Q4 2025 Earnings Call — January 15, 2026
Analyst Gokul Hariharan (JP Morgan): Cici, it definitely feels like you have heard what your customers have said to you over the last three, four months. Could you give us a little bit more color on what you are hearing from your customers on demand? Because this is a very big step up in the capacity commitment. There is definitely a lot of concern in the financial market, especially about whether we are in a bit of a bubble. And obviously, you are the one who is putting up all the capital in this industry. So you've definitely considered this very carefully as well. So give us a little bit more detail in terms of what you're hearing from the customers and your views on the cycle given if we think about typical semiconductor cycle we've already probably lasted a little bit longer than usual cycles but this definitely doesn't feel like a typical semiconductor cycle.
Executive C.C. Wei (CEO): Goku, you essentially tried to ask us whether the AI demand is real or not. I'm also very nervous about it. You bet, because we have to invest about $52 to $56 billion U.S. dollar for the CAPEX, right? If we didn't do it carefully, that would be a big disaster to TSMC for sure. So, of course, I spend a lot of time in the last three or four months talking to my customers, and then customers' customers. I want to make sure that my customers' demands are real. So I talk to those customers, cloud service providers over them. Their answer is that I'm quite satisfied with their answer. Actually, they show me the evidence that the AI really helps their business. So they grow their business successfully and healthy in their financial return. So I also double-checked their financial status. They are very rich. That sounds much better than TSMC. So no doubt. I also asked specifically what’s an application, right? I mean, for one of the hyperscalers, they told me that customer continues to increase.
So I believe that and with our own experience in the AI application we also help to our own fact to improve the productivity as I mentioned one time say that one percent or two percent productivity improvement that is free and to TSMC, and that's why also our gross margin is a little bit satisfied, you know, even in this very high-cost period of time. And so, all in all, I believe, in my point of view, the AI is real, not only real, it's starting to work. And we believe that is kind of what we call the AI mega trend. We certainly would believe that. So another question is, can the semiconductor industry be good for three, four, five years in a row? I'll tell you the truth, I don't know. But I look at the AI, it looks like it is going to be like endless. I mean, that's for many years to come. No matter what, TSMC sticks on the fundamental technology leadership, manufacturing excellence, and we work with customers to get their trust. And I think that fundamental thing why position TSMC to be very good future growth, let me say that. 25% CAGR as we projected.
Analyst Gokul Hariharan (JP Morgan): My second question is on the U.S. expansion. You're pulling in some of the capacity in response to customers. You're already starting plans for the phase four expansion. There's a lot of media reports about ESMC might have to build more fabs in the U.S. How should we think about U.S. expansion in principle over the next few years? I think previously you had talked about reaching 20% or even 30% of two nanometer capacity in the U.S. Eventually, the total capacity could be in the U.S. Could you give us a little bit more detail about how that is progressing and when could we get there in terms of the 30% or even 20% capacity?
Executive C.C. Wei (CEO): Gokul's second question is about our overseas expansion, particularly in the U.S. He notes that CCSA, we are pulling in the schedule for the FAB 2 earlier. You know, we're starting the application for the fourth FAB. And so his question is partly around recent reports that we intend to build more fabs in Arizona. So his question is how should we or how is TSMC thinking about the future expansion in Arizona? And we have said in the past that, you know, around 30% of our 2 nanometer and more advanced capacity would be based in Arizona once we complete scaling out to this independent gigafab cluster. So what is the timeframe? That's a long question. We build the fab in Arizona and we work hard. So today, everything, even the yield or defect density is almost equal to Taiwan. And due to the strong demand, as I just answered from the AI, stronger, that's a mega trend, all my customers, in the AI customers in the U.S. So they ask a lot of support from the U.S. FAB. So because of that, we had to speed up our FAB expansion in Arizona. In Taiwan also, actually, we increased most of the capacity in Taiwan.
