Taiwan Semiconductor Manufacturing Company (TSMC) makes most of its money by manufacturing chips for other companies. Two forces dominate the sales line: high-performance computing (HPC) customers and smartphone makers. In 2025, HPC supplied 58% of revenue and smartphones 29%; in the second quarter of 2026 (2Q26), those shares were 66% and 22%, respectively.
On the technology side, advanced processes—TSMC defines these as 7-nanometer (nm) and more advanced—generated 74% of wafer revenue in 2025 and 77% in 2Q26. Profit depends on more than sales volume: factory utilization, manufacturing-cost improvements, product and process mix, foreign-exchange movements, and the start-up and utilization costs of overseas fabs all affect margins. The latest actual quarter available in the reporting record is 2Q26; third-quarter 2026 figures were not yet reported at the October 13, 2026 cutoff.
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TSMC’s reported results at a glance
The annual and quarterly figures use different currencies and periods, so they should not be treated as directly comparable totals. TSMC reported the following:
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| Measure | 2025 full year | 2Q26 |
|---|---|---|
| Consolidated revenue | NT$3,809.05 billion; US$122.42 billion | NT$1,270.38 billion |
| Net income | NT$1,717.88 billion; US$55.21 billion | NT$706.56 billion |
| Year-over-year revenue growth | 31.6% in New Taiwan dollars | 36.0% |
| Year-over-year net-income growth | 46.4% in New Taiwan dollars | 77.4% |
| Gross margin | 59.9% | 67.7% (versus 66.2% in 1Q26 and 58.6% in 2Q25) |
| Operating margin | 50.8% | Not stated in the cited 2Q26 figures |
| Net margin | 45.1% | Not stated in the cited 2Q26 figures |
The dollar growth rates can differ from the New Taiwan dollar rates because converting annual results into U.S. dollars introduces exchange-rate effects. For that reason, an investor comparing years should keep the currency consistent.
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How TSMC’s foundry model generates revenue
Manufacturing chips for customers
TSMC is a semiconductor foundry: customers design chips, while TSMC manufactures them on silicon wafers. Revenue is therefore influenced by the number of wafers produced and shipped, the price and complexity of the process used, and the mix of applications ordering capacity. A chip made on a leading-edge process generally requires more complex equipment and steps than one made on an older process, but the available disclosures do not provide a margin for each individual node or customer.
Advanced packaging is an enabling service
Products built from several dies or requiring very high bandwidth also rely on packaging and three-dimensional integration. TSMC identifies technologies such as CoWoS, InFO and SoIC as part of its effort to meet customer requirements. These capabilities can make a process platform more useful for demanding products, but TSMC does not report a separate packaging-revenue figure in the cited material. It would therefore be misleading to treat packaging as an independently quantified sales segment.
Which customer platforms drive sales?
TSMC reports revenue by application platform. The percentages below are each period’s share of net revenue, not a share of profit.
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|---|---|---|
| High-performance computing (HPC) | 58% | 66% |
| Smartphone | 29% | 22% |
| Internet of Things (IoT) | 5% | 5% |
| Automotive | 5% | 4% |
| Data center and consumer electronics (DCE) | 1% | 1% |
| Others | Not separately listed in the 2025 mix shown | 2% |
HPC: the largest and fastest-expanding platform
HPC was TSMC’s largest platform in both periods, rising from 58% of 2025 revenue to 66% in 2Q26. TSMC’s 2025 earnings transcript said HPC revenue grew 48% year over year. Management has also said that AI-related demand was expected to remain robust entering 2026, although that is management’s outlook rather than an independent demand forecast.
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The shift toward HPC raises the company’s exposure to a large, technically demanding category. It does not, however, prove that HPC produces a particular percentage of TSMC’s profit. Platform revenue shares and platform-specific margins are different data sets, and TSMC does not disclose profit by platform in the cited reports.
Smartphones: still important, but a smaller mix
Smartphone applications accounted for 29% of 2025 revenue and 22% in 2Q26. The lower quarterly share does not mean smartphone sales disappeared; it means other demand—especially HPC—made up a larger portion of the period’s net revenue. Smartphone orders can also be more seasonal than some infrastructure programs, so a single quarter’s mix should not be read as a permanent change.
IoT, automotive and DCE
IoT contributed 5% in both reported periods. Automotive was 5% in 2025 and 4% in 2Q26, while DCE was 1% in each. These categories diversify the customer base, but their reported shares are much smaller than HPC and smartphone. The 2Q26 presentation also identified an “Others” category at 2%.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsWhich process technologies drive wafer revenue?
Application platforms explain what customers are building; process-node data explains how TSMC manufactures it. TSMC’s definition of “advanced technologies” includes 7nm and more advanced processes.
| Technology measure | Period | Share of wafer revenue |
|---|---|---|
| Advanced technologies (7nm and more advanced) | 2025 | 74% |
| Advanced technologies (7nm and more advanced) | 2Q26 | 77% |
| 2nm | 2Q26 | 3% |
| 3nm | 2Q26 | 30% |
| 5nm | 2Q26 | 33% |
| 7nm | 2Q26 | 11% |
The 2Q26 node percentages are portions of wafer revenue, not portions of consolidated company revenue. They also do not add up to the entire wafer-revenue mix because older processes and other categories make up the balance. The increase in the advanced-technology share from 74% for 2025 to 77% in 2Q26 indicates that leading-edge production represented most wafer sales, but it does not establish the profit margin of any single node.
