TSMC Reports Q3 Revenue of $46.7 Billion, Issues Q4 Guidance

Taiwan Semiconductor (NYSE: TSM ) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

4% due to 2-nanometer ramp-up. Advanced technologies (7-nanometer and below) accounted for 79% of wafer revenue, with high demand noted in HPC and automotive segments. 3 billion, a 14% sequential increase, driven by strong demand for 2-nanometer technology. TSMC is investing significantly in capacity expansion, with capital expenditures projected to be between $60 and $64 billion for 2026 to support robust AI-related demand.

S. and other regions. Management emphasized continued collaboration with customers and suppliers to manage capacity and cost challenges, highlighting confidence in capturing AI-related demand. Full Transcript Jeff Hsu, Director of Investor Relations Good afternoon everyone and welcome to TSMC's third quarter 2026 earnings conference call.

This is Jeff Hsu, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at where you can also download the earnings materials. If you're joining us through the conference call, your dial-in lines are in listen-only mode. Today's event will be as follows.

First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the third quarter 2026, followed by our guidance for the fourth quarter 2026. Then Mr. Huang and TSMC's CEO, Dr.

C. Wei, will jointly provide the company's key messages. That will be followed. Then we will open the line for the Q&A session as usual.

I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor notice that appears in our press release. And now I would like to turn the call over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.

Wendell Huang, Senior Vice President and CFO Thank you, Jeff. Good afternoon everyone. Thank you for joining us today. My presentation will start with financial highlights for the third quarter of 2026.

After that I will provide the guidance for the fourth quarter of 2026. 6% sequentially in NT, supported by strong demand for our leading-edge process technologies. 7 billion, above the high end of our third quarter guidance. 4%, primarily due to margin dilution from 2-nanometer ramp.

8% of net revenue. 7%. 5%. Now let's move on to revenue by technology.

2-nanometer process technology contributed 8% of wafer revenue in the third quarter, while 3-nanometer, 5-nanometer, and 7-nanometer accounted for 33%, 28%, and 10% respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 79% of wafer revenue. Moving on to revenue contribution by platform, HPC increased 22% quarter over quarter to account for 68% of our third quarter revenue. Smartphone increased 10% to account for 21%.

IoT increased 5% to account for 4%. Automotive increased 23% to account for 4%, while DCE declined 12% to account for 1%. Moving on to the balance sheet, we ended the third quarter with cash and marketable securities of NT$4 trillion, or US$126 billion. On the liabilities side, current liabilities increased by NT$110 billion quarter over quarter, mainly due to the increase of NT$46 billion incurrence of bond payables and bank loans, and NT$26 billion dividend payable.

In terms of financial ratios, accounts receivable turnover days decreased by 1 day to 28 days. Inventory days decreased by 5 days to 82, primarily due to the increase in wafer shipment. Regarding cash flow and CapEx, during the third quarter we generated about NT$903 billion in cash from operations, spent NT$443 billion CapEx, and distributed NT$156 billion for fourth quarter 2025 cash dividends. 6 trillion at the end of the quarter.

8 billion. I have finished my financial summary. Now let's turn to our current quarter guidance. 8.

Gross margin is expected to be between 65% and 67%. 5%. This concludes my financial presentation. Now let me turn to our key messages.

I will start by talking about our third quarter 2026 and fourth quarter 2026 profitability. 4%, primarily due to the margin dilution from the initial ramp-up of our 2-nanometer technology. We have just guided our fourth quarter gross margin to decrease by 40 basis points to 66% at the midpoint, primarily due to the continued margin dilution from the steep ramp-up of our 2-nanometer technology as well as dilution from overseas fabs. These impacts are expected to be partially offset by cost improvement efforts, including productivity gains and across-node capacity optimization.

While the cost of overseas fabs remains higher, thanks to the company's overall larger scale and cost improvement efforts, we now expect the gross margin dilution from the ramp-up of our overseas fabs to be closer to 2% for the full year 2026. As we put more effort to support the strong structural demand from our customers, more fabs will be ramping up in the US. Thus, we expect the dilution from our overseas fabs to widen to 3% to 4% in the next few years. We will leverage our increasing size in Arizona and work on our operations to improve the cost structure.

