Our History and Structure Our legal and commercial name is 台灣積體電路製造股份有限公司 (Taiwan Semiconductor Manufacturing Company Limited). We were founded in 1987 as a joint venture among the R.O.C. government and other private investors and were incorporated in the R.O.C. as a company limited by shares on February 21, 1987. Since our establishment, we have built a strong position in manufacturing capacity as a dedicated foundry. Our common shares have been listed on the Taiwan Stock Exchange since September 5, 1994, and our ADSs have been listed on the New York Stock Exchange (“NYSE”) since October 8, 1997. 15 Our Principal Office Our principal executive office is located at No. 8, Li-Hsin Road 6, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China. Our telephone number at that office is (886-3) 563-6688. Our website is www.tsmc.com. Information contained on our website is not incorporated herein by reference and does not constitute part of this annual report. Business Overview of the Company As a foundry, we manufacture semiconductors using our manufacturing processes for our customers based on proprietary integrated circuit designs provided by them. We offer a comprehensive range of wafer fabrication processes, including processes to manufacture complementary metal-oxide-semiconductor (“CMOS”) logic, mixed-signal, radio frequency (“RF”), embedded memory, bipolar complementary metal-oxide-semiconductor (“BiCMOS”, which uses CMOS transistors in conjunction with bipolar junction transistor) mixed-signal and others. We also offer design, mask making, TSMC 3DFabric® advanced silicon stacking and packaging services, and testing services. We believe that our scale and capacity, particularly for advanced technologies, is a major competitive advantage. Please see “– Semiconductor Manufacturing Capacity and Technology” and “– Capacity Management and Technology Upgrade Plans” for a further discussion of our capacity. We count among our customers many of the world’s leading semiconductor companies, ranging from fabless semiconductor companies, system companies to integrated device manufacturers. Our Semiconductor Facilities We currently operate one 150mm wafer fab, six 200mm wafer fabs, nine 300mm wafer fabs, and seven advanced backend fabs. Our corporate headquarters and nine of our fabs are located in the Hsinchu Science Park, two fabs are located in the Central Taiwan Science Park, seven fabs are located in the Southern Taiwan Science Park, two fabs are located in the United States, one fab is located in Shanghai, one fab is located in Nanjing, and one fab is located in Japan. As of February 28, 2026, our corporate headquarters and our nine fabs in Hsinchu Science Park occupy parcels of land of a total of approximately 1,440,012 square meters, of which, approximately 1,296,797 square meters of land is leased by us from the Hsinchu Science Park Administration for our eight fabs in Hsinchu Science Park under agreements that will be up for renewal between December 2026 and December 2044, and approximately 143,215 square meters of land is owned by us, where Advanced Backend Fab 6 and related offices are located. We have leased from the Central Taiwan Science Park Administration a parcel of land of approximately 1,089,957 square meters for our Taichung fabs under agreements that will be up for renewal between September 2029 and December 2044. We have leased from the Southern Taiwan Science Park Administration approximately 2,502,262 square meters for our fabs in the Southern Taiwan Science Park under agreements that will be up for renewal between March 2026 and March 2045. We have leased from the Kaohsiung City Government approximately 751,384 square meters of land in the Kaohsiung Nanzih Technology Industrial Park, where Fab 22 is located, under agreements that will be up for renewal by December 2026. TSMC Washington, LLC (“TSMC Washington”) owns a parcel of land of approximately 1,052,186 square meters in the State of Washington in the United States, where the TSMC Washington fab and related offices are located. TSMC China Company Limited (“TSMC China”) owns the land use rights of 369,087 square meters of land in Shanghai, where Fab 10 and related offices are located. TSMC Nanjing owns the land use rights of 453,403 square meters of land in Nanjing, where Fab 16 and related offices are located. TSMC Arizona owns a parcel of land of approximately 4,775,885 square meters in the State of Arizona where Fab 21 and related offices are located. JASM owns a parcel of land of approximately 476,290 square meters in Kumamoto Prefecture, Japan, where Fab 23 and related offices are located. ESMC owns a parcel of land of approximately 513,557 square meters in the City of Dresden in Germany, where Fab 24 and related facilities will be located. Other than certain equipment under leases located at testing areas, we own all of the buildings and equipment for our fabs. Semiconductor Manufacturing Capacity and Technology We manufacture semiconductors on silicon wafers based on proprietary circuitry designs provided by our customers. Two key factors that characterize a foundry’s manufacturing capabilities are output capacity and fabrication process technologies. Since our establishment, we have built a strong position in manufacturing capacity as a dedicated foundry. We also believe that we are the technology leader among the dedicated foundries in terms of our net revenue of advanced semiconductors of 7-nanometer and below and are one of the leaders in the semiconductor manufacturing industry for mainstream and specialty technologies. Our 2-nanometer technology entered volume production in 2025. Also, the development of our 16-angstrom technology is on track, and its risk production is expected in 2026. 