Q2 2020 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
Got it uses Chintan touch our one was the tight you can find glenshee towards a solution is to pay.
Fine meantime, Jon Hagey, Gonsior auditing aarding in DRG those patterns will mean play.
Way functions seen Glenn fee and each in core time, but instead advisors will mean play then type deal awfully team.
So you'd been parcel has shown chinchilla towards the end Homesuite engines on for say, so you will move which ends and ceiling you win changing 10 NIM.
Ladies and gentleman welcome to TSMC second quarter 2020 earnings Conference call.
This is Jeff Sue TSMC director of Investor Relations and your host for today.
To prevent the spread of Cobot 19, TSMC is hosting our earnings conference call via live audio webcast through the company's website at Triple W. Dot TSMC dotcom.
Where you can also download the earnings release materials.
If you are joining us through the conference call. Your dial in lines are in listen only mode.
The format for todays event will be as follows.
First TSMC is vice President and CFO Mr. Wendell Hong will summarize our operations in the second quarter 2020, followed by our guidance for the third quarter 2020.
Afterwards, Mr along and TSMC CEO Dr. Cc Wei will jointly provide the company's key messages.
Then TSMC is chairman Dr., Mark Lou will host acuity session, where all three executives will entertain your questions.
As usual I would like to remind everybody that today's discussions may contain forward looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statements.
Please refer to the safe Harbor noticed that appears in our in our press release.
And now I would like to turn the call over to TSMC CFO Mr. window, Hong for the summary of operations and current quarter guidance.
Thank you Jeff good afternoon, everyone.
Second quarter revenue was flat sequentially as the continue fiveg infrastructure deployment and HPC related product launches offset weaknesses in other platforms.
Gross margin increased 1.2 percentage points sequentially to 53%.
Mainly due to continuing high level of utilization and the absence of unfavorable inventory valuation adjustment, partially offset by NT dollar appreciation in the second quarter.
Total operating expenses increased by 1.19 billion NT, mainly as TSMC supported a range of covert 19 relief efforts.
Operating margin increased 5.8 percentage points sequentially to 42.2%.
Overall, our second quarter EPS was 4.66 70.
Our OE was 28.5%.
Now, let's move onto the revenue by technology.
Seven nano process technology contributed 36% of wafer revenue into second quarter wireless 16 nanometer contributed 18%.
Advanced technologies, which are defined as 16 nanometer and below accounted for 54% of wafer revenue.
Moving onto revenue contribution by platform.
Smartphones decreased 4% quarter over quarter to account for 47% of our second quarter revenue.
HPC increased 12% to account for 33%.
Hi, OTI decreased 5% to accounted for 8%.
Automotive decreased 13% to account for 4%.
Digital consumer electronics decreased 9% to account for 5%.
Moving onto the balance sheet, we ended the second quarter with cash and marketable securities of 605 billion NT.
On the liability side current liabilities increased by 25 billion NT, mainly due to the increase of 30 billion anti in short term loans.
On the financial ratios accounts receivables turnover days increased two days to 44 days.
Days of inventory also increased two days to 55 days, mainly due to end five ramp and stronger and seven demand.
Now, let me make a few comments on cash flow in Capex during the second quarter, we generated about 170 billion NT cash from operations Sten hundred 27 billion in Capex and distributed 65 billion for third quarter cash dividend.
We also increased 30 billion in short term loans and issued 36 billion of corporate bonds.
Overall, our cash balance increased 37 billion to 468 billion at the end of the court.
In us dollar terms, our second quarter capital expenditures amounted to 4.2 billion.
I finish my financial summary, now, let's turn to our third quarter guidance.
Based on the current business outlook, we expect our third quarter revenue to be between 11.2 billion and 11.5 billion us dollars, which represents a 9.3% sequential increase at the midpoint.
Based on the exchange rate assumption of one us dollar to 29.5 NT dollars gross margin is expected to be between 50 and 52%.
Operating margin between 39 and 41%.
Now I will hand over the call to see for his key messages.
Thank you window good afternoon, ladies and gentleman, let me start of we saw our near term demand outlook.
Concluded our second quarter was revenue of NT dollar 310.7 period or use founder component for PD in line with our guidance given three months ago.
Our second quarter business increased try to US dollar terms as a continual fiveg you passed structure deployment and HPC related product launches offset weakness in other platforms.
Moving into third quarter Twentytwenty, we expect our busy these to be supported by strong demand for our industry, leading five nanometer yen seven nanometer technologies.
Driven by Fiveg smartphone SPG in I O two related applications.
Looking at the second half of this year Koby 19 continues to bring some level of disruption to the global economies.
And the uncertainty remain.
We have all Joe to weak consumer demand into force half will this year and now expect global smartphone unit two declined low teens percentage year over year in Twentytwenty.
However, a visitor Colby 19 pandemic, we also observed to supply chain, making an effort to ensure supply chain security and actively preparing for new fiveg smartphone launches.
Raise our forecast for Fiveg spawn form penetration rate to high teen percentage of the total smartphone market in punky 20.
For the full year off Twentytwenty, Fiveg and SPG related applications work continue to try semiconductor content enrichment.
We now forecast, our overall semiconductor market, excluding them or recourse to be flat to slightly increasing.
While foundry industry growth is expected to increase to be mid to high teens percentage.
For TSMC.
Although colby Nike related uncertainties remain.
Our technology leadership position and neighbors to outperformed a foundry revenue course.
We believe we carry core above 20% in Twentytwenty in us dollar terms, including the impaired to form the new us regulations, which I will discuss in the next session.
Our twentytwenty business walk be supported by strong demand for our industry de Jim file nanometer in seven nanometer technologies.
And our specialty technology solutions, driven by customers are fiveg smartphone related product, our launches and expanding HPC related opportunities.
Now, let me talk about the impact of new Us regulations.
