Q1 2021 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
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Good afternoon, everyone and welcome to tsmc's first quarter 2021 earnings conference call. This is Jeff Su tsmc is director of investor relations. And you said for today to prevent the spread of COVID-19. Tsmc is hosting our earnings conference call live via live audio webcast through the company's website at home W. 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 today's event will be as follows first vice president and CFO Mr. Windle Hong will summarize our operations in the first quarter 2021 followed by our guidance for the second quarter 2021.
Afterward mr. Wang and tsmc CEO doctor away or join me provide the company's key messages, then we will open the line for Q&A.
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 on our press release.
And now I would like to turn the call over to tsmc CFO Mr. Windle Harmon for the summary of operations and current quarter guidance savior, Jeff. Good afternoon, Thank you for joining us today. My presentation will start with financial highlights for the first quarter 2021. After that I will provide the guidance for the 7th 2021.
First-quarter Revenue increase .2% sequentially $20 or 1.9% in US dollars or first quarter business was supported by HPC related demand balance by a milder smartphone seasonality. Then in recent years gross margin decreased 1.6% sequentially to 52.4% mainly due to a relatively lower level of capacity utilization and then unfavorable foreign exchange rates.
Total operating expenses slightly increased by eight billion and T mainly due to higher level of R&D activities for the n v family down there for operating margin decrease by two percentage points sequentially to 41.5% over all our first quarter EPS was 5.5 to 9:19. And our only was 29.5%
Now let's move on to revenue by technology five nanometer process technology contributed 14% of way for Revenue in the first quarter while 7.62 accounted for 35%
Advanced Technologies, which we now defined as 7 nanometer and Below accounted for 49% of wafer Revenue.
Now moving on to revenue contribution by platform smartphone decrease 11% quarter-over-quarter to account for 45% of our first quarter Revenue agent HPC increased 13% to account for 35% iot increase 10% to account for 9% Automotive in Chrome 32% or 4%
dce increased 10% to account for 4%
movie on to the balance sheet. We ended the first quarter with cash and marketable securities of $797 billion and T on the liabilities current liabilities increased by $45 billion and T mainly due to the increase of $49 billion in short-term loans and increase of fifty billion accrued liabilities and others partially offset by the decrease of 51 billion in accounts payable long-term interest bearing down increase by $23 billion and T. Mainly as we raised 21.1 billion of corporate bonds during the quarter.
Financial ratios accounts receivable turnover days increase one day to 40 days Days of inventory increased ten days 283 based primarily due to n v way for pre-built.
No, let me make a few comments on cash flow and capex during the first quarter. We generated about $220 billion in cash from operations wage. Spend two hundred Forty-Eight billion capex and distributed $65 billion for a second quarter 2020 cash dividend.
Short-term loans increased by $52 billion while bonds payable increased by 18.5 billion due to the phone issues.
Overall cash value is increased 4.6 billion to $665 billion at the end of the quarter in u.s. Dollar terms our first quarter cup expenditures total 8.8 billion.
I have finished my financial summary. Now that's turned to second quarter guidance based on the current business Outlook. We expect our second quarter Revenue to be brought a 12.9 billion and 13.2 billion dollars which represents a 1% sequential increase at the midpoint.
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Guidance improves the minor impact from the power outage that occurred yesterday at our flat 14 in China.
Based on the exchange rate Assumption of $1 228.4 Mt. Gross margin is expected to be between 49.5% off and 51.5% operated margin between 38.5% and 40.5%
The sequential decline in second quarter gross margin is mainly due to the margin dilution from higher fine nanometer contribution. The slower way, of course improved as Alphas continue to run at a very high level of utilization and the absence of positive inventory revaluation. This concludes by Financial presentation.
Now let me turn to our key messages. I will start with near-term demand and inventory. We concluded our first quarter with revenue of faith during the sixty two point four billion and T or twelve point nine billion US Dollars, which was in line with our Guidance the slight sequential increase was mainly driven by HPC related demand balance by a milder smartphone seasonality then in recent years.
Moving into a second quarter 2021 we expect our Revenue to be flattish as HPC related demand will continue to grow all set back from seasonality on the inventory front or a fabulous customer's overall inventory was healthy exiting fourth quarter of 2028.
Missed the lingering back row and Supply uncertainties. We expect our customers and the supply chain to gradually prepare higher levels of inventory throughout the year as compared to the historical seasonal level. We expect this to persist for a period of time given the industry's continuing to ensure a supply securities.
Looking ahead to the second half of the year. We expect our capacity to remain tight throughout the years supported by strong demand for our industry-leading Advanced and special technology.
For the full year of 2021 we know forecast the overall semiconductor Market excluding memory to grow about 12% while Foundry investor growth is forecast to be about 16% for tsmc. We are confident we can outperform The Foundry Revenue growth and go biking around 20% in 2021 in u.s. Dollar terms.
Next let me talk about our capital budget for this year. Every year our capex is spent in anticipation of the growth that will follow in future years as we are a. Of higher growth underpinned by the multi-year structural megatrend of 5G related and HPC applications. We may have a higher level of capital investment is necessary to capture the future growth opportunities.
In order to meet the increasing demand for our Advanced and Specialty Technologies and the next several years. We have decided raised our full-year 20-21 capex to be around Thirty billion dollars about eighty percent of the 2021 capital budget will be allocated for advanced process Technologies, including 3 a.m. To find nanometer and set data meter about 10% will be spent for advanced packaging and matchmaking and about 10% would be spent for a specialty Technologies. No, nothing. Turn the microphone over to CC.
Thank you window. We hope everybody is staying safe and healthy during this time first. Let me talk about the caste shortly check out. Our customers are currently facing challenges from the industry-wide semiconductor capacity shortage, which is driven by both the strength increasing long-term demand as well as short-term imbalance in the supply chain. We are witnessing a structural increase in under-age semiconductor demand customer megatrend or 5G and HPC related applications are expected to feel strong demand for our technology in the next several years.