16 The following table lists our wafer fabs and those of our subsidiaries in operation as of February 28, 2026, together with the year of commencement of commercial production, wafer size and the most advanced technology for volume production: Fab(1) Year ofcommencementof commercialproduction Wafer size The most advanced technology for volume production(2) 2 1990 6-inch 450 3 1995 8-inch 150 5 1997 8-inch 150 6 2000 8-inch 110 8 1998 8-inch 110 10 2004 8-inch 150 11 1998 8-inch 150 12 2001 12-inch 40 14 2004 12-inch 16 15 2012 12-inch 7 16 2018 12-inch 16 18 2020 12-inch 3 20 2025 12-inch 2 21 2024 12-inch 5 22 2025 12-inch 2 23 2024 12-inch 28 (1)Fabs 2, 3, 5, 8, 12 and Fab 20 are located in Hsinchu Science Park. Fab 6, Fab 14, Fab 18, and Fab 22 are located in the Southern Taiwan Science Park. Fab 15 is located in Central Taiwan Science Park. Fab 11 is located in the Washington State, United States. Fab 10 is located in Shanghai, China, Fab 16 is located in Nanjing, China, Fab 21 is located in Arizona, U.S. and Fab 23 is located in Kumamoto, Japan. (2)In nanometers, as of 2025 year-end. In 2025, our annual capacity (in 12-inch equivalent wafers) exceeded 17 million wafers, compared to approximately 17 million wafers in 2024. This increase was primarily from the expansion of our 3-nanometer advanced technologies. Capacity Management and Technology Upgrade Plans We manage our overall capacity and technology upgrade plans based on long term market demand forecasts for our products and services. According to our current market demand forecasts, we intend to maintain the strategy of expanding manufacturing capacity and upgrading manufacturing technologies to meet both the fabrication and the technology needs of our customers. Our capital expenditures in 2023, 2024 and 2025 were NT$949,817 million, NT$956,007 million and NT$1,272,411 million (US$40,895 million, translated from a weighted average exchange rate of NT$31.11 to US$1.00), respectively. Our capital expenditures in 2026 are expected to be between US$52 billion and US$56 billion, which, depending on market conditions, may be adjusted later. Our capital expenditures for 2023, 2024 and 2025 were funded by our operating cash flow and proceeds from the issuance of corporate bonds, and our capital expenditures for 2026 are also expected to be funded in the same way. In 2026, we anticipate our capital expenditures to focus primarily on the following: •installing and expanding capacity, mainly for 2-nanometer and 3-nanometer nodes, including building/facility expansion for Fab 20, Fab 21 and Fab 22; •expanding capacity for specialty technologies and advanced packaging, including building/facility expansion for Fab 24; and •investing in research and development projects for new process technologies. 17 We are entering a period of higher growth as the multiyear megatrends of 5G, AI and high performance computing are expected to fuel strong demand for our semiconductor technologies in the next several years. We are working closely with our customers to address their needs in a sustainable manner. These investment plans are preliminary and may change according to market conditions. Markets and Customers We categorize our net revenue mainly based on the countries where our customers are headquartered, which may be different from the countries to which we actually sell or ship our products or different from where products are actually ordered. Under this approach, the following table presents a geographic breakdown of our net revenue during the periods indicated: Year ended December 31, 2023 2024 2025 Geography Net Revenue Percentage Net Revenue Percentage Net Revenue Percentage (NT$ in millions, except percentages) North America 1,470,215 68% 2,031,326 70% 2,875,270 75% Asia Pacific(1) 174,947 8% 284,308 10% 329,269 9% China 267,154 12% 331,673 11% 327,503 9% Japan 132,072 6% 144,240 5% 150,428 4% EMEA(2) 117,348 6% 102,761 4% 126,584 3% Total 2,161,736 100% 2,894,308 100% 3,809,054 100% (1)China and Japan are excluded from Asia Pacific. (2)EMEA stands for Europe, Middle East, and Africa. In 2025, our net revenue increased by a total of NT$914,746 million compared to 2024, which was mainly due to an increase in orders from North America of NT$843,944 million, or a 42% year-over-year increase and from Asia Pacific of NT$44,961 million, or a 16% year-over-year increase. In 2024, our net revenue increased by a total of NT$732,572 million compared to 2023, which was mainly due to an increase in orders from North America of NT$561,111 million, or a 38% year-over-year increase and from Asia Pacific of NT$109,361 million, or a 63% year-over-year increase. We provide worldwide customer support. Our office in Hsinchu and subsidiaries in the United States, Canada, Japan, China, Germany, the Netherlands and South Korea are dedicated to serving our customers worldwide. Foundry services, which are both technologically and logistically intensive, involve frequent and in-depth interaction with customers. We believe that the most effective means of providing foundry services is by developing direct and close relationships with our customers. Our customer service and technical support managers work closely with the sales force to offer integrated services to customers. To facilitate customer interaction and information access on a real-time basis, a suite of web-based applications have also been offered to provide more active interactions with customers in design, engineering and logistics. Advance Payment by Customers. 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 advance 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. See note 22 to our consolidated financial statements for further information. The Semiconductor Fabrication Process In general, the semiconductor manufacturing process begins with a thin silicon wafer on which an array of semiconductor devices is fabricated. The following processes cover assembly, packaging, and testing of the semiconductor devices. Our focus is on wafer fabrication although we also provide other services either directly or through outsourcing arrangements. 18 Our Foundry Services Range of Services. Because of our ability to provide a full array of services, we are able to accommodate customers with a variety of needs at every stage of the overall foundry process. The flexibility in input stages allows us to cater to a variety of customers with different in-house capabilities and thus to service a wider class of customers as compared to a foundry that cannot offer design or mask making services, for example. As we serve a large global customer base that entails a wide range of applications, such customer diversification helps to smooth fluctuations in demand. Fabrication Processes. We manufacture semiconductors mainly using the CMOS process. The CMOS process is currently the mainstream semiconductor manufacturing process. We use the CMOS process to manufacture logic semiconductors, mixed-signal/radio frequency semiconductors, which combine analog and digital circuitry in a single semiconductor, micro-electro-mechanical-systems (“MEMS”), which combines micrometer featured mechanical parts, analog and digital circuitry in a single semiconductor, and embedded memory