This Business Built the World's Most Unbreachable Moat
A First Look At The Business: TSMC (Taiwan Semiconductor).
Hi, everyone!
I’m Felix, stepping into C.C. Wei's shoes as Chairman and CEO of the world's most critical company you've never fully understood.
Overview
Today, I’ll discuss the following things through the eyes of C. C. Wei:
Introduction
Products
Market Position
Revenue Model
Competitive Position
Growth Strategy
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Introduction
Q4 2024, we reported $90B in revenue with 56.1% gross margins, I realized most investors still don't grasp the strategic chess game we're playing at Taiwan Semiconductor.
While everyone debates whether AI demand is sustainable, they're missing the real controversy. We've quietly built the most defensible monopoly in modern business history, and our competitors know it. The public just don’t.
The uncomfortable truth
While Samsung and Intel chase headlines with flashy announcements about competing process nodes, we've locked up 67% of the foundry market not through marketing, but through a decade of methodical execution that's nearly impossible to replicate. TSMC's Q4 2024 market share was 67.1% , up 2.4 percentage points compared to the previous quarter. When your closest competitor, Samsung, holds just 9.3% market share and is losing ground every quarter, you're not in a competition anymore, you're in market domination.
The strategic tension everyone misses?
AI demand is real and sustainable, but the real question isn't whether AI will drive semiconductor growth, it's whether any foundry besides TSMC can actually deliver the advanced nodes that AI requires at scale. Our 2024 performance proves the answer, when you control the technology that enables the future, you don't just participate in growth cycles, you define them.
This strategic positioning sets up the critical investment question: with TSMC trading at current valuations while controlling the most essential technology infrastructure of the next decade, is now the right time to invest?
I'll answer that in this week's "Fundamentals meet Technicals" analysis, where I'll break down whether our market dominance justifies premium pricing and identify the optimal entry points for maximum returns.
Our Products
Most analysts focus on our process node advantages without understanding the deeper competitive reality, we don't just make smaller chips, we've mastered the physics of manufacturing at scales our competitors can't match.
While Samsung struggles with 3nm yields and Intel rebuilds its foundry business from scratch, we're already allocating 70-80% of our $30+ billion capital budget to advanced processes because we see what others miss.
Between 70% and 80% of the capital budget will be allocated for advanced process technologies. This isn't just investment, it's strategic warfare. When you spend $24 billion annually on advanced manufacturing while your closest competitor stumbles through 3nm production issues, you're not competing, you're creating insurmountable barriers to entry.
The manufacturing reality that transforms into sustainable competitive advantage: our advanced nodes now represent the majority of our revenue mix, and we're seeing structural demand that goes beyond typical semiconductor cycles. The current semiconductor cycle is just beginning, but what makes this different is that AI workloads require exactly the advanced nodes where our technological lead is widest.
Here's the strategic insight most miss: while competitors talk about catching up to our 3nm process, we're already perfecting 2nm with customer engagement that spans multiple years. By the time Samsung or Intel achieve stable 3nm yields, we'll be ramping 2nm production with locked-in customer commitments. This isn't just a technology race, it's a perpetual motion machine of competitive advantage.
Our partnership ecosystem reveals the true scale of this manufacturing moat. When Apple, Nvidia, and Qualcomm architect their most advanced chips specifically for our manufacturing processes, they're not just customers, they're strategic allies helping us maintain technological leadership. Each advanced chip we manufacture creates learning effects that make our next-generation processes even more difficult for competitors to match.
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Our Market Position
The foundry market is experiencing the greatest consolidation in semiconductor history, and most investors don't realize we're not just participating, we're orchestrating it. TSMC controls 68% of foundry revenue, far ahead of Samsung at 8%, but these numbers obscure the strategic reality. In advanced nodes where the highest-value chips are manufactured, our market share approaches 90%.
While Samsung’s foundry market share and Intel’s market share seems to consolidate and decline, they also seem to struggle to attract external customers, we're as we are seeing unprecedented customer stickiness driven by technical requirements rather than commercial relationships. The migration cost for a customer to switch from our 5nm process to a competitor's alternative isn't measured in dollars, it's measured in years of re-engineering and uncertain yields.
The competitive landscape
We are expected to have a 60-65% share by 2030, but I believe we'll exceed these projections.
Why? Because the gap between our manufacturing capabilities and our competitors is widening, not narrowing. Every quarter that Samsung loses share and Intel burns cash trying to rebuild foundry competitiveness, we're signing multi-year agreements with customers who recognize that manufacturing partnerships are now strategic infrastructure decisions.
If TSMC takes over Intel's foundry unit, their combined market share would surge to nearly 75%, but here's what this speculation misses: we don't need to acquire Intel to achieve 75% market share. We're already on track to reach that level organically as customers migrate from underperforming competitors to proven manufacturing excellence.
The timing advantage we possess is historically unprecedented. While our competitors invest billions trying to catch up to our current capabilities, we're using superior cash flow and customer relationships to accelerate development of next-generation processes. This creates a competitive dynamic where our lead compounds rather than narrows over time.
I also read in a Q4 24’ shareholder letter, the following: “Fueled by strong demand for our leading-edge logic and advanced packaging technologies, TSMC’s revenue increased 30% year-over-year in US dollar terms, outperforming the Foundry industry’s 6% growth, and both our revenue and EPS reached record highs.” The fact that they are able to grow 5x times more than their average competitor says a lot about their position in the market.
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Our Revenue Model
The numbers tell a story of financial discipline creating sustainable competitive advantage. Full-year 2024 revenue increased 30% in USD terms to USD90 billion with gross margins that reflect our pricing power in advanced manufacturing. But the real financial story isn't our current profitability, it's our ability to reinvest profits into maintaining technological leadership.