On may 15th the US Department of Commerce announcer set of new export control regulations.
As a global and door Abidin company TSMC, while bottle all the rules and regulations fully no doubt about it.
While there may be some impact performed a new USA today's TSMC is a purpose to undies innovation remains unchanged.
Our leading position in the semiconductor industry build upon our technology leadership manufacturing excellence and customers are trust also remained unchanged.
We are continuing to build upon hours Trinity of strength and contact to our business, we see integrity to ensure our value and contributed to the semiconductor industry.
In the near term, we will walk dynamically with our customer to minimize the impact to our business form new us regulations.
In the mid to long term, we PDU, the underlying make our trend or fiveg related and HPQ applications remained intact.
And supply chain can adjust and rebalance the hills.
We saw technology leadership, we are well position to kept showed the mid to long term growth opportunities.
We reaffirm our goal to call at the high end of our long term cores protection of 5% to 10% taker in us dollar terms.
Next let me talk about our inphi ramp up and for introduction.
In five is a foundry industry, some moser while solution with the best a PPA.
And five is already in volume quarter function with good yield.
While we continue to improve the productivity and performance of the yield we tours.
We are seeing robust demand for inphi.
And expect a strong ramp of Inphi in the second half of this year.
Driven by both Fiveg smartphones and SPG applications.
As we observed some 30 days earlier this year in inphi toward deliveries due to call. We'd 19, we now expect five nanometer to contribute about 80% of our wafer revenue in Twentytwenty.
We also introduced again for US an extension of our five nanometer family.
And for why have competitor for design rules and the highly competitive performance to cost advantages as compared to the end five.
We are targeting next wave while in five products.
Volume production is targeted for 2022.
This we are confident that our five nanometer family walk the another large and no largely node for TSMC.
Now I will talk about our entry stated.
And she will be another four node strider form our imply.
We saw about a 70% dodgy potentially again, 10% to 15% speed again, and 25 to 30 power improvement as compared with five nanometer.
Our entry technology, why use finfet transistor structure to delivered the best technology maturity performance and cost.
Our industry technology development is on track with good progress.
Industry, which production is scheduled in 2021.
Voting production is targeted in second half of 2022.
We have already demonstrated 250 ships maker period stream functionality entry Logica test chip is fully functional with Youre ahead of plan.
The device pro Formas She's also on track.
Our three nanometer technology will be the most our price foundry technology in post PPA and transistor technology quantities introduce.
Which will further extend our leadership position well into the future.
Finally.
Let me talk about our Usfive plan.
On may 15th we announced the our intension to Peel, an advanced semiconductor fab in the us.
We have received a commitment to support the this project from both the US federal government and the state of our results.
We are working closely with them as well as our supply chain partners to build on the effective supply chain and make up to cost scale.
These five was start we find nanometer technology we.
20000 wafer per months capacity production is targeted to picking in 2024.
The Usfive will enable TSMC to expand our technology ecosystem.
And better service, our customers and partners.
As a one time as TSMC Gogo presence increases.
The Ronald hours to better reach grow both patent to sustain our technology leadership.
Now, let me turn to move over to our CFO.
Thank you Tracy.
Let me start by making some comments on our second half profitability outlook.
We have just guided third quarter Twentytwenty gross margin declined by two percentage points sequentially to 51% at the midpoint.
Primarily due to the margin dilution from the initial ramp up of our five nanometer technology in the third quarter and a less favorable foreign exchange rate.
As compared with our expectation three months ago, our third quarter gross margin midpoint is higher mainly supported by a high level of overall capacity utilization. Despite the uncertainty from coal that 19.
Looking ahead to the fourth quarter, we expect the continue steep ramp up of our five nanometer to delight dilute our fourth quarter gross margin by about two to three percentage points.
Now, let me talk about our capital budget for this year.
Every year, our Capex spent in anticipation of the growth that will follow in the next few years.
While the impact of Coven 19 virus.
Brings uncertainties in Twentytwenty.
We have seen our business holding up well so far thanks to our technology leadership at five and seven nanometer nodes.
Looking ahead, the multi year mega trends of Fiveg related and HPC applications are expected to continue to drive strong demand for our advanced technologies in the next several years.
In order to meet this demand as support our customers capacity needs. We have decided to raise our full year twentytwenty capex to be between 16 to 17 billion us dollars.
We also reiterate that TSMC is committed to sustainable cash dividends on both an annual and quarterly basis that concludes my key messages. Thank you Wendell This concludes our prepared statements.
Before we begin the QNX session I would like to remind everybody to please limit your questions to two at a time to allow all participants and opportunity to ask questions should you wish to raise your question in Chinese I will translate it to English before our management answers your question.
For those of you on the call. If you would like to ASCO. A question. Please press the zero than one key on your telephone keypad now questions will be taken in the order in which they are received.
If at any time, you would like to remove yourself from the question in queue. Please press zero two.
Now, let's begin the culinary session. Operator. Please proceed with the first color on the line.
Yes. Thank you the first to ask question Taco Bell I'd highlight JP Morgan.
Yes, hi, good afternoon, and thanks for taking my question.
Great results and at that.
Just a quick question on.
How we think about.
Anthony.
Lets land.
So we feel that entry.
Okay, great. Thank you so usually nonstop.
Joel.
Let's turn I, we thinking about a slightly lower gram or three compared to what we add first careful.
Correct.
Quick question.
My second question.
We think about.
At leading edge.
The U.S. dedication tactical level.
How do we think about managing capacity.
Moving to aimed at the capacity can get filled that relatively quickly.
One.
Our lot after treatment that I believe aimed at that could be a couple of there could be some time, where that will be a little bit.
Patients.
Okay. Thank you go called let me try to allow me to summarize. Your question are your first question is related to end three how do we think about the entry development.