I'll be nineteen has also been Tori accelerate the digital transformation making semi conductors more pervasive than essential you people suck U Edition the need to ensure surprised security is creating short-term embarrassed in the supply chain driven by supply chain disruption due to COVID-19 and uncertainties brought about by KIA political tension.
Now, let me talk to about a cage and he's an investment plan anticipates tsmc submission is to be the trusted technology and capacity provider for the global industry for years to come in order to support our customers. Of course tsmc is taking a reaction to hear about a choice that capacity shortage for our customers. We are working hard to increase our productivity to drive more output to have support our customers for the near-term.
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Increase in the long-term demand profile. We are working closely with our customers and invest into support their demand. We have acquired land and equipment off and started the construction of new facilities. We are hiring of employees and extending our capacity at multiple sites dead tsmc expect to embrace about one hundred billion dollars through the next three years to increase capacity to support the manufacturing and off the Leading Edge and Specialty Technologies.
Increase capacity expected to improve Supply certainty for our customers and help strengthen confidence in global change that Rita and semiconductors.
I'll can't be talking basement decision based on four disciplines technology leadership flexible and responsive manufacturing wage in customers that trust in learning the proper returning at the same times. We Face manufacturing costs challenges do to increase in process complexity thought you knowed new investment in mature notes and writing material cost. We are continuing to work closely with customers to see how long our waiting waiting include the value of our technology the value of our service and the way you about capacity support to customers.
We want to from up our way for pricing to a reasonable level. We will continue to work with our suppliers month to deliver on cost improvements.
By taking such actions, we believe we can continue to earn a proper return that enables us to invest to support our customers. Of course. We are our mission as trusted country partners.
We saw technology leadership manufacturing excellence in customer trust. We are well positioned to capture the course from the favorable industry may not spend will read the rate albums and revenue to be ten to fifteen percent cater from 2020 to 2025 in US Virgin Islands next. Let me talk about the automotive supplier update. The market has been sold since 2018 am entering twenty-twenty COVID-19 for the impact Automotive Market. The automotive supply chain was affected throughout the year in our customers continue to reduce their demand throughout the third quarter of 2020.
we only be
To see something recovery in the fourth quarter of 2020. However, the automotive supply chain is alone and compared with which its own Inventory management practices from Chip production to car production a text editor shift lengths with several years of service I was doing is doing its part to address the Shift Supply challenges for our customers.
In January of this year tsmc announced that support for automotive customers is our top priority. We have water dynamically with our other customer to locate our wafer capacity to support the war while automotive industry off. However, the shortage further deteriorated due to the unexpected snowstorm in Texas and the five manufacturing disruption in Japan together with our productivity Improvement. We expect the automotive components Shorty's ON Semiconductor to be greatly reduced June 14th is a customer by the next quarter.
Now I will talk about Taiwan water supply update.
The water supply in Taiwan is currently tight due to the lack of rainfall in the past year.
We have you prepared for the tsmc has established Enterprise risk management system in place, which cover water supply risks as well.
Who are existing water conservation measures? We are able to manage the current water usage reduction requirement from the government which no impact. I'll appreciate we also have detailed response procedure to handle water shortage at different stages or continue our collaborative with a compliment and the private sector our water conservation a new water sources with our comprehensive Enterprise risk management system. We do not expect to see any material impact to our operations.
I know I'll talk about in entry status is a fundraiser industry the most are the ones the solution with a m. P p a n v is already in his second year of boring production, which you're better than our original plan and continue to be strong driven by smartphone and xpu application and we can verify to contribute around 20% of our Revenue in 2021.
Never reach the strong Foundation of in five to further extend our five nanometer family and four is a straightforward migration from in 5 is compatible design rules while providing for the performance power and intensity and husband for the next wave of five. Nanometer Products off in full report option is targeted for a second half this year and volume production in 20 22 this we expect demand for our entire company to continue to call in the next several years driven by the robust demand for smartphone and HPC applications.
Energy want another for noticed right from and why you think that transistor structure to deliver the best technology maturity perfect and cost customers entry technology development is on track with good progress. We continue to see a much higher level of off my engagement for both and smartphone applications entry as compared with the entire brand entry as a similar stage.
Research is scheduled in twenty Twenty-One. The boring production is targeted in second half of 20223 millimeter Technologies be the most advanced country technology impose PTA and 20-second ology which it is introduced one is introduced. I'm sorry. Yes. We are confident that both are five millimeters and three millimeters were. Large and long lasting notes for tsmc this concluding now. Thank you for your attention. Thank you Sissy this concludes our prepared statement.
Before we begin 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 an opportunity to ask their questions. Should you wish to raise your question in Chinese? I will translate it to English before management answers your 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 questions will be taken in the order in which they were 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 operator. Can we please proceed with the first caller on the line with the first one to ask question but his waist. Okay. Yes. Thank you. And I wanted to ask the first question just about until the it did announce their plans to re-engage in The Foundry sector. And also I think making it clear their goals are to bring it back to manufacturing leadership. Could you discuss how you're viewing them now as a customer and also the assurances you're getting on is this sustainable?
and how you're managing the
Potential risk if if they improve manufacturing and pull back on on some of the Outsourcing plans.
Okay, Randy. Let me summarize your first question. Randy's first question relates to email and their recent announcement to re-engage on Foundry off and you get back to a manufacturing leadership position. So when these question is how the kids can see if you inhale as a customer what kind of business assurances are we getting on the sustainability of the business and how do we manage any the potential risks?
Randy
Linux started with every once upon tree and support all our customer opening and 30,000 important customer and will collaborate in some area and compete in other areas.
And we always work with our customer to develop the Necessary Technology to support their products.
No, they may come in. They're going to be around the competition.
I said do you think you'll pay 130 tsmc has never been short on competition in our thirty plus year history. We know how to feed.
We are we're continue to focus on delivering technology leadership manufacturing experts and ending our customers of trust.