The chart above tells the story that is still in the making, HPC. Or in other words big capital spending from the the hyperscalers like: Apple, Nvidia, Amazon, Meta, Google and Microsoft. This is only beneficial for TSMC.
Full-year 2024 gross margin was 56.1%, demonstrating that even in a capital-intensive industry, superior technology commands premium pricing. When customers pay higher rates for our advanced nodes not because they want to, but because they have to, you've achieved the holy grail of manufacturing: pricing power based on technical necessity rather than commercial negotiation.
Our revenue architecture reflects this technological moat in concrete financial terms. Advanced nodes now represent the majority of our revenue mix, growing faster than mature processes and commanding significantly higher margins. This creates a virtuous cycle where our most profitable products are also the ones where our competitive advantages are strongest and most defensible.
The unit economics of our business model reveal why competitors struggle to match our performance. Every dollar we invest in R&D and manufacturing capacity generates multiple dollars of future revenue through customer relationships that span multiple product generations. When a customer designs their next-generation chip for our manufacturing process, they're committing not just to current production but to years of future volume.
Our effective tax rate to be between 16% and 17% for 2025, providing additional financial efficiency that allows us to maintain capital investment levels that competitors can't match while still delivering superior returns to shareholders.
The financial reality that transforms competitive positioning into sustainable value creation: we're generating cash flow from technologically advanced manufacturing while our competitors burn cash trying to achieve similar capabilities. This financial advantage compounds our technological lead by ensuring we can always outspend competitors in the areas that matter most.
Our Competitive Position
The competitive threats that keep me focused aren't the obvious ones analysts discuss. Samsung's foundry struggles and Intel's foundry rebuild efforts are actually opportunities for us to solidify market position while they sort through execution challenges. The real strategic threat is complacency, believing that our current technological lead is permanent rather than something we must earn every quarter through superior execution.
Samsung is also aggressively challenging TSMC, particularly in the 3nm and 2nm process nodes, but aggressive positioning without manufacturing excellence is just expensive marketing. What keeps me awake isn't Samsung's announcements about future capabilities, it's ensuring our customer relationships remain so deeply integrated that switching costs become prohibitively high regardless of competitive offerings.
Intel's foundry ambitions represent a different type of threat, a well-funded competitor with decades of manufacturing experience and strong government support. But Intel's challenge isn't technical capability, it's customer trust. When you've spent decades as a competitor to potential foundry customers, convincing them to share their most advanced designs requires more than manufacturing capability, it requires fundamental business model transformation.
The defensive strategies that maintain our competitive position go beyond manufacturing excellence. Our customer relationships are architected as strategic partnerships where we collaborate on process development, share roadmap risks, and co-invest in next-generation capabilities. This creates switching costs that extend far beyond manufacturing contracts into the fundamental architecture of our customers' technology strategies.
The competitive reality
TSMC's projected growth from 59% in 2023 to 64% in 2024 and 66% in 2025 isn't just market share expansion, it's market consolidation driven by customers choosing technological certainty over price competition. When the cost of manufacturing failure exceeds the benefits of supplier diversification, customers choose proven execution over theoretical alternatives.
Our quantified competitive advantage is measurable in yield rates, delivery schedules, and process consistency that competitors struggle to match. But the sustainable moat comes from customer relationships that make these technical advantages strategically valuable rather than just operationally superior.
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Our Growth Strategy
The strategic catalysts driving our future growth extend far beyond traditional semiconductor cycles into infrastructure transformation that positions us as the essential foundation of technological progress. AI demand represents the most obvious growth driver, but the deeper opportunity lies in becoming the manufacturing partner for technologies that haven't been invented yet.
We continue to invest to support our customers' growth because we see what others miss: the customers driving today's AI revolution are simultaneously developing next-generation applications that will require even more advanced manufacturing capabilities. Our growth strategy isn't reactive to current demand, it's proactive investment in becoming the preferred partner for innovation that's still in development.
The timeline for realizing this growth vision is compressed by AI adoption rates that exceed historical technology deployment cycles. When major cloud providers commit billions to AI infrastructure buildouts, they're essentially pre-committing to years of advanced semiconductor demand that flows through our manufacturing capacity.
Resource allocation
Our strategy approach is the following: capital investment in advanced manufacturing, R&D spending on next-generation processes, and customer partnership development that creates multi-year revenue visibility. This isn't growth strategy, it's infrastructure strategy for technologies that will define the next decade.
Market timing creates unprecedented opportunity because AI demand is coinciding with our widest technological lead over competitors. While Samsung and Intel struggle with current-generation manufacturing challenges, we're already ramping production for customers whose AI applications require the most advanced processes available.
The valuation context
Our current market capitalization reflects our position as the dominant foundry, but undervalues our role as the essential manufacturing partner for technological transformation. When you control the production capacity that enables AI innovation, autonomous vehicles, and next-generation computing, you're not just participating in technology cycles, you're enabling them.
This strategic foundation demonstrates sustainable competitive advantage, but successful investing requires perfect timing and technical analysis that goes beyond fundamental strengths.
In this week's "Fundamentals meet Technicals" analysis, I'll break down whether TSMC's current valuation reflects this growth potential and identify the optimal entry points for maximum returns.
If you enjoyed reading this article, and would like to read more articles like this one, you should go and check out the following:
In the coming days, I'll be publishing a comprehensive 'Fundamentals meet Technicals' analysis that dives deep into the company's financial statements while applying technical indicators to determine whether the stock presents a compelling buying opportunity. This dual-lens approach will provide you with both the fundamental backdrop and technical setup needed to make an informed investment decision.
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Disclaimer: Here
There would be many Morris Chang emerged in China in a decades.
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China (that includes Taiwan) is a land of breeding intelligent Chinese since thousand of years of ancient time.