Q3 2021 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
Gentle one was the Tai Chi thien firing crunching through this. Okay, wait, son.
Down good afternoon everyone and welcome to tsmc Spur quarter 2021 earnings conference. Call just as Jeff Su tsmc is director of investor relations and your host for today to prevent the spread of COVID-19. Tsmc is hosting our earnings conference call Via live audio webcast through the company's website at triple w dot tsmc.com 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 tsmc is vice president and CFO. Mr. Wendell Wong will summarize our operations in the third quarter 2021. Followed by our guidance for the fourth quarter 2021 afterwards. Mr. Hong and tsmc CEO. Dr. CC way will join. You provide the company's key messages and we will open the line for QA.
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 on our press release.
And now I would like to turn the call over to tsmc CFO. Mr. Wendell Huang for the summary of operations and the current quarter guidance. Thank you Jeff third quarter Revenue increased 11.4% sequentially in NT terms or 12 percent. In dollar terms of a third quarter business was driven by strong demand across all four growth forms, which are smartphone HPC iot
And Automotive related applications, gross margin increased one point-three percentage points, sequentially to 51.3%, mainly due to the Improvement in back and profitability in a more favorable technology mix operating margin increased to pointone percentage points sequentially to 41.2% mainly due to better operating Leverage.
Overall, our third quarter EPS was 6.03 NT and roee was 30.7%. Now, let's move on to the revenue by technology 15. Nanometer process. Technology contributed 18% of wafer Revenue in the third quarter. While 7 nanometre accounted for 34% Advanced Technologies, which are defined as 7 nanometre and below.
Accounted for 52 percent of wafer Revenue.
Now, moving on to revenue contribution by platform, smartphone increased 15% quarter-over-quarter to account. For 44% of our third quarter Revenue HPC, increased 9% to account, for 37% iot increased 23% to account for 9% Automotive, increase 5% to account for 4% and dce degrees 2% to account for 3%.
Moving on to the balance sheet. We ended the third quarter with cash and marketable securities of 976 billion. Then t or equivalently five billion US Dollars. On the liability side, current liabilities, increase a building, then T mainly due to the increase of 24 billion in accounts, receivable payables and the increase of 6 billion in dividends payable paas.
Partially offset by the decrease of 21 billion in short-term loans. Long-term interest-bearing debt increased by 50 billion. Auntie. Mainly as we raised 49 billion corporate bonds during the quarter on financial ratios accounts, receivable turnover days. Decreased, two days to 40 days. While days of inventory remained at 85 days.
now, let me
A few comments on cash flow rate and capex. During the third quarter. We generated about three hundred and nineteen billion, and T in cash from operations, including some customer prepayment spend a hundred and eighty, nine billion in capex and distribute is 65 billion for fourth quarter, 20 cash dividend short-term loans, decreased 18 billion, while bonds payable increased by forty nine billion.
Overall, our cash balance increase 106 billion to 854 billion at the end of the quarter in US dollar terms of third quarter Capital expenditures Toto, six point seven, seven billion US dollars.
I finished my financial summary. Now, let's turn on to our fourth quarter guidance. Based on the current business Outlook. We expect our fourth quarter Revenue to be between fifteen point four billion and fifteen point seven billion US Dollars which represents a 4.5%. Sequential increase at the midpoint based on the exchange rate Assumption of one u.s. Dollar to 48 and tea.
Gross margin is expected to be between 51% at 53%. Operating margin between 39 percent and forty one percent on July 12. We announced that we have completed the purchase of 5 million doses of vaccine as part of our efforts to help fight against COVID-19. Pandemic, in Taiwan. We recognized a small portion of the vaccine donation expense in the third quarter and the majority of it.
Will be recognized in the fourth quarter, which will have around one percentage Point impact. On our operating. Margin. This concludes my financial presentation. Now, let me turn to our key messages. I will start by making some comments on our 2021 capital budget. Every year, our capex is spent in anticipation of the growth that will follow in future years.
We are witnessing a structural increase in underlying semiconductor Demand underpinned, by the industry megatrends, 5G related and HPC applications in order to support all the customers growth and meet the increasing demand for our Advanced and Specialty Technologies in the next several years. We have budgeted our full year 2021 capex to be around 30 billion US dollars.
Next, let me talk about our profitability of a third quarter, gross margin increased, one point-three percentage, Point sequentially to 51.3% mainly due to a better back and profitability and Technology mix based on the exchange rate, Assumption of one u.s. Dollar to 28 and T. We have just guided fourth quarter, 2021 gross, margin to be 52 percent at the midpoint, the midpoint of all
First quarter. Gross margin. Guidance. Also in
I start out a full year..2021 gross margin is expected to be higher than 50%, despite the rapidly Rising depreciation cost the delusion from M5 ramp and the unfavorable for exchange rate in 2021 as compared to 2020.
As we have discussed before, six factors determine tsmc is profitability. Leadership technology development and ramp up pricing cost capacity utilization technology makes and foreign exchange rate, which is not controllable taking all these factors into consideration. We believe a long-term gross margin of 50 percent and higher is achievable. Now, let me turn
The microphone over to Cece. Thank you. We know, we hope everybody is staying safe and he or she during this time. First. Let me start with our near-term, demand and inventory. We concluded our sir quarter with revenue of empty. Fourteen, point seven billion or US dollar..14.9, period driven by strong demand across. All four chord play forms.
