Taiwan Semiconductor (TSMC)
Analytical review · Quarter ended 30.6.2026 (Q2 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. The company's earnings release for the quarter ended 30 June 2026 (16.7.2026) and the accompanying presentation; the reviewed consolidated financial statements for the same date, including notes (filed 14.8.2026); the Form 20-F annual report for 2025 (16.4.2026); the earnings releases of the five preceding quarters; monthly revenue reports through August 2026; and the board resolutions of 11.8.2026. The company reports in New Taiwan dollars (NT$). Market data: ADR closing price on 6.10.2026; Bank of Israel representative USD rate of 6.10.2026.
Upcoming update: according to the company, Q3 2026 results will be published on 15.10.2026. September 2026 revenue had not yet been published at the time of writing.
Company Profile
Taiwan Semiconductor Manufacturing Company (TSMC) is a contract chip manufacturer. It does not design or sell chips under its own name; it manufactures chips designed by other companies. This model, known as a foundry, was pioneered by the company itself when it was founded in 1987. Headquarters are in Hsinchu, Taiwan.
In 2025 the company served 534 customers, used 305 distinct process technologies and manufactured 12,682 products. It shipped about 15 million silicon wafers (12-inch equivalent). Most fabs are in Taiwan. The company also has fabs in China (Nanjing), the US (Arizona), Japan (Kumamoto) and Germany (Dresden), some still under construction.
The shares trade on the Taiwan Stock Exchange (ticker 2330). ADRs trade in New York; each ADR represents 5 common shares. Taiwan's National Development Fund holds about 6.4% of the shares. The company reports to the US SEC as a foreign private issuer: an annual report on Form 20-F and current reports on Form 6-K.
Financial Performance
In the April–June 2026 quarter revenue was NT$1,270 billion ($40.2 billion), up 36% from the year-ago quarter. Gross profit rose to 67.7% of revenue and operating profit to 60.3%. Wafer shipments rose 16.6%, and average revenue per wafer rose about 17%. In other words, roughly half of the growth came from volume and the rest from price and a richer mix of advanced technologies.
Reported profit versus profit excluding a one-time item
Net income for the quarter, NT$706.6 billion (+77%), includes a NT$63.2 billion gain on selling 8.1% of the associate VIS. Most of it, NT$56.4 billion, is an accounting remeasurement of the remaining stake, not cash. Excluding this gain and small gains on financial assets and on foreign exchange, at the pre-tax level and at the quarter's effective tax rate (18.05%), net income for the quarter is about NT$653 billion and EPS about NT$25.2 (versus NT$27.25 reported). On that basis profit growth is about 64%. In addition, insurance claims for the 2024 and 2025 earthquakes were finalized in the quarter; per Note 34 the cumulative net effect is a gain of about NT$4.3 billion. The amount recorded in the quarter itself was not disclosed.
Where the margin expansion came from
In the first half of 2026 revenue rose 35.6% while depreciation was virtually unchanged (NT$359.5 billion vs NT$359.0 billion). In Q2, depreciation in cost of revenue fell to 14.5% of revenue from 18.8% a year earlier. According to the property, plant and equipment note, machinery and equipment costing about NT$1,135 billion was placed in service in H1 2026 (H1 2025: about NT$340 billion). Equipment is depreciated over 5 years, and depreciation on it has only started to appear: depreciation in cost of revenue rose from NT$151 billion in Q1 to NT$184 billion in Q2. For Q3, according to company management, gross margin will be 65%–67%; the long-term target the company published in January 2026 is a gross margin of "56% and higher through the cycle".
| Quarter | Q4-24 | Q1-25 | Q2-25 | Q3-25 | Q4-25 | Q1-26 | Q2-26 |
|---|---|---|---|---|---|---|---|
| Revenue ($ billions) | 26.88 | 25.53 | 30.07 | 33.10 | 33.73 | 35.90 | 40.20 |
| Gross margin | 59.0% | 58.8% | 58.6% | 59.5% | 62.3% | 66.2% | 67.7% |
| Operating margin | 49.0% | 48.5% | 49.6% | 50.6% | 54.0% | 58.1% | 60.3% |
| Net income (NT$ billions) | 374.7 | 361.6 | 398.3 | 452.3 | 505.7 | 572.5 | 706.6 |
| EPS (NT$) | 14.45 | 13.94 | 15.36 | 17.44 | 19.50 | 22.08 | 27.25 |
In the last six quarters, quarterly revenue was at or above the top of the company's guidance range five times, and gross margin was above the top of the range four times. For full-year 2026, the company's guidance for USD revenue growth was updated from "close to 30%" in January, to "above 30%" in April and to "slightly above 40%" in July. For Q3, according to company management, revenue will be between $44.6 and $45.8 billion. July and August 2026 revenue totaled NT$982 billion (+44.7% and +53.3% year over year).
