Q4 2020 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
If you are joining us through the conference call, your dial-in lines are in listen-only mode.
The format for today's event will be as follows first tsmc's vice president and CFO Mr. Windle long will summarize operations in the fourth quarter 2025 followed by a guidance for the first quarter 2021 afterwards. Mr. Wang and tsmc CEO doctor way will join me provide the company's key messages.
Then tsmc's chairman. Dr. Mark Lu will host the Q&A 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 notice that appears in our press release.
And now I would like to turn the call over to tsmc CFO. Mr. Wendal Hong for the summary of operations and the current quarter guidance. Thank you, Jeff. Happy New Year everyone. Thank you for joining us today. My presentation will start with the financial highlights for the fourth quarter and the recap of full year twenty-twenty. After that. I will provide the guidance office the first quarter of 2021 fourth-quarter Revenue increased 1.4% sequentially in n t terms or 4.4% in US dollar terms as we saw strong demand for our five nanometer technology driven by 5G smartphone launches and HPC related applications.
Gross margin increased point six percentage points sequentially to 54% Mainly thanks to cost Improvement partially offset by the margin dilution from 5 a.m. To RAM and then unfavorable exchange rates.
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Citation rate in the fourth quarter was at an extremely high level partially due to more production output of which some of the waivers will be shipped in the first quarter total operating expenses slightly decreased by 2.6 billion and T there for operating margin increased by 1.4 percentage points sequentially to 43.5% off or a fourth quarter EPS was 5.51 and T and R O E was Thirty 1.4%
Now let's move on to the revenue by technology five nanometer process technology contributed 20% of wafer Revenue in the fourth quarter while 7016 I don't mean to contribute a 29% and 13% respectively Advanced Technologies, which are defined as 16 nanometer envelope account for 62% of wafer Revenue.
Although few years basis five nanometer Revenue contribution came in at 8% of twenty-twenty way for Revenue 7. Nanometer was 33% and 16 meet up with 17% advanced technology is accounted for 58% of total way for Revenue up from 50% in 2019.
Now moving onto the revenue contribution by platform smartphone increased 13% quarter-over-quarter to account for 51% of our fourth quarter red HTC decreased 14% to account for 31% iot decrease 13% to account for 7% Automotive in Chrome 27% to account for 3% digital consumer electronics increased 29% to account for 4%
Almost full year basis smartphone HPC and coyote saw strong growth of 23% 39% and 28% respectively.
Dce also increase 2% while also decreased 7% in 2020 overall smartphone accounted for 48% of our 2012 Revenue HPC accounted for thirty 3% and iot accounted for 8%
Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of $791 billion and teeth on the liability side current wage is increased by $29 billion and T mainly to do to the increase of $57 billion in the accounts payable in the increase of $31 billion in accrued liability and others all set by the decrease of $69 billion in Short Term Loan.
long time
Some interest very debt increased by $28 and T. Mainly as we raised 30.5 billion of corporate bonds during the quarter.
On financial ratios accounts receivable turnover decrease one day to 31 days Days of inventory increased 15 days to 73 days prior to the due to the ramp of leading notes.
No, let me make a few comments on cash flows and capex during the fourth quarter. We generated about $259 billion in cash from operations spent $89 billion in K-PAX and distributed $65 billion for first-quarter 20 cash dividend.
short-term loans decrease by $67 billion while bonds payable increased by 30.5 billion due to the bond issuance has
over all our cash balance increased $50 billion to $660 billion at the end of the quarter in u.s. Dollar terms are fourth quarter Capital expenditures totaled 3.2 billion dollars.
Now, let's look at the recap of our performance in 2020. We saw a strong growth in twenty-twenty as our technology leadership position enable us to capture the industry magazine a sense of five G and HTC our Revenue increased 31.4% in US dollar terms and 25.2% in n t. Terms them Reach 1.34 trillion, ninety.
Gross margin increased 7-1 7.1 percentage points to 53.1% primarily due to a higher level of capacity utilization and cost Improvement operating margin increased seven point five percentage points to 42.3% overall four-year wage is increased 50% to 19.97 and T on cash flow. We spend $507 and tea in K-PAX while we generate a $823 billion in operating cash flow and $350 billion in free cash flow.
We also pay $259 billion in cash dividends in 2020.
I have finished my financial summary. Now. Let's turn to our first quarter guidance based on the current business Outlook. We expect our first quarter Revenue to be between a 12.7 billion and $13 billion dollars which represents a 1.3% sequential increase at the midpoint.
Based on the exchange rate Assumption of $1 227.95 and T gross margin is expected to be between 50.5 and 55.5% operating margin between 39.5 and 41.5%
The sequential decline in first quarter gross margin is mainly due to a slightly lower utilization rate in the first quarter of it is still saying at the high level as well as an unfavorable foreign exchange rate.
No, I would like to talk about the tax rate. We expect our 2020 tax rate to be in the range of 10 to 11% And this will be equally applied to all four quarters of the Year. This concludes my financial presentation.
Okay, now I would like to start key messages for the quarter.
I will stop by making some comments on our capital budget in twenty-twenty and twenty Twenty-One every year our capex is invested in anticipation of the growth them follow in the next few years are capital investment decisions are based on four disciplines technology leadership flexible and responsive manufacturing retaining customers trust and learning the proper return in 2020. We spent Seventeen Point $2 billion dollars to capture the strong demand for our Technologies and support our customers capacity needs.
In order to meet the increasing demand for events and Specialty Technologies and further support of customers capacity needs our 2021 capital budget is expected to be between $25 and $28 billion US dollars.
Out of the twenty five to Twenty Eight billion capex for 20 21 about eighty percent of the capital budget will be allocated for events process Technologies, including 3 nanometer five nanometer and 7 nanometers.
About 10% will be spent for advanced packaging and mask making and about 10% will be spent for specialty Technologies.