We have said the mass production timing is in second half 22 versus typically.
The schedule and also the rent Bob also that the progress, we all working with customer prosody and determine Quinn and bill.
To be the best our timing so far.
The Street give Roman is waste move and successful and.
We still target the rich production in next year and ramp up in the second half.
Order schedules are working with our customers.
Okay, and then cocoa. Your second question is on the leading edge and in light of the recent us regulations.
How are we manage our capacity at the leading edge, where we see a gap.
In the in the utilization or will we be able to fill that up.
We should be no problem because of us we just.
Stated that to Fiveg is a mega trend and also HPC related to application continue to be very strong.
And we also that all our customer are very actively preparing for the for these two application fiveg in HPC. In addition to that we also observed at all our customers.
Our.
Try to secure.
Supply chain security and which is so fairly importing we study so colby 19th certainty.
Okay. So they they seem that even for anybody that applicable.
Is even within five yes.
To that I think.
For the short term.
Impact is inevitable.
Currently we work closely with our.
Customer very dynamically trying to figure up capacity.
And for the long term SCC mentioned, we are very we're still optimistic.
Okay. Thank you go core can we have the next caller. Please.
Next to ask questions at San Jose Fab LSAG go head fake.
Hi, Good afternoon, gentlemen, you for taking my question. So my first one is one or two.
Some get your brand about how did you evaluate the visibility and probability of peering up there's no fab without America content.
Ecologic global IP material et cetera, and next five years or 10 years or even longer.
Does it work or anything.
Even if it takes a long time instrumented efforts for TSMC ever consider that thank you.
Well, let me answer that question.
We are.
We we know data usfive as compare with.
The five being paid one the cost structure is actually give the higher and Thats why we say that we are working with.
Federal government and also the state of our Yonah.
Due to close again, yes, sorry.
Just to repeat the question I think Sebastian.
The question is asking about building up in advanced node fab or production line without losing any so call American content, whether in terms of equipment technology. Our IP materials are he wants to know in the next five to 10 years.
Is it feasible.
Is it worth it and is this something that TSMC would consider.
Let me let me to have this one year.
The semiconductor technology is very unique.
In this industry the technology continued to improve.
Every two years, you'll be a new generation technology.
Come out to serve the best performance product.
And therefore, we I think our main foresee steel.
Suite.
Technology leadership trying to overcome.
Each generation challenge.
And to do that I think our current focus still working with our.
Equipment partners.
Dealing with utilize the best of the Cline equipments that we can have.
To pursue our business growth.
So youre right the two too.
If we do that otherwise.
Technology Advancement, we will be extremely challenged will be extremely difficult.
Got to talk about five to 10 years alone.
So that is not off.
That is now our.
Current efforts at this point.
Okay Sebastian do have a second question.
Yes, yes. Thank you for that very very clear pickup questions I'd like to fall on the as about.
Inventory situation.
First can you can can you update on how you see the sharpest data inventory and for Q2, and how you see that.
In the second half this year and also on the inventory side.
Okay that is getting.
Chris very difficult to look at the inventory from the comprehensive perspective.
Do you may now be enough because apparently there is a lot of the Chinese cause comedies stockpile inventory in fear of being sanctioned and also across the board globally.
The whole supply chain has been raising the fixed all level inventory the past few months a fear of supply disruption costs are covered lighting, so but those are not reflected in Starbucks geoeye. So how do we see it about this inventory and potentially hayden excessive inventory situation.
Going going forward, which.
Could you are you concerned about that you'd be potential overhead at some point a de stocking could call. Thank you.
Okay. Let me summarize your second question Sebastian.
Both of it relates to the inventory situation. The first part is what is in for TSMC tracking our fab customers. What is the fabulous deal I exit into Q and the outlook into second half Thats. The first part of your question and then your second part of your question is.
Are we concern that the inventory Missy situation may see some hidden or discrepancies.
Due to weather its corporate related supply chain disruption or the U.S speculation in such will this lead to a hit an inventory risk and is the risk of inventory correction.
Let me let me answer.
The inventory level of our established customers that we track exited first quarter above the seasonal level, we expect to further increase in second quarter, and then say at the high level in the second half as the supply chain is making efforts to ensure supply chain security and our customers our in house.
Hi, anticipation and preparing for new Fiveg smartphone product launches in the second half of this year.
We can now we are the possibility of the inventory correction sometime down the road.
We observed the supply chain active making efforts to ensure the securities and active preparation for Fiveg smartphone.
Launches.
We will just have to wait and see how the sell through goals.
Okay. Thank you Sebastian can move onto the next caller. Please.
Operator.
Please move onto the next caller.
Okay.
Okay last follow as ill or from your VF gladly.
Yes, hi, thank you.
Thanks for taking my question.
Let me think in content of the Capex guidance.
For for this year, it's about race to 16 to 17 billion.
Wondering what.
That increases of one thats five nanometer was up for at.
Secondly related to that arc can you talk about.
Capex intensity.
Structurally whether this is this increase is temporary and whether this is Paul inflow from next year for maintaining reasonable whichever intensity or how we should think about that.
Okay. Let me summarize your two questions Bill. Your first question is when relation to our 2020 Capex guidance and the range of 16 to 17 billion. So they will want to know what is driving this increase.
And then secondly in terms of the capital intensity outlook over the next few years okay.
The cap a de Capex increased from three months ago for this year is basically comes from the advanced technologies.
And the capital intensity.
This year will be slightly lower than 40%.
Over the long term you will gradually go down to about mid Thirtys.
Okay. Thank you Bill.
Let's move onto the next caller please.
Operator next caller asked Brad Samson.
Okay, All right Hey research so happy.
Yes, thanks very much.
Yes.
Relationship already.
And how you see the impact of the year speculation on your vessel walk away and the second half of the year.