We will also continue to work closely with our customers and suppliers to manage the impact. Overall, with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base, we are confident that TSMC continues to be the most cost-efficient manufacturer in every region that we operate. Next, let me make some comments on our 2026 capital budget at TSMC. A higher level of capital expenditures is always correlated with higher growth opportunities in the following years.

Given the continued robust multi-year demand from our customers, including the emerging generative AI market, we reiterate our full-year 2026 capital budget to be between US$60 and US$64 billion. We continue to expect our CapEx dollars investment from 2026 to 2028 to be even more significantly higher than the past three years, as we continue to invest heavily to support our customers' growth. Additionally, while the tool supply is tight, we always collaborate closely with our tool suppliers well in advance to prepare the capacity, just like our customers collaborate with us well in advance to plan our capacity.

Even as we invest for the future growth, with this level of CapEx spending in the next few years, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis. C. C.

C. Wei, CEO Thank you, Wendell. Good afternoon everyone. Start with our near-term demand outlook.

7 billion, higher than our guidance in US dollar terms, driven by strong demand for our leading-edge process technologies. Moving into fourth quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge-based technologies, including the steep ramp-up of our 2-nanometer technology. Looking ahead, we continue to observe consumer and price-sensitive end market segments being challenged due to the impact of rising prices and macroeconomic uncertainties. As such, we will improve our business planning going into 2027 while focusing on the fundamentals of our business to further strengthen our competitive position.

Having said that, demand for our leading-edge technologies continues to be equally robust, supported by our strong technology differentiation and broad customer base. Therefore, we now expect our full-year 2026 revenue growth to be around 44% year over year in US dollar terms. Next, let me talk about AI-related demand outlook. The AI market continues to be very strong.

Recent developments are very positive to AI's long-term demand outlook. We observe increasing AI demand fueled by the rising adoption of generative AI as we transition from chips to AI systems. In addition, we are observing greater adoption of open-source AI models. This will drive greater efficiency and help lower the barrier to future AI usage that results in more and more demand for leading-edge silicon.

Thus, AI-related demand is being supported by strong underlying demand for AI accelerators. In addition, the emergence of AI CPUs and the continued demand for networking chips are driving further silicon demand. Therefore, semiconductors will remain essential in the AI megatrend. The value of semiconductors in the global supply chain is set to continue to increase.

In our view, this will create more value opportunities for our customers to capture and more value opportunities for TSMC as well. No matter which approach is taken, it will require use of the most advanced semiconductor process technology. With technology leadership, manufacturing excellence, global capacity expansion, and customer trust, we are well positioned to capture the full multi-year structural AI-related demand. Therefore, all the AI players are working with TSMC.

Next, let me talk about TSMC's capacity expansion strategy. As a foundry, our first responsibility is to provide our customers with the best technologies and effective capacity support to unleash their ambitions to address the structural increase in the long-term semiconductor market demand profile. TSMC collaborates closely with our customers and orders the customer to plan for our capacity. In addition, we are now going one step further and sending our own teams of people to check on the data center build-out progress and power supply situation in the US.

The feedback is so far so good, and the CSP has been well prepared. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach. This is a continuous and ongoing process. Given the fundamental complexity of leading-edge technologies and the design-in and lead time involved, we already have a very good idea of customers' multi-year product roadmaps and production plans.

Thus we continue to hold strong vision in the AI megatrend. We are moving full speed ahead to increase our capacity to meet our assessed demand and stepping up our CapEx investment toward our customers' future growth. TSMC is spending at an unprecedented, with near 20 fabs worldwide in progress, we We are building 13 leading-edge and advanced-packaging fabs in Taiwan over the next several years and another 5 to 6 fabs overseas. Our new node N2 has already entered high-volume manufacturing in the first half of 2025.

With good yield, N2 is ramping successfully in multiple phases at both Hsinchu and Kaohsiung sites. We expect our N2 Family Technologies annual capacity to more than double by 2027, supported by strong demand from both smartphone and HPC AI applications. We are also leveraging our manufacturing excellence to generate more N2 wafer output, further increasing our capacity support to customers. In addition, we have already begun preparing the capacity for our A14 technology.