Then also Point customers are trustees a very important because we do not have internal products that compete with our customer. We can be the trusted technology and capitalized for by the end for years to come.
And if you ask other comment how we support India we support them as important customer. Yeah, we plan our capacity for the month. So industry makeup Trend also, it's not for the short-term that demand an answer your first question Randy. Yeah. No that's good on the first page the second question and topic I wanted to discuss you mentioned your prepared remarks about the uh, there is a bit more geopolitical pressure with a particularly us, but also Europe in China, they they all are being aggressive about domestic capacity. If you could give an updated view on on your strategy if if any shifts at virgin were you traditionally wanted the high scale in in Taiwan? I'm curious for you with the big land just any plans to accelerate.
Positioning with with the potential eventually could do Mega Fab.
If you could give an update on on on Jing if there's plans to expand from the current. I think you're at twenty K and if if from a customer level you're seeing shifts, we're off or customers are starting to consider geographic location in The Foundry consideration.
Okay, Randy. Let me try to summarize your second question. I think there's quite a few parts. I think first question is on looking at sort of the geopolitical landscape and looking at you know, the you know this talk of ugh Fabric in different countries. So I think Randy first wants to know what you know jobs progress or how do we see particularly us manufacturing? Secondly in other areas, and then thirdly he would like an update on the Nanjing extension and lastly off of customers feel about the need to manufacture different countries. Is that correct? Randy? Yeah, that's correct. Yeah. Thank you.
Randy that's a lot of questions. Sorry. You have to let me try to enter the first one. Actually, I would like to say life. He is being a global company. We have a lot of medical to inside-outside Taiwan us. Mainland China Singapore home, but let me come in on the u.s. First. We are being in the US for a long time. Do we set up a way for Tech that are located in upstate Washington a vacuum 1996 and he's continued to operate the manufacturer cheers for our customer today. And now we are increasing our presence in the US a revised of Toby semiconductor V in Arizona.
And the progress is executing to our pain and we are happy that we are during the effort to support semiconductor Manufacturing in the US. You also asked about the our status in the nineteen that you ask. Yes, if I have in nineteen is progressing. Well, we already completed the first phase of twenty thousand Wafers pasty installation. And actually it's a you know production for a while and we are we also have a plan depend on the customers that demand and depends on the economics. We have a log-in to expand the capacity also.
Okay, and other question in Taiwan why we yes to others one. Randy is asking would you know with other regions also, we never drew out any possibility with other regions. But today we already announced plans. We currently no further extension pin. In other areas such as Europe, but we did not go out any. However. I want to emphasize I want war continued to be the main focus for tsmc.
kinder
I'm be any majority of production line. What continue to be located in Taiwan? Is that answer your questions? Yeah, that's clear and and maybe if you can clarify for the customer decisions just that approach with type one. Is there are you starting to see it get raised a bit more about customers shooting location or they still focused on the traditional just getting the best the best cost and delivery time. Right? So Randy's the last part of this question is from a customer's perspective or is there a push by customers for you know, this Geographic diversification or are you know what the customers want?
Well our customer welcome.
New flat in Arizona State let me say that however, the most important one to GM is a chronology. It's a manufacturing is dead shouldn't be provide. Okay. The most important one other than the consideration of geopolitical locations.
Okay, great. Yeah, thank you. That's Claire. Okay. Thank you, Randy. All right operator to move on to the next person on the line, please.
Next one on the line go to JPMorgan. Go ahead, please.
Thanks for taking my question. My first question could we talk a little bit about a hundred billion capacity plan for the next three years. Is that a primarily a capex number? Just as you just seeing that to see it already. We are spending about thirty billion. Should we be assuming that our cat facts is going to be done around these levels or even higher in the next two years as well. So just wanted to clarify because there was some confusion about whether that's the capex number or a capex plus R and D number. Okay. So I'm in Cocoa. Your first question is that you know, we are not intend to spend a hundred billion in the next three years. Is that fax number and birth and also what does that mean for the spending in at the capex in the next two years?
Hi Goku, this is Wendell. Yes hundred billion dollars is capex number. Now. We've already tried that this year will be $30. Not going into the office is next two years. You can actually have a feeling about what we will be. We will be standing in the next two years.
Got it. That's very clear. My second question is on the inventory cycle and a lot of the combat expansion that we are seeing in older Technologies tsmc. Also spending about roughly 3 billion based on the new guidance from specialty Technologies as well. The country also seems to be spending quite a bit of capacity there. What is tsmc stake in terms of when we are going to see a bit more normalization in some of this folder capacity tsmc also subscribe to the view that uh, even in 2022. We are likely to see some degree of capacity tightness or capacity shortage or do you simply feels that we will likely resolve this towards the end of this year or early next year.
OK Google, thank you. Let me try to summarize your second question. Your second question is looking asking about the inventory cycle and particularly on the mature notes. Look up the expansion in the mature note and gokou wants to know I think that you know on the mature node, could we see some type of overcapacity home and you know all work come to tightness continue to persist or we supposed to see some kind of overcapacity oversupply towards the end of this year or in 2022 that you're correct Gokul. Yeah, just just to I think many of the competitors are talking about twenty twenty-two also being under supplied in many of these process notes. Just wanted to hear you with
Well concluded me answer the question carefully because of you know, we cannot rule out the possibility of inventory correction or overbooking something like that. But actually we expect the demand to continue and we are wage increase our customer close at 3 and to develop the technology solution to the customer's requirement in create a different representational and don't ask him waiting to our customer as a result. We actually received the demand continue to behind and the same what continue throughout this year and maybe extended into twenty twenty-two also.
Did I answer your questions?
Okay. So do you also feel that that's the most will continue to hold down to a higher level of inventory for quite some period of time is that is that the way you think about inventory rep?
Yeah, we expect the customer almost all of them to prepare a higher level of inventory that is because of today. I need to go change in continue to persist even the COVID-19 well-received sometimes when call back as soon as possible, but you will continue to acquire and put two Factor together and we do expect them to prepare a higher level of inventory and I believe Thursday or the same guy.