What makes TSMC profitable?
Utilization of expensive capacity
Semiconductor fabs carry substantial costs even when equipment is not fully used. When more of a plant’s available capacity is producing wafers, fixed costs are spread across more output. TSMC said higher capacity utilization helped lift 2Q26 gross margin. Utilization can therefore improve profit even without a proportional increase in selling prices.
Manufacturing-cost improvements
Yield improvements, process learning, productivity work and other cost initiatives reduce the resources needed for each good wafer. For 2Q26, TSMC said cost-improvement efforts were a primary reason gross margin increased 1.5 percentage points sequentially, from 66.2% in 1Q26 to 67.7%. The statement identifies the direction of the effect, not a dollar amount for each initiative.
Product and process mix
A greater proportion of advanced-node wafers and complex products can change average revenue and cost per wafer. The reported mix shows why mix matters: 77% of 2Q26 wafer revenue came from 7nm-and-better technologies, with 3nm alone at 30% and 5nm at 33%. Still, the disclosures do not provide enough information to calculate a margin for HPC, smartphones, 3nm or any other individual category.
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Foreign exchange
TSMC reports in New Taiwan dollars while much of the semiconductor industry’s pricing and costs involve U.S. dollars or other currencies. In its 4Q25 discussion, management listed unfavorable foreign exchange as a margin offset. Currency effects can therefore make reported profit growth differ from the underlying change in wafer volume or manufacturing performance. The exact impact varies by period and should not be carried from one quarter to another without a new disclosure.
Overseas-fab dilution
TSMC said overseas fabs partly diluted 2Q26 gross margin. New facilities often begin with lower utilization while equipment is installed, qualified and ramped; they can also carry start-up expenses before reaching mature productivity. That dilution is a company-level effect: it can lower the consolidated margin even when established fabs are running efficiently. The cited reports do not quantify the overseas-fab contribution in dollars.
Why profit can grow faster than revenue
In 2025, revenue increased 31.6% in New Taiwan dollar terms, while net income rose 46.4%. Gross margin also expanded from 56.1% in 2024 to 59.9% in 2025. In 2Q26, revenue grew 36.0% year over year and net income grew 77.4%, while gross margin reached 67.7% compared with 58.6% in 2Q25.
These figures show operating leverage and margin expansion accompanying sales growth. They do not prove that one platform, customer or AI product caused all of the profit increase. A defensible interpretation is that utilization, cost improvements, mix and other company-level factors together allowed earnings to rise faster than revenue; TSMC’s disclosures do not assign a precise contribution to each factor.
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How to read TSMC’s outlook
3Q26 guidance is a forecast, not a result
In its July 16, 2026 release, TSMC forecast 3Q26 revenue of US$44.6 billion to US$45.8 billion and a gross margin of 65% to 67%. Those numbers were management’s guidance at that date. They should not be presented as actual 3Q26 performance. The company’s 3Q26 earnings conference was scheduled for October 15, 2026, after the October 13 reporting cutoff used here.
Management’s technology-demand view
Wendell Huang, TSMC’s senior vice president and chief financial officer, said in the 2Q26 earnings release: “Moving into third quarter 2026, we expect our business to be supported by continued strong demand for our leading-edge process technologies, including the steep ramp-up of our 2-nanometer technology.” This is a management expectation, not a guarantee of shipments or profit.
A practical framework for analyzing TSMC
- Fix the period and currency. Identify whether a number is annual, year over year, sequential or quarterly, and keep New Taiwan dollar and U.S. dollar comparisons separate.
- Separate application mix from technology mix. Platform percentages describe customers’ end markets; node percentages describe wafer revenue. Neither table is a profit statement.
- Check utilization and cost commentary. Look for management’s explanation of capacity use, yields and cost improvements because these can move gross margin without a matching change in revenue.
- Identify offsets. Foreign exchange, overseas-fab dilution and other start-up effects can reduce the benefit of stronger demand.
- Compare all three margins when available. Gross margin reflects manufacturing economics, operating margin includes operating expenses, and net margin includes items below operating profit. A change in one does not automatically equal a change in another.
- Treat guidance as a range. Compare the forecast with the later reported quarter only after TSMC publishes actual results.
Limits of the public mix data
- TSMC reports platform revenue shares but not platform-specific profit, so a large revenue category cannot be labeled the most profitable without additional evidence.
- Node percentages are shares of wafer revenue, not consolidated revenue and not unit shipments.
- Annual U.S. dollar totals reflect currency conversion; New Taiwan dollar growth rates and U.S. dollar growth rates can differ.
- Margin explanations such as utilization, cost improvements, foreign exchange and overseas-fab dilution are management’s explanations for the cited periods. Their effects can change in later quarters.
- The latest actual quarter in this analysis is 2Q26. Any 3Q26 number available before the scheduled earnings event is guidance or another estimate, not reported performance.
Bottom line
TSMC’s revenue is driven chiefly by HPC and smartphone chip manufacturing, with advanced processes supplying most wafer sales. Its profit is determined by how effectively it converts that demand into good wafers: high utilization and cost improvements raise margins, while foreign exchange and the ramp-up of overseas fabs can offset them. The company’s reported mix demonstrates where sales come from, but it does not reveal which platform earns the highest margin. For investors, the most informative combination is platform mix, advanced-node share, utilization and cost commentary, and the difference between actual results and management guidance.
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