Balance Sheet & Capital
At 30.6.2026 the company held NT$3,518 billion in cash and marketable securities, against long-term interest-bearing debt (mainly bonds) of NT$864 billion. Equity was NT$6,474 billion out of total assets of NT$9,376 billion. The current ratio was 2.5. Interest income in the quarter (NT$30.0 billion) was ten times finance costs (NT$3.1 billion).
Working capital: receivable days rose to 29 (23 a year earlier) and inventory days to 87 (76). In the first half, receivables and inventory absorbed about NT$254 billion. On the other side, customers paid in advance to reserve capacity: these receipts reached NT$234 billion, and the long-term portion rose from NT$43 billion to NT$92 billion in six months. Per Note 20, the amounts will be refunded or offset against receivables by mutual consent.
Investment, cash flow and dividend: in the 12 months ended June 2026, operating cash flow was NT$2,635 billion and capital expenditures NT$1,491 billion, so free cash flow was NT$1,144 billion (51% of net income). Per the 20-F, 2026 capital expenditures will be between $52 and $56 billion; about $26.8 billion was spent in the first half. The dividend per share rose from NT$13 in 2023 to NT$17 in 2024 and NT$22 in 2025. For Q1 and Q2 2026 a dividend of NT$7 per share was declared for each quarter. The share count was almost unchanged (25,932 million).
Government grants: under the company's accounting policy, grants for equipment purchases are deducted from the asset's cost and reduce depreciation. Grants received in 2023–2025 were NT$47.5, 75.2 and 76.3 billion. In H1 2026 only NT$0.59 billion was received (H1 2025: NT$67.1 billion). The Arizona subsidiary has an agreement for up to $6.6 billion in grants and up to $5 billion in loans under the US CHIPS Act.
Segments
The company reports a single operating segment. In the revenue note it publishes three breakdowns: by application (platform), by process technology (node) and by region, where region is based on the customer's headquarters.
| Revenue by platform, NT$ billions | Q2-25 | Q2-26 | Change | Share of Q2-26 revenue |
|---|---|---|---|---|
| High Performance Computing (HPC) | 561.2 | 830.4 | +48.0% | 65.4% |
| Smartphone | 250.0 | 283.3 | +13.3% | 22.3% |
| Internet of Things (IoT) | 44.3 | 64.1 | +44.6% | 5.0% |
| Automotive | 43.0 | 53.7 | +24.7% | 4.2% |
| Digital consumer electronics | 15.0 | 12.7 | −15.6% | 1.0% |
| Others | 20.4 | 26.4 | +29.5% | 2.1% |
By technology: in Q2 2026, 3% of wafer revenue came from 2-nanometer (for the first time), 30% from 3-nanometer (71% growth year over year), 33% from 5-nanometer and 11% from 7-nanometer. In total, 77% of wafer revenue came from 7-nanometer and more advanced technologies. Wafer revenue was 84.5% of total revenue; the remaining 15.5% includes mainly advanced packaging, masks and services and is not broken out.
By region: customers headquartered in the US accounted for 76.4% of revenue (74.3% a year earlier). Revenue from customers in China fell 12.1% to 6.0% of revenue. Taiwan — 6.2%; Europe, the Middle East and Africa — 4.0%; Japan — 3.6%.
Customer concentration (20-F): the ten largest customers accounted for 78% of revenue in 2025 (76% in 2024, 70% in 2023). The largest customer accounted for 19% of revenue and the second largest for 17%. The company does not disclose customer names.
Competitive Position
The company's main differentiation is leadership in advanced process technologies. 77% of wafer revenue comes from 7-nanometer and below, 2-nanometer has entered revenue, and in April 2026 the company unveiled its A13 technology. Alongside this the company offers advanced packaging, design libraries and services, so a customer can go from design to a packaged chip with a single supplier. Per the 20-F, R&D spending in 2025 rose 20.7%, mainly for 10-, 14- and 16-angstrom technologies.