Which are smartphone HPC iot and Automotive related applications moving into fourth quarter 2021. We expect our sequential course to be supported by strong demand for our industry-leading fine, an ohmmeter Technology based on the midpoint of our fourth quarter Revenue guidance. Who year 2021 revenue is expected to grow about.
Twenty-four percent year-over-year in u.s. Dollar term.
And the inventory front, we continue to expect our customers and the supply chain to gradually prepare, higher level of inventory in the second half of this year as compared to the historical hidden or level given the industry continually to ensure Supply security. We expect the supply chain to maintain a higher level of inventory for longer periods of time.
Even either to we continue to observe shortened imbalances due to interruptions in the supply chain brought about by COVID-19. We also continue to observe the structure increase in long-term Demand underpinned, by the industry, makeup trends of 5G, and HPC related applications and the higher silicon content in many and devices including Automotive.
PCS servers networking and smartphones. Why are the short-term imbalances may or may not purchased? We believe our technology leadership. Why a neighbor tsmc to capture the strong demand for our Advanced and Specialty Technologies, and we expect our capacity to remain tight in 2021 and throughout 2020.
Two.
Next, let me talk about a tsmc so long term cost driver and return. We are entering a period of higher structural cause the multi-year mega Trend or 5G and HPC related applications. I expected to feel massive requirement for computation power and prepare greater need for energy efficient Computing which demands the use of DDT.
Eh Technologies.
These men got to end War. Not only spurred you had course are also driving increasing semiconductor content in each PC smartphone automotive and iot applications.
COVID-19 has also fundamentally accelerated, the digital transformation, making semiconductors more pervasive and essential in people's lives without technology leadership. Manufacturing excellence in customers. Trust tsmc is better position to capture the course from the parable industry Mega Trend. We saw differentiated Technologies.
Towards razor structural increase in the long-term market. Demand profile, tsmc is working closely with our customers to plant our capacity and investing in deeding age and Specialty Technologies to support their team. And our capital investment decisions are based on four disciplines technology, leadership, flexible and responsive Manufacturing.
Retaining customers, our trust, in learning the proper written. At the same time. We faced manufacturing costs challenges due to increasing process, complexity DJ node, new investment in mature knows expansion of our Global protection footprint, and Rising material, and basic commodity cost.
As we continue to work closely with our customers, to support your growth, pricing strategy will remain strategic. Not opportunistic to refer to our value creation. We will also continue to work diligently with our supplier to deliver and cause Improvement.
Even as we showed a greater burden of investment for the industry by taking such actions, we believe we can achieve a proper return that enables to invest to support our customers across and deliver. Don't mm profitable goals with fifty percent and higher gross margin for our shareholders.
Now, let me talk about our Japan for airplane. We are expanding our manufacturing footprint to sustain and enhance our competitive advantage in providing industry leading Technologies. The world's largest a larger capacity, efficient and cost-effective Manufacturing and to better serve our customer.
Victory expansion strategy is based on customers need business opportunities, operating efficiency, and cause economic considerations after conducting due diligence. We announced Our intention to build a specialty technology Fab in Japan subject to our board of directors, their approval.
We have received a strong commitment to support this project from both our customers and the Japanese government. These Square y, utilize 22.28 nanometer technology for Semiconductor wafer fabrication..5 construction is scheduled to begin in 2022 and production is targeted to begin in date 2020. For further details will be provided.
Subject to the board approval. We believe the expansion of our Global manufacturing footprint by a neighbor's to better serve. Our customers need in the reach Global Talent. Why learning the proper return from our investments and deliver long-term profitable growth for our shareholders?
Finally, I'll talk about against 3 and N 3E status.
Now M3 technology, why use finfet transistor structure to deliver the best technology maturity performance and cost for our customers?
Oh and sorry. Technology development is on track. We had developed complete preformed support for both HPC and smartphone applications and 3. Reefs production is scheduled in 2021 and production was studying second half of 2022.
We continue to see a high level of customer engagement at N3 and expect more new table out for n 3 for the fourth year at compare within five.
We also introduced n3e as an extension of our entry family and 3E one feature improved manufacturing process window. We sped up performance power and you volume production of n..3E is scheduled for one year after in 3 hours, 3, nanometer technology will be the most advanced Foundry technology in both PPA and transistor technology.
When it is introduced with our technology leadership and strong, customer demand. We are competent that N3, family will be another Dome and that's what people are seeing. Don't ask, you know, 240 SMC. This concludes our key. Ben sheets. Thank you for your attention.
Thank you, sweetie. This concludes our prepared statements. 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 questions. Should you wish to raise your question in Chinese or translated to English before our management answers your question?
For those of you on the call. If you would like to ask a question, please press the zero, then the 1 key on your telephone keypad. Now, questions will be taken in the order in which they are received. If at any time, you would like to remove yourself from the question in queue, please press 0 to now, let's begin the Q&A session. Operator. Please proceed with the first caller on the line.
Yes, the first one to ask questions. Goku Harding Holland, JP Morgan.
Good afternoon, congrats on the good results and thanks for taking my question. My first question is on the long-term roadmap Intel has now and wield, their long-term roadmap until 2025 with for process notes. Looking to catch up with the SMC and potentially even overtake could tsmc talk a little bit more about its own longer-term. Roadmap timing of knobs.