OK Google, does that answer your second question? Okay. Thank you operator. Let's please move on to the next caller on the line, please.
Now we have Sebastian hou from clsa.
Hey, good afternoon. Gentlemen, thanks for taking my questions. So first one is on the pricing strategy. So I remember the six months ago the comedy talk about sticking to the principle of rejecting long-term partnership with customers and the, it doesn't seems to wanted to change the pricing on the mature technology knows which I mean Twenty Eight am is above so I'm wondering if that's still the issue is now or if the comedy Now consider some upward adjustment and if it's the latter what has changed for six months ago. Thank you.
Okay, Sebastian from Sebastian is first question is regards to pricing and he says that you know, we always talked about long-term partnership with our customers and he's saying Iraq Iran the older notes $28 and such. We you know, you know would be raised the price. So he's asking sort of what is the pricing strategy today? God Has Changed versus previously.
Sebastian
let me answer that for more than 50 years tsmc has provided a stable and predictable pricing and we has a dead refrain from from opportunistic war short-term actions. But now as I said in my statement the construction start to change structural change because of we have to invest on the Leading Edge technology, which has more complex than ever who also increasing amateur cannot you know the capacity which a lot of them already been fully depreciated. And now we have to invest at the new tools so dead we refrain from opportunistic and short-term action, but we also have to share our radio. So we are working with
Call customer close early and want to firm up our report pricing to a reasonable level and we are also local supplier the two tables the cost reduction and want to a proper return that it never has to continue to embrace to support a customer to growth and in today's the term capacity supporters of the most important what they are looking for.
Okay. Got it.
Yep on my question. I'm sorry. Go ahead. Yes. I do have a second question. Thank you. I think we're for many reasons. We've seen the many countries globally long. They plan what they want to increase their build their own semiconductor fabrication capacity domestically. We also seeing some EDM. They're forced to increase their resourcing or ask somebody total capacity because of the chip crunch. So my question is that IBM Outsourcing has been one favorable driver for The Foundry industry and tsmc Grill in the past three decades and how would you have some to see this trim involving in coming years? And would you be concerning these complete use? I'm over capacity in a few years, even if some of them may not be defective. It was my second question. Thank you.
Okay, it's Sebastian. Let me summarize your question your observation that you know countries are pushing for more.
Domestic manufacturing and IBM's are also looking at expanding capacity. So Sebastian's question is looking at IBM Outsourcing. Do we see the wage slowing down or how do we see it in the next coming few years and could this resolve this capacity that's being built resulting, uh access capacity well-off Sebastian. Let me say that in our forecast we continue to see the idea seems also seemed continue to increase and so we prepare the vegetables are also then we don't think that I I didn't try to expand your own capacity War resulting in overcapacity situation because of we technology is almost dead.
Ordering team give me see that and we expand our capacity based on the customers that need and we saw the technology leadership that provided wage. Yeah proton to be very competitive in the market. So they are all happy to work with tsmc in developing their products for now. So, I'm sorry result. We continue to see the increase Outsourcing for my DMs.
Okay Sebastian. Does that answer your second question?
Yes, yes. Thank you. Okay. Thank you operator. Can we move on to the next person on the line, please? Ask question from Morgan Stanley Cup.
Hi, good afternoon. Thanks for taking my question. So first of all, can I ask about a change of the 2091 guidance? Can you explain where where it's upside coming from? I mean, uh, I apply occasions will be great and if they included some pricing adjustments for the wage, you know revised out for guidance. Thank you.
All right. I think Charlie's first question is regarding to our 2021 Revenue guidance and from now of around 20% off to say what has changed last time and he also wants to know can we talk about my application? What is driving this change? And what was the last part of the question Charlie? Sorry.
Issues, that's it. Thank you. And and does that the thing capture some parts as well? Thank you.
So so his question is what is driving the the change in the growth guidance for this year, and he would like to know, you know, which applications are driving it and Does it include some price increases in this guidance? Okay, Charlie. First of all, we don't comment on price. I can share with you that everyone's Foundry capex and Catholic keep running are based on the long-term demand profile underpinned by the industry megatrends. Not sure terms to click on factors. We are seeing stronger engagement with more customers on five millimeter and 3 millimeter as compared to three months ago, and we work closely with a customer to print the capacity back and we'll continue to focus our investments on Advanced and Specialty technology to support our customers structural growth.
No.
This year we start in terms of platform. We expect that HPC and auto multi-platform growth will be higher than the corporate average wage and the smartphone and iot will be closed to the corporate average.
Okay, and so it seems like the website coming across sport package. I know that it's PC Automotive are going better, but just compared to last last guidance was driving the website.
Okay, actually all the platforms have outside.
Compare 2 or 3 months ago. Okay, gotcha. And then my next question is about our Capital intensity in a long-term. I mean, I think one or two quarters ago come in, you know updated a capital intensity and at some points, you know can fall back to you know, like 35% Capital intensity. I'm not sure if this case for the convince readers and also links to that. You know, what does it mean to talk to the long-term growth Modern Trend because in today's conference call, I keep hearing some comment about structural cost increase. I'm not sure if you said that all the chemicals or comprise, you know with that kind of impact companies to encroach Modern Trend. Thanks God.
Sure, Charlie. Let me share with you Captain. Yeah, I think Charlie your question is on Capital intensity bulb know what is the capital intensive looking like the next few years and how does this correlate with our stated long-term capital intensity of kind of mid-thirties range and then he also off on the back of that. What does this mean for the long-term gross margin Chang?
Charlie in terms of capital intensity when I'd like to tell you give them are several points already. First of all, if you look at what we're saying, the next three years will be ending hundred billion US Dollars and this year will be 30 billion. We also say that in the next five years respect to grow between 10 to 15% revenue office. So if you do Matthew probably would have a good idea about about where our Capital intensity will be the next few years now at this moment, we see expect them capturing 10:30. Well go back to Mister T level in the longer term. That's the capital intensity in terms of gross margins. Am I think as c c as already mentioned we see some challenges from manufacturing costs due to the increasing complexity of meeting loads the new investment in the Jersey.