Earlier that you will still have a relation you'll still be shipping layers.
Total at elevated levels in Q3.
Hey, following.
Hey sales with low in Q4, and there's no doubt how do you manage your five millimeter utilization given the importance of while we have the customer. Thank you.
Okay, Let me summarize your question, but.
With regard to the relationship with hallway wants to know what is the impact on our business from our way in the second half of this year.
Well, we continue to ship wafers to this customer in the fourth quarter.
If we do not then how will we manage the impact to our five nanometer.
Okay, Let me answer your question.
Cgis.
Reported we are complying fully with all the regulation.
And we did not take any new orders on production starts from this customer since.
May 15th.
Although this regulation is just finished their public comment period.
The bias has not too.
Peter final ruling change at this point and so it's very early still early to confirm.
But under this current status, we do not plan to ship wafers after September 14th.
And yes, there will be a challenge to.
To work dynamically with other customers.
Currently we are working with them.
And but as use as you heard we made a.
[music].
CC just made of over 20 Twentys guidance is above 20%.
Does that tell you we are relatively.
Progressing well in filling up the left capacity left open.
Okay.
Thank you do have a second question.
Yes, Thanks, Jeff just a follow up.
Scott.
Depreciation for this year.
Previously.
Mid to high teen growth, Okay, but appreciate and 2020.
Okay.
Thats still the case.
Okay.
I look at first half depreciation and it looks like depreciation costs were down year on year. So in order to get to mid to high teens growth that would imply a large increasing depreciation surveys in the third and fourth quarter. So if you can just clarify exactly how we should think about depreciation for.
The next couple of quarters that would wake banking, Okay. Brett is asking her second question is our depreciation outlook for 2020.
Do we still maintain.
What is our depreciation for 2020 year on year, and then doses, implying a pickup in depreciation in the second half on a quarterly basis.
Okay Brad.
Current estimate on Twentytwenty depreciation year on year growth is still high teens growth.
So that tells that give you an idea of what the second half depreciation will be it will be higher than the first half.
Okay. Thank you Brett can we have the next question underlined please.
So thats one on the line is Betty Fannie from Fiveg.
Ask a question.
Yes, thanks for taking my question.
Well go back to your end for an inquiry.
How should we think about the migration.
Specifically to what extent.
This is driven by current developing rather than in stalling new equipment and I have a follow up.
Okay, sorry, multi let me make sure we understood. Your first question you're asking about.
M and three how to think about the migration and is there a conversion tool conversion involve between and foreign entry is that your question.
Correct Okay.
Right. That's really the end for you saw condo be improvement continues improvement.
In fine so it has to do.
Improved at the speed to improve the.
Yes, we just a little bit entries totally node right. So that site in for use in December equipment as the implied.
And it's really we expected to have a high.
Percentage of the poor continue to be used to form the implied but increase a totally new node.
Okay. Thank you do have a second question Mindy.
Yes, and my second question, Jeff has to do with your.
PC revenue growth in Q2, you were significantly higher compared to.
At work.
Can you please elaborate which specific sub segment within HPC is doing better is that driven by communication or computer and how do you see those trends trending into three.
So maybe your second question is looking at our HPC sequential growth in the second quarter de wants to know what specific sub segments are driving that increase and what is the outlook.
Well, maybe I don't think we we want to break down the details on the on the different platforms.
Sorry about that.
Okay muddy.
Yes.
Conservative.
Maybe perhaps while we may have pulled.
Before you start thinking.
Trying to.
I understand.
Particular customer.
Catered wafer in the first half versus.
So that.
No we don't comment on specific customer.
Okay. Thank you Andy. Thank you. Thank you can we have the next caller on the line. Please operator.
Yes, so while we're adding Randy Abrams credit Suisse. Please.
Yes. Thank you my first question I wanted to ask a bit more.
Six and heightened smartphone business. So I'm curious like it's that the Capex Reyes, which driving it if there are certain drivers that.
Maybe maybe lifted on the 2021, how you're seeing that and implications follows up until this question, but implication for 2021.
It seems like it might be a bit lower capex that you're spending a bit ahead of that now.
Okay. So Randy let me summarize your first question. Your first question is Rooney.
What is driving or.
<unk> for the 2020 Capex.
What is the drivers for that and then what is the outlook for 2021 Capex.
FX and sales.
Sales just factor in your comments about inventory.
Your competitors, taking a bit of.
Business and also your view that we could have a or don't rollout in inventory adjustment.
Let me, let me discuss <unk> you say.
We do the <unk> please on long term.
Perspective, if you talk about 20.
This year's Guinea pigs, meaning of course these shows on demand Siamese very strong.
And do you talk about the next year's kickbacks.
Is really talk about 2022.
Man, which we see the continue increase off and five demand and also we see them starting a bunch of and three technology and we'll see you then how much the <unk>.
Will increase and report to you <unk>.
<unk>.
Okay.
Do you have a second question Randy.
And if I can follow up because you mentioned electric a higher capex for this year is a function that you expect next year to be even stronger. So can you talk a bit about what I know you're talking about the megatrends.
But I'm curious if you're thinking about.
That's what you had mentioned also I could next year have impact from the high based this year on the inventory build up.
And also a a full year like in the first quarter Flyways out, there's probably pent up.
Being tight, but how do you view a full year, if you're not shipping the highway it let's unless you're counting on by that point.
Some partial license to Oregon to base case, you're assuming not shipping Oklahoma next year.
Okay, Randy second question.
Two he is thinking that.
Potential.
Possibility of inventory corruption with the U S regulations.
World that impact what is the impact two 2021.
Both outlook.
Thanks.
Yes, Hi, Randy.
Early for us to discuss anything about 2021.
So.
Just wait until when the time opponents.
Okay. Thank you Randy.
Move on to the next caller please.
The next one day as well, let's see from eight a group take ask a question.