Of them off the new technologies, like, get all drowned Ina euv, buried power line Etc. And where does tsmc see itself? From a process? Technology leadership, perspective in the next three to five years, three to five years, the entry message is definitely well received, but maybe you could, we talk a little bit more longer term, given some of your competitors are kind of interesting that kind of time frame as well. That's my first question.
Okay. Thank you. Coo PLS. Let me summarize your first question. So, Goku's first question is about regards to our long-term technology roadmap. He notes that and IDM, you know, is outlined their long-term road map for the next three to five years and talking about catching up and over taking. So Coco wants to know what are our views or plans. I get all our roadmap, I guess around the coming of new technologies.
Such as new transistor structure like gate all around. Hi any Etc. And how do we see our technology leadership position in the next three to five years?
Okay, Goku. I don't come in on my competitors, technology roadmap or the technology approaches. But for tsmc, we are confident that what be very competitive. And we do have a very
Competitive schedule. Actually, let me say, these are the things in our 3, nanometer technology, and the to nanometer technology, and I can share with you that in our 2. Nanometer technology is the density and performance will be the most competitive in 2025. And of course, I can also share with you that the gate all wrong. The structure is being considered, although I am not going to not ready to release.
More information about it.
So that's again. Let me conclude in one sentence, what become very competitive and we are confident that our technology leadership. What? Be maintained.
Okay. Thank you, Sissy Coco. Do you have a second question? Yes. Thanks. Thanks for the answer. Looking at capex, adding back in q1 results, decency indicated spending hundred billion plus in capex over the next three years. Since then you have talked about Japan capacity expansion. Looks like there are some capacity expansion plans for Leading Edge in couch.
As well. Could we talk a little bit about is hundred billion? Going to be enough? Or do you still need to see? You do still see some upside to this hundred billion Budget on the capex, over the next three to four years since the growth seems to be stronger. And if we see that upset in capex, are we still looking at the high end of 10 to 15% growth? Kegger or do we believe that there could be faster growth than this 10 to 15 percent or high end of 10 to 15 percent that we had.
What about previously? Thank you.
Okay, go cool. Let me see if I can catch your second. Question, is around our capex, and growth longer-term, capex and growth Outlook. So, Goku is asking with sort of our plans in Japan and plans for expansion in Taiwan will, you know, will there be upside to this hundred billion capex number that we have talked about in the previous for the next few years. And then also will there be a higher long-term growth?
Kegger Target as a result, as well Goku. This is Wendell. Let me answer your question. We are not able to comment specifically on next few years. Capex, all capital investment decisions are based on four disciplines technology. Leadership, flexible and responsive manufacturing retaining customers. Trust learning the proper return as CC. Just mentioned every year. Our capex is
In anticipation of the growth that will follow in future years. As we said, we are witnessing a structural increase in underlying semiconductor Demand underpinned by the industry megatrends, 5G related, and HPC applications, and increasing, silicon content. So as well as all growth Outlook looks good. There could be upside to our capex plant and we will continue our disciplined investment approach.
Ouch to support our customers and capture the growth opportunities. Now, in terms of our Revenue, kegger were not planning to make any changes at this moment. We will provide you with more information in our January conference.
You, thank you very much.
Okay. Thank you, Coco operator. Can we move on, move on to the next participant on the line? Please? Next one to ask question. From Goldman Sachs. Go ahead, please.
Hi, thank you for taking my question. I think my first question is that 80% of tsmc capex? And do you see that the mature know becomes the bottleneck for your customers? How do you ensure your customer can have a more mature note?
Okay. Sorry Bruce. Let me repeat. Your question. Question is around the mature notes and that with 80, you know, typically majority of our capex is for the leading nodes. So how can we ensure that? Our customers will not be bottleneck? Don't have enough on the mature notes as well. Okay, Bruce. Let me answer that question. Tsmc strategy at mature notes is to work closely with our customers.
To develop and invest in specialty, Technology Solutions to meet customers requirement and create differentiated and long lasting value to customers. We take a holistic View and work with our customer to decide the optimal capacity to support their demand.
Okay.
Okay, does that answer your first question Bruce? Yes. Let me try to answer ask different questions. So I think reasonably we have a lot of investor asking that there are a lot of noise from the end demon such as the TV or China smartphone. The inventory level is at a higher level, but The Foundry, all the remained. Very, very positive. And every almost everyone is raising the capacity and capex.
Can you try to tell? So, tell the investor What's the diff discrepancy? And, you know, where is the? Why The Foundry can continue to see such a strong demand while the and demand is deteriorating.
Okay, so please let me summarize. Your second question is, second question for bruises around looking at in demand in The Foundry. Bruce notes that there's a lot of, I guess noises about different types of, in demand. However, The Foundry, our luck seems to be very positive. So how do we explain this disconnect or discrepancy?
Okay, Bruce. I didn't you say that. Well, we do not rule out the possibility of an inventory, correction.
But we expect him. He's capacity. Remember Thai team 2021 and Sewer 2022. This is because our technology leadership position, and even the is a correction to occur. We believe it could be less volatile, 40, smt, young previous automaton has an underlying structural megatrend o5g related and HPC.
and they actually,
The increasing City can contain. In addition to the uni scores, in the end devices were continued. And again, we saw our technology leadership. We are better position to capture the mid to long-term growth opportunities.