semiconductors, which combine logic and memory in a single semiconductor, etc. Types of Semiconductors We Manufacture. We manufacture different types of semiconductors with different specific functions by changing the number and the combinations of conducting, insulating and semiconducting layers and by defining different patterns in which such layers are applied on the wafer. At any given point in time, there are thousands of different products in various stages of fabrication at our fabs. We believe that the keys to maintaining high production quality and utilization rates are our effective management and control of the manufacturing process technologies which come from our extensive experience as the longest existing dedicated foundry and our dedication to quality control and process improvements. Our semiconductors are used for a variety of different platforms. The principal platforms include: High Performance Computing (“HPC”): Driven by data explosion and AI application innovation, HPC has become the key growth driver for our business. We provide customers, including both fabless IC design companies and system companies, with leading-edge logic process technologies such as 2-nanometer Nanosheet Transistor (“N2”), 3-nanometer Fin Field-Effect Transistor (“FinFET”), 4-nanometer FinFET, 5-nanometer FinFET, 6-nanometer FinFET, and 7- nanometer FinFET, as well as comprehensive intellectual properties including high-speed interconnect intellectual properties to meet customers’ product requirements for transferring and processing vast amounts of data anywhere at any time. Specifically, we introduced our HPC-focused technologies such as N4X, N3X, and N2X, representing the ultimate performance and maximum clock frequencies in our 5-nanometer, 3-nanometer, and 2-nanometer families, respectively. Based on advanced process nodes, a variety of HPC products have been launched, such as AI accelerators, including AI graphics processor units (“GPUs”) and AI application specific integrated circuits (“ASICs”), personal computer central processing units (“CPUs”), consumer GPUs, field programmable gate arrays (“FPGAs”), server processors, and high-speed networking chips, etc. These products can be used in current and future 5G/6G infrastructures, AI, cloud, and enterprise data centers. We also offer multiple TSMC 3DFabric® advanced silicon stacking and packaging solutions, such as TSMC- SoIC® manufacturing services and CoWoS® advanced packaging services, to enable homogeneous and heterogeneous chip integration to meet customer requirements for high performance, high compute density and high energy efficiency, low latency, and high integration. We will continue to optimize our HPC platform and strengthen collaboration with customers to help them capture market growth in HPC markets. Smartphones: For customers’ premium product applications, we offer leading logic process technologies such as 2- nanometer Nanosheet Plus (“N2P”), 3-nanometer FinFET Plus (“N3P”), 3-nanometer FinFET Enhanced (“N3E”), 3- nanometer FinFET, 4-nanometer FinFET Plus (“N4P”), 4-nanometer FinFET, 5-nanometer FinFET Plus (“N5P”), and 5- nanometer FinFET, as well as comprehensive intellectual properties to further enhance chip performance, reduce power consumption, and decrease chip size. For mainstream product applications, we provide a broad range of logic process technologies, including 3-nanometer FinFET Compact (“N3C”), 4-nanometer FinFET Compact (“N4C”), 6-nanometer FinFET, 7-nanometer FinFET Plus (“N7+”), 7-nanometer FinFET, 12-nanometer FinFET Compact Plus (“12FFC+”), 12- nanometer FinFET Compact (“12FFC”), 16-nanometer FinFET Compact Plus (“16FFC+”), 16-nanometer FinFET Compact (“16FFC”), 28-nanometer High Performance Compact Plus (“28HPC+”), 28-nanometer High Performance Compact (“28HPC”), and 22-nanometer Ultra-Low Power (“22ULP”), as well as comprehensive intellectual properties, to satisfy customer needs for high-performance and low-power chips. Furthermore, for both premium and mainstream product applications, we offer leading-edge, highly competitive specialty technologies to deliver specialty companion chips for customers’ logic application processors, including radio frequency (“RF”), RF front-end, embedded non-volatile memory (“eNVM”), power management ICs (“PMICs”), sensors, and display chips, as well as TSMC 3DFabric® advanced packaging services, such as our industry-leading InFO technology. 19 Internet of Things (“IoT”): Following the three megatrends of the IoT segment, “Everything Connected, Smart and Green,” we not only provide customers with solid logic technologies, including 4-nanometer, 5-nanometer, 6-nanometer, 7- nanometer, 12-nanometer, 16-nanometer, and 28-nanometer, but also build a leading, complete and highly integrated ultra- low power (“ULP”) technology platform based on our logic technologies to enable customers’ product innovations for the Artificial Intelligence of Things (“AIoT”, AI+IoT) and Edge AI. Our industry-leading ULP technologies feature both energy efficiency and high performance, providing more computing power and AI inferencing capability while reducing system power consumption. FinFET-based 6-nanometer technology service (“N6e® ULP”) and 12-nanometer technology service (“N12e® ULP”) have both entered volume production, while the next-generation 4-nanometer ULP technology is in development. In addition, planar transistor-based mainstream technologies, such as 22-nanometer Ultra-Low Leakage (“ULL”), 28-nanometer ULP, 40-nanometer ULP, and 55-nanometer ULP technologies, have been widely adopted by various IoT system-on-a-chip (“SoC”) and battery-powered products to extend battery life. Our ULP technology platform also provides customers with comprehensive specialty technologies, covering RF, enhanced analog devices, embedded non-volatile memory, sensors, display devices, and PMICs. For extreme low-power product applications, we have also extended our low operating voltage (“Low Vdd”) offerings and have provided simulation program with integrated circuit emphasis (“SPICE”) models with a wide range of operating voltages and design guidelines to lower the adoption barrier and reduce lead time to help customers successfully launch innovative products. Automotive: We offer a comprehensive spectrum of technologies and services to support the automotive industry’s three megatrends – building vehicles that are “Safer, Smarter and Greener.” We are also an industry leader in providing a robust automotive intellectual property ecosystem, which covers 3-nanometer, 4-nanometer, 5-nanometer, 7-nanometer, and 16-nanometer FinFET technologies, for advanced driver-assistance systems (“ADAS”), advanced in-vehicle infotainment (“IVI”), as well as zonal controllers for new electrical/electronic (“E/E”) architectures in next-generation vehicles, including both internal combustion engines (“ICEs”) and electric vehicles (“EVs”). 