Taiwan Semiconductor Manufacturing reported a 5% increase in its net profit for the third quarter as revenue hit a record, but the chip maker warned that this could slip later in the year due to a slowdown in demand for high-end smartphones. Net profit totaled NT$52 billion (US$1.8 billion), up from the NT$49.4 billion in the same period last year, TSMC reported on Thursday. Revenue came in at NT$162.6 billion, a year-over-year increase of 14.9%.

TSMC estimates about a third of its revenue comes from chips for smartphones and tablets, mainly for Qualcomm and Nvidia.

The company's 28-nanometer chip manufacturing process generated 32% of revenue in third quarter, the coompany said.

However, TSMC expects soft demand for high-end smartphones in the fourth quarter will put a damper on its own revenues in the period, CEO Morris Chang said during a conference call to discuss earnings. "We believe this decline is short term," he said, adding that handset vendors need time to clear out their existing inventories.

He expects a quarter-on-quarter decline in fourth-quarter revenue to between NT$144 billion and NT$147 billion.

In the first quarter the company will begin volume manufacturing of chips using its new 20-nanometer process, which can offer 30% higher chip speeds over its 28-nanometer technology.