And some writing material cost.
And therefore we're taking actions to ensure that we learn a proper return by familiar about our price working with supplier to drive the cost down movement who expect that the 50% gross margin remains our Target and is achievable.
Okay. Yep. Yep, very very clear. So so I so can I assume part of that package, you know also associate you the the cost cost increase and if this case how much of that is due to the cost increase for 60 minutes.
I think the last part of its question is that out of a hundred billion in this higher Capital intensity. How much is due to the cost versus you know, the demand wage I think Jeff.
Okay, Charlie. Basically, we're seeing more engagement of our demand in the next few years. So I would say most of the capex come from the the strongest offer advanced technology and Specialty technology, especially 5 and 3 nanometers.
Okay. Yep. Thank you. Thank you Charlie. All right, I'll operator. Thank you. Can we please move on to the next caller, please? Press one to ask question from birth. So happy hi. I'd like to talk to my question. My question want to speak with a hundred billion Cadillac. I think this is the first time for me to announce by Martha Catholic faith. Just like really strong growth even be on 11/23 or 305. So can you give us a little bit more call about like what kind of occasion demand which has stronger nerved give the company such a high competent for the for the Capac and then we seen to The Stables Cycles. But you know, you know, how can we have confidence to the demand like three to five years the rule also resuming tsmc mostly invested in the basement to you foresee the mature no capacity Titans continue and how and when this can be resolved and dead.
Okay. So Bruce has two questions. Both first is related to our capex with you know, such a long a high level of thinking what is giving us the confidence that we see out over the next several years to spend intention to spend a hundred billion and then his cellphone or maybe we'll go back first and then second question. Okay, then the answer that one first. And in fact, we are seeing stronger engagement with more customers and 5 millimeter 10/22 and the the engagement is so strong that we have to really prepare the capacity for you. And that's the main reason.
So what is the second and then his second question is then looking at our capex with the majority of our capex being on Advance notes on the mature. No stand will be I think the the the supply-demand Gap and mature notes further lighting. We did see the Gap am not mature know the capacity not enough to support all the products in the market. So we are working with our customer close early wage and to analyze the Gap and we are also preparing to invest on the mature note as I said in my statement and fiber support and we are developing the technology specialty technology with amateur note and to support our customers are need so they are both other can be dead.
Bernie Competitive Gaming the market and so we can have unsecured for the next few years and we decide to invest on the mature no data pass.
Okay, Bruce. Does that answer your two questions? Can I speak to one we have to limit you to sorry. There's a lot of people came out of Santa. Can we move on to the next please?
Next want to ask questions Robert Andrews from Deutsche Bank. Go ahead.
Yeah, my first question I think statement is regarding your capex rising up to the big thirties by 2023. Are you asking customers to commit earlier than normal on off the property? And then you considering asking customers for prepayments? How do you just see risk of expressing plans? And are you seeing an increased willingness a single Source. My second question was you know, how far are you actually booked out on capacity and at which nodes is the biggest gap between demand and and your capacity. Thank you.
Okay, Robert will take your questions one at a time. So his first question is looking at our capex for the next few years this level spending do we see customer commitments that are other than normal are we looking for or you know things like three payments from customers to age to secure their commitments? This is the first this is the first question. Okay, Robert. Let me answer this first the hundred billion dollars capex is decided because we see the fundamental structure demand increase from the megatrend multi-year megatrend and the acceleration of these Transformations. Now we cannot disclose the details of our commercial terms of our customers. However for us to make the investment decision will dead.
We require.
Proper returns and secure customer commitments. Okay, and then Robert second question is how far are we put in a sense in terms of our demand? And which notes do we see the biggest gap between what you know customers may want where I can walk, in which know that because almost all the notes are in today is a high demand. However, let me page streets again. How are you in basement using the past for the future many years to come because we work with customer close every month and to a pen for the next few years as capacity support to Jim and the customer talking to tsmc and they alter their products wage.
For the next few years and it's a three to four years and the Whip and the capacity for that.
Okay, thank you. Thank you. Thank you Robert operator, please move on to the next caller, please.
Now we have presents in some cases.
Yeah, thanks very much. I had a question on the crypto activity at tsmc. I guess we've seen record Hashmi expansion around Bitcoin and ethereum GP mining in the last couple of quarters. So, can you maybe share with us what portion of sales HPC sales is crypto the moment and then as we get into the second half of the year should we expect this to decline and and and I wanted to get your perspective, you know, a couple of years ago. We had extreme volatility around crypto Bitcoin is now a trillion dollar market cap. Is this good business office for tsmc, you know, do you think this time will be different just wanted to get your your perspective on this thing?
Okay, so let me repeat your first question, right? He's asking about the within HPC looking at cryptocurrency and he's asking what is the contribution we're seeing from the currency or crypto mining I should say to our revenue and do we expect this? How do we expect this to go in the second half of this year and then the longer term question which is how do I view did this business? But let me answer the question, you know, the technology is a leading technology and that's why even cryptocurrency mining using tsmc technology a lot. But I don't I cannot come in and what is the percentage you ordered? How much of this particular Market sector to our Revenue?
However, I can say that quit occurrence my name.
Today is a moment you again, it was years ago and it remains a volatile Market. However, we will continue to work closely with our cut off in this field.
Okay. And do you have a second question? Yeah. Sorry. I wanted I wanted to talk about the the inventory levels on tsmc. You know, I grew quite significantly and I think you mentioned it was his end five related. Now many of your smartphone customers are saying they have shortages at at Leading Edge off and and you know your building inventories at five millimeters. So how do we reconcile that and and then just looking at Q2 would you expect inventories to rise again in the image many quarter cups? Okay, Brad. So you're asking about tsmc inventory days, right? And so I just asking what is leading to the increase in the inventory days at the end of first quarter. And then how do we expect this to Trend in the second quarter?