Next let me talk about our Capital intensity Outlook as we have said previously our long-term capital intensity is in the mid-30s percentage range. However, when we enter a period of higher growth our capex needs to be spent ahead of the revenue growth, I will follow so our Capital intensity will be higher wage example during 2010 to 2014 our capex spending increased threefold as compared to the previous few years and our Capital intensity that range between 38 to 50% because of the increase investment. We were able to capture the growth opportunities and deliver about 15% growth out from 2010 to 2015.
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As we enter another. Of higher growth, we believe a higher level of capacity a capital intensity is appropriate to capture the future growth opportunities. We know expect a higher growth character in the next few years driven by the industry megatrends of 5G and HPC related applications, which CC will discuss in more detail.
We also expect this higher level of capital investment to continue to drive our technology leadership enable flexible and responsive manufacturing and earn customers trust off while leading those Capital costs continue to increase due to increasing process complexities. It is expected to be compensated by continuing to sell or value package which includes the value of our technology service quality and capacity support and diligently working on cost Improvement.
With this level of capex spending twenty Twenty-One. We iterate that tsmc remains committed to a sustainable cached evidence on both and annual and quarterly basis. Now. Let me turn the microphone over to CC window. Hi everyone. This is CeCe way. Good afternoon. We hope everybody is staying safe. And here she during this time. Now, let me start with our near-term demand and we can cross it out for squatter with revenue of empty 361.5 billion or u.s. Dollar to a point seven billion, which was the line with our guidance off due to strong demand for our white nanometer technology driven by 5G smartphone launches and HPC related applications.
Including twenty-twenty the semiconductor industry has cooling memory cores was about 10 present while the industry increased about 20 G year-over-year. He's a revenue group 31.4% year-over-year in u.s. Dollar turn moving in 2020-21
business continues to be shrunk supported by HPC related demand recovering in the automotive segment and a monitor bought a smartphone. She's a genuine recent years.
You wouldn't very front five days customers over Roy inventory was digested throughout the first quarter. We now expect it to approach the whole story cuz she's and exiting 20/20 better than our forecast three months ago. We observe the the supply chain are changing their approach to human to reach management are bisa di makan uncertainties looking ahead. We expect the supply chain and our customer to prepare a human to read compared to the historical season level for a longer period of time given the industry's continue the need to ensure our security.
next let me talk about the automotive
Titan he's wanting Market has been soft since 2018 entering twenty-twenty COVID-19 for the impact off the automotive Market the amount of supply chain was affected throughout the year and our customers continue to decrease demand in the service wanted we only begin to see sudden recovery in the fourth quarter. However, the automotive supply chain is wrong and compressed form anything about technology know has been titled throughout 2020 due to strong demand from our other customers.
Jennifer in the near-term Azkaban from the automotive supply chain is refunding the shortage in automotive. Supply has become more obvious off. This is our top priority and we are working closely with Automotive customer to resolve the capacity support issues.
Now I will talk about our 2021 outlook for the year of 2021. We forecast the overall semiconductor Market memory to talk about eight percent while quandary industry course is forecast to be about 10% for tsmc. We are confident we can outperform the country Revenue course in Coral by mid-teens percentage in 20 21 in u.s. Dollar term our 20 21 business is supported by strong demand for our industry-leading and Specialty Technologies.
Well, we see strong interest from all across paid for bills which are smart phone H Automotive in iot. Let me talk about long-term goals Outlook entering a period of higher growth as a matter of 5G and HP related applications are expected to feel strong demand for our advise Technologies in the next several years.
We expect Global smartphone units or 10% year-over-year 20-21 we forecast the penetration rate for 5 J model phone of the total smartphone market to rise from 18% in 2022 more than 35% in 2021. We expect acidic and content of a 5G smartphone to continue to increase as compared to a 4G smartphone.
We continue to expect faster penetration or 5G smart phone as compared to 4G over the next several years as 5G smartphones benefit from the significant performance can with the Improvement of 5G networks to drive more applications and more cloud services offered by G is a multi screen that enables a war where digital computation is increasingly ubiquitous, which was used the course of Life of our prosperity form in the next several years.
as we enter the
Gyro a smarter and more intelligent World War require massive increases in computation power and greater need for energy efficient Computing India for required leading-edge Technologies. Just HPC is increasingly important driver of tsmc's long-term growth and the largest contributor in terms of our incremental Revenue course.
We sought technology leadership. We are well positioned to capture the course from the travel industry make a trend. We now expect our long-term Revenue cause to be ten to fifteen percent caker from 2020 to 2025 in US service.
No, I will talk about a year lease researchers. The answer you are be another War know the straight form in 5 without to 70% potential again at 15% purple skin and up to 30% power reduction as compared with five millimeters and three technology why you scream. Transistor structured home to deliver the past maturity government and cost for our customers and sweet technology development is on track with good program. We are seeing a much higher level of customer engagement for both HP smartphone application industry as compared with faith in in seven at the similar stage.
Reproduction is scheduled in twenty Twenty-One and volume production is targeting second half of 2022 sweet. Nanometer technology will be the most wage country technology impose PPA and transistor technology when it is introduced just we are confident are sweet. Nanometer wabi-sabi. And long-lasting note for tsmc our talk about agency sweetie fabric has tapered off the CD and comprehensive wafer-level sweetie. I see technology roadmap to enhance system-level performance.
Audio appreciate the chip date and head towards the integration technology to repair the power efficient as smaller form-factor benefit of our customer while shorter time-to-market this technology including chip State institution such as s i c as well as advanced package Solutions such as info and course. We observe children are becoming an industry Trend. We are working with several customers and switch back to a network architecture for volume production is Target in 2022. So I see is expected to be first adopted birth HPC applications who have been with performance power efficiency and form factor are aggressively pursued.
we expect
Revenue from our back-end Services, which include impulsive and packaging and testing or at the rate higher than corporate average in the next five years. He's concluding our key message. Thank you for your attention. Thank you. See see this concludes our prepared statements before we start the Q&A session. I would like to remind everybody to please limit your questions to two at a time to allow all the participants and opportunity to ask their questions. Should you raise to wish to raise a question in Chinese? I will translate into English before our management and sent you a question. For those of you on the call. If you would like to ask a question, please press zero then one on your telephone keypad now wage questions will be taken in the order in which they are received. If at anytime you would like to remove yourself from the questioning queue, please press zero to now, let's begin the Q&A session dead.
