted for 35% and 14% respectively [4] - High-Performance Computing (HPC) revenue increased by 48% year-over-year, accounting for 58% of total revenue in 2025 [6] - Smartphone revenue increased by 11% year-over-year, contributing 29% to total revenue [6] Market Data - HPC accounted for 55% of Q4 revenue, with smartphone at 32% and IoT at 5% [5] - Advanced technologies (7 nm and below) accounted for 77% of wafer revenue for the full year [4] Company Strategy and Industry Competition - TSMC plans to invest $52 billion to $56 billion in capital expenditures in 2026 to support growth in AI and other advanced technologies [14] - The company aims to maintain a long-term gross margin of 56% and higher through strategic pricing and operational excellence [17] - TSMC is expanding its global manufacturing footprint, including new fabs in Arizona and Japan, to meet increasing demand [26][27] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of AI demand, indicating it is a megatrend that will drive growth [20][22] - The company anticipates a 14% growth in the Foundry 2.0 industry in 2026, with TSMC expected to outperform this growth [20] - Concerns about potential tariff policies and rising component prices were acknowledged, but management remains focused on fundamentals [19] Other Important Information - TSMC's effective tax rate for 2025 was 16%, expected to rise to between 17% and 18% in 2026 [10] - The company generated TWD 2.3 trillion in operating cash flow in 2025 and paid TWD 467 billion in cash dividends, up 28.6% year-over-year [9] Q&A Session Summary Question: Customer Demand and AI Bubble Concerns - Management confirmed strong customer demand for AI, with evidence of business growth from cloud service providers [36][38] - Concerns about a potential AI bubble were acknowledged, but management remains confident in the long-term growth of AI [39] Question: U.S. Expansion Plans - TSMC is accelerating its fab expansion in Arizona due to strong demand from AI customers, with plans for additional fabs [42][43] - The company aims to achieve 20% to 30% of its 2 nm capacity in the U.S. as part of its long-term strategy [40] Question: Power Supply for Data Centers - Management is actively evaluating power supply considerations for AI infrastructure, ensuring that silicon supply remains the primary bottleneck [48][49] Question: Non-AI Market Outlook - Management expects minimal unit growth in PC and smartphone markets due to rising memory costs, but demand for high-end products remains strong [56][68] Question: Competition from Intel Foundry - Management does not view Intel's foundry competition as a significant threat, citing the complexity and time required to develop advanced technologies [60]