I hope that I answer your question. Guys are described C between the demand and Hawaii still very tight incapacity.
Thank you.
Thank you, Bruce operator. Can we move on to the next participant? Please?
Next one, please.
Probably a few questions on the March and you mentioned in 50 percent and above just a couple follow-ups on that. We think it's still within a couple points of 54, with effort for my pricing. You could push it higher just reflecting to Mint in return on Capital. You will have a higher acid base and that's kind of first part of that question. And then
And if you could update us on the inefficiency, if you had operating at high level of, if you work that out, and also, if you have an initial view on depreciation for 2022.
To okay Randy. Let me summarize your question. So your question is about a margin So Randy notes that we now say 50 percent and above he wants to know is this a couple points above how high above and will we be able to you know to maintain our I guess all I see or OE as a result and also that you know eating last time we had talked about sort of
The high level of utilization and certainly in efficiencies. So it has that now become, you know, more improved or what is the Outlook there and also the depreciation outlook for 2022. Okay. Let me answer the last question. First depreciation in 2022 will increase but the magnitude we are going to tell you next year in January. So the margin how, how many percentage point over?
G %. We don't want to disclose it right now, but we hope we can tell you more in the January investor conference. And that will, of course bring a better R OE than before due to the higher margin targets. You also asked about utilization, Randy? Also asking, about in efficiencies, when we are talked previously, about, when we run at a high level of utilization, less.
Cost of improvement and things like that. So when D is wondering, is this no? I said continuing is it continues to be pretty high at the same time? The cause Improvement activities is ongoing. As a matter of fact, in the fourth quarter, we believe the margin will be better partially because of the cost Improvement activities.
Great question, Alaska. And it's one quick, follow-up actually related to utilization 50 and above if you have a utilization view, is that a 90% or that's a full capacity. And then the second question I have is on the capital intensity. One of the equipment suppliers Tokyo electron, they put up a slide about a moderating increase in capital intensity. So capex, / K. They have it by
You're an animator, just Rising gradually.
210 million per thousand Wafers. Could you discuss it? If you can, they capex / Katie either, absolute or how you see that trending? And do you see that continuing to accelerate up or actions? You're taking to keep it more stable after the increase. We've seen the past few years.
Cheers. Okay. So Randy's second question is about Capital intensity. He notes that Tokyo electron is showing that, you know, the capital intensive you, or the capex / K is moderating. The pace of increase, particularly as you get into 2 nanometer, so he is wondering, if we can just comment on, you know, our capex / k.
Well, Randy II what I can share with you is that capex brocade for advanced more and more advanced technology. It's normally higher that's for sure. So but at the same time through selling or values and working with the customers and the suppliers, we believe we are able to still learn a proper return which is at this moment. I 50% and
Higher. Gross margin is achievable.
Thank you. Okay, Randy. Thank you. Randy operator. Can we move on to the next participant? Please?
He's next one to ask questions, from research.
Yeah, thanks very much. My question was on the N3 introduction. Next year. Can you talk a bit about the ramp up of N3? Is it going to be a typical ramp very similar to the last couple of no tramps or or do you see the timing of this being different and also just in terms of the costs? There's a lot of talk about costs Rising above expectations for n 3. As you add more euv layers. Can you just clarify how you see cost?
And at N3 and whether you can still achieve, a 70% density density, gain at that node. Thank you.
Okay, Brett. So let me see. Your first question is around in three but wants to know where the three ramping in the second half of next year. What type of ramp do we expect versus the prior notes. Will it be a typical or will be climbing be different and also on the N3 cost? You know, what is the entry cost structure look like?
Is that your question, but that's right. Thanks Jeff.
Okay, this is easy way. Second part of the question. First, answer is a concert deputies higher than the advice that is because of Technology complexity. And, you know, we have to use of many new equipment which is cost higher, but then the Ring Pop, the ring pop is very similar to the previous note.
We are many.
So engagement actually is higher than what we observe in the previous node. So II have or 2022 or P, our mass production, but you can expect Revenue be singing first quarter of the 2033 because of a 8xr. Don't text a cycle time to have all those waiver out.
Okay, so so basically on three nanami to this won't be typically you see your first Revenue Q2 or Q3. It's going to be later next year. Is that right?
That's right.
Right. Yeah. Okay. I think we have been consistently saying that entry will begin the production in second half 2022 that has been a consistent message since we first introduced and three in 2019.
Okay, great and maybe just a follow-up on 128. And on the meter. You just talked about a new Fab that's coming on stream in 2024 and Japan. And can you maybe just clarify the latest thinking in terms of Europe? Is that a note that we could be Macy, new Fab expansion for tsmc? And and then, in terms of looking at the 28 nanometer node, there's a lot of capacity being expanded at the moment. Can you talk about what's driving?
And why you think this will not lead to an oversupply situation in time. Thanks.
Okay, thank you packs, Opex. Second question is around 20, nanometer. Two parts. First, you know, of course, that CC just announced Our intention to build 28, nanometer in Japan. So Brett wants to know, do we have plans in Europe? And then the second part is that with 28 nanometer? What is driving? The longer-term structural demand for 28 years, the risk of oversupply of 28 nanometer.