After the first question is can you remind me again, how does that email.
Oh, just by the work every quarter.
Three Q.
Inventory Asia adjustment.
Available to the courts module is packets Quicky second Gretchen.
Forgot bother you are working with.
To minimize that.
You have new regulations, how eloquent.
Are working on that okay.
Okay. So rowland your two questions. Your first question is.
What is the impact of inventory revaluation, and then the third quarter will it be a favorable or unfavorable impact and your second question is you want to know how we are dynamically working with customers.
To mitigate.
The impact of the new U S regulation.
Okay correct.
Alright.
Make some comments on the.
Inventory evaluation adjustment first.
The impact on margins from inventory evaluation adjustment is virtually can related to that from changes in utilization.
We normally report the net impact on margins from these two factors together.
We will compare margins quarter over quarter, we will report the pier one Q change impact from inventory evaluation adjustment when it is more significant.
And the second quarter, the quarter recorded change and impact from inventory evaluation adjustments.
What's more significant.
And if you ask about third quarter at this moment.
We believe the impact is less significant.
Okay.
And then an.
Asking about how we walk with customer month dynamically to mitigate the impact Bobo while we've been.
I cannot hear you that how we're gonna do it because this is our.
Companies strategy and.
And our strengths, but one thing I can tell you we are based on.
The technology D tissue and excellent manufacturing.
That's all we did.
Okay. Thank you operator can we move onto the next caller. Please.
Yes, the next to ask questions Charlie Chan mortgage that is going to happy.
Hi, good afternoon edge of maintain so my first <unk> about your upper irrigation of the.
Four year random guidance.
Compared to last time, if it wasn't me to apply 10% of 20% I think I've added that five percentage point of.
During the growth.
And then 20.
The last time.
Jenny you said.
Amy can't get control by Jan and now charity there so sticking with.
With pandemic.
Many countries so.
Hi, I'm going to to call <unk>.
Economy, or a health care.
<unk> you are very strong.
Revenue guidance should I just attribute that.
Hi, Patty smartphone penetration or this other other factors that we should pay attention to.
Okay. Let me summarize your first question Charlie you're asking.
Basically we have increase the four year outlook.
The risk of Kobe 19 continues to remain so how to reconcile week global economy with TSMC four year outlook.
What.
Be driving this.
Besides five key smartphone preparation.
<unk>.
We do observe they'll probably te's us amount of blue.
The momentum is getting stronger is so we.
We understand the situation.
However, we also observed on our customer making airport to ensure supply chain security.
So do you mind and spared.
The second ways soda with Kobe 19, but.
He was on demand booths, where he promised him so they're not afraid of tu.
To make sure that <unk>, we're not be disrupted.
Because of a <unk> a huge estimation flighty sparkles, though.
Demand is continuing to increase.
Okay do you have a second question Charlie.
Yes.
Okay.
I love the fans happened over the past month right another.
I would take it out that you turn <unk> for the U S.
Fat intention because <unk>.
Half year ago, and remember Cup.
Like a coffee.
Hi, I'd like to take that that makes sense.
<unk> that trigger.
Sure you change.
That you have operation East Asia, and you'll be very kind of you again at a very small question.
The message make cash well.
Your first quarters personality, because based on your new four year guidance, if we would take it at 20% or Tony.
21% of bar.
Fourth quarter revenue May decline secretions, Billy Okay, you said.
Sure.
Thank you Okay, well turning your second question relates to R. U S bad plan and <unk>.
<unk> Y six months Nicole.
We're talking about the cost gap in the major challenge and now we have decided to go ahead. So what has changed.
Okay.
Well.
As you know.
With expanding Orange technology ecosystem.
And reach to global talent.
Closer to our customer to get a better service all benefits.
In U S.
But in the past indeed the costs.
The gap prohibited us to make those decisions.
More recently I think since.
December.
I think the theme.
Getting a term.
And we did get positive.
Encouragement from the U S administration and.
About.
The cost cap.
Actually.
The U S administration, and the state of Arizona combined.
The seems to be able to close the cost cap.
Used to hold up against these decisions.
Was there a commitment and we preparing for that.
And how do they close the cost gap as you have have reading.
The U S Congress boasting.
Senate in the house or driving.
For the.
Incentive packages eight at revived U S semiconductor manufacturing.
And with that I think.
They do have a week too.
Feel that commitment to to make up the cost gap.
And that list a major decision turning point.
And then.
And then Charlie.
And a third question what she wants to know outlook for fourth quarter, given the full year guidance.
Okay.
Charlie.
Also too too early talked our fourth quarter, but I think you can do the math.
And come up with certain estimation.
But while we can say is the second half.
Will be.
Will be a higher than the first half.
Okay. Thank you, let's move onto the next combo on your line. Please.
The next one to ask questions Roesler Goldman Sachs fifth.
Hi, Thank you for taking my question I think given you are positive for progress in between nanometers I'm fine on empathetic, especially original purpose.
King.
Some similar to previous no like seven nanometer 12 nanometer that first year of three nanometer can achieve 10% of the away for revenue and the second year of the final American achieved 30% of the with the revenue.
Okay. So Bruce your first question is regards too.
And five and three Bruce wants to know with the progress in three kind of the.
Contribute 10% of the roof wafer revenue in the first year and he also wants to know can and five.
30% of the wafer revenue in a second year.
Okay.
Bruce both of them really too early to talk about it.
We certainly hope that would be pretty big notes.
But we will definitely let you know when times closer.
Do you have a second Bruce.
Yes, I think I think just double checked are we released hour <unk> penetration schinman, a forecast, but we lower the overall smartphone shimmered forecast for 2020, and how about the actual number for the <unk> smartphone shimmered is that.
I just wanted to update the colors of the lower total smartphone shipman or <unk>.