No doubt about it because this is most adjacent one we can progress very well. In the U.S., we try to speed it up and progress is very good. We got the help from the government. Still, we have to meet all the requirements for the permits or for those kinds of things. And so both in Taiwan and in Arizona, we speed up our capacity expansion to meet the AI demand. I can always say one word. The capacity is very tight. We work very hard to narrow the gap so far. Probably this year, next year, we have to work extremely hard to narrow the gap. We just bought a second land in Arizona. Let's give you a hint that's what we plan to do because we need it. We are going to expand many farms over there and this gigafab cluster can help us to improve the productivity to lower down the cost and to serve our customers in the U.S. better.
Analyst Laura Chen (Citibank): Thank you, Cici and Nguyen Ngo for very comprehensive outlook briefing and also congratulate for the great result. Of course, we see that the AI semiconductor growth has seen very strong growth and I believe all of your customers and customers' customers are very desperate to ask for more capacity support from TSMC. But I'm just wondering how does TSMC evaluate the potential power electricity supply for data centers? So other than that, the chips we can discuss with our customers, I think for the overall infrastructure buildup for data center, a lot of factors also very important. Just want to understand more how the CSMC evaluate those key factors for the AI infrastructure buildup.
Executive C.C. Wei (CEO): Laura's first question is around the AI demand. She notes again, as we said, AI megatrend and the growth is very strong and customers, customers, customers and ourselves are strong believers. But when we do our planning, how do we, you know, balance this against the other considerations? Do we look at things, for example, I think Laura's question is power, electricity, grid availability to businesses. Well, Laura, let me tell you first. I worry about the electricity in Taiwan first. I need to have a lot of enough electricity so I can start to expand the capacity without any limitation. Talking about building a lot of AI data centers all over the world, I use one of my customers that customers I answer because I ask the same question. They told me that they planned this one five, six years ago already. So as I said, those cloud service providers are smart, very smart. If I knew that, I would anyway. So they say that they work on the power supply five, six years ago. So today, their message to me is silicon from TSMC is a bottleneck. And ask me not to pay attention to all others because they have to solve the silicon bottleneck first.
But indeed, we do get the power supply, you know, all over the world, especially in the U.S. Not only that, we also look at who supports those kinds of power supply, like a turbine, like a nuclear power plant, the plant, all those kinds of things. We also look at the supply of the rigs. So far, so good. So we have to work hard.
Analyst Laura Chen (Citibank): That's great to know that it would not be the constraints for the further AI development. Thank you. And my second question is on the leading edge advanced packaging. Can you remind us what would be the revenue contribution last year for the advanced packaging overall? First of all, we see that, I recall that in the past, that the capex for leading edge of advanced packaging, roughly about 10%. And now it could be up to like 20%. So I'm just wondering that for the expansion, can you give us more detail about what kind of the plans you are looking for? Will you focus more on like a VDIC, SOIC, or you also start to work on more advanced like a panel-based in the longer term? I also think that before we talk about it, we'll work more closely with OSET's partner on the leading-edge advanced packaging. So just wondering what kind of the process will be the key expansion plan in the space.
Executive Wendell Huang (CFO): Laura's second question is more related to advanced packaging. What was the revenue contribution of what we call the back end, which is advanced packaging testing as a whole in 2025? And then she notes the capex. Actually, this year, I believe, Wendell, we guided 10% to 20% of capex, which is the same as last year. But anyways, she wants to know what is the focus of this capex. Is it on 3DI? Is it on SOIC packaging solutions, on panel level? Sort of what is the key areas we're focusing on relative to the CAPEX? Okay, Laura, the revenue contribution last year from advanced packaging is close to 10%. It's about 8%. For this year, we expect it to be slightly over 10%. We expect it to grow in the next five years higher or faster than the corporate. And the CAPEX, yes, you're right, in the past is about 10% or lower than 10%. Now we're saying advanced packaging together with mass making and others accounted for between 10 to 20%. So you can see that the investment amount is higher. And we're investing in areas in advanced packaging where our customers need. So the areas that you mentioned, basically, we continue to invest.