What the filings show on the other side: the 20-F describes competition from other foundries and integrated device manufacturers, some of them benefiting from government subsidies; the governments of the US, China, Europe, Korea and Japan encourage domestic manufacturing. Overseas expansion changes the economics: per Table 7 of the financial statements, the Arizona subsidiary earned NT$36.1 billion in H1 2026 on a carrying value of NT$773 billion — an annualized return of about 9%, versus a 45.9% return on equity for the group as a whole. The German subsidiary (ESMC) recorded a small loss and the Japanese subsidiary (JASM) a small profit.
How to Think About This Company
At TSMC, revenue growth is the visible number, and depreciation is the number that sets the profit. When revenue rises 36% and depreciation does not move, the margin jumps. When new equipment is placed in service, depreciation rises even if the business has not changed. Reading a single quarter's margin shows the result of timing, not only of the business.
This is a company of very large investments. About a third of revenue goes back into capital expenditures: NT$1,491 billion in the last 12 months and, per the 20-F, $52–56 billion for 2026. That is why free cash flow, NT$1,144 billion, is about half of net income. In a company like this, the link between "profit" and "cash left for shareholders" runs through the pace of investment.
Depreciation moves in waves. Machinery is depreciated over 5 years. Equipment bought five or more years ago is barely depreciated any more, and at the start of 2026 about 77% of machinery cost had already been depreciated. At the same time, machinery costing about NT$1,135 billion was placed in service in H1 2026, 3.3 times the year-earlier half. These two forces work in opposite directions, and the balance between them changes from quarter to quarter.
Growth is concentrated in one application. High Performance Computing, which includes chips for data centers and artificial intelligence, is 65% of revenue and grew 48%. Smartphones, the growth engine of the previous decade, grew 13%. The company's growth rate is now linked mainly to the pace of data-center investment worldwide.
Few customers, large amounts. The two largest customers were 36% of revenue in 2025 and the top ten 78%. Revenue from the largest customer almost doubled in one year, to NT$727 billion. On one hand, these customers pay in advance to reserve capacity. On the other, a change in one customer's plans shows up across the whole report.
Three currencies. Almost all sales are in US dollars, the reports are in NT$, and more than half of capital expenditures are in other currencies. Per the 20-F, every 1% decline of the US dollar against the NT$ reduces operating margin by about 0.3 percentage points. The Q3 guidance assumes a rate of 32; the Q2 average was 31.60. An Israeli investor also carries the dollar–shekel rate.
Reported profit and recurring profit. Q2 net income included a one-time gain of NT$63.2 billion from selling VIS shares, most of it a non-cash remeasurement. Comparing quarters, the difference between 77% and about 64% profit growth is this single item.
Geography is part of the business. Most manufacturing is in Taiwan. The 20-F lists among its risk factors political and military conditions, "the risk of outbreak of war or hostilities", earthquakes and water shortages. At the same time, US policy — Section 232 tariffs, the US–Taiwan trade agreement of January 2026 and Section 301 investigations — affects the economics of manufacturing at each site. Per the 20-F, the implications of some of these measures "are still unclear".
Two ways to hold the same company. The ADR in New York and the share in Taiwan represent the same business, but not always at the same price. On 2.10, 5.10 and 6.10.2026, the ADR price expressed per common share was about 19%–20% above the Taiwan share price (at about 31.8 NT$ per dollar). This gap depends on the exchange rate and on demand for each line, and it is not fixed.
This framework is intended to structure analysis, not to produce an investment conclusion. It does not participate in the decision — the decision belongs to the reader.
Risks & Monitoring
Risks arising from the filings
- Geopolitics: most fabs and management are in Taiwan; the 20-F explicitly mentions the risk of military conflict. Under a 1987 agreement, the Taiwan government may use up to 35% of capacity, subject to commitments to customers (Note 33). The right has not been exercised.
- Tariffs and export controls: a 25% Section 232 tariff on certain advanced chips (since December 2025); Section 301 investigations (March 2026); a possible license requirement for shipping 16-nanometer and below products to certain destinations. The Nanjing fab operates under an annual export license, and per the company there is "no assurance" it will be renewed.
- Concentration: 78% of revenue from ten customers; 65% from one application (HPC); 76% from customers headquartered in the US.
