Explainer: TSMC’s 2024 Annual Report Highlights
What's new? So what?
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest dedicated semiconductor foundry service provider, released its 2024 annual report recently, evoking some remarkable information that calls for readers’ attention.
Though annual reports generally give an account of events in the past year, TSMC has incorporated precautionary information regarding uncertainties brought forth by the policy changes of the new United States administration. As the Bureau of Industry and Security (BIS) has just launched Section 232 investigation on processed materials and derivative products, including semiconductors, geopolitical tension is expected to remain high in the near future.
TSMC points out in the annual report that its role in the semiconductor supply chain inherently limits its visibility and information available to it regarding the downstream use or user of final products that incorporate semiconductors manufactured by TSMC.
“This constraint impedes our ability to fully ensure that semiconductors manufactured by us will not be diverted to unintended end use or end-user, including potentially by our business partners, or by third parties with an intent of circumvention,” according to the report.
Example of a TSMC-made chip found in Huawei was mentioned: “In October 2024, we notified relevant U.S. and Taiwan authorities that one type of our customer’s chip manufactured by us might have been diverted to a restricted entity or incorporated into a restricted entity’s product, and since then have been cooperating with the authorities’ requests for additional information and documents. Despite our best efforts to comply with all relevant export control and sanctions laws and regulations, there is no assurance that our business activities will not be found incompliant with export control laws and regulations.”
Just as reported in the Q1 earnings conference, 70% of TSMC’s net revenues are now contributed by advanced-node chips (7nm and below). The other nodes only contribute to single-digit percentages.
Customers pay in advance to secure capacity
There are good news too. Customers pre-paid NT$291.1 billion in 2024 to secure capacity at TSMC’s fabs in the future.
“Because of the fast-changing technology and functionality in semiconductor design, foundry customers generally do not place purchase orders far in advance to manufacture a particular type of product. However, some of our customers have entered into agreements with us to pay temporary receipts in order to retain specified capacity at our fabs. The treatment of advanced temporary receipts, either by refund or by accounts receivable offsetting, will be determined by mutual consent when the terms and conditions set forth in the agreements are satisfied.”
Gross margin performance
In 2024, TSMC’s gross margin increased to 56.1% of net revenue from 54.4% in 2023, mainly attributable to higher capacity utilization and productivity gains, and partially offset by 3-nanometer ramp-up and higher electricity cost.
Gross margin fluctuates with the level of capacity utilization, price change, cost improvement, product mix, and exchange rate, among other factors. TSMC achieved 56.1% in 2024, although partly offset by 3nm ramp-up and higher electricity costs.
Research and development expenses increased by NT$21,812 million in 2024, or 12.0%, from 2023. The increases were mainly attributed to a higher level of research activities for 14-angstrom, 16-angstrom, and 2-nanometer process technologies, as TSMC continued to advance to smaller processing nodes.
TSMC’s research and development activities are divided into centralized and fab-conducted research and development activities. Centralized research and development activities focus on developing new logic, SoC, derivatives, package/system-in-package (“SIP”) technologies, along with cost-effective 3D wafer-level system integration solutions, including InFO, CoWoS®, and TSMC-SoIC® technologies. Fab-conducted research and development activities focus on improving and upgrading the manufacturing process technologies.
Taiwan’s United Daily reported today that TSMC’s CoWoS-L advanced packaging has been extended into a brand-new CoPoS advanced packaging architecture. Notably, TSMC has set the square glass panel specification at 310mm × 310mm to replace the substrate in FoPLP.
General and administrative and marketing expenses in 2024 increased by NT$25,425 million, or 35.6%, compared to 2023, mainly reflecting higher start-up expenses of overseas fabs preparation and employee profit sharing expenses due to higher net income.
N2 Process to Start Mass Production
TSMC particularly noted that its gross margin would be negatively impacted in the year when a new technology is introduced. With N2 (2nm) process to be launched while accelerating overseas fab buildup in 2025, gross margin is forecast to be around 53% and above in TSMC’s Q1 earnings conference.
According to Taiwan’s Economic Daily, Intel has become a customer of TSMC’s 2nm process, shortly after AMD chair and CEO Lisa Su announced the company’s successful tape-out at TSMC, and said its next-generation chip “Venice” will be produced in Taiwan, as well as in Arizona.
Two earthquakes, which struck in April 2024 and January 2025, resulted in net insurance claims of around NT$8.3 billion in total.
TSMC’s top 10 customers in 2022, 2023, and 2024 accounted for approximately, 68%, 70%, and 76% of our net revenue in the respective years, while the largest customer in 2022, 2023 and 2024 accounted for 23%, 25% and 22% of its net revenue in the respective year. (Editor’s note: This customer should be Apple)
The second-largest customer in 2022, 2023, and 2024 accounted for less than 10%, 11%, and 12% of its net revenue in the respective years (This customer should be Nvidia).
The third-largest customer contributed to 11% of TSMC’s net revenue in 2023, and declined to less than 10% in 2024. It is very likely to be AMD.
“A more concentrated customer base will subject our revenue to seasonal demand fluctuations from our large customers and cause different seasonal patterns in our business,” said TSMC. “This customer concentration results in part from the changing dynamics of the electronics industry with the structural shift to mobile and HPC devices and applications and software that provide the content for such devices.”
Although TSMC’s largest customers are all American, judging from customers’ operating segment information, more than 2/3 of their business is actually carried through their electronic manufacturing service (EMS) providers in Taiwan (see the table below). All regions except China experienced significant growth in 2024.
TSMC’s rising customer concentration (76% of revenue from its top 10 clients in 2024) underscores both its leadership in advanced semiconductor manufacturing and the inherent risks of reliance on a narrow client base. While the company continues to dominate cutting-edge chip production, its growing dependence on major customers—coupled with regulatory pressures, geopolitical tensions, and environmental compliance costs—demands strategic diversification and agility.
To sustain its market position, TSMC must balance investments in global expansion (e.g., U.S. and international fabs) with innovations in sustainability and supply chain resilience. Investors and stakeholders should monitor how TSMC navigates these challenges while capitalizing on AI-driven demand and next-generation technologies to secure long-term growth.
TSMC is a force multiplier that sits lower down the supply chain, their ability to scale up, yield and meet market requirements enables companies like Nvidia, Apple, AMD and even Intel to deliver finished goods with significant markups.
To quote Lao Tzu from the “Tao Te Ching”
“Why is the sea, king of a hundred streams? Because it lies below them.”
TSMC is king of a hundred streams with around 10, being major rivers of revenue.
TSMC is the sea; quiet, vast, foundational. It does not dominate the streams of innovation; it receives them.
Like Lao Tzu’s ocean, it leads by being beneath, not above; absorbing complexity, enabling possibility. In a world chasing the top, TSMC thrives at the bottom, where real power pools.