Analyst Charlie Chan (Morgan Stanley): So first of all, amazing results and guidance. Congratulations to the management team. So my first question is about outside of AI, what do you see for those in markets? You talk about the memory cost, et cetera. So can you give us some kind of your underlying assumption for PC shipments, smartphone shipments, etc.? And also in your HPC, there are some other pieces like networking and general service. Can you comment about the growth potential for those segments?
Executive C.C. Wei (CEO): Charlie, those, although we say it's called non-AI, but actually they're related to AI, you know that, right? Because of networking processor, you still need to have AI data to scale up or scale out. Those are the networking switches or those kinds of things. They still grow very strong. As for PC or the smartphone, to tell you the truth, we expect higher memory supply, so we expect unit growth to be very minimal. But for TSMC, we did not feel our customers change their behavior. And we looked at it, and then we found out that we supply most of the high-end smartphones. The high-end smartphone is less sensitive to the memories of price. So the demand is still strong. I use one sentence I like to say, we still try very hard to narrow the gap. We have to supply a lot of wafers to them also. I think that's very consistent with your five-year CAGR outlook for all the four segments.
Analyst Charlie Chan (Morgan Stanley): And my second question is about the Intel's foundry competition. I think U.S. President seems to be very happy with Intel's recent progress and even mentioned two of your key customers, right, NVIDIA. Apple may have some partnership with Intel Foundry. I'm really concerned about this so-called competition and what TSMC can really do to mitigate or avoid potential market share loss at those key U.S. customers, not limited to the two customers I just mentioned.
Executive C.C. Wei (CEO): Well, kind of a simple question. I should say no. Let me explain a little bit. Because in these days, it's not money to help you to compete. I also like whoever you just mentioned to invest on Intel. I'd like them to invest on TSMC also. But the most fundamental thing is, let me share with you, today's technology is so complicated. So once you want to design a very complete or advanced technology, it takes two to three years to fully utilize that technology. That's today's situation. And so after two to three years of preparation, you can design your product. Once you get your product being approved, it takes another one to two years to ramp it up. So we have a competitor, no doubt about it. That's a formidable competitor. But first, it takes time. Two, we don't underestimate their progress. But are we afraid of it? For 37 years, we always in a competition with our competitor. So now we have a company that to keep our business grow as we estimated.
Analyst: Let's take the next two questions online in the interest of time.
Analyst: First question of the line, Macquarie.
Analyst Arthur (Macquarie): Hi. First, congrats. Very strong performance. My first question is about the global capacity plan. Recently, Taiwan local news report that the SMG put exit 8-inch business in the true and no 12-inch cucumber into the advanced packaging. And investors came to know if this is true and that.
Executive C.C. Wei (CEO): Good question. Indeed, we reduce our eight-inch weavers capacity and six-inch. But let me assure you that we support all our customers. We discuss with our customers and to do this kind of resources more flexible and more, what is the word we say? Optimize, which I should, optimize the resources to support our customers. But let me assure you, also to my customers, that we continue to support them. We will not let them down. If they have a good business, we continue to support. Even in the 8-inch, it's a way for business.
Analyst Arthur (Macquarie): Yes, thank you. My second question is regarding the consumer and demand outlook. So CJ also mentioned that the mainly price actually inflation and you're also pushing up the cost of the consumer electronics. So investors are actually concerned about the further demand softness. So can management comment about what your client or your client's client, how to resolve this memory tightness or we call a memory urgency issue?
Executive C.C. Wei (CEO): For TSMC, no impact. As I just mentioned, most of my customers now focus on high-end smartphones or PCs. So those kinds of demand are less sensitive to the components of price. So they continue to give us a very hearsay forecast this year and next year.
Analyst: Let's move on to the next participant from the line, please.
Analyst Brett (Baird): Yeah, thanks very much. My question is really on AI. I mean, TSMC has been supply-constrained. Challenges do you think the capex you've laid out for this year $52 to $56 billion, could that mean that we start to see supply and demand more than balance in 2027? Any thoughts there just in terms of how you're thinking about that capacity plan and does it alleviate this supply bottlenecks that we see today? And as part of this from a supply perspective, we hear engineering talent, both in the U.S. and in Taiwan. Can you talk more about this trend, and what's the scale of the labor shortage of fancy engineers at the moment?