Alrighty, a smartphone shimmer their service going off as well.
Okay. So your question second question Bruce is that we.
Global smartphone shit man, we know lower too low teams decline, but we raise the <unk> penetration too high teens.
This is simply because of a lower smaller global base or what is the five key penetration number.
Whereas the fries G penetration as I said momentum continue to increase so.
Even with the Total's monopole number of being decrease the low teams, but <unk> so percentage continue to increase.
And that's quite a real Joe and also <unk> semiconductors accounting is higher than.
Four G.
And high speed, you'll be high in is much higher so that's why we based on.
Okay. Thank you Bruce.
Operator can we move onto the next question on the line. Please.
The last <unk> Aaron Joan from <unk> go ahead. Please.
Thank you. Thank you for taking my Christian casual follow up to Bruce Christian just.
Right now.
<unk>.
By lowering the total from off on demand to load teams.
10% now from the earlier version of down for December 3rd, but the racing factory.
Penetration right to 20% from early.
Mccain 50%.
And it comes with a extra extra Stewart <unk> phone demand or selling number. It's a number of being raised hour is pretty much of a fan of prior broken.
A follow up hatred piece of a crisp.
A part of my first question for the just happens to be.
A follow up to a Christian okay.
Let me summarize your first question basically everyone wants to know.
Which is the is our forecast for <unk> smartphone in terms of unions increased.
Yes.
Okay. Okay. Thank you Okay. What is your second.
Alright.
Oh, okay.
Alright, let me so okay.
At my this Christian that.
I was trying to compare it at the outlook offer by TSMC for industry and outlook.
<unk> <unk> six months ago and.
Yeah can you get empty what things at Fannie at code memory was going to grow by eight per cent and now it's going to be frattish to steady growth.
Which means I think I'll, both demand, including everything is lower than I need to watch six Zip code, but funky growth in the beginning watched 17%.
But now it's pretty much unchanged me to hiking growth <unk> growth in the beginning.
Industry growth now is above 20% growth. Okay. So my question is.
Electric models.
<unk> along with actually are you right in the world.
And take half I'll take a curious to it's called <unk>, including one of the 19 and two flyway issue.
But it does all that.
And even better than.
There was north toward this issue.
So I wonder actually I think you already answered that.
You only demand is going to the higher than.
And you saw six months ago, or just one I think key reason, but it looks to me that.
The fact of two inactive package osteo, a huge actually one either one of them.
Speak right, Soho pocket and tell them to be better than if there's no. There's two negative impact the outage can we think about this.
I also chairman that.
Okay.
Okay, I think literally summarized your question because is quite a long I think two alright very much in essence, what you're asking is.
When you look at the industry framework that TSMC provided in the beginning of the year.
And you look at the framework now.
You pointed out that the semi X memory growth in January we said plus eight now we said flat to sign me up foundry growth in January we said, 17% increase year on year now, we say mid to high teens.
<unk> growth, we're announcing greater than 20% so given the challenges.
The in this year from Cobra 19, and such what is driving Houston.
Growth.
Well I can you answer that question by simply one word kept amount of <unk>.
Actually we see agree strung demand lukewarm hours give a noodle five nanometers.
<unk>.
And.
Alrighty again, I would like to say that quite te's.
It's a momentum escaping.
Trunk.
Okay, and including also <unk> I'm, sorry, sorry.
Alright. Thank you operator can we move onto the next question. Please from the ninth.
Next we're having cocoa hobby hover checking won't go ahead. Please.
Alright, thank for picking up a lot Boston.
Just wanted to list.
Running at 20.
Dot net.
Any thoughts on I think we Columbia, Thanks for the boss any thoughts on why we're changing hour long term.
Target, especially given it also spending more <unk>.
Bobby.
Totally Hyatt rotate.
Okay.
They can just wanted to understand what else managements view on how much do both Europe outgrowth of back let me get a better spray hacked me some of the inventor April.
Okay.
Lost evidently.
<unk>.
I'll go.
Okay.
In the district.
It seems to be 104 P.
Spot.
Growing okay declining.
It'll gateway.
And I just wanted to understand.
Quite a bit of fat.
Nevada check in in getting edge.
Any thoughts on how much of that.
Some of that.
Okay.
Okay, and let's say that you have a slot the building.
Okay.
Goldcor, let me summarize your two questions maybe I'll start with the.
Second question for you just want to know management view.
The fact that TSMC growth in 2020 is outpacing the foundry industry.
Can we breakdown what is driving this how much of it is from supply chain efforts to ensure supply chain security how much of it is market share gains how much of it is due to leading edge.
We certainly.
At this time I don't see we can separate yet so clearly.
One that.
Because of a technology because of the show again because of.
It's P he or something like that.
Again, I would like to emphasize the mood.
<unk> note seven and fly.
Why do we can now.
Okay.
Okay and then your second question Goku to repeat again is that.
With the strong growth, we see this year and Megatrends that we.
Identify for the next several years.
Will there be a change in our long term growth target.
Where we continue to.
<unk> <unk> at the high end of 5% to 10% Keker.
Remember these kind of <unk>.
Four cause see so rude and forecast so.
We continue to have competence, our technology and also a mock issue and so all of course.
Okay. Thank you go co operator can we move onto the next caller from the line.
That's one we're having Sebastian Ho Hum CLSA go ahead. Please.
Sebastian are you on the line.
Sure.
I forgot to.
Okay.
Yes, we can hear you. Please go ahead, okay. Okay. Thank you.
I have a to follow up first wanted to.
Find out Abater revenue contributions lower for our 10% of 8% a total revenue outlook is right. So if we do the math chargeback fight nanometer revenue, probably lower back 50% compared to April.
Further compared to January guidance actually 40 per cent of lower so how do we attribute this.
It's to the customers that are sexually may or any other readers and Furthermore.