3-nanometer FinFET Automotive (“N3A”) technology, based on N3E technology, is our most advanced automotive-grade technology to date and was released to customers at the end of 2025. In addition to our advanced logic platform, we offer comprehensive automotive-grade specialty technologies including 28-nanometer embedded flash memory, 28-nanometer, 22-nanometer, and 16-nanometer RF for millimeter wave (“mmWave”) applications, high dynamic range (“HDR”) and high sensitivity CMOS image sensors (“CIS”), light detection and ranging (“LiDAR”) sensors, and PMICs. As for magnetoresistive random-access memory (“MRAM”), the 16-nanometer technology as second-generation MRAM passed Automotive Grade-1 requirements in 2025. 22ULL resistive random-access memory (“RRAM”) technology also passed Automotive Grade-1 requirements in 2025. Digital Consumer Electronics (“DCE”): We provide customers with leading comprehensive technologies to deliver superior performance for 8K/4K video streaming, AI features, better power efficiency, and seamless connectivity for DCE applications, including smart digital TVs (“DTVs”), set-top boxes (“STBs”), AI-embedded smart cameras and associated wireless local area networks (“WLANs”), and PMICs, etc. Our leading 5-nanometer FinFET, 7-nanometer/6-nanometer FinFET, 16-nanometer FinFET/12-nanometer FinFET, and 22ULP/22ULL technologies have been widely adopted by leading global makers of 8K/4K DTVs and STBs, 4K streaming media devices (“SMDs”)/over-the-top (“OTT”), digital single-lens reflex (“DSLR”) cameras, and so on. We will continue to make these technologies more competitive through design-technology co-optimization (“DTCO”) for customers’ digital intensive chip designs and to drive lower power consumption for more cost-effective packaging. The following table presents a breakdown of our net revenue by platform during the periods indicated: Year ended December 31, 2023 2024 2025 Platform Net Revenue Percentage Net Revenue Percentage Net Revenue Percentage (NT$ in millions, except percentages) High Performance Computing 934,769 43% 1,476,891 51% 2,192,931 58% Smartphone 814,914 38% 1,005,130 35% 1,110,816 29% Internet of Things 161,917 8% 165,516 6% 191,047 5% Automotive 133,654 6% 139,323 5% 186,667 5% Digital Consumer Electronics 47,000 2% 47,961 1% 47,997 1% Others 69,482 3% 59,487 2% 79,596 2% Total 2,161,736 100% 2,894,308 100% 3,809,054 100% 20 The increase in our net revenue from 2024 to 2025 mainly came from High Performance Computing of NT$716,040 million, or a 48% year-over-year increase, and from Smartphone of NT$105,686 million, or a 11% year-over-year increase. The increase in our net revenue from 2023 to 2024 mainly came from High Performance Computing of NT$542,122 million, or a 58% year-over-year increase, and from Smartphone of NT$190,216 million, or a 23% year-over-year increase. Design and Technology Platforms. Modern integrated circuit designers need sophisticated design infrastructure to optimize productivity and cycle time. Such infrastructure includes design flow for electronic design automation (“EDA”), silicon proven building blocks such as libraries and intellectual properties, simulation and verification design kits such as PDK and technology files. All of this infrastructure is built on top of the technology foundation, and each technology needs its own design infrastructure to be usable for designers. This is the concept of our technology platforms. For years, we and our alliance partners have spent considerable effort, time and resources to build our technology platforms. We unveiled an Open Innovation Platform® (“OIP”) initiative in 2008 to further enhance our technologies offerings. More OIP deliverables were introduced over the years, as well as in 2025. In the design methodology area, we announced EDA and intellectual property readiness of 3-nanometer, 2-nanometer and TSMC A16TM, as well as continuous development of solutions to enhance power, performance and area (“PPA”) on existing production technology nodes. In addition, we contributed the 3Dblox Standard to the Institute of Electrical and Electronics Engineers (the “IEEE”), and made available various 3-Dimensional Integrated Circuit (“3DIC”) reference flows to support TSMC 3DFabric® technology services in 3D silicon stacking and advanced packaging which cover a wide range of system-level design applications. Multi-project Wafer Program (“CyberShuttle®”). To help our customers reduce costs, we offer a dedicated multi- project wafer processing service that allows us to provide multiple customers with circuits produced with the same mask. This program reduces mask costs by a very significant amount, resulting in accelerated time-to-market for our customers. We have extended this program to all of our customers and library and intellectual property partners using our broad selection of process technologies, ranging from the latest 2-, 3-, 4-, 5-, 6-, 7-, 12-, 16-, 22-, 28-, 40-, 45-, 55-, 65- and 90- nanometer processes to 0.13-, 0.18-, 0.25- and 0.35-micron. This extension offers a routinely scheduled multi-project wafer run to customers on a shared-cost basis for prototyping and verification. We developed our multi-project wafer program in response to the current SoC development methodologies, which often require the independent development, prototyping and validation of several intellectual properties before they can be integrated onto a single device. By sharing mask costs among our customers to the extent permissible, the SoC supplier can enjoy reduced prototyping costs and greater confidence that the design will be successful. Customer Service We believe that our dedication to customer service has been an indispensable factor in attracting new customers, helping to ensure the satisfaction of existing customers, and building a mutually beneficial relationship with our customers. The key elements are our: •customer-oriented culture through multi-level interaction with customers; •ability to deliver products of consistent quality, competitive ramp-up speed and fast yield improvement; •responsiveness