Operator please proceed with the first caller on the line.
Yes, the first one to ask question Goku Hoodie Allen from JP Morgan.
Thank you for taking my question. Happy New Year and fantastic results and guidance. So let me ask a question first on Thursday. Could be how should we think about the size of three nanometer? What we have seen is over the last few years 28-nanometer was a very big month seven meter came out to be 70% bigger. If you think about Peak Revenue compared to when you had your application coming, in fact, even the big package plan that you are also outlining should be think that 3 nanometer once it ramps up fully would be substantially bigger than 7 nanometer in terms of revenues. Just wondering how we should kind of think about the size of this process load and could you also talk a little bit?
About uh the opportunity in HPC right now, you are already uh engaged with multiple HPC customer, but could you talk a little bit about CPU GPU obviously, which is something on his mind. Could you talk a little bit about how tsmc would be exposed to this Market as well as we go into the premium meter error?
Okay, go cool. Sorry. This is Jeff. Let me please summarize your questions to questions will take them in the one by one Coco's first question is with regards to 3 a.m. And about the size of our three nanometer. He notes that in the past we have had very big no such as 28-nanometer and then 700-meter. So Kong wants to know in terms of the peak Revenue contribution. Do we expect or should end 3 be substantially bigger than in seven. That's his first question, correct?
Yeah, especially seems to bring the Step Up in Capital Plaza. Thank you.
Well, cool, maybe answer your question by saying that we do expect the screen. That'll be the lobby. Why did he use the HPC job applications in addition to the smartphone. So with this kind of Engagement with our customer, we do expect our Revenue will be eager. Certainly. That's no doubt about it.
So what is the next question and then Goku? I think the second part of your question is looking at what our opportunities in high performance Computing Goku notes that we have multiple customers engaged but in particularly is asking about the progress or the status of CPU opportunity. And what do we see as the you know, the the drive first of HPC Goku Windows specifically named one of our species applications such as to say that a quality divorce rate, but let me tell you that CPU networking and AI accelerator will be the main course area in the HPC application.
He's not answer your question a little bit more and then you've already had good success in trading Market should be should be things that the market share continues to move up to a lot as we get into 3 nanometers.
Okay, so go cold. I guess your question is really on the x86 and looking at you know, seven enemy done. Well as we get into three hundred meter will our exposure to x86 continue to increase again, we don't specifically come in and very specific area. We walk with our customer continuously off and to supply the very good technology to support your business.
Thank you. Okay. All right. Thank you Google operator. Can we move on to the next person on the line, please? Next Wednesday. Ask question Randy Abrams Choice. Okay. Yes. Thank you. I have two questions to ask first on the you talked about the automotive and I assume also you're mature. No. Jailbreak. You traditionally haven't added that much capacity on mature notes and eight inch could you discuss within that because you you have some mix of that how you're seeing a surge to add capacity for those notes and could you also look at Auto has been only about three percent of Revenue. Should we expect a meaningful pick up in this vertical both phone number applications and also from new areas like even a test?
Okay a Randy.
Me summarize your question you're asking first on the automotive side. He knows our comments Automotive suppliers tight do we expect a pick-up in the automotive vertical and then also in looking at the mature notes will also benefit on which were note and then 8:00. And other Trends in automotive. How do we see what let me say that now we see the automotive industry need a lot of semiconductor component wage and that's including the Leading Edge technology for the system and also some of the mature technology for a lot of applications like a like a power management. I see we do see right now. It's already shortage on the automotive the mature Technologies apply and we are working with wage.
customer to mitigate the impact
and then Randy is also asking second part on our mature notes given the tightness will we consider to add capacity for the mature nodes? We always walk with our customer to Penn our Technologies capacity all those connections for mature note. We use to convert some of the large capacity into a sponge bath right now the trend stays the same.
Okay, great. And my second question is software. Sorry to Parts. Just want to ask on gross margin and inventory the gross margins you've improved for points year-over-year a part of that utilization. But depreciation also was up 45% and $2 moved against these six points. So could you discuss if you've had a breakthrough on the cost reduction a side and if now I think last quarter you said about 50% but given what you've seen on cost reduction in coming off 54 if you could have better confidence on margin wage could continue do better and then I'm I just want to ask about quick on inventory. We sit up 15 days historically you draw down whip into fourth quarter, but maybe the the trend y inventory was surprising in too early in the year. Okay, Randy. Let me ask you a question to Parts. First is on the gross. Margin. He notes that are gross margin improved.
Throughout the year and Randy wants to know if there is a breakthrough on the car side and there for the long-term outlook for our gross. Margin. Is it still 50% or not? Right Randy. This is Wendell. You just mentioned that our depreciation increased 45% year-over-year. I think the the number should be 15% year-over-year. I was like, I think the the just the fourth quarter of our fourth quarter right right. Now in terms of gross margins in the long-term We Believe 50% gross margin is reasonable and achievable. There are 6 factors affecting our profitability off the rap of leading-edge technology price cost makes utilization and for exchange rate take following exchange rate for example in birth.
T20 the average
Dollar against rate was 29.43. It is now trading between 2790 to 28 that is already a 5% off appreciation of Auntie. So every appreciation of empty will affect our gross margin by or 40 basis point. The other thing is the in the fourth quarter of last year as we mentioned the utilization where it was very extremely high and that's the normal level of high utilization. But you cannot sustain therefore in this quarter. We believe the utilization way will come down a little bit or B as it's still at the very high level. Now, every point of utilization rate change will impact the gross margin by 40 basis points.
