How TSM (Taiwan Semiconductor Manufacturing Company) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a semiconductor foundry giant like TSMC makes money is essential for investors and anyone interested in the business of advanced chip manufacturing. In this post, we break down TSMC's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick TSMC Overview

TSMC operates as the world’s largest dedicated semiconductor foundry, manufacturing advanced integrated circuits for global technology leaders. Revenue comes primarily from wafer fabrication services, with customers spanning high-performance computing, mobile devices, automotive, and IoT sectors. The company’s business model is built on high-volume, high-mix manufacturing, leveraging cutting-edge process technologies.

Revenue Breakdown

• Total Revenue (Q3 2025): $33.1B (+30.3% YoY)
  • Other (includes all segments): $33.1B (100% of total)
  • (Note: Segment-level data for Q3 2025 is consolidated under "Other" in the latest filing.)
  • Growth is powered by surging demand for advanced process nodes (3nm/5nm), AI-related chips, and robust orders from global tech giants.

Gross Profit and Margins

• Gross Profit: $19.7B (59.5% gross margin)
  • Cost of Revenue: $13.4B (+25.3% YoY)
  • TSMC maintains robust margins due to its scalable manufacturing platform, technological leadership, and operational efficiencies.
• Most costs come from raw materials, depreciation of fabrication equipment, and direct labor associated with wafer production.

Operating Income and Expenses

• Operating Income: $16.7B (+38.8% YoY, 50.6% margin)
• Operating Expenses: $2.94B (+11.8% YoY)
  • R&D: $2.13B (+20.8% YoY, 6.4% of revenue) — Focused on next-generation process technologies (2nm, advanced packaging, AI accelerators)
  • SG&A: $0.80B (–8.6% YoY, 2.4% of revenue) — Includes administrative, sales, and general corporate costs
  • TSMC continues to prioritize innovation and capacity expansion while maintaining efficiency in overhead and administrative spending.

Net Income

• Pre-Tax Income: $17.6B (+36.7% YoY, 53.1% margin)
• Income Tax: $2.46B (14.0% effective tax rate)
• Net Income: $15.1B (+39.1% YoY, 45.7% net margin)
• TSMC converts a significant portion of sales into profit due to its scale, pricing power, and high utilization of advanced fabs.

What Drives TSMC's Money Machine?

• Advanced process node manufacturing: Overwhelming majority of revenue is driven by leading-edge wafer fabrication (3nm/5nm), serving AI, HPC, and mobile markets.
• Utilization rate: High fab utilization ensures fixed costs are spread efficiently, boosting margins.
• R&D investment: $2.13B in Q3 2025, supporting leadership in process technology and long-term customer retention.
• Future growth areas: Automotive and IoT segments, while not yet major profit contributors, are strategic bets for diversification and future upside.

Visualizing TSMC's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially R&D) taking the largest chunk.
• Even after large investments in R&D and capacity, 45.7% of revenue drops to the bottom line.

Key Takeaways

• TSMC's money comes overwhelmingly from advanced semiconductor manufacturing for global technology leaders
• High gross and net margins illustrate the power of TSMC's scale, process leadership, and customer stickiness
• Heavy investment in R&D, balanced by efficiency in SG&A and manufacturing costs
• Ongoing growth is driven by AI, high-performance computing, and next-gen process node demand

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FAQ About TSMC's Income Statement

1. What is the main source of TSMC's revenue in 2025?

TSMC generates over 99% of its revenue from advanced semiconductor manufacturing services for global technology and electronics companies. Other segments (IoT, automotive, HPC) are included in consolidated revenue but are not broken out separately in Q3 2025.

2. How profitable is TSMC in Q3 2025?

TSMC reported net income of $15.1B in Q3 2025, with a net margin of approximately 45.7%, reflecting strong profitability driven by high utilization, advanced process leadership, and efficient cost management.

3. What are the largest expense categories for TSMC?

The biggest expenses on TSMC's income statement are cost of revenue (materials, depreciation, labor) and operating expenses, particularly Research & Development (R&D) at $2.13B in Q3 2025, as TSMC prioritizes next-generation process technology and capacity expansion.

4. Why does the automotive/IoT segment operate at a loss?

Automotive and IoT, despite generating revenue, are not yet major profit contributors and may operate at a loss due to heavy upfront investment in new process technologies and capacity. TSMC believes these will drive long-term growth—even if the divisions are unprofitable today.

5. How does TSMC's effective tax rate compare to previous years?

TSMC's effective tax rate in Q3 2025 was 14.0%, consistent with previous years. This moderate rate is primarily due to tax benefits from R&D incentives and international structuring.