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TSMC posted Q3 net profit of NT$763.06 billion, up 68.7% YoY. It raised its 2026 capital expenditure target to USD 60–64 billion and lifted full-year USD revenue guidance to around +44%. Q4 revenue guidance of USD 52.3–54.3 billion beat market expectations. On the same day, the Philadelphia Semiconductor Index (SOX) fell for the seventh consecutive trading day, wiping out more than USD 2 trillion in market value within seven days; TSMC ADR tumbled 5.2%.
The divergence between earnings and share prices in the memory sector intensified: Longsys recorded first-three-quarter net profit of RMB 14–14.9 billion (+1865%–1991% YoY), yet Q3 profit dropped 35%–49% QoQ. The company explicitly stated that the marginal contribution from price hikes has slowed markedly. Yangtze Memory Technologies (YMTC) rose to the world’s No.3 in NAND shipments in 2026 Q2. South Korea’s KOSPI triggered its 10th circuit breaker this year, with SK Hynix plunging over 12% intraday.
ABF substrates / high-end packaging substrates are entering a critical window for domestic localization. CITIC Securities notes that the industry capacity gap will keep widening in the short run and price hikes are set to continue. Domestic ABF substrates are poised for full-scale volume ramp-up. CoreApex disclosed that China’s packaging substrate capacity accounts for less than 4% of the global total, and it projects a persistent supply-demand gap for high-end AI substrates over the next 5–10 years.
Earnings delivery in optical communications and equipment segments: Accelink Technologies reported first-three-quarter net profit growth of 65%–82% (Q3 up 77%–112% QoQ); Avago Technologies? No, Aofar Optics posted +142%–162%; Han’s CNC recorded +214%. ASML’s Q3 revenue hit EUR 11.66 billion (+55% YoY), with net profit surging 133%. JPMorgan upgraded global WFE forecasts for 2026–2028 to USD 163 billion / 225 billion / 263 billion.
Policy updates: The Ministry of Commerce stated it will leverage the export control dialogue mechanism with the EU to facilitate trade of dual-use items. US September PPI (+6.3%) and CPI (+3.7%) both came in above expectations. Mounting rate-hike expectations continue to weigh on high-growth stocks with rich valuations.
In-depth Analysis
Optical Communications / Optical Chips: A-share optical communications firms are releasing Q3 earnings in a dense batch. Accelink Technologies projected its first-three-quarter net profit at RMB 1.189–1.310 billion, up 65.37%–82.26% YoY; Q3 profit rose 77%–112% QoQ, mainly driven by fast-growing demand for datacom optical modules. Aofar Optics posted first-three-quarter net profit of RMB 279–302 million (+142%–162% YoY). Shennan Circuits recorded first-three-quarter net profit of RMB 4.05–4.15 billion (+74%–78% YoY), supported by robust demand for optical module and memory packaging substrates, with capacity ramping up at its Guangzhou site. Han’s CNC reported first-three-quarter revenue of RMB 7.841 billion (+100.9%) and net profit of RMB 1.544 billion (+214%), on the back of substantially increased demand for mSAP substrates for 800G and 1.6T high-speed optical modules. Upstream firm Wuhan Tianyuan plans to invest RMB 500 million to build a high-purity indium and indium phosphide polycrystalline production base. Overnight, overseas optical communication stocks declined broadly: Lumentum, Coherent and Corning fell roughly 4%, while Marvell dropped over 5%. The segment is weighed down by negative sentiment around AI trades in the near term.
Advanced Packaging & Testing: A CITIC Securities research note dated Oct 15 states that ABF packaging substrates represent the PCB subsegment with the most sustained growth driven by AI. The capacity gap may keep widening in the short run and price hikes are expected to continue. The industry is now at a critical inflection point for mass volume ramp-up of domestic ABF substrates, with strong earnings elasticity expected for local suppliers. In a JW Insights interview, Zhang Chuihong from CoreApex noted domestic substrate capacity accounts for less than 4% of global supply, while China’s packaging industry holds more than 25% of global capacity, creating a severe supply-demand imbalance. Its innovations for BT substrates include ETS with 7/10μm line width/space and aETS with 5/5μm line width/space, HBPoP substrates targeting 2nm chips (scheduled for mass production by end-2026), and high-speed optical communication substrates supporting 400G–3.2T with layer counts rising from 8 layers to 12 layers. Products with 8μm line width are in mass production; 7μm versions are under sampling; 5/6μm variants have completed qualification. The RMB 1 billion P2 fab is planned for an annual capacity of 9 million high-end FCBGA units. P3–P5 will follow the strategy of “one new fab per year”. The company will not rush into mass production of glass substrates, but is collaborating with Southeast University and Nanjing Tech University to tackle copper-glass chemical bonding technology. It estimates that capacity expansion for high-end AI substrates cannot keep pace with packaging fab expansion, and the supply-demand gap will persist for the next 5–10 years.