A third example would be the ramp in our leading-edge Technologies we mentioned last time that we expect and 5 ramp in 2021 to affect our margins by 2 to 3 percentage point and we still think that would be the case. So if you take all of those into considerations We Believe 50% off margin is reasonable and achievable in the long term.
And then rent you had also asked about our days of inventory increasing in fourth-quarter, right? And that's partially because some when you have a very high utilization a fourth-quarter, but some of the waivers will be shipped in the first quarter as opposed to ship in the fourth quarter. Okay. Thank you. Thank you. Randy Foye. Can we move on to the next caller, please?
Next one we have Sebastian whole from clsa.
Thanks gentlemen for taking my question is Happy New Year. First question is want to follow gross margin side. So if I look at in the past two quarter past two quarters off the your gross margin actual results turn out to be either at high-end were the surprise to the upside to your original guidance. While Revenue wage is much on the high end of the guidance while the towing dollars continue to appreciate it. If you could have last year's so which means that the margin turns out to be better than what you arrange for two quarters consecutively. So my question is whether or not the one Q Outlook the margin is too conservative again, and second home to do that is the weather or structural profitability will need to revise up just as our five-year Revenue growth character has just been revived officially. Thank you.
All right Sebastian. Let me summarize your first question.
In your observation that in the past two quarters are gross margin has come in at the high end or or slightly above the high end of our guidance Revenue at the high end on the currency appreciation is Thursday. So Sebastian is question is first, you know, if the first quarter gross margin guidance too conservative and what about the outlook for our longer-term structural profitability does need to be revised up. Okay Sebastian if we compare for fourth quarter to first quarter 54% in fourth quarter and the midterm guidance were first quarter is 51.5% The two point five percentage points difference actually mainly come from the utilization as well as the unfavorable foreign exchange rates. So at this moment we're still sticking to this guidance, although obviously, we will work hard to continue to improve the gross margins birth.
As as for the long term gross margin as I just reported earlier that we are beginning the 50% gross margin to be reasonably cheese. Go based on the the elements the six factors that I just talked about we each of those factors will affect profitability long-term.
Okay Sebastian. Do you have a second question? Yes, I do things Jeff and thank Swindell. My second question is on your outlook. Apparently that at least that's a surprise to me and I think also to the consensus estimate. So the last time I think the other one, there is a cab from ten to twelve billion level to the like 15 to 17 built-in level. Then that resulted in the 30% Revenue grilled in twenty-twenty. And then so my question is that I think the cap has to invest for the month. So whether or not this another step up the Carfax to like to 25-30 Bill and this year's will represent an acceleration of the growth in twenty twenty two or three. Thank you.
Okay. So Sebastian's question is looking at our capex guidance for this year $2,528 billion, you know, it is above his expectation. So he's looking at the exact time. We have an increase in acceleration to capex from 10 to 12 to 15 to 17 resulted in us growing 30% this year Thirty 1% this year. So what is the Outlook wage growth in 2022 or the future years? Okay Sebastian. It's too early to talk about specifically about 20 22. But as CC mention the next five years our Target, uh, tiger is between ten to fifteen percent. So that's already higher than the original Target of five to 10% off that we used to have before the last conference call. And that's also because of the higher capital investment that we are ready to make to capture the higher growth opportunities.
He's underpins that.
by the multi-year mega Trends in the industry
what let me edit. This is CeCe way. This is a 10 to 15. It's a very high number of 2020. So we still forecast Thursday 2:15. K ker that or tell you that how much of capacity we need to invest.
Okay, thank you. Thank you Sebastian. Thank you operator. Can we move on to the next caller please? Next one we have from Goldman Sachs off. All right. Thank you for taking my question. Would we be without a great guys? I think the big difference is this point you raised the long-term replicators from 5 to 10% 2 ten to fifteen percent. Can you tell us that you know what it in terms of this kind of incremental changes how much the growth is coming from HPC and you know, what are the other drivers for that in terms of like smartphone? Oh gross. I mean the 5G penetration is already like thirty-something percent in 2021 moving forward. How much gross for for you is coming from the dollar Counting Crows or the wrong with or you know, can you can you provide more colors on the growth?
Okay Bruce. So your question is really about our long-term growth Outlook with our growth Target of ten to fifteen percent. Your question basically is by the different platforms such as wage see what is the growth, you know contribution and in looking at smartphone, you know, how much is dollar content how much is unit contribution?
What it means of the question by actually the course rate from the HPC application is higher than the corporate office and smartphone is a very close to the corporate and also Automotive is higher than the corporate average iot close to that corporate every month the answer your question. Yes. Thank you. Thank you. Okay. My next question is I want to ask about the structure of the month. I understand that, you know, you know all these six factors for the profitability, but that's the based on the assumption that structure probably remain unchanged. So do we consider to move up a structure profitability because of the current supplied structural gross for the company or the uh,
structural tied on the food especially with Legacy uh technology note
okay Bruce your second question is on the structural possibility given the higher growth Outlook and also the tightness in Supply you know the notes or Legacy Technologies we consider to move up the structural profitability Target yes Bruce as I just mentioned we are maintaining the financial objective I the structure profitability go of 50% gross margin and of those six factors every one of them can affect the wage for example I just used an example for exchange rate utilization and also the ramp of leading-edge notes and for example the Leading Edge technology is the complexities increases the Catholics bouquet is more expensive than before so we are working
team very hard
With a customer to sell L value the service value the technology value and also the capacity value and firm up the way for pricing at the same time. We also work very closely with our suppliers to continue improve our cost so that all together we can maintain an urn a proper returns in the in the leading note compared to those of the previous notes as a result. We are maintaining our structure profitability goal at 50% of gross. Margin. So understand, let me clarify that whatever you can in terms of your code saving he was still, you know, returning to your customer and maintain your 50% profitability Target.
It's it's there's six factors. So all you add all of them together. It's yeah, I understand. Thank you God. Thank you Bruce operator. Can we move on to the next caller on the line, please? Thank you.