Risk production is well on track for 2027 and volume production will start in 2028. Thus, Taiwan Semiconductor's technologies and manufacturing will continue to play a pivotal role in supporting the global semiconductor industry while unleashing our customers' innovation. Now let me talk about Taiwan Semiconductor's global entry capacity expansion update. As we said before, historically, we do not add additional capacity to a node once it reaches its targeted capacity.

However, based on our assessment, we are executing well on our global capacity plan to add three new fabs to support the robust multi-year pipeline of demand for 3-nanometer technologies in Taiwan. Volume production for our new 3-nanometer fab in Tainan Science Park is well on track to begin in the first half of 2027. In addition, driven by strong demand from our customer, we have decided to add one additional 3-nanometer fab in Tainan. Volume production is scheduled for the first half of 2028.

In Arizona, we have reached the construction of our second fab and are in the process of tool move-in and installation. Volume production will begin in third quarter '27, slightly ahead of our previous schedule. In Japan, we are progressing well to our plan to utilize 3-nanometer in our second fab and volume production is scheduled in 2028. In addition to all the new fabs, we continue to convert 5-nanometer tools to support 3-nanometer capacity in Taiwan.

We are also leveraging our manufacturing excellence to greater productivity across our fabs in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, which includes flexible capacity support among N7, N5, and N3 nodes. Thus, we are using multiple levers to do everything we can, whenever we can, as fast as we can, to maximize the support to our customers. We have no intention to leave food on the table for others, yet we want to capture every piece of business possible.

This concludes our key message, and thank you for your attention. Jeff Hsu, Director of Investor Relations Thank you, C. C. This concludes our prepared statements.

Before we begin the question and answer session, I would like to remind everybody to please limit your questions to two at a time to allow as many participants as possible the opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question. For those of you on the call, if you would like to ask a question, please press the star then one on your telephone keypad. Now if at any time you'd like to remove yourself from the questioning queue, please press star 2.

Now let's begin the Q and A session. Operator, can we proceed with the first caller on the line, please? OPERATOR Yes, first one, Laura Chen. Go ahead please.

Laura Chen, Analyst Thank you very much. Good afternoon, and I appreciate C. C. for sharing with us the Taiwan Semiconductor capacity expansion strategy.

So may I follow up more on that? Given the increasing aggressive AI semiconductor demand, how does Taiwan Semiconductor now see the AI revenue CAGR growth and how does Taiwan Semiconductor return to customers' capacity requirement? With some of the potential concern on the data center power availability and also maybe funding recently, and other critical components such as HBM, advanced packaging, and also in the networking side we see the tightness of the laser as well. So if these constraints create a mismatch, adjust your capacity allocations and also the strategy to minimize the potential overbuilding in the supply chain.

Thank you. That's my first question. Jeff Hsu, Director of Investor Relations Okay, Laura, Laura has a very involved first question. I think she's asking how do we see the AI demand outlook?

The AI demand, you know, as C. C. said, seems to be very strong, but she's worried or concerned: how do we reconcile the strong demand of AI chips versus, you know, risks related to whether it be power supply, different bottlenecks within the supply chain, etc. How do we make our assessment of what is the appropriate CapEx and capacity we need to prepare?

Is that correct, Laura? Laura Chen, Analyst Yes, thank you. C. C.

Wei, CEO That's a long question. Laura, let me share with you. We have a very sophisticated capacity planning process, and we also have a very disciplined consideration, and let me share with you. —into our consideration.

And so we, you know, make our own judgment and then, based on our assessed demand, we still think the demand is higher than the supply, and we are working very hard to narrow the gap. Did I answer your question, Laura? Laura Chen, Analyst Sure. Thank you.

Thank you very much. So, so far from our comprehensive study of the supply chain, we are still quite positive on the demand in the longer term. Right. So in that case can you also give us more color about that?

Any update on your AI CAGR? Previously we talked about like 50%. Jeff Hsu, Director of Investor Relations Sorry, sorry.