Okay, Brad. We preview for our customers during seasonal level level as we did before now when we start to rent in the higher season the country usually come down naturally as before.
Okay. Does that answer your question?
Operator can we move on to the next person on the line?
Now, please welcome Roland Shield you from Citigroup, please go ahead. Hi. Good afternoon. My first question is also 100 billion. Can you check if this year as a chat as of 30 billion included in this one hundred billion or not? And also I use you long-term capital intensity Target last month sale on T. It's three to five years and then I use this about 30 billion maybe in twenty twenty four, then it in tires your Revenue twenty thirty four so likely to age ninety billion or even uh bigger which is a moment top of the 2020s label. So my question, is there any challenges to you to recruit wage and enough amount of the tailored to support such fast growth of you going forward?
Okay, let me summarize your questions Rollin. So first of all in is asking these hundred billion capex, does this include 2021 for around Thirty billion wage, then he's asking about if we look at the longer-term capital intensity. What does this kind of imply for twenty twenty four and twenty five dollar capex and capital intensity bulb and then you know, the another part is that we're with this pace of growth. You know, how do we recruit the talent to support our operations?
Hai
Yes hundred billion dollars include this year's capex and we've talked about three years hundred billion dollars Twenty One $22 and 23 months. The capital repairs would be I think as I said earlier, you can probably do some calculations and have a feeling about the capital intensity in those three years when we open we do see that the capital intensity will go back to about mid thirties level at this moment. And his second question. Is then how long do we you know recruit talent to support the War Eagle question very good question, you know.
You know the 10 people who cooking is one of our top priorities in recent years and fortunately we have wage Communicator with the government and get I want governments strong support. So they are now pushing for a new program and to hire not to hire to actually do a deal with the student to be in the semiconductor area major in this area and internally tsmc also have February's or raunchy and right now we just established the two Trend or the newcomer and all the new engineer to be more they can call. So so, you know extra money and we've got the Hill from government internally. We do our own part also to enhance the training Club.
And that's the way that we try to meet the requirements of enough for 10 people inside.
Okay. Thanks. Thank you operator. Can we move there's still quite a few people ruin. We're happy to have you get back in the queue, but let's move on to the next caller please for now. Next question is Angelo sinolink securities.
Yeah, thank you for taking my question. My first question is can we know what kind of percentage capacity increase on specialty package and twelve inch mature until each of the band for the next few years. Maybe took the average while be fine.
Okay. So Andrews first question is on the capacity increase he wants to know in the next three years how much capacity are we increasing on and there's not much capacity. Are we increasing on the 12 inch?
Angela let me share with you. We don't disclose that. That kind of details but basically 80% of the tax will be standing advanced technology package 10% in advanced packaging and matchmaking and then other ten percent in specialty technologies that for years.
Okay, Andrew. Do you have any second question? I do have the second question. But the first question answer, so can I have a 2 MO?
We do not come in on the capacity by 8 inch or 12 inch. I think window has just set. Okay, okay, then second question is is not related to price assuming next year. Our repay to the customer has been removed. What kind of percentage additional rules we should factor into town. Thank you.
Okay. So Andrew second question is assuming next year that they're rebates have been removed. How much will this addition Drive additional growth in June next year and how should he Factor this into his model?
Lattice kind of icing is strictly confidential between tsmc and agencies the customer. So I don't think that we can come in on Thursday. Who are you said we paid with this any other activities?
Okay, thank you. Thank you. Thank you operator. Can we please move on to the next caller please from UVS Thursday afternoon. Thank you for taking my question. So my first question is also on K-PAX. So when you plan for keypads for this year and next few years, do you think the equipment supplier could be a potential bottleneck in terms of the audition website that you can spend I think several, makers have mentioned that based on this year's and that should keep has their own choice explains Supply tightness, especially for euv. So any color will be appreciated?
Okay. So Sundays first question is that with our capex plan? Do we see or face any equipment bottlenecks in terms of suggesting the tools and equipment and I think part of your question is also particularly with regards to UV. Let me answer the question. Uh, in fact when we pin a 100 being zachattack, we are also work closely with our supplier and to prepare in advance package. We don't expect certainly we don't expect any bottlenecks. Who is this you will not and
I'm Tony.
yeah, we will close early we skip
Got a right. So we prefer to assume that when you announce 100K packs for four years about forty you already have a commitment from your suppliers.
The answer is yes. My second question is a nanometer now. We are just about a year before the mass production wage can have a 2022. So at this point, how how should we think about the revenue contribution in its first year of commercial production? I think 4007 that a meter they could get to high single-digit of Revenue or even close to 10% in first year. So just want to get your thoughts on that.
Okay, so funny second question is looking at 3 and you know and with the schedule for production, how should we think about the revenue contribution from home in its first year?
Sunny that's that's too far to talk about that we will after you later on now is about two or three years away, but we do age fact, it's a big and long lasting know just like the formal M5. Okay. Thank you, sir. Thank you operator page move on to the next caller, please.
Right. Now we have Laura Chen from seiji. I still have the yes. Hi, good afternoon. And thank you for taking my question. My first question is still similar to Thursday is crunching about the inventory days and inventory level I think both window and season mentioned already that high inventory probably will proceed for a while back within one day though. We may start to worry about that or what would be the check-in point because so far we all know that the demand Outlook and tsmc is Faith in participating the advanced now are quite tight. But what would be the checking point? We are closely followed. That's my first question. Thanks.
Okay. So first question is with regards to inventory and inventory levels understand demand is tight, but do we worry about inventory levels? What are the type of checking points that we would look at?
What did the answer that question? Yes, I did it say that our customer want to secure the
the supply actually moment you to that some embarrassing that the subscription and they are preparing for the future also, but how we are going to do to test these what is the chicken phone? Actually, let me say that we are working with our customer is not a it's Eddie's that we check and we're open and but we make sure that all the demand to teach him he has been secured and we prepare the contestable.