It also makes any other technology meals are as your career a stronger by water.
What's your what's driving the other applications, though and also can you give us an update on their expectations of the girl for the four major platforms with the new refresh upgraded.
Okay. So let me summarize sebastian's question he wants to know.
The what is driving the difference.
And five.
Today versus six months ago, and what are their notes then are stronger.
And then he also wants to know the 2020 outlook growth outlook by platform.
Okay Sebastian actually.
Compared to six months ago inside revenue actually increases.
And so to the other notes.
Maybe you can double check them that.
Okay.
And then 2020 growth outlook by the four platform okay.
All the platform will grow.
The older motives.
Okay.
Okay.
Okay.
Good question is <unk> on the <unk>.
Marshall.
Oh, so the total smartphone Guidos you just just skip the other allergy extra though so.
A order of the first.
Looks like a total <unk> smartphone members Opsal number is right.
And I've ordered you based on the forecast on the Friday sale numbers or based on the forecast that you're saying.
And your.
Smartphone associate fabrics.
Well, we based on the one what we saw customer.
So.
Not a number as a customer demand to TSMC of of course, they're also to forecast as we did.
Okay. Thank you though.
<unk>.
Alright.
Sorry.
Okay, let's move on to the next caller.
Next one we're having but.
<unk>.
Yes. Thank you so much for taking my follow up a little bit confused and I was one you can help me all the <unk> J a small for data points suggested.
<unk> instead of sugar tree.
Well.
<unk> Delaware.
And also.
Your commentary suggest that.
Despite the fact that Kobe has had the second wave.
Sure.
Actually a stronger so how collated can sorry.
<unk>.
It's more strict driven by Lloyd.
And.
The second wave Corbett.
With your outlook.
Okay and the D. Your question is how your observation is that <unk> smartphone sell through is mainly coming through at the low and.
<unk> smartphones.
Price that 300 years, although or less and with the potential second wave of Colby. How can you reconcile this low and demand with one of TSMC is scene is that correct.
And also.
Your upgrade for the year because.
Early.
Large Coca Cola you said.
If they still.
No budget by Jimmy but it seems like there's a second way.
So so <unk> is also asking because in April we said.
Outlook was premised on.
Stabilization of Kobe by June, but now it looks like Kobe 19.
We don't.
Yeah actually.
Don't come through the second week of Kobe 19 per se, but.
We do have done one alone.
We do absorbs our customers that keybind two TSMC.
And.
You mentioned that so <unk> so.
<unk>, we do respect yes, another <unk>.
A pretty high and in the second half of 2020, and that's what we based on our assumption.
Okay.
Thank you.
Follow up on correct.
Okay.
Therefore.
Increased to 2020 Capex.
Is that equally distributed between spoke in the corner and back at.
Or is it more.
It won't particular area, which dragon.
Okay. So maybe your second question is what what's the increase in the Capex guidance is in more driven by the front end or the back end.
$4020 yeah.
Basic is front end.
Okay. Thank you operator, let's move on to the next caller.
Okay, that's one way or having Laura <unk>.
Hi, Good afternoon. Thank you for taking a question. Congratulations protocol results I chose that question is also related.
Packaging highly call back we local local we have our power bill.
For the.
Capital R.
Lafayette photographic the consultation.
<unk>.
Okay.
Sure for this year.
Revenue target for acting and also hotel at trial are looking for.
Appleby incremental increased cab hack.
Also have some throw old desk space.
Okay, so lowest questions related to the advanced packaging.
He wants to know.
<unk>.
I believe was not 3 billion was too bye.
So what is the growth outlook for this year number one and then what's the plan for events packaging the outlook going forward.
Okay.
We expect.
Events packaging will grow probably similar to our corporate average this year.
As to the pay tax increase.
Yes, a little bit, but mostly at the front and with the events technology.
Okay do you have a second question Laura.
Yes, Yes, my second question about legacy process.
28, we only know that advanced packages are very strong.
And that's why I'm going back for a legacy.
Capacity and they get duration ray and especially for 28 nanometer. Okay. Also mentioned before that you can see structurally overcapacity. This space I'm looking forward Kelly expecting Coof men in the second half of next year.
Good progress.
<unk> or sorry, S et cetera.
Okay. So let me summarize your second question Laura is.
Looking at our mature nodes what is the utilization.
Outlook for our mature nodes and specifically for 28 nanometer.
Do we see improve maintenance I can't have or 2021.
Alright.
Our.
Sure node.
Recorded specialty.
A number two unknowns daunting activities quite good except to 28 nanometer.
Okay, I still want to emphasize 28 nanometer has been over capacity.
For the whole industry.
But we continue to improve it.
And.
Slowly.
Of course, we can see few months emissions.
So as a pkc's that we're moving to <unk> nanometer, but is slowed and we thought however, you won't be improved we have comforting to say that.
Okay. Thank you Lora.
Later, let's move on to the next caller.
Excellent to ask questions already Abrams credit Suisse. While that is open now okay. Yes. Thank you for the follow up questions first one I wanted to just go back.
Vacation flyway.
If Peter factoring in for the future view.
A potential shipments I think one is the regulations seem to allow some ways to shift a farm and New York complied by the rules, but it seems to allow some way to shift directly to oshatz.
I'm curious either from that or perspective that you'll get a partial are full license if you're building that into the base case.
Actually the current.
Current regulation spells to not prohibited.
Standard product general product be able to ship the highway.
And.
Therefore.
Seeing hallways smartphone business.
Most likely they may strategize to stay.
Bye procuring.
General purpose products.
I think.
Randy part of your question is that from TSMC perspective, other alternative ways to ship to this customers such as shipping two O set or where we have a partial license no. No. We don't we don't have alternative way to ship.
Okay.
Okay.
Okay. So I can get the second question.
If you could.