Next one to ask question Charlie Chan Morgan Sandy aronow. Thanks for taking my question. Happy New Year. So first question is also about a K-PAX. So you can pass for you to span huge cat facts Leading Edge is you usually for the smartphone application given the the the key user is a call. So this time you almost a double your you know capex level does it means that there is a significant upside of the Intel CPU also seen this is the the first question. Thanks.
Okay, Charlie. So your question is on our capex. Basically Charlie noticed that in the past or large capex on leading-edge historically than 4 smartphone platform this year. Of course. Our fax number is much higher. So therefore he is wondering whether it's intended for a particular customer on the CPU side for a Charlie. Let me answer. The question I asked in fact, we don't come in as a specific customer or specific area guidance is based on the current long-term wage profile underpinned by the industries of Mega trend.
Yeah, unless you have a second question. Yes, I do. So just send feedback to to see see I think you know, we all understand the mega pack of 5G and the HPC. So the last question was just to understand whether there is additional uhh kind of gross driver for example ID and also seen on top of the organic but my my next question, I think it should be more related to your strategy because I think your existing customer entail wage, uh two days ago. They also come in about don't rule out the possibility of licenses Foundry process and actually, you know, you know ten years ago back in two thousand. I think you also license the largest semi process to National semi, so I'm not sure if tsmc After Twenty Years to you dead.
Still kind of counselor. Just kind of option. You know what mean? I sense your Foundry processes to your eye.
Indian customer or even the, you know consider some option like a joint venture for the operation with your ID M customer. Thanks.
Well again, we don't come in on this specific topics or specific customer. But let me tell you that we are working with our customer continuously off and to extend tsmc's a business and to support our customers that demand.
Oh, okay. Okay. Got you. So I will be back to a q. I have some follow-up. Thanks. Thanks, Charlie. All right operator and let's move on to the next person on the line. Please next to ask question from research.
Yeah, thanks very much questions, maybe 1st for four windows on the on the revenue guide. I guess you you're starting the year with a far better than seasonal q1 wage. I just wondered how do you see the year playing out? Um, you know, should we expect in the second half typical seasonality this year and then in terms of the wage tax guide for this year, obviously, there's a big step up and and spending is this year is normally a reflection of how you think about long future capacity growth Beyond 20 25, so can we assume from the big increase in capex this year that your implied Revenue growth in 2022 would be will be higher than 20 21. Thank you.
okay so Brad has two questions one on the revenue guidance of we guided for mid-teens for the full year growth for 2021 so he wants to know how does it play out throughout the year is there you know second half will we see the typical seasonality first half second half split that's his first question
yeah from what we can see now the second half is still higher than the first half
and then the second part is also a Carfax and growth looking at the increase in our capex investment in 2020 one more thing that we typically spend capex in advance so the growth that will follow Brett wants to know then should we expect a big year or a large group here in two thousand at twenty twenty-two Sorry Brad wage as I said it's been too early to discuss 2022 in details but since he just mentioned over the next five years we're looking at a higher range of calendar and also took uh the capex 10th this year means future opportunity in growth not just for the next year but also the years after that so we're looking at multiple years of growth opportunities
And and maybe just maybe just 144cc way on and three you mentioned in three would have the best PPA and and we're we're sick of transistor Innovation at Intel and Samsung in the next couple of years, but you're planning to stick with Finn fats at Kwinana meter and and I'm just wondering how you see the the the, uh, the transistor density nanometer. I think it's a 10-5 you've talked about about a hundred and seventy-five million transistors per mil squared is the is the potential of N5. How should we think about N3 in that regard and and relative to, you know, some of the transistor Innovation, we're seeing it at Intel and Samsung. Are you happy with the finfet off road map. Thank you.
Okay, so your second question is regards to are in 3 in.
Decision to continue to use pin fet transistor structure at 3 nanometer. You note that at five nanometer we can deliver about $175 million transistors per millimeter squared. So you want to know how this falls out at entry or maybe in terms of you know, R39 in comparison to Samsung or others wage. Does it compare well, as I say the my statement that entry still provide 70% of the logic potentially can walk into all the performance and the power reductions quizzes that the five nanometer you got a 135 million transistors wage millimeter square. It depends on you know, what the number in dentistry. I think that would depend on customers that design we continue to say that wage.
All towards the green pad because of the technology maturity the performance and the costs are the best combination for tsmc was so Power customer. Okay? Thank you Brett. Great. Thank you. Thanks operator. Can we move on to the next caller? Please off next one. We have rolling she from Citigroup. Hi, good afternoon, Very good result. My first question is also for the engine and they are both parts of my Christine. So with this on your shuttle increase Capital spending, are you considering to sign long-term contracts with customers especially to lose customer who are new to adopt your most leading-edge technology to ensure proper return of your investment and second part of the question is if since let you have spent off
Hat Enterprise UV because you know the lower productivity for Eevee when you first UV, so I would like to know how much capital gains you expect after you have improved UV productivity to the optima's label. Thank you.
Okay, Rowland will take your questions one by one. Both of them relate to capex. First one is that with the higher level of care that we have in 2051 Rowland wants to know that would we consider signing long-term contracts with customers especially with customers that are new to tsmc to make sure that we are making a proper return rotors signed the transfer to get rid of being in the future. It's not a hour, correct case we always walk with a customer and continues work with customer to serve their demand and we also
Put on K-PAX or expanding our capacity according to our current long-term demand forecasts. All right and desire NCO Club? Okay. Yeah, I take it. Okay Rollin and then your second question is also related to capex Rolling. Let me summarize I think you are saying that in our capex guidance or something that the lower productivity of UV is being leading to a higher capex level for tsmc. Your question is that if the productivity as a product of euv improves then will you know how you know how much reduction in Camp X could we see? Is that your question? Am I suppose? Yeah, exactly.