Okay, we don't rule out the possibility of beauty or five in other areas that included in the Europe. However, we do emphasize. What? We build up a new capacity for 28. Nanometer is almost all to serve the specialty Technologies for some of the specialty technology. That is not over the
Our competitor and get some, she's working with our customer to Media team. And so, is there any possibility of oversupply? Not for th em? He, okay. That's what I can let you know.
Right. Thank you, Sissy.
Okay. Thank you. Brett operator. Can we move on to the next participant? Please next one to ask questions, rolling. She Citigroup.
Afternoon, thanks for taking my questions. So, my question is, you have a global manufacturing expansion strategy to build more fat? Overseas are going for? Like you said, are you you also don't exclude the possibility to build a set in Europe. So my question is, it's a joint venture with a local government or key customers and option for you to build this new Fab overseas. Oh, you prefer to build a spat and hungry.
Sent all like, why do you beat for those effect in China or us? Are you are busy now?
Okay, Roland. Your first question is about overseas. Fabs. Roland wants to know as we expand overseas. Will reconsider joint ventures with local governments or our key customers. Or will we continue to, you know, or will it be a hundred percent own? Like what we have done in China and the US? Okay. Let me answer this questions first. No more.
You mentioned all over, see fats. We normally only 100%. We do not consider a JV with governments. However, JV with other companies, or key customers, can be considered on a case-by-case basis.
Okay, thank you. Yeah, my second question is, you know now you set a short-term goal of a zero emission cars that by 2035 but you have to continue to invest in final me to do, you know, meter or even to nail me to be so 2035. So how are you going to achieve this mission calls Target and also in the meantime, keep up with the expansion plan. So well at least you know.
Mission cross, you know, plan to decelerate your investment plans to meet your target. Thank you.
Okay, Roland Roland. Second question is asking in, you know, that our commitment recently announced to zero emissions growth by 2025. But as we continue to, you know, you know, invest and expand on N5 and and three. How will we be able to achieve this target?
Okay Roland. It's actually a net zero in 2050. Not zero emission in 2025. We are going to do this first by working ourselves to say to become more energy efficient because a lot of the carbon emission comes from the electricity. Our production, we can try to minimize the carbon emission and secondly, we are going to use more
energy, which is the
Which will omit the most part of the carbon and for whatever is left. It will depends on carbon trading the copper and rights in the future. So that's the basic framework of achieving this Net Zero in 2050. No, actually, I probably about zero emission course, so you have this linear Trend Target the nisshin growth by 2025. So I know this is different from these diamonds.
The Euro 2016.
Right. Yeah, they are the way to achieve. Those are pretty much the same. I think. When so I rolling your question is about net zero, emissions growth, by 2025 and Wendell said, we have net zero emissions by 2050, right? So I think, what Wendell saying is that are, you know, we will continue to invest in technology. But we also, as Wendell just said our own internal efforts our use of renewable energies.
Carbon credits and also working with our suppliers and our supply chain on green manufacturing to achieve and deliver on these targets.
Okay. Thank you Roland. Operator. Can we move on to the next caller? Please? Next one to ask question. Charlie Chan, from Morgan Stanley.
Thanks. Good afternoon. Gentlemen, so my question first question is about the chip shortage situation. I think Sherman took an interview by Time Magazine. And his view is that there should be more than sufficient. The finished chip in a supply chain. So can you help us or Global Investors to understand? When do you think that chip shortage especially for the auto motive, can't
The effect and also, your advice to, no matter, garments or carmakers besides asking you to provide a customer data. What would be a better way to manage the shortage issue going forward? Thank you.
Okay. So thank you. Charlie. Charlie's. First question is around the chip shortage with several aspects to it. Charlie wants to know with the shortage and also sort of observations of customers stockpiling chips. He wants to know that how do we see the situation? And when can this be fixed, particularly for the automotive segment? And yeah.
Stop there first. Yeah, for the automotive, Amy specifically pointed out the automotive supply chain. The actually it's quite a long and complex is more complicated than we initially thought. And let me share that tsmc. So participating in the Global Automotive. I see Market is only about 15% and we are doing our part to support our Automotive customer.
Ask what they need.
We can now solve the entire Industries Supply Challenge and recent factors such as a pandemic, in Southeast. Asia. Also affecting the auto. I see Supply. Again. We are actively taking the steps throughout the first half of this year to a trace, the tips apply challenges for our Automotive customer.
And we are. We also believe the waiver Supply shortage is greatly reduced for our Automotive customers. Starting probably inserted quarter, the end of OEM probably you are weight of all a couple of quarter to key it. That's our estimate.
Thank you very much. It's super helpful. And, and another question is that, again, the price hike, right? So I think news were reporting you decide to, like, replies by 5% to 20%. So, may, I mean, we know, you know, how do you determine the different range applying to different customers? What was the kind of strategic?
Behind four different range of of a price hike and II know you don't really want to give the next year guidance. I but if a sound are the five percent twenty percent price hike in terms of the percentage of our gross margin Improvement. Can you were window coming on on the module? I thank you.
Okay, Charlie. Second question is asking about pricing and he is asking, you know, recently there's lots of news that we have, you know, increased our price by anywhere from five to twenty percent. So he wants to know how do we decide how much to increase for what types of notes or customers? And then also what will be the impact to 2022? Gross margin, is that correct? Charlie?