Randy did you are you still there nanometer if that could be visiting the branch.
Sorry, I'm going to be available in 2000, sorry, Randy you drop off for a second can you repeat your second question again.
Yeah, it's actually more about these have notes for nanometer will be available I think mass production early 2022, so with <unk> with three coming out late in the here, if you're expecting that would give us steep ramp.
So we could see high volume.
It also could allow you I think with the tool reused.
A good overspend, so I'm curious how you're thinking about that and then also on the sixth nanometer if you're still seeing most of the customers on seven migrate to fix alright. Thank previously expected majority could end up going to that have mode.
Okay. Okay. Your second question Randy is related.
Two and four and three.
And thus, where we with the timing differences of and foreign and three will we see lower spend.
As a result.
<unk>.
View is that in four will be early 2022, and three will be late 2022.
And then so with some conversion will that result in lower spend.
And he also wants to know four and six.
We've talked about it before do we see are still a strong migration of our customers from <unk> to the X and six.
Let me is the second one first and the <unk>.
We we have been.
Oprah to a customer with a compatible insecurities of 40 compatible to in seven so you'd walk.
Very good opportunity to catch the second week of given nanometers product.
We just semiconductor a strategy we offer in full.
To follow that to in fine. So we do have spent the interface a product finally or not though a large portion of the entire product will move to in full.
So it's not the to mix that we say in squeeze appropriate.
<unk>.
<unk>. So another four node is not the.
It's more of the rides.
Hi Mitchell.
In <unk>, so <unk> and sweet in full.
And then six two we do see strong like yeah.
My oldest.
<unk> okay.
Okay, operator, let's move on to the next caller.
Next one round heading Charlie Chan Morgan slightly at now lies the open to you know.
Taking out a follow up question. So two parts first thing is that all either.
Entry and <unk> do you.
<unk> for answering this year so.
Another reason why you'll see a <unk> <unk>.
<unk>.
Okay. Charlie Your first question is that for 2020 Capex.
Do we spend does that include spending four and three.
Charging part of the <unk>. This year is four and three but that's not the reason for increasing K Pax.
Okay and do you have a second question Charlie.
Yes, I do.
Hello every every quarter.
Acid question authority.
Chinese competition and.
Notably.
Kinda conveyed us to make that.
<unk> <unk> with a very high validation.
Both the both.
Okay and for their future capet or even.
New growth.
And I'm, saying that.
In a recent quarter, but in the long term.
Do you think.
Right and you probably may look there might be sure to Turner players, even they wanted localization or you have any China strategy.
Date to China.
<unk>.
Thank you.
Okay. So charter your question is that.
What is the threat from Chinese foundry competition.
Do we see it as a growing threat how do we.
Respond.
Yes.
I also in every time, we compete in technology manufacturing and the customer religions here.
And you say in China in the area. We stayed the same we competing technology.
Victory and we have been keeping good with this issue we saw customer we wound trucks.
Okay. Thank you in the interests of time I think we will take the last two.
Two colors on the line.
Next one we are having bristly Goldman Sachs go ahead. Please.
Okay.
Thank you for taking out a follow up questions or the first quarter is for the loan or the capital intensity I think remember remember like six months Coca mentioned was talking with Paul capital intensity will go back to 32, 35% for 2021, but.
Earlier manager with a Coca Cola you will go back to closer to 35% so to leave for seed.
Intensity known will be closer to 35% or that long was huge still remain at 32, 35%.
Okay, Bruce I think I'll comment is over the long run it will go to about 35%.
That remains the same.
[noise] touristy understand.
The second question Mr. <unk> four by the minute TSMC announced R to a new flat pray for the for the packaging.
This year just to the groundbreaking undecided for the factory is pretty big.
Pizza paid.
The best package and penetration Ray will be a lot higher in the note and what's the future I'll look for the rest packaging.
Okay. So your second question is the.
Bruce wants to know that we announced.
A large events packaging site within the so he wants to know what is the deep penetration.
So to speak prevents packaging.
The leading nodes going forward and what is the outlook, while we do.
What we saw our customer prosody.
To see some increase on the demand Nova other ones packaging.
Zero four.
Tried to lodge, our capacity that's for sure, but demis trace that we.
<unk> Nokia hour.
Runs packages.
Capacity is for leading edge also for speech Ortiz.
Yes, new demand coming out and we have to to what we saw customer two medium root.
Requirement.
Okay. Operator, thank you Bruce operator can we take the last color on the ninth please.
Yes, the last part to ask questions extra anyhow save I'll go ahead.
Yeah take your take on the Capex increase the one bill and character <unk>.
Particularly nose.
Thank you so fast and wants to know with the increase in the Capex to 16 17 billion from 615 to 16 previously what node.
The capex spending going to.
It's leading edge.
Okay got it.
My last question is I think the U S. Senator has proposed to build.
Chicks and America farther academic June so.
The how because they're currently with TSMC, Arizona plan.
And if I were to be pack that'd be wishing to be pirates.
Where are 70 or a non America company are you allergic before the potatoes subsidy. Thank you.
Well.
Sebastian just to make sure we understand your question. Your question is in related to some of the proposed regulations and the U S. Such as the chips Act in the <unk>. If these bills were to be passed would it be eligible for TSMC or the industry.
Yes.
Well online with a request and.
Those few.
In different form past I think the administration and state of Arizona.
Will make this project.
Happen.
Okay. Thank you Sebastian order. Thank you.
Thank you. This concludes our Q&A session before we conclude today's conference. Please be advised at the replay of the conference will be accessible within four hours from now the transcript will be available 24 hours from now and both of them will be available through TSMC website at Triple W. Dot TSMC Dot com.
Thank you for joining US today, we hope everyone continues to stay healthy and safe and we hope you will join US again next quarter Goodbye and have a good day.
[noise].