Executive C.C. Wei (CEO): Okay, let me answer this question first. $56 billion, the contribution to this year almost none and to 2027 a little bit so we actually were looking for 2028, 2029 supply and we hope is a time that the gap will be narrowed. We are focused on the short-term more output. Actually, our productivity continues to increase. Our people have an incentive because one of TSMC's incentive is to satisfy customers. It's not because of our financial result are good, but we want to let customers feel that TSMC is trustworthy. We were supported. So in 2026, 2027, for the short term, we focused on the productivity improvement, which we've done quite a good result because of Wingo just mentioned that we can have a good financial result because of that. But that's not our purpose. Our purpose is to support our customers. So 2026, 2027 for the short term, we are looking to improve our productivity. 2028, 2029, yes, we start to increase our capacity significantly. And we will continue this way if the AI demand makes a trend as we expected.
Analyst Brett (Baird): Yeah, I do. And thanks. That was very clear. I guess my second question is about pricing. And if I look at 2025, this was the second consecutive year where TSMC's wafer ASPs were up around 20%. As leading edge becomes a bigger portion of the mix and also you feed through price increases, when we factor in the ramp of more expensive overseas fabs, is 20% ASP, wafer ASP increases the new normal for TSMC? Typically, you have an annual price negotiation about this time of the year. And so I'm trying to understand how you project ASPs in 2026. And is your March quarter guidance factoring in price increases at leading edge?
Executive Wendell Huang (CFO): Okay, Brad's question is on pricing. He notes that, you know, our, which he's looking at the blended wafer price is increasing at close to 20% according to his estimates. Of course, that's blended both on price and mix, but, you know, it's a leading edge. And also we have mentioned earning our value. So he wants to know, is this the new normal going forward? This is a tough question I didn't see a vote to answer. Okay, every new note that we have a price, the price will increase. The blended ASP will increase. I think they continue this way in the past and will continue the way going forward. But, Brian, I think you're asking about the contribution from pricing to the profitability. Now, as we mentioned before, the profitability, there are six factors affecting the profitability. And price is just one of them. And, of course, we continue trying to earn our value. But in fact, in the last few years, the pricing benefits to the profitability was just enough to cover the inflation cost from tools, equipment, materials, labor, et cetera. There are other factors contributing to the higher profitability. The first one will be a high utilization rate.
As the demand is so high and as our disciplined approach to capacity planning, the utilization rate supports our high profitability. The other one will be manufacturing excellence. As CC said, we continue to drive increasing productivity to generate more wafer output. Also, we continue to drive optimization capacity among nodes, which includes converting part of the N5 to N3. It also involves cross-supports from different nodes, from the mature nodes to the more advanced nodes. That is a very important advantage of TSMC. So with all these efforts, we're able to maintain a good, healthy, sustainable return, profitability, so that we can continue to invest to support our customers' growth.
Analyst: In the interest of time, we'll take two more questions from the floor and one more from the line.
Analyst Sunny (UBS): Thank you. Good afternoon. Very strong results. Congratulations. So number one, if we look at the company, very different versus in the past from many angles. But if we look at the ramp from new nodes, now you can generate actually higher revenue from new nodes in year four, even year five of mass production versus in the past, new nodes like take revenue in the second or even third year of mass production. And so could you help us understand with this new trend, what's the financial implications? And then what does that imply for you to operate or even compete differently versus in the past?
Executive C.C. Wei (CEO): If I can answer, say we are lucky. Actually, if you look at the semiconductors product, right now the trend is you need to have a low power consumption always and then high speed performance. And for TSMC, our technology differentiation become more and more clear. We have both benefits. We have a high speed and we have a low power consumption. And so our leading edge customer, the first wave, the second wave, the third wave continue to come and so that sustain the demand for a long, long time. That's the difference. Of course, this one, you need to have technology leadership, and which the technology leadership, much easier to say, but every year you have to improve. As we said, we have N2, N2P, and then you won't be surprised, and the third one will be N2 something, and continuously. And so that one gives us the benefit and to support our customers' continuous innovation. And so they continue to stay with TSMC. And so their product can be very competitive in the market. So that answers the question, say that, you know, once we got the peak revenue and did not decrease, it's continuous. Because second wave, third wave, customers continue to join.