to customers’ issues and requirements, such as engineering change and special wafer handling requests; •flexibility in manufacturing processes, supported by our competitive technical capability and production planning; •dedication to help reduce customer costs through collaboration and services, such as our multi-project wafer program, which combines multiple designs on a single mask set for cost-saving; and •availability of our online service which provides necessary information in design, engineering and logistics to ensure seamless services to our customers throughout the product life cycle. We also conduct an annual customer satisfaction survey to assess customer satisfaction and to ensure that their needs are adequately understood and addressed. Continuous improvement plans based upon customer feedback are an integral part of this business process. We use data derived from the survey as a base to identify future focus areas. We believe that satisfaction leads to better customer relationships, which would result in more business opportunities. 21 Research and Development The semiconductor industry is characterized by rapid technological changes, frequently leading to the introduction of new technologies to meet customer demand and the obsolescence of recently introduced technology and products. We believe that to remain technologically ahead of our competitors and maintain our market position in the foundry segment, we need to be a technology leader in the semiconductor industry. In 2023, 2024, and 2025, we spent NT$182,370 million, NT$204,182 million, and NT$246,427 million (US$7,855 million), respectively, on research and development, representing 8.5%, 7.1% and 6.5% of our net revenue, respectively. We plan to continue significant investment in research and development in 2026 to maintain our leadership in advanced process technologies. Our research and development efforts have enabled us to offer customers access to advanced process technologies, such as 7-, 5-, 3- and 2-nanometer technology for volume production, prior to the implementation of those advanced process technologies by competitors and many integrated device manufacturers. We expect to further advance our process technologies to 16-angstrom and below in the coming years to sustain our technology leadership. We will also invest in research and development for our mature technology offerings to provide function-rich process capabilities to our customers. Our 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. Fab-conducted research and development activities focus on improving and upgrading the manufacturing process technologies. To advance our process technologies, we rely primarily on our internal engineering capabilities, know-how and research and development efforts, including collaboration with our customers, equipment vendors and external research and development consortia. We continually create inventions and in-house know-how. Since our inception, we have applied for and been issued a substantial number of patents in the United States and other countries, the majority of which are semiconductor related. Competition We compete internationally and domestically with other foundry service providers, as well as with a number of integrated device manufacturers. We compete primarily on process technologies, manufacturing excellence, customer trust and service quality, such as earlier technology readiness, better quality, faster yield improvement and shorter cycle time. The level of competition varies with the process technologies involved. For example, in more mature technologies, competitors tend to be numerous and offer specialized processes. Some companies compete with us in selected geographic regions or niche application markets. In recent years, substantial investments have been made by others to establish new foundry capacities worldwide, or to transform certain manufacturing operations of integrated device manufacturers into foundry capacities. Equipment The quality and technology of the equipment used in the semiconductor manufacturing process are important in that they effectively define the limits of our process technologies. Advances in process technologies cannot be brought about without commensurate advances in equipment technology. We have periodic meetings with suppliers with respect to co- developing next-generation equipment. The principal pieces of equipment used by us to manufacture semiconductors are scanners, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputterers, chemical vapor deposition (“CVD”) equipment, chemical mechanism polish (“CMP”) equipment, testers and probers. Other than certain equipment under leases located at testing areas, we own all of the equipment used at our fabs. In implementing our capacity management and technology advancement plans, we expect to make significant purchases of equipment required for semiconductor manufacturing. Some of the equipment is available from a limited number of suppliers and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed. We believe that well management of the relationships with our equipment suppliers is important for us as a major purchaser of semiconductor fabrication equipment. We work closely with manufacturers that provide equipment customized to our needs for certain advanced technologies. 22 Raw Materials Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases and various types of precious metals. Although most of our raw materials are available from multiple suppliers, some materials are purchased through sole-sourced suppliers. Our raw material procurement policy is to select only those suppliers who have demonstrated quality control and reliability on delivery time and to maintain multiple sources for each raw material whenever possible so that a quality or delivery problem with any one supplier will not adversely affect our operations. The quality and delivery performance of each supplier is evaluated quarterly and quantity allocations are adjusted for subsequent periods based on the evaluation. The most important raw material used in our production is silicon wafer, which is the basic raw material from which integrated circuits are made. In pursuit of high quality raw wafers, the majority of our raw wafers are supplied by a limited number of suppliers located in Taiwan, Japan, Germany, and Singapore. We have in the past obtained, and believe we will continue to be able to obtain, a sufficient supply of wafers. In order to secure a reliable and flexible supply of high quality wafers, we have entered into long-term agreements and intend to continue to develop strategic relationships with major wafer suppliers to cover our anticipated wafer needs for future years. Also, we actively address supply chain issues and bring together fab operations, materials management, quality system and risk management teams to mitigate potential supply chain risks and enhance supply chain agility. This taskforce works with our primary suppliers to review their business continuity plans, qualify their dual-plant materials, prepare safety inventories, improve the quality of their products, and manage the supply chain risks of their suppliers. Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a discussion of the risk related to raw materials, including the fluctuation of prices of our main raw materials. Environmental and Climate Related Laws and Regulations The semiconductor production process generates gaseous chemical wastes, greenhouse gases (“GHG”), liquid wastes, wastewater and other industrial wastes in various stages of the manufacturing process. We have installed in our fabs various types of pollution control equipment for the treatment of gaseous and liquid chemical wastes and wastewater, equipment for GHG emission reduction and equipment for the recycling of used chemicals and treated water. Operations at our fabs are subject to regulations and periodic monitoring by the R.O.C. Ministry of Environment, the U.S. Environmental Protection Agency, the State Environmental Protection Administration of China, the Japan Ministry of the Environment, the European Environment Agency and European Chemicals Agency, and local environmental protection authorities in Taiwan, the U.S., China, Japan and Germany. We have adopted pollution control and GHG emission reduction measures to ensure compliance with environmental protection and climate related standards consistent with the practice of the semiconductor industry in Taiwan, the U.S., China, Japan and Europe. We conduct environmental audits at least once annually to ensure that we are in compliance in all material respects with applicable environmental and climate related laws and regulations. An environmental, safety and health (“ESH”) team operates at the corporate level that is responsible for policy establishment and enforcement, coordination with ESH teams located at each manufacturing facility and for coordination and interaction with government agencies worldwide. To fulfill our commitment to environmental sustainability in our business and operations, we have continued to explore and participate in initiatives to expand our use of renewable energy. In 2025, TSMC used renewable energy and purchased renewable energy certificates and carbon credits globally in a total of 5,780 GWh, of which approximately 2,795 GWh enabled our overseas sites to be 100% powered by clean energy for the eighth consecutive year. As of the end of 2025, we have signed power purchase agreements to purchase 7.3 GW of renewable energy, thereby eliminating an estimated 7.5 million metric tons of carbon dioxide equivalent emissions per year. Environmental, Social and Governance Initiatives At TSMC, we believe that a strong sustainability governance framework is essential to sustaining long-term competitiveness and creating value for all stakeholders. Our sustainability efforts are overseen by the Board of Directors and the Nominating, Corporate Governance, and Sustainability Committee, supported by two key management platforms: the ESG Steering Committee and the ESG Committee. The ESG Steering Committee, led by the Company Chairman, collaborates with the management team to define ESG strategies aligned with our operations. The ESG Committee implements resolutions from the ESG Steering Committee, coordinates resources across departments, directs the dedicated Corporate Sustainability Office and management representatives from organizations to identify material issues and develop 23 action plans, and monitors progress on a quarterly basis. To further enhance the transparency of information, in 2024, we initiated the IFRS Sustainability Disclosure Standards Adoption Project. In 2025, in accordance with IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures), we identified sustainability and climate-related risks and opportunities, assessed their financial impacts, set appropriate management metrics and targets, and provided updates on progress to the Board of Directors regularly. Currently, TSMC’s ESG initiatives center on five directions: Drive green manufacturing. We strive to set industry benchmarks for environmental protection by embedding green practices into daily operations. Through innovative technologies, we address climate and energy challenges, water stewardship, circular resource management, air quality control, and biodiversity conservation, reinforcing our commitment to coexist and thrive with the Earth’s ecosystem. Build a responsible supply chain. We work closely with supply chain partners to uphold standards in technology, quality, delivery, human rights, and environmental safety. In response to climate change, we advance green innovation and climate/nature resilience, aiming to establish a low-carbon semiconductor supply chain. Create a healthy and inclusive workplace. We foster a people-oriented culture built on open communication, inclusivity, and safety, where every employee feels valued and a sense of belonging. We provide competitive compensation and benefits, promote continuous learning, and strive to be a company where innovation thrives and employees feel empowered to contribute. Develop talent. We actively support our employees’ career development and dedicate ourselves to inspiring the next generation of professionals. To accomplish this, we partner with institutions, government organizations, and NGOs/NPOs to promote STEAM (science, technology, engineering, art, and mathematics) and biodiversity education, strengthening our efforts in industry-academia collaboration. Care for the underprivileged. In collaboration with the TSMC Education and Culture Foundation and the TSMC Charity Foundation, we address societal needs by fostering educational innovation for learners of all ages, promoting community inclusion, cultivating art and culture literacy, strengthening ecological sustainability and environmental awareness, and advancing health protection to drive positive and lasting change. Through these