Okay.
Thank you. And my second question is also about the mature note. I think she mentioned about some specialty design special technology for mature note. I recall I mentioned before about the C is progress. And also the thing I tried progress. Can you give me more update or some special technology package are working now with the mature know which maybe the expansion in the next few years.
Okay, so Laura second second question is looking at the mature notes and that you see see mentioned that our strategy is to work with customers to develop special Technologies at those mature notes. So she's wondering if we can give a little more examples of what types of specialty Technologies. Is that correct Laura. Yes tank. And also, if it's possible and that's the SLI other areas into the rough one first. We don't work on the edge of the specialty technology was sent as I mentioned previously under cannot continue to improve because if you look at the application of the symbols in the sensor in the smartphone and Automotive here, they are a lot. Okay, and we also in fact the most important one also is our total power that will give up the phone number.
G to meet your requirement of the mobile War, I mean that everything is portable. So ultra-low-power is really important Guardian might dry or dead kind of a specialty we continue to work with our customer and for the future high frequency application or the high-voltage applications will also not under our efforts phonology radio frequencies. It's important because of 5G the Euro the I have become very important publication in the Wi-Fi communication area, you know, not object.
It's so far in that question. Do we have space or any capacity to further expand those technology here in Taiwan?
Solar is asking then we'll space the constraint or limitation for the special. Is that customer to expand the our capacity for life? Okay. Okay. Thanks. Bye. Thank you Laura operator. Can we move on to the next person on the line, please from home Securities? Yeah. Hi. Good afternoon guys. Thank you so much for taking my I just got one question here. I think you are top regarding your second choice or the guide is your revenue is going to grow sequentially in u.s. Dollar terms. And also if I don't remember wrong, the winter did say that you were inventory in life one with me because your customers propelled inventory for five nanometer. So that assume that you are fighting. I mean the contribution will also increase in second-quarter so dead.
And also the exchange rate also not not getting worse, right? So so against
Got the three positive factor, right Revenue increase if I know me the inquiries and favorable exchange rate why you are closed marching band for second-quarter is below your first quarter.
Okay. So Rick's question is looking at the second quarter and looking at the gross margin guidance. Why is it basically what lower than the first quarter or a sequential decline in if you use the midpoint? Okay. Let me explain to you. The sequential decline is mainly due to mix as the contributions online fiber increase but it's still there is a dilutive effect. And secondly, we see a slower rate of cost Improvement as our fax continue to run a very high level of utilization leaving last time to do cost Improvement activities and lastly a more technical thing is the absence of a positive inventory revaluation in the quarter.
I see. Thank you. Thank you very much. Okay. Thank you Rick. Let's move on to the next caller, please.
Nick's on South Western it is Jim from numerous. This question was not asked before so I wish to ask before God. I just saved customer engagement on country and are stronger than 5 years old 3 months ago, which drives you a 100 billion capex for next 2 years. This way compared with three months ago. Are you now projecting a bigger market share and potential over the next few years that's still hungry market and your widening economic and goes to voicemail. This is my own question.
Okay, Erin. So Aaron's question is looking at the fact that we said customer engagement at 5 and 3 or stronger. We saw a few months ago. So does this mean that we're going you know expect to gain bigger or larger market share as a result. That is that correct? Aaron Burr. Yes and exactly two months ago.
Chris is 3 months ago. Okay answer that question Bank gives you reset the customer to get your commitment to work with tsmc and 5 millimeter and 3 nanometers. And who is this sung? It's like indication of thme heater technology leadership. I will happy to say yes, we are continuing wage but the most important thing actually so we are continuing to work with customer to develop the technology. They need for their product each club and hits a different kind of performance and we always can meet that demand.
Okay. Thank you Erin. No problem. Thank you.
Okay operator. Can we move to the next caller, please?
Next want to ask question. What do you Hussein e s i g
Yes, thanks for taking question. My first question has to do with some of the comparisons that you provided during last earnings conference call. You were comparing the capital intensity and a good Prospect to the period of 2010 and 2015 in that context. My question has to do with depreciation back then during the period 2010 through 2015 depreciation increase as a growth rate of 20% How do you see that growth rate changing long period of twenty twenty and twenty twenty-five and I have a follow-up.
Okay. So the first question is looking at I think basically looking at the appreciation and looking at you know, as we entered a higher period of growth what does art appreciation like, uh, and also he's asking about the depreciation growth or increase given that we expect to grow, you know between ten to fifteen percent in 2005 2500. What does the depreciation quote look like this year and then I can share with you that the page or this year will be around 30% higher than last year and we are not ready to share with you the the rest of the five year periods depreciate at this moment.
Okay. Do you have a second question would be yes. I have a second question. You raise your cap after spending given the increased demand for your country. But your Revenue growth Target Remains the Same at 10 to 15% Why aren't you raising the revenue Target as you age raising the Carfax?
Okay, so I think the key is asking that you know, we raised the capex spending and so why you know, we may argue of the growth Target ten to fifteen percent. Why are we not receiving that as well?
Maybe actually if you think about this ten to fifteen percent 5 year category, it's pretty big range what we currently forecast. Am I the regular Target is still within that range maybe a higher to the closer to the higher-end than last time.
Okay, thank you operator. Can we move on to the next caller free now we have already abrahamson for this please. Go ahead, please. Okay. Yes, sir. Thank you for the follow-up. The first one on the back end that's keeping pace. Could you give an update on the spending in momentum you're seeing for the new soic? And then also how the coaxial info are progressing?
Okay. So your first question is on Advanced packaging Solutions you wants to know an update on how soic is progressing as well as any other service issues with that right menu? Yeah, that's correct. Okay. Okay, maybe come in on the soic first ones back and Technology. I think that we offer to our customer and it will start to small volume production in 2022. And it's also empty comforted by a very high performance HPC applications.