Well, let me answer that we continue to improve the productivity because we are working closely with suppliers and the sofa we the Improvement is obvious, but it's still not up to our expectation yet as for the the capex will be decreased because of improved project team. Okay. Spring already.
Okay. Okay. So so means, you know for calling for war even you have a higher wage typical intensity probably will be still high. Let's see in the near future.
Okay. So rolling question is that even with UV productivity and factoring into our capex Capital intensity could remain high even into next year off what remained high or the Capac intensity remain high is because of Technology complexity. It's actually that in five bucks more complicated than in seven and three much more complicated than n v. So most of the capability intensity coming from this technology advancement wage, of course you with a part of it, but it's not the only one reason.
Okay, thanks. Okay, then my second question. I think that's two questions already. Sorry, cuz we still have several people in the queue. I would kindly ask you to get back into the queue. Okay, thank you. Yeah, thank you. All right operator. Let's move on to the next caller on the line, please. Yeah, the next one. We have an alien from UPS wage. Hi. Good afternoon. Thank you for taking my question. My first question is that I want to follow up on three nanometer. I think it's just want to get a bit of color on your current visibility for the customer adoption into second half of a mixture. How does it compare with the historical rep of 5 a.m. And 7 at a meter and also the cost per transistor for 3 nanometers vs 5. Thank you.
Okay, so I need so your first question is on three now. You want to know the visibility into customer adoption of three into second-half twenty $22 and how does it compare to $5 meter or higher notes and also the cost per transistor at 3. Is this still declining the Costco continue to decrease wage but for your question about a gateman which are the customer we see a lot of customers especially from the HP Outfield. They are increasingly engaged with their activity. Which tsmc
Okay, sonny. Do you have a second question? So just a very quick follow-up to my first question. Wonder if we'll be able to provide any color regarding the ramp for three nanometer for express. It can have an extra. Thank you very much.
Adoption from customer is supposedly in smartphone and related applications. That's all I can say. Got it. Thank you off, and then my second question is for your 2021 gross margin. So was K-PAX going up significantly, how should we think about your depreciation for this year and also the income and gross margin? Thank you.
Okay, so funny second question is on the 2021 overall gross margin with a higher level of capex spending. She wants to know what will be the year-on-year increase in depreciation. And what's the impact the overall twenty Twenty-One growth monitoring suddenly. The depreciation in 2021 is expected to be between mid to high 25% higher than 20 20 and the impact of two gross margins. Well, it's too early to talk about the remaining quarters of the twenty Twenty-One. But as a general feeling you look at the the capacity utilization that I just mentioned not pulling exchange rate unfavourable and also the M5 ramp negative impact on our profitability dead.
Those are the factors that may affect are all year 2021 gross margins. But as I said, it's too early to talk about details on the remaining Quarters off. Got it. Okay very much very helpful.
Sure. Thank you sonny. All right operator. Let's move on to the next caller, please.
Right now we're having Laura Chang from KGI. Go ahead, please hi. Thank you for taking my question and congratulations for the good result and I'll look I also have the question about the facts and the gross. Margin. I think given your strong position in the most advanced technology note and extremely high chiropractor in recent years. I believe that must be some strong conviction on the Outlook with your major clients. So can you share with us your view that for the first year contribution will be similar to n v that will have probably more than 10% revenue for the first year mass production. Can we expect that happen? And also on the gross gross margins on a given there's a might be some swing factor of your major ID and client for also the opportunity. How would you imagine the utilization rate of
Which may impact your group?
Substantially, that's my first question. Thanks.
Okay, Laura. I think that's two questions. But your first question is on the
On the N3 sort of noting are strong position in the advanced nodes and also the higher capex as an indication of the strong conviction. Our major client Laura wants to know what wage will the revenue contribution of 3 nanometers in its first year. It's similar to or how does it compare to $5 a metre in the first year?
Okay, Laura. It's it's really too early to talk about that at this moment. But I see that we believe in free when it's out. It's going to be another large and Lasting notes for tsmc. Okay. Got it. Thanks. And also yeah, the only probably the swing factor of the utilization rate that may impact the gross margin substantially on the particularly for advanced note. How should we look at the trend how you management that?
Okay, so Laura second question is looking at a gross margin and then also looking at opportunities for example in a particular idea if there's swings in utilization. How would we manage that? And how would that impact the gross margin?
Is that correct? Laura? Yes. Thank you.
we don't we don't, not specific customers or a business Outlook
the well we can stay as we continue to work with our customers closely and to ensure that we provide this proper capacity to them and we always maintained a good utilization out of it and let me ask some colors I think our business has been driven tradition in the past few years but not smartphones it's funny from this year armed HPC also jump on the wagons and therefore we looking forward looking we see the traditional 690 is can be moderated with multiple big customer when the multiple market segments so that's our confidence the other confidence is off our key packs includes 3 nanometer also five down a meter or five data meter is also very strong stronger than we expected to three months ago so those two combined wage
To give us a confidence to increase our capex.
That's really helpful. Thank you very much. That's very helpful. Great. Thank you Laura operator. Can we move on to the next caller, please? Next one we have is Robert Sanders from Deutsche Bank.
Yeah, I just got one question. Actually. Just could you please comment more on the way for shortage situation and how severe it is at present? Which made do you see the shortage? Most-acute? Is it 5599 metre point 11.13 or whatever it is. And how far are you essentially booked out at some of these nodes and do you think this way upside to wipe your pricing at these modes? Thank you. Okay. So Robert your question is on the titanosaur shortage in the way phone number he is asking is it a particular notes, which is 65.13 how short it is and how long it will last?
Robert most of the show t t actually is in the mature node is not seeing the 3:19 the 5 or 7 and let me to place a wager but in the order mature note, especially important they might going and 14 and fifty five millimeter in those area.
Okay. Can I can I just one one follow-up which is just just you haven't traditionally built capacity there, but they could become part of dependencies for the industry if if they are continuing to be so would you actually consider building Greenfield, uh to help the industry or you think that other Founders will will handle that?
