Technology · Semiconductors
Taiwan Semiconductor Manufacturing (TSM)
TSMC is the foundry case under IFRS in New Taiwan dollars: utilisation as the margin lever, capex near a third of revenue, and leading-edge mix.
Selborne Research · · Company Profile
Educational analysis. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
- FY2025 Revenue
- NT$3.81T (+31.6%)
- Gross Margin
- 59.9% (FY2025)
- Operating Margin
- 50.8% (FY2025)
- Capex / Revenue
- 33.4% (FY2025)
- Wafers Shipped
- 15.0M (FY2025)
- 7nm and Below Share
- 74% of wafer revenue (FY2025)
- Inventory Days
- 69 (FY2025)
- Free Cash Flow
- NT$1,003B (FY2025)
Business Overview
Taiwan Semiconductor Manufacturing is a pure foundry that builds wafers for others. FY2025 revenue under IFRS was NT$3.81 trillion, up 31.6% from NT$2.89 trillion. Gross margin was 59.9% (from 46.0% in FY2019) and operating margin 50.8%. R&D was 6.5% of revenue and capex 33.4% (NT$1.27 trillion). Stock-based compensation was effectively nil (NT$1.2B). Free cash flow was NT$1,003B.
The company shipped 15.0M twelve-inch-equivalent wafers against capacity that exceeded 17M. Chips at 7nm and below were 74% of wafer revenue (3nm 24%, 5nm 36%, 7nm 14%). Inventory days were 69. Billing utilisation in the last published series (FY2016-FY2020) ran 92%, 91%, 87%, 81%, 94% while gross margin moved 50.1%, 50.6%, 48.3%, 46.0%, 53.1%. Later 20-Fs do not publish utilisation; FY2025 shipments against capacity over 17M imply utilisation under 90%.
How the Numbers Read
Capex at 33.4% of revenue is the foundry bargain: depreciation is fixed, so utilisation moves gross margin. Gross margin rose from 46.0% in FY2019 to 59.9% in FY2025. Leading-edge nodes (7nm and below) were 74% of wafer revenue. Free cash flow of NT$1,003B still leaves most of operating cash flow absorbed by the build-out.
Shipments of 15.0M wafers against capacity over 17M leave headroom; a few points of utilisation change land in margin because depreciation does not flex. In the FY2016-FY2020 billing-utilisation series, the last TSMC published, gross margin moved with utilisation in three of the four years. Figures stay in New Taiwan dollars under IFRS. The utilisation guide and the capital-intensity guide develop both points.
How the Model Values This Kind of Company
A foundry is valued on installed capacity, how fully that capacity is loaded, and revenue per wafer. Loading moves with the cycle and cannot exceed 100%, and new wafers arrive about two years after the spend that funds them. Depreciation and other fixed cost of goods make gross margin rise and fall with utilisation.
Terminal value uses mid-cycle free cash flow, not a peak loading year. Stock pay is minimal for this kind of company, and working-capital days are inputs. A reverse DCF on a fictional company shows what mid-cycle operating margin a typed price implies.
What to Watch in the Financials
Capex as a share of revenue. 33.4% in FY2025. Sustained spend raises future depreciation; a pause raises near-term free cash flow.
Shipments versus capacity. 15.0M against over 17M. Implied utilisation under 90% leaves room; a fall toward the FY2019 utilisation trough would pressure the 59.9% gross margin.
Leading-edge mix. 74% of wafer revenue at 7nm and below. Mix toward older nodes would lower revenue per wafer.
Gross margin versus the FY2016-FY2025 history. 59.9% at the top of a series that touched 46.0% in FY2019.
Key Risks
Utilisation leverage. Fixed depreciation means a few points of under-loading move gross margin sharply, as the FY2016-FY2020 series showed.
Capital intensity. Capex at 33.4% of revenue commits cash years before new wafers ship.
Customer and node concentration. Leading-edge mix at 74% ties results to a small set of advanced-node programmes.
Reporting currency. Results are in New Taiwan dollars under IFRS; converting carelessly to US dollars mixes FX with operating change.
A chip DCF carries the industry cycle through ten explicit years, then strikes the terminal value on what the business earns in a normal year, because the latest margin may sit at a peak or a trough.
- 17 sections, from the business models and the industry cycle to capital intensity, memory, inventory, equipment orders, stock pay and a reverse DCF
- 44 pages
- a chip designer, a foundry, a memory maker and an equipment maker, all fictional
- 4 worked valuations
- listed chip companies on filed margins, capital intensity, inventory days and stock pay, each with its fiscal year
- 6-company screen
The Excel model is the primer's through-cycle DCF live across 13 sheets: a chip designer, a foundry, a memory maker and an equipment maker, all fictional, plus a column for a company of your own in any of five business-model modes. Each mode turns the industry cycle into revenue its own way: units and selling prices, capacity times utilisation times revenue per wafer, bit demand against bit supply, orders and installed-base services, or wafer starts for a materials supplier. Depreciation sits in cost of goods for fab owners, capacity arrives two years after the capex that pays for it, and the terminal value is struck on mid-cycle cash flow. A reverse DCF reads the margin and the growth a price requires, and the sensitivity grids re-run the model in every cell.
See what's in the Semiconductors Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Technology industries
Learn the Concepts
Understand the valuation frameworks and metrics used in this analysis.
Peak vs Mid-Cycle Margins for Chip Companies
A terminal year at peak margin overstates value. Filed margin swings and a worked mid-cycle example on a fictional chip company.
Capital Intensity in Semiconductors
Capex to revenue sets what a chipmaker must earn. Spend reaches capacity about two years later; TSMC and Intel are the worked cases.
Capex to Revenue by Chip Company
Ranked capex as a share of revenue for six chip filers. Business model sets the order from foundry and IDM down to fabless and equipment.
Fabless vs Foundry vs IDM vs OSAT
Four chip business models defined by who owns which assets, with margin and capex profiles from Nvidia, TSMC and Intel filings.
Fab Utilisation and Gross Margin
Depreciation is fixed, so a few points of utilisation move gross margin sharply. TSMC billing utilisation and Intel margin decline as worked cases.