- Cyclicality and depreciation: capital expenditures of about a third of revenue; depreciation on equipment placed in service in 2026 is only starting to appear in the reports.
- Currency: sensitivity of about 0.3 points of operating margin for each 1% move of the USD against the NT$.
- Grants: government grants are subject to conditions and milestones and may be delayed or clawed back. Grants received fell to NT$0.59 billion in H1 2026.
Items to monitor in the Q3 report (15.10.2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Quarterly revenue versus guidance range | Guidance: $44.6–45.8 billion; July+August: NT$982 billion |
| 2 | Gross and operating margin | Guidance: 65%–67% and 56%–58%; Q2: 67.7% and 60.3% |
| 3 | Quarterly depreciation in cost of revenue | NT$184 billion in Q2 (14.5% of revenue) |
| 4 | Quarterly and annual capital expenditures | NT$496 billion in Q2; $52–56 billion for the year per the 20-F |
| 5 | Share of 2- and 3-nanometer in wafer revenue | 3% and 30% |
| 6 | HPC share and revenue from China | 65.4%; China 6.0% |
| 7 | Customer advance receipts | NT$234 billion |
| 8 | Actual USD rate versus the 32 assumption | Q2 average: 31.60 |
Scenario Framework
The scenarios below are descriptive, not predictive. They contain no prices, no probabilities and no ranking of outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against future reports.
- If gross margin stays at the top of the guidance range even as depreciation on new equipment rises
- If 2-nanometer grows its share of revenue at the pace management described
- If customers continue to pay in advance to reserve capacity for the coming years
- If overseas fabs improve the return on the capital invested in them
- If revenue moves within the company's guidance ranges
- If gross margin declines gradually as depreciation rises, while staying above the company's long-term target
- If capital expenditures stay within the range the company published for 2026
- If trade and tariff measures remain at their current level
- If data-center investment slows and the HPC share of revenue declines
- If depreciation and utilization push gross margin below the guidance ranges
- If tariffs or export controls are expanded, or the Nanjing fab's export license is not renewed
- If the geopolitical situation deteriorates in a way that affects operations in Taiwan
Analytical Lens
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions as every other company.
Key Observations
1. In the April–June 2026 quarter TSMC reported revenue of NT$1,270 billion ($40.2 billion, +36% in NT$), a gross margin of 67.7% and EPS of NT$27.25. Profit includes a one-time gain of NT$63.2 billion from selling VIS shares; excluding it, EPS is about NT$25.2.
2. High Performance Computing was 65.4% of revenue (+48%). Technologies of 7 nanometers and below were 77% of wafer revenue, and 2-nanometer entered revenue for the first time (3%). US-headquartered customers were 76.4% of revenue, and the ten largest customers were 78% of 2025 revenue.
3. In H1 2026 depreciation was unchanged (NT$359.5 billion) while revenue rose 35.6%, and machinery costing about NT$1,135 billion was placed in service. For Q3, according to company management, gross margin will be 65%–67%.
4. In the last 12 months free cash flow was NT$1,144 billion after capital expenditures of NT$1,491 billion. At 30.6.2026 the company held NT$3,518 billion in cash and securities against long-term debt of NT$864 billion, and declared a dividend of NT$7 per share for each of the first two quarters of 2026.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held an investment advisory license in 2008–2023. As of the date of publication of this document, the company does not hold an investment advisory, investment marketing or portfolio management license.
This document is intended for research and professional study purposes only. Nothing herein constitutes a recommendation to buy, sell, hold or take any action in securities. Nothing herein is a substitute for advice that takes into account the data and needs of each person. Any decision is at the investor's sole responsibility.
Past performance does not indicate future performance. Data were drawn from official sources: the earnings release for the quarter ended 30.6.2026 (16.7.2026), the reviewed consolidated financial statements as of the same date (14.8.2026), the Form 20-F annual report for 2025 (16.4.2026), earnings releases for previous quarters, monthly revenue reports through August 2026, and the company's 2026 filings with the US SEC. Amounts in New Taiwan dollars (NT$) as reported; conversions to USD and ILS are for illustration only. Reporting updates published after this date, including Q3 2026 results, are not included.
Review for qualified clients โ Family Office
The full analytical review of Taiwan Semiconductor (TSM) for the quarter ended June 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company" paragraphs, a structured scenario framework, and a six-dimension Analytical Lens.
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