So Robert, your follow-up question is then given the the shortage of tightness on some of these mature notes will be considered to expand build new capacity at these mature. No damage to any potential bottleneck risk. Well, actually we are working with customers Grocery and moving some of the mature no, two more Otherwise Known. Well, we have better capacity to support him in addition to that. We also try to management this shortage condition to be declared the impact on this shortage.
Okay, thank you operator. Let's move on to the next caller, please.
That's one. We have Richie from Daiwa Securities. Yeah. Yeah. Hi. Happy New Year guys. This is Rick. My first question is I guess you guys mentioned that now your customers are happy living with a higher inventory than the historical pattern because the Mac were concerned is this is COVID-19. So I wonder if your customer would still be happy living with a high inventory than the normal historical pattern if the virus even COVID-19 is contained. So this is my first question.
Okay, thank you Rick. So your question is are you know, the higher level of inventory that we're seeing party is attributable to COVID-19. What if COVID-19 is no longer, you know, everyone has vaccine then there's no longer an issue will discontinue.
Get it.
well yeah first they say that we really hope that the vaccine will work and but even it is working it takes time and then took our customer still at today they still have a different approach for the inventory management as we stayed because of the age of the supply is more important than anything else in today's the situation so we don't think it's really to revert back to the historic page of the inventory
okay thank you that's helpful my second question is Also regarding your account number this is really high so about 80% of your hi this is not going to be spent for a leading-edge so I want the how much of that portion is actually for preparation of the capacity bill for 2022 MBL not. So can you share your idea with us
Okay, so your question is on our capex 80% about 80% is for the advanced knows he wants to know how much of this spending for the advance notice is in preparation for capacity for $2,000. I'm sorry, $20 22 Rick we invest this year actually for future primary. So I'm not only be for 2022. It may also be four years following that so that's I think that's that's something that I'd like to share with you.
Okay, that's helpful. Thank you. Yeah, thank you so much. No problem. Thank you Rick. Okay operator. Let's move on to the next caller. Next one. We have from a silo links securities.
Good morning. Good afternoon. Thank you for taking my question. Can you hear me?
Yes, we can hear you. Okay. My first question is if your customer has its own design roof notes with a different metal and politics back from tsmc 1-month Candice customer use the in-house manufacturing and tsmc Foundry base on the same design or it needs to redesign the chip based on tsmc Thursday 9 we could design rules.
Okay, Andrew, let me try to summarize your question. Your question is about customers design rules. If the customer has their own life rules, but with different metal and different Polly pitch from tsmc's could this customer used tsmc Foundry or you know used in-house manufacturing off or do they need to use design rules? Basically, I'm sorry. Oh with our customer to support their designs into tsmc's the process Technologies so we can manufacture inside.
so customer doesn't need to
Change its own design.
Okay, I cannot answer these questions because of is two parties cooperation. And as I said, we bought clothes that he wished them to support that design.
Understood. Okay. Yeah. My second question is since our thing for me to note what next year after year while we have a something like final me to Plus or religion. Final me to process no four second-half this year. Thank you.
Okay. So Andrew second question is looking at second half of this year. Noting that next year will have for example in three and and forth in second half of this year. Do we have any new note or continuous Improvement enhancement. We always continue to improve the Technologies last year. We introduced quite damaging to to the market this year. We continue to improve it and next year will improve further. So we never stop.
So something like to find out me the Plus.
That's what you want your naming. Yes. Okay. Thank you. Okay. Thank you Andrew. Let's move on to the next caller. Please. Next one. We have midi hussaini from s i g.
Yes, thanks for taking my question. First question has to do with the revenue mix forecast for q1 by technology and platform. It would be great. If you could provide some color and I have a follow-up.
Okay. So do you want to know for the first quarter Revenue by technology and revenue by platform?
Okay, that is the first quarter of HPC automotive and iot will increase sequentially about smartphone will experience a mild recession and decline compared to his reason seasonality.
And we do not provide a breakdown guidance of Revenue by technology. Okay. So do you have a second question? Yes, just a quick follow-up on capex. How long does your twenty five to Twenty Eight billion Catholics guy include investment for infrastructure in u.s.
So my question is does our capex guidance this year include any investment for the infrastructure. Yes. It does suck this year.
How much of the Catholics is for us?
Not at this point.
Okay, thanks operator. Let's move on to the next caller next one Santa from Cowen and Company.
Yeah. Hi. Thanks for taking my question. I also had to uncap X number one pretty nice step up and Catholic this year from last year. Is it fit as email investment in d u v is also up dead relative to last year and then had a follow-up.
Okay. So Chris is first question is that with our increase in capex died in that we guided for in 2021 versus 2020 being an increase. Does that also mean an increase in the past? We spend on UV know we do not disclose that details.
Got it. And then that's a follow-up CC. You mentioned that how capital-intensive is going to be high all the way through 3 nanometers, but you also said long-term capital intensity should be in the mid thirties. So I'm just trying to scry that by what do you mean by long-term because looks like if 3 nanometers is going to be high in the next few years Capital intensity might be higher than mid-thirties at what point should they expect it to get the victories?
Okay. So Christian second question is in terms of capital intensity with you know, the the capital intensity or capex perky a 300-meter being higher and then we have the long-term capital intensity, you know returning to mid 30s. He wants to know when we're we're returning to mid 30s Capital intensity level. Is that correct? Yes. Thank you Jeff. Yeah, we mean long-term meaning 3 to 5 years. I think 2010 to 2014 can be an examples during that period of time the capital intensity of Rose from 38 to 50% maintaining at high forties for a couple of years and years afterwards something like that should be a reference.
thank you all right thanks Chris operator that move on to the next caller please next one month hi I think we're picking my follow-up question one question on tax and depreciation do they are they having to spend capital a little bit ahead of what we used to spend in past in the U Viera is that all you said the function of having to spend maybe six to nine months ahead compared to let's say in the immersion Tara that's one and how should we think about depreciation with the jump and capex when will you give us a little bit of guidance in terms of how we should think about depreciation for this year and going ahead as well given the higher level of uh Camp X
Okay, go call. Let me summarize. Your first question is in terms of the
The topics he wants to know that are we with capex are we having to spend capex earlier now and is this because of how may be that we need to spend more complex earlier?