SiC / Power Semiconductors: No major updates for the day. Earlier (Oct 13), Sino-Microelectronics shared during its earnings briefing that its 8-inch fab operates at full capacity with full order intake. SiC IPM modules have entered small-batch sales, while SiC PM modules remain under development. The firm will focus on power semiconductors and wide-bandgap devices over the next five years.
Memory & Compute Chips: Longsys reported first-three-quarter net profit of RMB 14–14.9 billion (+1865%–1991% YoY) and revenue of RMB 38–40 billion, yet Q3 net profit is projected to drop 35%–49% QoQ. The company stated that price increases for DRAM and NAND have slowed markedly, and the industry is transitioning from a consumer-driven price cycle to an AI-enabled technology cycle. Yangtze Memory Technologies (YMTC) rose to the world’s No.3 by NAND shipment volume in 2026 Q2, lifting its revenue share from 9% to 14%. On the technology front, SK Hynix unveiled results for 3D FeNAND analog compute-in-memory (A-CiM). UBI Research estimates memory accounts for roughly 40% of total smartphone bill of materials in 2026 H2, around six times the cost of the display. The secondary market saw extreme volatility; US memory stocks opened lower but rallied, with Micron among the first to turn positive. On the AI side, NVIDIA released Nemotron, an open agent model with 120 billion parameters.
Equipment & Materials: ASML delivered Q3 revenue of EUR 11.66 billion (approx. +55% YoY) and net profit of EUR 4.96 billion (approx. +133% YoY). Q4 revenue guidance of EUR 14.2–15.2 billion beat market expectations. The firm reiterated that equipment supply cannot fully meet customer demand in 2027–2028. JPMorgan forecasts global WFE market size to reach USD 163 billion in 2026 (+31%), USD 225 billion in 2027 (+38%) and USD 263 billion in 2028 (+17%). The semiconductor equipment sector saw localized stock movement on Oct 15, with Orient JiaSheng hitting the 10% daily limit. Domestic equipment makers posted strong earnings growth: Han’s Laser recorded first-three-quarter net profit of RMB 2.12–2.22 billion (+145.55%–157.13% YoY), with non-recurring profit up 295.85%–313.44% YoY. New orders signed in the first three quarters totalled roughly RMB 24.3 billion, up approximately 90% YoY.
Wafer Foundry: TSMC posted Q3 net profit of NT$763.06 billion (+68.7% YoY). Q4 revenue guidance stands at USD 52.3–54.3 billion (versus market consensus of USD 50.35 billion), with gross margin guided at 65%–67%. 2026 capital expenditure is confirmed at USD 60–64 billion, and full-year USD revenue guidance was raised from “slightly above 40%” to around +44%. On capacity expansion: TSMC will build a new 3nm fab in Tainan. Its second Arizona fab is completed and scheduled for mass production in 2027 Q3. Site selection in Texas is under evaluation. The second Japanese fab will adopt 3nm technology and enter mass production in 2028; A14 will go into mass production in 2028. CEO C.C. Wei confirmed ongoing talks with Elon Musk on Terafab capacity collaboration, but emphasized that “TSMC must operate the wafer fab”. He also warned of shortages in back-end processes.
Policy / Macro Environment: A Ministry of Commerce spokesperson said China is ready to continue facilitating approval for rare earth export licenses to the EU. It will leverage the export control dialogue mechanism with the EU to promote trade of dual-use items. Wang Wentao, Minister of Commerce, met with Tim Cook, Executive Chairman of Apple, to discuss China-US economic and trade relations, AI development and Apple’s business operations in China. US September PPI rose 6.3% YoY and CPI rose 3.7% YoY, both exceeding expectations. Traders increased bets on interest rate hikes. The Philadelphia Semiconductor Index fell for seven consecutive sessions, with constituent market cap eroding by more than USD 2 trillion over seven days. A Bank of America survey shows semiconductor stocks have become the world’s “most crowded trade”.
Daily Investment Tips
1.Risks: AI hardware trades are extremely crowded, compounded by rising interest rates and CoreWeave’s credit risks. The seven-session losing streak of the SOX has already reflected valuation compression. On the memory front, Longsys reported a sharp QoQ decline in Q3 earnings and noted that the marginal contribution from price hikes has slowed, which serves as an early indicator that the price cycle may have peaked. Investors should watch for demand destruction and earnings disappointment once memory price hikes pass through to end customers.
2.Opportunities: Upstream materials and substrate segments offer relatively strong certainty. Localization of ABF substrates / high-end packaging substrates (characterized by large capacity gaps, sustained price increases and a critical volume ramp-up inflection point for domestic players), together with semiconductor equipment (ASML’s better-than-expected guidance, continuous upward revisions to WFE forecasts and robust order growth for domestic equipment vendors), carry relative allocation value amid the sector correction.
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