Taiwan Semiconductor Manufacturing Co. (TSMC) said on October 15 that its third-quarter net profit jumped 68.7% from a year earlier to NT$763.06 billion, as revenue of nearly NT$1.5 trillion beat the top of its own forecast and its newest 2-nanometer chips climbed to 8% of wafer sales.
Diluted earnings per share rose 68.7% year on year to NT$29.43, or US$4.60 per American depositary receipt (ADR) unit, up from NT$27.25 in the second quarter. The world's largest contract chipmaker attributed the growth to strong demand for its leading-edge process technologies. The third-quarter figures have not yet been approved by TSMC's board of directors.
Revenue Clears TSMC's Guidance By US$920 Million
Consolidated revenue for July through September reached NT$1,494.24 billion, up 17.6% from the previous quarter and 50.9% from the same period of 2025. Net profit attributable to shareholders of the parent company rose 8% quarter over quarter.
Measured in U.S. dollars, the currency TSMC uses for its guidance, revenue came to US$46.72 billion, up 16.2% sequentially and 41.2% year on year. In July the company had projected US$44.6 billion to US$45.8 billion, so the final figure landed US$920 million above the upper end of that range.
Operating margin also beat expectations at 58.7%, above the 56% to 58% the company had guided. Gross margin of 66.4% fell inside its forecast band of 65% to 67%.
2nm Share Nearly Triples As 3nm Takes The Lead
The fastest-moving figure in the report was the 2-nanometer node, which entered volume production only recently. Its share of wafer revenue rose to 8% in the third quarter from 3% in the second, a gain of five percentage points in a single quarter.
The 3-nanometer node grew from 30% to 33% of wafer revenue, overtaking 5-nanometer at 28% to become TSMC's single largest node by sales. The 7-nanometer process contributed 10%.
"Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 79% of total wafer revenue," TSMC said in its earnings release. That compares with 77% in the second quarter and 74% a year earlier, showing how quickly the company's sales are concentrating in its most sophisticated manufacturing processes.
High-Performance Computing Climbs To 68% Of Sales
High-performance computing (HPC), the platform that includes processors and accelerators for data centers and AI servers, remained TSMC's biggest revenue driver. HPC sales grew 22% from the second quarter, lifting the segment to 68% of total revenue from 66% three months earlier and 57% a year ago. The HPC category covers a broad range of computing chips, so its share should not be read as a direct measure of AI revenue.
Smartphone revenue rose 10% quarter over quarter, but because HPC grew faster, the segment's share of total revenue edged down to 21% from 22%. Automotive revenue climbed 23% and Internet of Things revenue gained 5%, with each accounting for 4% of the total.
2nm Ramp Trims Gross Margin To 66.4%
The rapid move into 2-nanometer production came with a cost. Gross margin of 66.4% was 6.9 percentage points higher than a year earlier but 1.3 points below the 67.7% recorded in the second quarter.
TSMC attributed the sequential decline mainly to margin dilution from the initial ramp of its 2-nanometer technology. New nodes typically carry lower margins in their early months, before yields improve and production costs fall, which makes the pace of the 2-nanometer ramp a key variable for the company's profitability in coming quarters.
Operating income totaled NT$876.45 billion, up 14.3% from the second quarter and 75% from a year earlier. Operating margin slipped 1.6 percentage points from the prior quarter. The company pointed to higher operating expenses and the absence of an insurance gain tied to the April 3 earthquake, which it had booked in the second quarter.
One-Off Gains Make Second Quarter A Tough Comparison
Non-operating income also fell back. It came to NT$34.59 billion in the third quarter, down from NT$95.83 billion in the second, when TSMC recognized gains on the disposal and valuation of shares in Vanguard International Semiconductor Corp. (VIS), a Taiwanese specialty foundry. Those gains did not recur.
That gap explains why net profit grew only 8% from the second quarter even though operating income rose 14.3%. Net profit margin for the quarter was 51.1%.
Free Cash Flow Rises To NT$476.6 Billion
TSMC generated about NT$919.77 billion in cash from operating activities in the third quarter and spent about NT$443.21 billion on capital expenditures. That left free cash flow of roughly NT$476.56 billion, up from NT$287.36 billion in the second quarter.
The stronger cash position gives TSMC a firmer financial base for its continued investment as demand for advanced chips keeps rising.
Social Media Links & Editor Tag - Penny