What that means is the question the answer is yes because of time for the doors. The two is a very complicated and the supply chain for the Wii it takes a long time to prepare for it. And as a result tsmc also add to plan in. Otherwise, it's a longer than the normal tools that we used to have.
Okay, and then Coco second question is looking at with the higher capex the depreciation Outlook right for this vehicle. We expect the depreciation to increase by mid 22 Hai 20% for 20 21 over 20 20.
Okay, and maybe just yeah, even with that we are comfortable with the 50% structural margin.
So even with the higher growth and depreciation glucose asking I would still comfortable with a 50% gross. Margin. Yeah, 50% gross. Margin the wrong term Target. We think it's reasonable and achievable. Thank you. Thank you operator in the interest of time. I think we'll take the last two, So can we proceed with the next caller on the line? Okay. The next caller is Randy Abrams credit squeeze. Okay. Yeah, thank you. My first follow up on us and China you're overseas site wage for the state you bought Eleven Hundred Acres. Do you have plans to build out a megafab or potential to build out multi-phase of 20K Wafers? And then for the China business or swallow way where it's down to single digits. How's your outlook for the China and also expansion of the China from 20 k?
Okay. So right now your first question is regards to capacity, in fact extension overseas. So rainy is asking in the in Arizona. We target 20K. Do we will we continue to build it out into a mega cab type of sight and he also wants to know in China and in case you're referring to Nanjing do we have class further expand the capacity and engine? Is that your question? Correct? Do you have any? Yeah, that's the question just the Outlook to rebound China just post High silk and where it's down to Mid single-digit contribution off.
yeah this is Mark let me take your question yeah we recently acquired a big piece of land in Phoenix Eleven Hundred Acres definitely that was a long-term plan to have a mega scale production sites but currently our plan is only work on the face one production and talking 2024 is 20000 for
Her month and will going forward we'll see according to the market condition and the cost of economics and the provided by the government support to our men to cost differences to decide the next steps.
On China. Yes, we do have plans to continue to expand in China. But of course the business in China of the Leading Edge will often does have a reset but we do expect the demand in China will continue and Monday. We will gradually accordingly increase our capacity in Nigeria.
Okay. Okay, great and my second question, if if you could give I think you gave first quarter, but the full year growth for each of the platforms and also for the back end where you're doubling capex. What's leading that investment between the info and growth outlook for back-end?
Okay. So Randy, it's asking about twenty Twenty-One growth first-growth Outlook by platform and then quote Outlook by the back end and then I you know between the back end in vocal segment. Okay, Riley for twenty Twenty-One, but platform we think HPC and otomo to growth will be higher than the corporate average growth smartphone and iot with a similar to the corporate average bill in u.s. Dollar terms in terms of our walk-in business. We expected to grow slightly higher than the corporate in 2021.
We do do not disclose details of in the back end this.
Okay. Thanks a lot. Okay. Thanks, right. Thanks man. Okay operator. Can we move on to in the interest of time the last caller then the next one? We have Sebastian from clsa.
Yep. Thank you. I'm pretty lucky to be the last one and ask again. Thank you to follow up. The first of all is to mark, that I think the rivers said the comedy has noticed find out a meter demand also stronger than you thought three months ago. So two careers about if you can give us more details about which applications are you're seeing a shrunken expanded demand.
high performance computing
So for hybrids Computing is the is it is the typical those consumer electronics or is or typical wage?
Sorry, I didn't hear the we didn't hear the last part. I'm sorry. I think that the the for the existing customers or more related to the the the blockchain related product.
Let me let me let me just add a little bit call on this high performance Computing as Windows is will be the major growth driver of our business office. And this field is currently under exciting changes. The hyperbole is Computing architectures, as you know from different countries. Everybody is try striving to get the best performance with different architectures. So many many many more players getting into into this field. So we see a stronger Innovation is coming our way of our entry as well as on n v. Okay. Okay, that's good. Thank you suck. My dick is not on cryptocurrency that we don't we don't count on that but we support that. Okay. Yeah, that's fair wage.
Follow up is followed to two windows, Zahn that I think that this year's based on the guidance that we will see the capex intensity to suck up to 50% So if we calculate it based on the revenue guidance if we do some calculations, so which means the the free cash flow for this could be the grill will likely to be wage would be pretty smoke or even flat depends on how things go but definitely not as strong as past few years. So I'm a question is is the company is still wage, um stick into the the dividend policy that is 70% of free cash flow.
Okay, so Sebastian, your question is then in looking at the Carfax looking at a revenue Guidance the capital intensity this year being about you know around 50% Then the free cash flow growth may slow this year. So what is the outlook for the dividend? Do we still use 70% of free cash flow as the cash dividend for Memorial right? Especially with policy has two parts 70% of free cash flow, but not to be lower than the previous periods. So we remain committed to a sustainable and steadily increasing cash down during the periods of higher Investments. The focus will be more sustainable. And as we harvest the growth the focus will be on steadily increasing.
Okay, so thanks window. So given that you're a pain the investors get in the dividend in this quarter and which is the earnest you made like three quarters earlier. So if we do the Caucasian simulation, which means that in the next 24 months the investment will probably still get in a 2.5 $90 per quarter. Is that a fair calculation assumption?
At least at least okay. Yeah. All right. Thank you. Okay. Thank you everyone this concludes our Q&A session before we conclude today's conference. Please be advised that the replay of the conference will be accessible within four hours from now transcript will become available 24 hours from now, both of which will be available through a website at triple. So, thank you for joining us today. We hope everyone continues to stay healthy and safe and we hope you join us again next quarter goodbye and have a great day.
It's a 1920 Sienna.