TSMC posts another record quarter, but takes a cautious view of the future

Taiwanese chipmaker TSMC, the world’s leading contract chip manufacturer, posted another record quarter in the third quarter of 2026. The reason is “strong demand for our leading-edge process technologies”, Chief Financial Officer Wendell Huang said. Production using 2- and 3-nanometer technologies grew in particular. The final quarter of this year also promises further growth, but the company warned of possible challenges as it looks ahead to 2027.

In the third quarter, which ended in late September, Taiwan Semiconductor Manufacturing Co. (TSMC) reported revenue of 1.49 trillion Taiwan dollars (TWD), equivalent to just under €41.2 billion. That’s 50.9% more than in the same quarter a year earlier, when TSMC also posted record revenue. Operating profit rose 75% year over year to TWD 876.4 billion (about €24.2 billion), while net income climbed 68.7% to TWD 763.1 billion (about €21.05 billion).

3-nanometer chips lead demand as 2-nanometer chips gain ground

Profit margins remain exceptionally high for a contract chipmaker. In the previous quarter, when TSMC booked its first revenue from 2-nanometer chips for Apple and AMD, its gross margin had risen from 58.6% to 67.7%. TSMC now reports a gross margin of 66.4%, an operating margin of 58.7% and a net profit margin of 51.1%.

In the third quarter, the mix of manufacturing technologies shifted toward smaller process nodes. 3-nanometer chips now account for 33% of wafer revenue, up from 30%, making them the largest group. The share of 2-nanometer chips rose 5 percentage points in three months to 8%, while 5-nanometer chips accounted for 28%, down from 33%, and 7-nanometer chips made up 10% of wafer revenue.

Positive near-term outlook, caution over the long term

TSMC Chief Financial Officer Huang is optimistic about the current quarter: “Looking to the fourth quarter of 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies – including the rapid ramp-up of our 2-nanometer technology.” TSMC expects revenue of €46.7 billion to €48.4 billion, which would represent an increase of more than 50% from a year earlier. Its gross margin is expected to remain between 65% and 67%.

TSMC’s leadership is more cautious about the long term. After the company released its quarterly report, CEO C.C. Wei told analysts that demand is “extremely robust” and there are no signs that the ongoing AI trend is slowing, but the company remains watchful. “Looking ahead, we continue to observe consumer and price-sensitive end-markets segments are being challenged due to the impact of rising component prices and macroeconomic uncertainties”, Wei said according to Reuters. “As such, we are being prudent in our business planning going into 2027”.

Despite concerns that rising prices could dampen demand and weaken the overall market, TSMC is raising its growth forecast, at least for this year. Instead of 40% revenue growth, the company now expects growth to reach 44% by the end of 2026.

(fds)