Analyst Sunny (UBS): And then maybe a question on 2 nanometer, which was CC meaningful revenue coming through in 2026. And so in the past, you guide like how much a new node will contribute to sales for the year. And so any expectations on the revenue contribution from 2 nanometer in 2026? And then I recall in terms of process migration, a few years ago, there were lots of concerns on increasing cost per transistor. And that obviously is not declining from 5 nanometer. But then now looking at 2 nanometer, I think process migration seems to be accelerating, even for smartphone and PC. And then with larger demand coming from high-performance compute. And so maybe based on your feedback from clients, maybe for smartphone and PC clients, why are they accelerating process migration into 2 nanometer?
Executive C.C. Wei (CEO): Yeah, Sunny, the two nanometer will be a bigger node than three nanometer from the start. But it's less meaningful nowadays to talk about the percentage of revenue contribution when the new node starts because the corporate as a whole, the revenue has become much bigger than before. So yeah, revenue dollar, it's a bigger node. But percentage-wise, less meaningful. And then the second part of Sonia's question from a technology perspective, as you know, she noted increasing cost per transistor, as we said, capex per K going higher. So her question very simply, what's the value? What's driving, you know, smartphone, HPC customers actually to see, we're seeing a widening out of the adoption of N2. So what is the value that it's providing that the customers are willing to adopt N2? That already answers the question, right? Because of now the whole product industry is looking for low power consumption and high speed performance. And our technology can provide that value. I also say that every year we improve. So every year they adopt the same, even the same name or the same node, their product continues to improve. So that provides a value.
If you say that the cost per transistor is increased, I saw the cost per transistor, the performance compared, the CP value is increased. It's much better. So that customer stick with the TSMC. Our headache right now, if I can call it a headache, is the demand and the supply gap. We need to work hard to narrow the gap.
Analyst: Can we take the last call from the line and we'll take one last one from the floor.
Analyst Krish Sankar (TD Cowen): Hello?
Analyst: Okay. Krish, are you there? I guess not. Then let's just take the last call. Sorry,
the last question from Bruce Lu from Goldman Sachs.
Analyst Bruce Lu (Goldman Sachs): Thank you for letting me ask the last question. Hopefully, it's not that difficult. So I think one of the key, I understand that TSMC is trying very hard. You know, AI revenue is growing like 50% a year, 50% plus a year. But token consumption for the last few quarters is 50% a quarter. So the gap is still there, right? I mean, that's why Elon Musk was talking about the chip walk. So can you share with us that in your assumption, when you provide 50% plus AI revenue growth, what kind of token consumption you can support and how many gigawatts power in terms of the chips you can support in your assumption when you provide this kind of five years revenue guidance for AI?
Executive C.C. Wei (CEO): Bruce, you got me. I mean, I also try to understand what is the tokens of growth, but my customers have their product improvement continue to increase. So from, it's well known from Harper to Blackwell to Rubin, they almost double, triple their performance. So the one they can support the tokens of growth or the one they can continue to support the compute power is enormous. And so I do subtract. To be frank with you. And for gigawatt, I want to see that how much of TSMC can make the money from the gigawatt, rather than say that, you know, how much we can support. Today, from my point of view, still the bottleneck is TSMC. So we also look at carefully. To answer your question, say that the TSMC is a wafer, can support how much of the DECA WAP? Still not enough. They still have an abundant of power supply in the U.S. about like 2027 the capital will be more for the productivity improvement when 28 29 may be meaningful higher so I do recall that in 2021 TSMC provided three years for 100 billion dollar capex to support that structural growth now the demand is even str.