TSMC's 2nm Ramp Took 1.3 Points Off Its Gross Margin

TSMC reported net income of NT$763.06 billion for the three months to 30 September 2026, a record for the sixth consecutive quarter, alongside a gross margin of 66.4 per cent. That margin is 1.3 percentage points below the June quarter, calculated from the gross profit and net sales lines of the same document, which the company published in Hsinchu on 15 October. A footnote states that the board has not approved the figures.

Consolidated revenue was NT$1,494.24 billion, or $46.72 billion, up 50.9 per cent on the third quarter of 2025 and 17.6 per cent on the previous quarter. Dollar revenue finished above the $44.6 billion to $45.8 billion the company had guided for the period. Diluted earnings came to NT$29.43 a share, which TSMC states as $4.60 per American depositary receipt unit. Reuters reported on 12 October that an LSEG SmartEstimate compiled from 16 analysts put third-quarter net profit at NT$746.3 billion, and that any figure above NT$706.56 billion would be a record.

What the two-nanometre line costs

Two-nanometre wafers produced 8 per cent of wafer revenue in the quarter, against 3 per cent in the three months to June. Three-nanometre remained the largest single contributor at 33 per cent, five-nanometre at 28 per cent and seven-nanometre at 10 per cent. Nodes of seven nanometres and tighter together accounted for 79 per cent. A node that young is the most expensive silicon a foundry makes, and the arithmetic of the release follows from that: every absolute profit line is higher than both comparison quarters, while the margin rates are lower than in June.

Chief financial officer Wendell Huang tied the decline mainly to the early two-nanometre ramp and to higher costs at fabs outside Taiwan, according to Nextapple's account of the earnings call on 15 October. The two-page release itself offers no cause.

The guidance is the new information

For the December quarter TSMC guided revenue of $52.3 billion to $54.3 billion, a gross margin of 65 to 67 per cent and an operating margin of 56.5 to 58.5 per cent, at an assumed NT$31.8 to the dollar. The revenue midpoint of $53.3 billion is about 14 per cent above the quarter just reported. The gross-margin midpoint of 66 per cent sits 0.4 points under the 66.4 per cent just delivered, and the operating-margin midpoint of 57.5 per cent sits 1.2 points under the 58.7 per cent reported for September.

Capital spending reached $13.84 billion in the quarter and $40.64 billion across the first nine months of 2026, on TrendForce's reading of the results. The company held its 2026 range at $60 billion to $64 billion, a figure it raised in July from a previous $52 billion to $56 billion according to Reuters, and told the call that spending from 2026 to 2028 would run significantly above the past three years. The equipment side of that bill is already visible: ASML said on 14 October that its supply in 2027 and 2028 would fall short of demand, as Parallax Nexus reported.

High-performance computing supplied 68 per cent of revenue and grew 22 per cent on the quarter, with smartphones at 21 per cent, figures carried in Taipei reports of the call rather than printed in the release. The honest reading is that TSMC has turned an AI order book into record absolute profit while giving back a little of its margin rate to do it, and has told investors to expect the same trade in December. The counter-case is that a 0.4-point step in a guided midpoint is a small thing beside revenue guidance asking for another 14 per cent sequential rise, and that the operating margin cleared the top of its band this quarter. What the release does not separate is price from volume, nor how much of the overseas-fab cost falls in which year.