I was born in Floyd & Co as we continue to expand the our customer portfolio. And I expect that the fidget is from invoice and co-authors what continue to increase in the next 30 Years?
Okay, great. And just one quick one on that. You mentioned very high-performance applications soic in a couple of years as it ramps. Should that be a nice big like also do you expect a pretty big ramp like we sell in the past for info where it should be a good volume runner for tsmc and then I wanted that's the second question just a couple of clarification on gross margin and second half five will be getting more mature. So curious factoring your depreciation guidance 5 getting more mature if you're viewing is 50% gross margin or if you're running very tight utilization. We may be able to stay a bit above the long-term range and can half
So a quick one, he wants Brandi wants to know soic. Will it be a large contributor? How large can it be in a few years time? And then also on gross margin the gross. Margin, I'll look for a second half we hold that it's going to be a doctor by all those HPC application for customer, but I cannot kneel down that what is the specific number in the future? But God, you know, we do expand our our back in Soviet or continue to grow and the rate the cost rate will be higher than the corporate office.
Okay, great. Ran about a second half gross. Margin. It's a bit too early to give details on that. However, you've already mentioned several things in life. I would become bigger in contribution to the revenue. It's still has carries a negative or dilute as effect on the margins about 2 to 3 percentage points utilization. It's pretty stupid too tight. And we continue trying to improve our cost under this very high utilization environment off. So that's all the things we can share with you at this moment. Okay, and if I can fit in his sorry, I'm sorry. That's two questions. Thank you operator in the interest of time. I think then we'll take the last two callers, please.
They the Mets one will be in Goku.
Thanks for taking my question. My first question is how should we think about HPC in terms of the demand Cadence for a second and third wave I think when smartphone was our big drivers in the last ten years. We had Leading Edge growth from processors et cetera. But we also had a lot of other ICS team in smartphones as well as our applications, which drooped second third fourth wave demand for any process node. So now that HPC seems to be one of the key drivers for Chrome. How do we think about second third wave demand would it be with the first first and second wave for infant cetera or should we think about MC will be doing more capacity conversion compared to in the past. That's my first question. Okay. So cools first question is looking at HPC and looking at how HPC is all off.
Along with smartphone becoming my first way for adopters of our leading-edge note. He's wondering then though for the second and you know additional ways of the mend off will HPC. How do we see HPC driving additional ways of demand or we can convert capacity.
They mean infront come in actually the HPC application include many different sub-segments such as the CPU GPU them working fpga video gaming, etc. Etc. And each one will have Jell-O migration path and product life cycle. So we expect to see not only in the first wave but you know this, you know with of demand to support, you know, the individual
You got any questions?
Okay that
And you have a wonderful. Yeah. Just wanted to follow up on any thoughts from tsmc on the Arizona life. I've already announced 20K of before per month of fine amateur coming up in 2024. What does senior discussion with customers rep regarding any potential upside to this capacity? Our customers asking for more capacity there. Do you feel that the right now the seems more like a n -1 Cadence because I started in Taiwan in 20 20 20 already. Do we feel that we will move to a more shorter or a quicker Cadence for leading-edge in let's say am I gonna argue s capacity this order to understand how tsmc's thinking about this right now?
Okay, Coco. Second question is on our us.
I'm in Arizona. He wants to know that you know, our customers asking for more capacity or more production. And also we start with n v. I guess your question is about the future plans for bringing additional Technologies there and decadence.
Okay, we are executing opening Arizona according to the schedule and construction was started here. Please one production as you said you are studying 2024 which is $20,000 per per month is 5 millimeter technology. But in fact we have acquired a large piece of land in Arizona to provide a flexibility. So the further expansion is possible, but we are wind up to face one first then pay sung operation efficiency and cost economics. And also the customers are designed to decide what the next steps we are going to do a customer will come with computer capacity in the US.
And we don't know what the available to support all our customers from one reward and just like other all the tsmc COK beta where they are and no matter where they located.
Okay, thank you operator in the interest of time then. Can we let last caller after questions, please? Yes, the last one to ask question the facts and hope clsa. Thank you. I only have one question. So I just follow follow up on the CC Commons earlier that says he mentioned that the tsmc has been working closely with a customer to analyze the gap between capacity and demand on the trailing Edge nodes. So I'm wondering if you could share some color with us if we exclude the overbooking of ocean and based on your best analysis. Does the demand still significantly exceeds Supply? And how big is the gap if you have any rough member that can be shared for the mortgage on the catbox you and your peers are investing in the capacity expansion lead time. When do you think the tightness can be used and a or the whole shortage situation?
And it can be removed as the only question I have. Thank you.
Okay, let me try to summarize your question Sebastian you're asking, you know on the mature notes the fact that agency works with our customer is very closely. But also in looking at the supply-demand of those older notes. So with the additional capacity added off well when and will will we eventually see an easing of the supply tightness at the mature notes. Is that correct Sebastian?
Yes, and also if you can if we exclude the overbooking part at your best estimate whether the demand still signal exists Supply right now. Thank you.
All right to be frank with you if I work with a customer close early. And so the other parking is not a member of our calculation. Although we we did not excluding out of this possibility, but we do the very detailed analysis internally and as I say customer close early and so the material notes that capacity for them. However long, you know building a fact from a green fast start and also to install the capacity it won't be available until 2023 and Thursday.
You know this year and next year. I still expect the capacity Titan. He's work continued and probably also next year 2023, I hope that we can open more capacity to support to our customers and is a time we start to see the striations titanosaur.
Okay Sebastian. Does that answer your question? Yes, so is it fair for me to conclude that in? The next eighteen months? It is very safe to assume that. We were still being need the supply the situation. Is that right?
For our customers. We are working with them. Let me say that but it's still very tight. Yes, you are, right? Okay. Okay. Thank you Sebastian. 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 and transcript will become available 24 hours of from now both of which are going to be available through tsmc website at triple. So, thank you for joining us today. We hope everyone needs to stay healthy and safe, and we hope you will join us again next quarter goodbye and have a good day.