Hi Johnny.
In fact, we do not come in a now pricing. This is a very private discussion between tsmc and our customer, but let me say that we continue to work closely with our customer to support your growth that one needed tsmc to expand the capacity to support their goals. Is he is proposed leading-edge Technologies.
And Specialty Technologies. And so our Wafers are pricing strategy. Continue to be strategic not optimistic or short-term. And so that we can be better prepared to support the capacity expansion as for the return. Let me emphasize that again. Oak was marching was the 50% or higher.
Tsmc.
To earn a proper return that never has to invest for the future expansion to support our customers, of course.
Okay, I guess my question. You said, whether your desired our iot size margin change, right? Meaning you, for example, you, you hike, the price by certain certain percentage points, but besides that passing through, there's a cause you just mentioned whether there would be to you know, further margin expansion that I think there should be a core of my question you right Charlie.
I think we just said that in the past. We always say about 50% gross margin, but now we're saying that fifty percent and higher gross. Margins is achievable. Okay? Thank you Charlie. Thank you. Operator. Can we move on to the next participant? Please?
Right now.
Yes, good afternoon. Thanks for taking my question. Just going back to the confirmation. You just stayed on investing in Japan. Should we understand what the portion of capex in 2223 is Incorporated in your overall, guidance of a hundred billion dollars? Or would that come on top? And would, you could you specify it? If you can at all? And religious question to hide, would be
What kind of capacity are we talking about for 50 nanometer? Thank you.
Okay. So Nick's first question is about our Fab plans in Japan. He wants to know that with today's announcement is the capex for the Japan Fab already Incorporated in the, you know, this hundred billion Target that we have talked about previously. And also can we disclose the capacity for Japan? Okay, Nick the capex for this project as we said last time. Last quarterly release.
Well, it's not included in the hundred billion dollar budget as you mentioned. So we will be incremental other than this. We really are not able to comment on the investment amount and other details until after our boss a review and approval.
Right. Okay, fine. Going back to and free and unfree. I mean, you talked about the input process window for nve is not the only main difference. So, is there a difference in performance as well between the two? Thank you.
Okay. So Nick second question is on n3e. He knows that we have talked about the improved manufacturing process window. He wonders. If there's any other improvements in things, like, performance, and Etc, industry e is an improvement improvement in that, made a picture window and however, the maturity in the design rule. Something is
Similar.
Are we using the history to enhancer the manufacturer window with a better performance?
Got it. Thank you very much.
Thank you. Nick operator. Can we move on to the next participant, please? Next one, we have. Hi. Thank you for taking my question. I think we are talking about that, the scene, the solid demand across the board. Thanks to tsmc strong position and Technology, but on the other hand, on the demand side. We are also seeing that smartphone growth. So enjoying but in particular, in China, so I think back in the early earlier.
Here, we mention about, it forges smartphone Sherman. We estimate that will be 500 to 550 million unit. Just wondering, do you still keep that Target? And also, do you have any idea or preliminary projection for the 4G smartphone into next year and also quality of like the smartphone if 5G moving toward more like a lower and or mentoring?
That kind of Sigmund. What's the implication to Tasty? That's my first question. Thank you.
Okay, Laura. Also, Laura's question is focusing on the smartphone. She notes that recently, it seems the smartphone, momentum in markets, like China or slower. So she's wondering about what is our forecast for the smartphone market this year, as well, as how do we see the 5G penetration this year? And then also the, the, the trend for the next few years. If that correct law. Yes. Thank you.
Okay, let me answer this question. We see the vacation of the 5 g spot phone is still higher than the 4G at the same period of time before. And also really looking at about probably slightly over 500 million units of 5G smartphone for this year.
Right. So do you have any preliminary thoughts about the next year growth? And with that, mainly driven by the Lawrence? Sickman? Is that case? What's the implication into our? Our look? Yeah.
Okay, you about the information in January?
Okay, thank you. And also my second question is Also regarding our capex intensity. We already talked about, like, the three-year horizontal, but just wondering that do we still expect the capital intensity to maintain High Beyond 2023 since we are launching a, get a round or two 9-millimeter into 2025. So can we
Expect smic with.
Our two Barefoot, tonight's our previous intensity factor intensity hike back in 2011. And thus, we will maintain the high growth going forward. Thanks. Okay. Solo. Second question is on Capital capex intensity. She's asking, you know, what is the outlook for our Capital intensity Beyond 2023. Well, we still have a very high.
Level of capital intensity or she notes back in. You know, the the 2010-2011 period of course our Kaplan density was higher but then we were able to harvest growth and you know grow capture the growth. So how do we see the next few years playing out in 2020? The capital intensity was 38% 2021. This year. It's going to be over 50%. As we said earlier, CC mentioned this,
Earlier, our capex, spend every year in anticipation of the growth in the future years. So, if we think the future growth, all of his good, then there's a possibility of higher capex. We're entering into a higher growth period because of the industry megatrends, l5g and HPC applications, plus the Silicon content increase so the capital in higher capital.
The investment in the next few years is appropriate as a result. We expect the capital intensity to be relatively higher than previous year like in 2020 for the next two to three years. Before graduating coming down, maybe to mid to high 30s level from what I can see at this moment, and your observation on the previous investment cycle in 2011 to 20.
