According to recent reports, Taiwan Semiconductor Manufacturing (TSM.US) held its Q3 2025 earnings call. The company's third-quarter revenue increased by 6% quarter-over-quarter, driven primarily by robust demand in advanced processes, with a 10% rise in dollar terms, slightly exceeding previous guidance to reach $33.1 billion. The gross margin (GM) was 59.5%, a quarter-over-quarter increase of 0.9 percentage points, largely attributed to high utilization rates, with some impact from unfavorable exchange rates and dilution from overseas factories. The operating profit margin (OPM) grew 1.0 percentage point to 50.4%. Third-quarter earnings per share (EPS) were NT$17.44, while return on equity (ROE) reached 37.8%.
Looking ahead, guidance for the fourth quarter anticipates revenue of $32.2 to $33.4 billion, a slight decrease of 1% quarter-over-quarter but a 20% increase year-over-year. When calculated at an exchange rate of 1:30.6, gross margins are expected to range from 59% to 61%, and OPM will be between 49% and 51%.
Company executives indicated that for 2025, capital expenditure (CAPEX) is anticipated to be robust due to significant AI demand, leading to sustained investment to support customers. The CAPEX range was reduced to $40 to $42 billion, compared to the prior range of $38 to $42 billion, with 70% allocated for expansion of advanced processes, and 10% to 20% each for specialty processes and advanced packaging among others. TSMC's high CAPEX is linked to substantial growth opportunities and aims to provide sustainable profit growth and increased cash dividends to shareholders.
For the demand side, Q3 revenue reached $33.1 billion, slightly above earlier expectations, primarily driven by demand for advanced processes. For Q4 2025, strong and continuous AI demand is expected, alongside moderate recovery in the non-AI segment. The solid performance in advanced processes and a broad customer base suggest a full-year growth target in the mid-$30 billion range. The company has not seen significant changes in customer behavior but acknowledges uncertainties regarding tariff policies, particularly in consumer electronics and cost-sensitive segments. They remain aware of these potential risks and continue to monitor critical business fundamentals such as manufacturing excellence, customer trust, and technological leadership to maintain strong competitiveness.
Regarding global capacity planning, executives emphasized that it is driven by customer demand, which necessitates some flexibility along with necessary government support. With backing from U.S. customers and the government, capacity expansion in Arizona is progressing. Plans to upgrade processes to N2 in Arizona are underway due to strong AI demand. Additionally, TSMC is close to acquiring new land to support expansion plans for the coming years, with an independent cluster in Arizona dedicated to high-performance computing (HPC), AI, and mobile applications.
In Japan, with government support, the first specialty process fab is set to begin production by the end of 2024, with good yield rates. Construction on a second factory is already in progress, advancing with customer demand and market conditions. In Europe, a strong commitment has seen the establishment of a specialty process factory that is also ushering in progress. Scaling plans take into account customer demand and market conditions, with plans for N2 factories in Hsinchu and Kaohsiung continuing with advanced processes and packaging.
Regarding the N2 A16 process, it is an industry-leading process with excellent energy efficiency, collaborating with nearly all innovators. Production for N2 is expected to begin late this quarter, with ramp-up anticipated in 2026 mainly driven by smartphone and HPC demand. N2P is being introduced as an extension of N2 to achieve better performance and energy efficiency, with production expected in the second half of 2026. The introduction of SPR in A16 positions A16 well for specialized HPC products with high density. The expectation is that the N2, N2P, A16, and derivative processes will establish N2 as a significant and sustainable family of products.
During the Q&A session, executives addressed various inquiries, including:
- Enhanced AI demand leading to stronger projections for the future CAGR. - Focus on reducing the supply-demand gap for advanced packaging. - Navigating customer expectations in light of evolving technologies and capacities. - Maintaining growth rates without reliance on the Chinese market.
Looking ahead to 2026, discussions regarding gross margins suggest that N2's impact, alongside the dilution from overseas factories, will need careful management. N2's profitability is anticipated to exceed that of N3, although discussions about achieving average gross margins are premature.
The sentiment remains bullish regarding the long-term opportunities in the AI space as demand continues to strengthen across various applications.