efforts, ESG principles are seamlessly integrated into all aspects of our operations, ensuring a steadfast commitment to environmental stewardship, social responsibility, and corporate governance. For further information on our ESG initiatives, please refer to our annual sustainability reports, available on our sustainability website at https://esg.tsmc.com/en-US. The information contained on our website is not incorporated herein by reference and does not constitute part of this annual report. Electricity and Water We have occasionally experienced power outages, dips or surges caused by difficulties encountered by our electricity supplier, or other power consumers on the same power grid. Such power outages, dips or surges may lead to interruptions in our production schedule. The semiconductor manufacturing process uses extensive amounts of electricity and water. Due to changes in government energy policy, the growth of manufacturers in Taiwan’s Science Parks, and the droughts that Taiwan experiences from time to time, raise ongoing concerns regarding future availability of sufficient electricity and water for our production in Taiwan. To help address these potential shortages and mitigate the potential impact that insufficient electricity and water supplies may have on our semiconductor production, we have adopted various natural resources conservation methodologies. Moreover, we have encountered and anticipate continued increases in utility prices. Higher electricity prices could increase our manufacturing costs and therefore adversely impact our financial results. Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a discussion of the risk related to shortages or increased prices in electricity and water. Risk Management We adopt a balanced risk-reward management strategy that aims to optimize business returns. This strategy applies to all aspects of the business, including addressing ESG issues and delivering long-term sustainable value to all stakeholders. Our risk management policy, approved by the Board of Directors and signed by the Chairman and Chief Executive Officer (“CEO”), outlines our commitment to maintaining a proactive and robust risk management system. This 24 system assists us in making well-considered, risk-based decisions that fulfill the corporate vision and deliver sustainable value to us and our stakeholders. We draw from the International Organization for Standardization (ISO) 31000: 2018 Risk Management System and the Enterprise Risk Management (“ERM”)-Integrated Framework by COSO (Committee of Sponsoring Organizations of the Treadway Commission) to establish our risk governance organization. This approach integrates operational and business processes to strengthen our overall risk management capabilities. Our ERM framework is a systematic approach that enables us to respond to changing dynamics in the business environment, as well as to capitalize on business opportunities. The ERM framework specifies the risk governance structure, the management process that integrates business operations, and the tools that facilitate the identification, assessment, response, monitoring, and review of risks. A risk criteria matrix on the potential likelihood of impact across financial, operational, reputational, and compliance aspects is applied in the assessment and prioritization of identified risks. A formalized training and communication program builds risk competency and fosters a risk-aware culture, helping management make informed risk-based decisions, against our risk appetite, while implementing corporate strategies. Internal and external audits of the risk management framework and process are conducted to identify opportunities to improve the effectiveness of our risk management system. We recognize that our systems and processes provide reasonable but not absolute assurance, and hence we continually strive to improve our ability to manage and respond to risks and capitalize on opportunities. To mitigate the operational impact of crisis events, we implement pre-crisis risk assessments, response procedures and recovery plans. To enhance operational preparedness, we conduct exercises and drills to validate emergency responses, crisis management, and business continuity plans. In major incidents or crisis events, we follow our crisis management guidelines. Our central crisis command center (“C4”), headed by the Chairman and CEO and comprising senior executives across key functions, provides guidance and decision-making to maintain response readiness, including timely communication to key stakeholders. We also maintain insurance with respect to our facilities, equipment and inventories. The insurance for our fabs and equipment covers, subject to some limitations, various risks, including earthquake, fire, typhoon, and other risks. This coverage is generally up to the respective policy limit for their replacement values and lost profits due to business interruption. In addition, we have insurance policies covering losses with respect to the construction of all our fabs. Equipment and inventories in transit are also insured. While we maintain insurance to cover certain types of losses, no assurance can be given that insurance will fully cover all the losses that may arise or that our emergency responses and business continuity plans will be effective in preventing or reducing losses. For further information, please see detailed risk factors related to the impact of climate change regulations and international accords, and natural disasters on our operations in “Item 3. Key Information – Risk Factors – Risks Relating to Our Business”. Our Subsidiaries and Affiliates Vanguard International Semiconductor Corporation (“VIS”). In 1994, we, the R.O.C. Ministry of Economic Affairs and other investors established VIS, then an integrated dynamic random access memory (“DRAM”) manufacturer. VIS commenced commercial production in 1995 and listed its shares on the Taipei Exchange (originally the R.O.C. Over- the-Counter Securities Exchange) in March 1998. In 2004, VIS completely terminated its DRAM production and became a dedicated foundry company. In October 2024, we acquired additional shares in VIS’ capital increase transaction. As of February 28, 2026, we owned approximately 27.6% of the equity interest in VIS. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion. TSMC Washington, LLC (“TSMC Washington”, previously WaferTech, LLC (“WaferTech”)). In 1996, we entered into a joint venture called WaferTech (of which the manufacturing entity is Fab 11) with several U.S.