TSMC's record quarter: revenue up 51%, margins slip on 2 nm ramp

TSMC reported consolidated revenue of NT$1,494.24 billion (~US$46.8 billion) for the third quarter ended 30 September 2026, up 50.9% from a year earlier and 17.6% from the second quarter, according to its earnings release of 15 October 2026 (Taiwan-IFRS). Net income was NT$763.06 billion (~US$23.9 billion), up 68.7% year on year and 8.0% on the quarter, and diluted earnings per share were NT$29.43 (~US$0.92) (US$4.60 per ADR unit, as stated by TSMC).

In US dollars, as stated by the company, revenue was $46.72 billion, up 41.2% year on year and 16.2% on the quarter. Gross margin was 66.4%, operating margin 58.7% and net profit margin 51.1%.

Margins and the 2 nm ramp

TSMC's management report says the gross margin of 66.4% was 1.3 percentage points lower than in the second quarter (67.7%), mainly because of dilution from the initial ramp of its 2 nm (N2) technology. On the earnings call, the company said the fourth-quarter guidance reflects continued dilution from the steep 2 nm ramp as well as from overseas fabs. By node, 2 nm accounted for 8% of wafer revenue, 3 nm for 33%, 5 nm for 28% and 7 nm for 10%.

Guidance and capital spending

For the fourth quarter, TSMC expects revenue of US$52.3–54.3 billion, a gross margin of 65–67% and an operating margin of 56.5–58.5%, based on an exchange-rate assumption of US$1 = NT$31.8 (~US$1). Third-quarter capital expenditure was US$13.84 billion, according to the management report, and TSMC reiterated its 2026 capital budget of US$60–64 billion on the call.

Silicon Analytica reading (interpretation, not stated by TSMC): even as new nodes and overseas fabs dilute margins, an operating margin of 58.7% remains far above most of the industry. The guidance implies dilution, not a change in pricing power.