Taiwan Semiconductor Manufacturing Co Ltd Earnings - Q3 2025 Analysis & Highlights
Key Takeaways
TSMC's Q3 2025 earnings call highlighted strong demand for leading-edge process technologies, increased revenue and gross margins, and an optimistic outlook for AI-related growth, tempered by concerns about overseas fab dilution and potential tariff impacts. The company is increasing its capital expenditure to support customer growth, particularly in AI, and is committed to profitable growth and sustainable dividends.
Key Financial Results
Third quarter revenue increased 6% sequentially in NT.
Revenue increased 10.1% sequentially to $33.1 billion in US dollar terms.
Gross margin increased 0.9 percentage point sequentially to 59.5%.
Operating margin increased 1.0 percentage points sequentially to 50.6%.
Third quarter EPS was TWD 17.44, up 39% year-over-year, and ROE was 37.8%.
Advanced technologies (7-nanometer and below) accounted for 74% of wafer revenue.
Cash and marketable securities of TWD 2.8 trillion or $90 billion at the end of Q3.
Cash balance increased TWD 106 billion to TWD 2.5 trillion at the end of the quarter.
Third quarter capital expenditures totaled $9.7 billion.
Business Segment Results
HPC remained flat quarter-over-quarter, accounting for 57% of Q3 revenue.
Smartphone increased 19%, accounting for 30%.
IoT increased 20%, accounting for 5%.
Automotive increased 18%, accounting for 5%.
DCE decreased 20%, accounting for 1%.
3-nanometer process technology contributed 23% of wafer revenue.
5-nanometer accounted for 37%.
7-nanometer accounted for 14%.
Capital Allocation
Spent TWD 287 billion in CapEx during the third quarter.
Distributed TWD 117 billion for fourth quarter 2024 cash dividend.
Narrowing the range of 2025 CapEx to be between $40 billion and $42 billion.
70% of the capital budget will be allocated for advanced process technologies.
10% to 20% will be spent for specialty technologies.
10% to 20% will be spent for advanced packaging, testing, mask making, and others.
Committed to a sustainable and steadily increasing cash dividend per share on both annual and quarterly basis.
Industry Trends and Dynamics
Strong demand for leading-edge process technologies.
Robust AI-related demands throughout 2025.
Non-AI end-market segments have bottomed out and are seeing a mild recovery.
Explosive growth in token volume demonstrates increasing consumer AI model adoption.
Rising emergence of sovereign AI.
Competitive Landscape
TSMC expects to be the most efficient and cost-effective manufacturer in every region that they operate.
TSMC's biggest responsibility is to prepare the most advanced technologies and necessary capacity to support our customers' growth.
TSMC can continue to be the trusted technology and capacity provider of the global logic IC industry for years to come.
Macroeconomic Environment
Uncertainties and risks from the potential impact of tariff policies, especially in consumer-related and price-sensitive market segment.
Mindful of the potential impact and be prudent in business planning going into 2026 while continuing to invest for the future megatrend.
Growth Opportunities and Strategies
Continue to invest to support customers' growth due to structured AI-related demand.
Leveraging AI internally to drive greater productivity and efficiency to create more value.
Preparing to upgrade technologies faster to N2 and more advanced process technologies in Arizona.
Expanding global footprint while continuing to invest in Taiwan.
N2 is well on track for volume production later this quarter.
Introducing N2P as an extension of our N2 family.
Introducing A16 featuring our best-in-class Super Power Rail or SPR.
Financial Guidance and Outlook
Expects fourth quarter revenue to be between $32.2 billion and $33.4 billion.
This represents a 1% sequential decrease or a 22% year-over-year increase at the midpoint.
Gross margin is expected to be between 59% and 61%.
Operating margin between 49% and 51%.
Expects full year 2025 revenue to increase by close to mid-30s percent year-over-year in US dollar term.
Gross margin dilution from the ramp-up of overseas fabs to be closer to 2% in the second half of 2025.
For the full year 2025, dilution expected to be between 1% to 2% as compared to 2% to 3% previously.
Forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widened to 3% to 4% in the latter stages.
