TSMC's quarterly net profit hits a new high; AI strong demand drives accelerated global capacity expansion
The Block
56m ago
Ai Focus
TSMC reported consolidated revenue of NT$1.49 trillion and net profit of NT$763.06 billion in the third quarter, both reaching new highs and exceeding previous guidance targets. The company stated that demand for advanced processes and AI is strong, and it expects revenue to continue to grow in the fourth quarter. However, overseas factories and the expansion of 2nm production capacity will put pressure on gross margin.
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TSMC, a wafer foundry manufacturer ( TSM.N ), reported high-growth results for the third quarter.

According to the financial report released on October 15th, TSMC's consolidated revenue for the third quarter of this year was NT$1.49 trillion, a year-on-year increase of 50.9%, and its net profit was NT$763.06 billion, a year-on-year increase of 68.7%. In US dollars, TSMC's revenue for that quarter was $46.72 billion, a year-on-year increase of 41.2%, exceeding the previous guidance upper limit.

In addition, TSMC's net profit in the third quarter reached a record high, with an operating margin of 58.7%, which exceeded the previous guidance range of 56% to 58%.

TSMC's Senior Vice President and Chief Financial Officer, Huang Renzhao, stated that the growth in third-quarter performance was due to the strong demand from the market for advanced processes. Entering the fourth quarter, it is expected that the business will continue to benefit from the robust demand for cutting-edge processes, including an increased demand for 2nm processes.

By business segment, 2nm products accounted for 8% of TSMC's wafer revenue in the third quarter, 3nm accounted for 33%, 5nm accounted for 28%, and 7nm accounted for 10%. Advanced processes together accounted for 79% of the total wafer revenue. By platform, high-performance computing accounted for 68% of TSMC's revenue, and smartphones accounted for 21%; these two categories combined accounted for nearly 90%. In terms of capital expenditure, TSMC spent $13.8 billion in the third quarter, with an annual capital expenditure guidance of $60 billion to $64 billion.

For the fourth quarter, TSMC expects its revenue to be between $52.3 billion and $54.3 billion.

After the financial report was released, TSMC executives revealed more information. TSMC Chairman Wei Chih-jia stated that the market for AI is highly enthusiastic, and the value of semiconductors in the global supply chain will continue to increase. Almost all AI manufacturers are cooperating with TSMC. TSMC has nearly 20 factories under construction globally, and in the coming years, it plans to build 13 advanced manufacturing and advanced packaging factories in Taiwan, as well as another 5 to 6 factories in other parts of the world.

Regarding the production situation of different process technologies, Wei Zhijia stated that the N2 process (2nm) node achieved large-scale mass production in the fourth quarter of 2025 with a relatively good yield. Driven by the demand from smartphones and applications involving HPC and AI, it is expected that the annual output of products using the N2 process will double by 2027. As for the N3 (3nm) process, TSMC is expanding its production capacity, planning to add three new factories to meet the strong demand in the coming years. Wei Zhijia also mentioned that TSMC expects to put the High - NA EUV (high numerical aperture extreme ultraviolet lithography machines) into use by 2030.

Regarding the supply and demand relationship for wafers, Wei Zhejia stated that demand is very strong, and the gap between supply and demand remains large. TSMC is expanding its production capacity, while customer demand continues to rise. It is impossible to determine whether this gap will widen or narrow.

Previously, Tesla and SpaceX launched a chip manufacturing project called TeraFab. Wei Zhijia stated that TSMC is in communication and cooperation with TeraFab, and the negotiations are still ongoing at this time. There are various possibilities for the cooperation, but the factory must be operated by TSMC.

In addition, TSMC executives stated that the scale of capital expenditures from 2026 to 2028 is expected to be significantly higher than in the past three years.

However, TSMC is facing pressure in terms of gross margin. TSMC executives stated that, on top of a quarter-on-quarter decline in gross margin of 130 basis points to 66.4% in the third quarter, due to the expansion of 2nm product production and the operation of overseas wafer factories, TSMC expects the mid-point of its gross margin guidance for the fourth quarter to be 66%, representing a further decline of 40 basis points. TSMC executives also mentioned that the production costs of overseas factories remain relatively high, and it is anticipated that these overseas facilities will lead to a dilution of gross margin over the next few years.

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