14 will be a good one.
Thank you. Thank you very much. Okay, thank you. Laura operator. Can we move on to the next participant? Please next one to ask questions. Sebastian. Hope neuberger Berman. Go ahead, please. Thank you for taking my questions. All I have one is on pricing. So I didn't last quarter to come and talk about Fernand up pricing to reflect the cost and based on the higher loan, turn gross margin guidance, that see if they'll give
This time a 50%. Plus I'm curious if this round of pricing adjustment is enough to observe the hierarchy pack intensity only for this year or next multiple years. I have a follow-up to this question. So I will stop here.
Okay, Sebastian. His first question is pricing and I would have talked about for me now pricing actually also talking about selling our value in the past. So he is wondering now that we say 50% in higher gross. Margin. Does that mean we you know, it is enough to cover the cost?
Okay, so
Let me answer this, right? Well, first of all, were not able to comment on detailed pricing discussion with the customers, but we work closely with the customer to provide our value. And after providing our value. We're not expecting a long-term. Gross margin of 50% or higher and higher. I'm sorry..50% in higher is achievable as compared to the fifth.
T. About fifty percent. Gross margin previously.
Got it. Got it. So my follow-up is that the given given that a next couple of years, capex plan still fluid. And I think see if ozai mentioned there could be an upside to our camp has plan because of the Japan or, or any other reasons. So, does that imply? This will be a continuous adjustment, a meaning that the won't be just one shop, but then, we will evaluate the the future pricing and what kind of value we can offer to customers.
Based on the capex basil, nor and also the to balance the structure profitability. So that means that we may continue to see potential upside in the prizing, comet coming years.
Okay, Sebastian. So your follow-up is. Again, let me summarize, I think Sebastian is asking, you know, our pricing, you know, is it sort of a one-time or will it be sort of an ongoing thing?
Sebastian this is a cc wait. So to me I will not be able to come in on the pricing discussion with our customers, but we work with Jim and we continue to pin our capacity and share our where you the capacity is one of the very important value of tsmc to support customers across and so our pricing is accordingly.
We have already you under so we prepare for that. You do see someone time or this is not a it's not a it's not a question. We do it is strategically and not optimistic yet continue to work with our customer.
Other, thank you, Sissy and window but at least I think we can make a fair conclusion that the higher margin guidance. Outlook. This time is a strong reflection or evidence of that. A customer is willing to pay higher to to because of we offer value of surface. Is that right? To fair to interpret as it?
Yes, she's got it. Got it. Thanks. That's all from me. Okay?
Okay, thank you Sebastian operator. Can we move on to the next participant? Please, the next one to ask questions, but the hosseini Hannah International, go ahead, please.
Yes, and thanks for taking my question. I want to go back to your commentary on 5 and 3 and and so I can you tell me how I should think about euv, double patterning and how it would impact your cost structure and I have to follow.
Okay. Madhi's first question is about on N3 and actually midi. It's m3e not in 3 plus. So his question in three and and 3E. He's wondering about the impact of things like euv. And double patterning. What impact does this have on the cost structure for 4 + 3? + + 3
So the equation for my in three two, and three we provide a better value on the Twister performance and have a better manufacturing window for the cost. They are similar and but we think our customer why enjoy a better yield better defect density and better transistor performance.
Okay, thank you. And Mom, should I assume that there is a diversification and larger number of customers that are provided.
Okay, so I'm Mindy. Second question, is on customer reviews payments. He observed that in the past. We might, you know, have may have had one or two customers who do prepayments he wants to know. Do you always senior diversification? Always we need larger number of customers doing pre payments today came Eddie. Let me answer this questions. Yes, in the past. There was only one or two customer providing the pre-made moment, but as we've been
Okay. Now we expect to invest higher capacity, higher Capital expenditures in the next few years, to satisfy the strong demand. And in order to secure our customers commitment. We are able to secure the prepayment for some of those customers and the number of the customer. I cannot disclose, but it's more than before.
Okay. Thank you. Maddy, operator. Can we move on to the next participant? Please?
He's the next one would be Ricky from die walk if you don't mark it. Yeah, hi, this is Rick and thank you so much for taking my questions. So the first question is a follow-up to boost question earlier about the disconnect between selling and sales rudiments, and I think CC mentioned that he doesn't rule out the possibility possibility of the inventory crashing. May I know if that happens to you. When do you expect that to happen?
and though, so if that
Which, which area would put feel the more impact in terms of Technology note and in terms of the end applications. Thank you.
Okay. So Rick's question is again, going back to the disconnect or sellin versus sell-through? And also that we have said, we do not rule out the possibility of my inventory. Correction. Rick wants to know if one were to occur. When would it occur? What particular and segments will applications could be more impacted.
I reek, I say that we do not rule out the possibility. It's just a possibility and all I say, is a tsmc capacity. Will remember it tight in 2031 in Seward 2022, which Market sector? So far. We observe a little bit soft using a smartphone and
PC market, how do you ask me to predict? I cannot give you a very accurate prediction. We are the only one, you know, I can give you a hint as we continue to say. It's not the for the semiconductor industry. The demand is not only come from the unit course are also is a increasing silicon content in end devices. So even you saw some smartphone.
you didn't become soft or even decrease that doesn't mean that semiconductor or, you know, the business or the demand watch or
You got to answer your question. Yeah, perfect. Yes. That's very good. Thank you so much. And the second question is on the technology migration. I remembered that a seven millimeter. You you defied the 7 plus it's a note for you guys to have a very good transition, but you'll be. So I'm just wondering if AR you are you going to do the same thing to defy a a particular technology?
