What Management Said
Read the full Q1 2026 transcript ↗TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. Wendell Huang, will summarize our operations in the first quarter 2026, followed by our guidance for the second quarter 2026. Wendell Huang, for the summary of operations and the current quarter guidance. After that, I will provide the guidance for the second quarter 2026.
First quarter revenue increased 8.4% sequentially in TWD, supported by strong demand for our leading-edge process technologies. dollar terms, revenue increased 6.4% sequentially to $35.9 billion, slightly ahead of our first quarter guidance. Gross margin increased 3.9 percentage points sequentially to 66.2%, primarily due to cost improvement efforts, a high capacity utilization rate, and a more favorable foreign exchange rate. Operating margin improved 4.1 percentage points sequentially to 58.1% due to operating leverage.
Overall, our first quarter EPS was TWD 22.08 and ROE was 40.5%. 3 nm process technology contributed 25% of wafer revenue in the first quarter, while 5 nm and 7 nm accounted for 36% and 13% respectively. Advanced technologies, defined as 7 nm and below, accounted for 74% of wafer revenue. HPC increased 20% quarter-over-quarter to account for 61% of our first quarter revenue.
- First quarter revenue rose to $35.9 billion, up 6.4% sequentially in USD (8.4% in TWD) and slightly ahead of guidance, driven by strong demand for leading-edge process technologies.
- Gross margin jumped 390 basis points sequentially to 66.2%, exceeding the high end of prior guidance by 120 basis points on cost-improvement efforts, higher capacity utilization and a more favorable foreign exchange rate.
- Operating margin improved 410 basis points sequentially to 58.1% on operating leverage; EPS was TWD 22.08 and ROE reached 40.5%.
- AI-related demand described as extremely robust, with the shift from generative to agentic AI stepping up token consumption; HPC platform grew 20% sequentially to 61% of revenue.
- Raised full-year 2026 revenue growth guidance to above 30% in USD, and reiterated the AI accelerator CAGR toward the higher-50s% for 2024-2029.
- N2 in high-volume manufacturing since Q4 2025 with good yield, ramping multi-phase at Hsinchu and Kaohsiung; stepping up N3 capacity globally with new fabs in Tainan, Arizona and Japan.
- Smartphone revenue fell 11% sequentially to 26% of revenue, and automotive fell 7%, as memory price hikes softened price-sensitive PC and smartphone markets.
- The initial 2nm ramp will start diluting gross margin in the second half of 2026, with 2%-3% dilution expected for full-year 2026; overseas fab dilution is forecast at 2%-3% early stage widening to 3%-4% later.
- Second quarter tax rate will be around 20% due to accrual of tax on undistributed retained earnings (full-year still 17%-18%).
- The Middle East situation may raise prices for certain chemicals and gases with a possible profitability impact, though too early to quantify.
- Capacity remained very tight across nodes and packaging; management expects the demand-supply gap to persist, with new fabs taking 2-3 years to build (relief not before 2027-2028).
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue | Q2 2026 | $39.0B-$40.2B (+10% QoQ / +32% YoY at midpoint) |
| Gross margin | Q2 2026 | 65.5%-67.5% (+30 bps at midpoint) |
| Operating margin | Q2 2026 | 56.5%-58.5% |
| Tax rate | Q2 2026 | ~20% (elevated by accrual on undistributed retained earnings) |
| Full-year revenue growth | FY 2026 | above 30% (USD) (raised) |
| Capital budget | FY 2026 | toward the high end of $52B-$56B (raised toward high end) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Gross margin | — | Reached 66.2%, up 390 bps sequentially on cost improvement, high utilization and favorable FX; YoY not disclosed on the call. |
| HPC platform revenue | — | Up 20% sequentially to 61% of revenue on robust HPC/AI demand; YoY not disclosed. |
| Smartphone revenue | — | Down 11% sequentially to 26% of revenue as memory price hikes weighed on price-sensitive segments. |
| Q2 2026 revenue (guided) | +32% | Guided +32% YoY at the midpoint on continued strong leading-edge demand. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| AI / HPC demand | Strong; AI accelerator CAGR raised to mid-to-high 50s% in Q4 | Extremely robust; agentic AI shift stepping up token consumption; CAGR toward higher 50s% | Increasing |
| CapEx | $52B-$56B budget set | Toward high end of $52B-$56B; next three years to be significantly higher than prior $101B | Increasing |
| N2 ramp | Entered high-volume manufacturing in Q4 2025 | Ramping multi-phase at Hsinchu and Kaohsiung with good yield on smartphone and HPC AI demand | Increasing |
| N3 capacity and margin | — | Global N3 capacity step-up (new fabs in Tainan, Arizona, Japan); N3 gross margin to cross corporate average in H2 2026 | Expanding |
| Overseas expansion / dilution | Pulling forward Arizona schedule | Second Arizona land purchased, more fabs planned; dilution 2%-3% early to 3%-4% later | Expanding |
| Non-AI / consumer softness | Mild recovery, memory price risk flagged | Memory price hikes softening price-sensitive PC and smartphone; high-end smartphone still strong | Weakening |
Q&A Summary
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