Taiwan Semiconductor Manufacturing Co. Ltd. today posted third-quarter earnings and revenue that easily topped analyst expectations.

TSMC’s shares rose more than 9% on the results.

The world’s largest contract chipmaker generated a net profit of 325.3 billion New Taiwan dollars, or $10.1 billion, in the three months ended September. That represents a 54% improvement over the same time a year earlier. It’s also higher than the NT$300.2 billion that analysts polled by LSEG had projected.

TSMC’s revenue likewise topped the consensus estimate. Third-quarter sales climbed 36% year-over-year, to $23.5 billion, well above the $23.09 billion that the market had anticipated. 

The company attributed the sales jump partly to an increase in smartphone chip orders. Unsurprisingly, strong demand for artificial intelligence processors also factored into TSMC’s top line performance. The company disclosed that the revenue it generates from server-grade AI chips is on track to more than triple this year.

Nvidia Corp., TSMC’s most important customer in the AI accelerator market, relies on the fab operator to make its flagship Blackwell B200 graphics card. The chip is based on TSMC’s four-nanometer 4NP manufacturing process. The technology is one generation behind the company’s latest three-nanometer N3 node, which it uses to make the chips in Apple Inc.’s newest iPhones.

The first iteration of the N3 process entered production in late 2022. Last year, TSMC rolled out an improved version that does away with EUV double patterning, a practice whereby a lithography machine etches transistors into a wafer in two passes rather than one. Reducing the number of passes necessary to make processors cuts production costs and lowers the risk of manufacturing faults.

TSMC cited demand for its three-nanometer technology as another contributor to its expectation-topping sales growth last quarter. The company expects this momentum to continue into the current quarter. TSMC is forecasting revenue of $26.1 billion and $26.9 billion for the last three months of the year, which would represent a 35% increase from 2023 at the midpoint.

The company expects to end 2024 with capital expenditures of more than $30 billion. This line item covers large purchases such as chipmaking equipment. TSMC believes that its capital expenditures will be higher next year, which is likely tied to the company’s investments in process upgrades and new fab construction.

TSMC plans to roll out the successor to its flagship three-nanometer manufacturing process in the second half of 2025. The upcoming N2 node, as it’s called, features a new gate-all-around transistor design. It also includes a technology that will allow TSMC customers to place circuits with different performance and power-efficiency levels on the same chip.

In parallel with its process development efforts, the company is adding more manufacturing capacity. Earlier this year, TSMC broke ground on a $10.9 billion fab in Germany. It’s also building three chip plants in Arizona as part of a project that is expected to cost more than $65 billion.

The first of the three fabs is set to become fully operational next year. Last month, rumors emerged that TSMC is already using the facility to make a limited quantity of chips for Apple’s iPhone 14 series. The two other fabs the company is building in Arizona are expected to come online later this decade.

Photo: TSMC