Note for the TA a transition.
Okay. So Rick second question is about technology, migration in transition. He notes that, you know, you in in southern we had introduced also M 7 plus to transition and start to adopt euv. So, he's asking if we will incorporate a similar transition, as we move to a new transistor structure.
The weekend have any more information to share with you as we move from S3 to go to the next more wine. Sad note today. I only announced at the entry to n3e that why have a better transistor performance and better better Factory window for into TAA. We watch your with you one. We are getting more ready.
Okay.
Thank you. Thank you so much.
Okay. Thank you Rick. In the interest of time, operator. We're let's take the last two participants, please.
Now, do you want is going to ask question? Is when and Company? Go ahead, please.
He's thanks for taking my question. I just wanted to follow up. One is on CC's prepared, comments. You said, the indices going to maintain a higher level of inventory. Can you tell us big specific and market? And which specific technology node you seeing high level of inventories and your comment that you think, softness and smartphone and TT. Is there a function of n demands for you or is it a function of not being able to get the components to make those products and then added?
Okay, Chris. Chris is first question is on the higher level of inventory that we see preparing and supply chain. He wants to know which end markets or application specifically or which technology knows do. We see this higher level of inventory? And then also the the slower momentum in the cell through a smartphone or PCS? Is this related to component?
Titanosaur shortages.
Let me answer. The question. The high level of inventory is actually is caused by some of the necessity for not to be disruption in the supply chain. So is across the board. Actually Stanley, any node or any product. It's a possible. And we say what we continue for a period of time. That is because of what today?
All those are determined to drive the people to prepare, more inventory, still continue exist.
Does that answer your question? Yeah, just like a second part of the question, which is the softness and smartphone and PCs is that and demand related or component tightness related. And then I'll ask one final question, along with it. The gross margin upside. You saw in Q3 from back end. Was it a one-time thing or is there more upside for that in the future? Thank you.
Okay. So Chris is question, also sort of the weakness that we see in areas like smartphone. Is it and PC is this related to and demand or is it related to component shortages?
Both, actually, let me answer the question quickly. Actually your Market is, the result is slow. But we think is partly due to the component shortage.
And then the second part or the scriptures, second question. I should say is on the gross margin side and also the improved back-end profitability, the backend profitable. A back-end business is sort of as seasonal, it has high season low season during the years. So normally second half is High season, especially third quarter, as a result in the profitability of background.
Will be better in that quarter.
Thank you very much information.
Okay, thank you. And then operator, we will take the last participant, please.
Is Andrew Lu from Sanaa links purities, go ahead, please.
Thank you for taking my questions, CeCe. I want to ask this year. You just a guide, a 24 percent year-over-year growth. I think this number probably in line with industry. It's clear. We have a stronger course in advanced technology, but losing some sharing the Legacy. Rerun Dimension. We will build more mature Technology based on the customers demand. So if our capex and change
Well, we adjust down the vents capex, but increase more capex. Mature technology.
Okay. So Andrews first question, he's looking at our growth in 2021 to be around 24%. He sees the the strong leadership in the advanced notes, but his note is that we're losing share in the mature notes. So going forward. Will there be any adjustment in our capex strategy leading versus mature?
Is that correct Andrew? Yes, correct. Thank you, sir. Jeff Andrew. Let me answer that. We did not change our strategy while philosophy in our capex pain, but certainly the most important thing is that were working with our customer to support the atom. And this is very important that including under specialty Technologies.
We share them. Actually. We share them to increase the mature notes capacity. But as we announced that Japan Fab actually is a mature technology is a 2228 node.
So can we say that in the future? We shall have a higher percentage of tap has internal. Total cab has compared to the Past.
So to the mechanic who wants to know, Andrew wants to know where the capex spending portion proportion of the mature notes versus Leading Edge, of what we have a higher proportion for the mature notes in the future years, Andrew not because of what we increase our capex, right? So, even the same proportion, the mature notes are actually, we spend a lot of money also.
And keys.
So your question, yes. Yes. My last question is since we are adjusting our price. Based on the coast increase of I ever. How do we factor into our model for next year? What kind? Plenty 80 increase? We factored into our model because I have been observed average price. Plenty basis for the last three years including this year, our price for last three years. Including
During this year about seven to nine percent. So if next year, we have a additional adjustment on the Apple to Apple pricing level. Should we say easy to have a 10% blend the bases increase SV. Thank you.
Okay, so Andrew second question, you it's on the Blended ASP Outlook. He wants to know in essence. Can you model a 10% or greater? A blended ASP increase for 2022?
Andrew. It's too early to comment on 2022. We will provide you more color in January. Plus we don't really comment or ASP. Anyway, thank you.
Okay, thank you. This concludes our q and 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 the transcript will become available 24 hours from now. And both of which are available through tsmc is website at triple w dot tsmc.com. So thank you for joining us today. We hope everyone can use to say healthy and safe and we hope you will join us again next.
Quarter in January, goodbye, and have a good day.