-based investors to construct and operate a foundry in the United States. Initial trial production at WaferTech commenced in July 1998 and commercial production commenced in October 1998. In December 2023, WaferTech was renamed as TSMC Washington. As of February 28, 2026, we owned 100% of the equity interest in TSMC Washington. TSMC Global Ltd. (“TSMC Global”). In December 1998, we established TSMC Holding Ltd. in the B.V.I. as a company with limited liability. In 2006, TSMC Holding Ltd. was renamed to TSMC Global Ltd. TSMC Global is a wholly-owned subsidiary primarily engaged in corporate treasury investment activities. Systems on Silicon Manufacturing Company Pte. Ltd. (“SSMC”). In March 1999, we entered into an agreement with Koninklijke Philips NV (“Philips”) and EDB Investment Pte. Ltd. (“EDB”) to found a joint venture, SSMC, and build 25 a fab in Singapore. The SSMC fab commenced commercial production in December 2000. As of February 28, 2026, we owned approximately 38.8% of the equity interest in SSMC. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion. Global Unichip Corporation (“GUC”). In January 2003, we acquired a 52.0% equity interest in GUC, a SoC design service company that provides large scale SoC implementation services. GUC listed its shares on the Taiwan Stock Exchange in November 2006. As of February 28, 2026, we owned approximately 34.8% of the equity interest in GUC. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion. TSMC China. In August 2003, we established TSMC China (of which the manufacturing entity is Fab 10), a wholly- owned subsidiary primarily engaged in the manufacture and sale of integrated circuits. TSMC China commenced commercial production in late 2004. VisEra Technologies Company, Ltd. (“VisEra Technologies”). In October 2003, we and OmniVision Technologies Inc. (“OVT”), entered into an agreement to form VisEra Technologies, a joint venture in Taiwan, for the purpose of providing back-end service for CMOS image sensor manufacturing business. In November 2015, we acquired all of OVT’s equity interest in VisEra Technologies. In March 2021, we disposed certain common shares of VisEra Technologies to facilitate its initial public offering (“IPO”). Immediately following VisEra Technologies’ IPO in June 2022, our shareholding was diluted to approximately 67.9%. As of February 28, 2026, we owned approximately 67.2% of the equity interest in VisEra Technologies. Xintec, Inc. (“Xintec”). In January 2007, we acquired a 51.2% equity interest in Xintec, a supplier of wafer level packaging service, to support our CMOS image sensor manufacturing business. In March 2015, Xintec listed its shares on the Taipei Exchange. Subsequent to Xintec’s IPO, our shareholding in Xintec was diluted to approximately 41.2%. As of February 28, 2026, we owned approximately 41.0% of the equity interest in Xintec. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion. TSMC Nanjing. In May 2016, we established TSMC Nanjing (of which the manufacturing entity is Fab 16), a wholly-owned subsidiary primarily engaged in the manufacture and sale of integrated circuits. TSMC Nanjing commenced commercial production in April 2018. TSMC Arizona. In November 2020, we established TSMC Arizona (of which the manufacturing entity is Fab 21), a wholly-owned subsidiary that is expected to be primarily engaged in the manufacture and sale of integrated circuits. TSMC Arizona plans to build and operate multiple advanced semiconductor manufacturing facilities in Phoenix, Arizona. Our first facility successfully entered high volume production at the end of 2024. Construction of our second facility is ongoing, and the construction of our third facility commenced in 2025. Furthermore, we acquired an additional parcel of land in 2026 to support our current expansion plans and provide more flexibility in response to strong customer demand. In November 2024, TSMC Arizona entered into a direct funding agreement (the “Direct Funding Agreement”) with the U.S. Department of Commerce (the “DOC”) under the U.S. CHIPS Act. Under this agreement, the DOC agrees to award TSMC Arizona up to US$6.6 billion in direct funding related to TSMC Arizona’s semiconductor manufacturing facilities in Phoenix, Arizona (the “Projects”). In addition to the Direct Funding Agreement, TSMC Arizona also entered into a loan guarantee agreement and several ancillary agreements with the DOC (the “Loan Agreements”), under which TSMC Arizona is entitled to draw down up to US$5 billion in government loans for the Projects. In connection with the Direct Funding Agreement and the Loan Agreements, the Company entered into certain guarantee agreements, under which the Company agrees to provide an irrevocable, absolute and unconditional guarantee to the DOC regarding any financial obligations owed by TSMC Arizona to the DOC. The awards under the Direct Funding Agreement are subject to various conditions, compliance requirements, program requirements and project milestone requirements. JASM. In December 2021, we established JASM (of which the manufacturing entity is Fab 23) in Kumamoto, Japan, which is expected to be primarily engaged in the manufacture and sale of integrated circuits. In January 2022, Sony Semiconductor Solution Corporation (“Sony”) acquired a less than 20% equity interest in JASM. In April 2022, DENSO Corporation (“DENSO”) acquired a more than 10% minority equity interest in JASM. Construction on the site commenced in April 2022 and volume production commenced in December 2024. In February 2024, we, Sony, DENSO and Toyota Motor Corporation (“Toyota”) announced further investment into JASM to build and operate a second semiconductor manufacturing facility. Construction on the second site commenced in October 2025. By way of such investment, Toyota 26 also took a minority stake in JASM. As of February 28, 2026, we owned approximately 72.6% of the equity interest in JASM. ESMC. In June 2023, we established ESMC in Dresden, Germany, which is expected to be primarily engaged in the manufacturing and sale of integrated circuits. In January 2024, Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors Germany GmbH, a wholly-owned subsidiary of NXP Semiconductors N.V. (“NXP”), each acquired 10% equity interest and together acquired 30% equity interest in ESMC. Construction on the site commenced in 2024. As of February 28, 2026, we owned 70.0% of the equity interest in ESMC.