Q4 2021 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

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Good afternoon, everyone and welcome to Tsmc's fourth quarter 2021 earnings Conference call.

This is Jeff Sue Tsmc's 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 Companys website at Triple W. Dot T. S N C dot com.

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's, Vice President and CFO , Mr. Wendell Huang will summarize our operations in the fourth quarter 2021, followed by our guidance for the first quarter 2022.

Afterwards, Mr. Huang and Tsmc's CEO Dr. C. C. Wei will jointly provide the company's key messages.

Then tsmc's chairman Dr. Mark Liu will host the Q&A session, where all three executives will entertain your questions.

As usual I would like to remind everybody that today's 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's CFO , Mr. Wendell Huang for.

The summary of operations and the current quarter guidance.

Thank you, Jeff happy New year, everyone. Thank you for joining us today.

My presentation will start with financial highlights for the fourth quarter and recap our full year 2020.

After that I will provide the guidance for the first quarter 2022.

Fourth quarter revenue increased five 7% sequentially in NT dollar or five 8% in U S dollar.

As our fourth quarter business was supported by the strong demand for our industry, leading five nanometer technology.

Gross margin increased one four percentage points sequentially to 52, 7%, mainly due to the continuous cost improvement efforts.

Operating margin increased <unk> five percentage points sequentially to 41, 7% slightly ahead of our guidance as we enjoyed higher operating leverage and a portion of the vaccine donation expenses got pushed out to the first quarter.

Overall, our fourth quarter EPS was $6 four one and T and <unk> was 31, 3%.

Now, let's move on to the revenue by technology.

<unk> nanometer process technology contributed 23% of wafer revenue in the fourth quarter, while seven nanometer accounted for 27%.

<unk> technologies, which are defined as.

Seven nanometer and below accounted for 50% of wafer revenue.

On a full year basis five nanometer revenue contribution came in at 19% of <unk> 2021 wafer revenue.

Seven nanometer was 31%.

Advanced technologies accounted for 50% of total wafer revenue up from 41% in 2020.

Now moving on to revenue contribution by platform.

All platform has increased in the fourth quarter.

<unk> increased 7% quarter over quarter to account for 44% of our fourth quarter revenue.

HBC increased 3% to account for 37%.

<unk> increased 3% to account for 9%.

Automotive increased 10% to account for 4% and digital consumer electronics increased 2% to account for 3%.

On a full year basis, all six platforms experienced year on year growth.

HBC Iot and automotive saw strong growth of 34% to 91% and 51% respectively.

<unk> also increased 8% and TCE increased 2% in 2021.

Overall smartphone accounted for 44% of our 2021 revenue.

<unk> accounted for 37% and Iot accounted for 8%.

Moving onto the balance sheet, we ended the fourth quarter.

With cash and marketable securities of one two trillion NT dollars.

On the liability side current liabilities increased by 84 billion NT, mainly due to the increase of $22 billion in accounts payable and the increase of $61 billion in accrued liabilities and others.

Long term interest bearing debt increased by 150 billion NT dollar mainly as we raised $157 billion of corporate bonds during the quarter.

On financial ratios accounts receivable turnover days remained at 40 days, while days of inventory increased three days to 88 days.

Now, let me make a few comments on cash flow and Capex.

During the fourth quarter, we generated about 378 billion NT and cash from operations, including 80 billion NT prepayment from customers spent 236 billion in Capex and distributed 71 billion for first quarter 'twenty, one cash dividends.

Bonds payable increased by 157 billion due to the bond issuance.

Overall, our cash balance increased.

211 billion to $1 one trillion at the end of the quarter.

In U S dollar term, our fourth quarter capital expenditures totaled $8 $4 6 billion.

Now, let's look at the recap of our performance in 2021.

We saw a strong growth in 2021.

As our technology leadership position enable us to capture the industry's megatrends of <unk> and HTC.

Our revenue increased 24, 9% in us dollar terms to reach $57 billion.

In NT dollar terms revenue increased 18, 5% as the NT appreciated by 5% during the year.

Such unfavorable foreign exchange rates also impacted our gross margin by about two percentage points.

In addition, and five dilution also created headwind to our margin.

However, as we continue to drive cost improvements.

We were able to achieve gross margin of 51, 6% and operating margin of 49% in 2021.

Overall full year EPS increased 15, 2% to $23 one point.

Oh, one anti <unk> and <unk> was 29, 7%.

On cash flow, we spent 839 billion ante in Capex, while we generated $1 one trillion in operating cash flow and 273 billion in free cash flow.

We also paid 266 billion NT in cash dividends in 2021.

I have finished my finance.

Financial summary, now, let's turn to our current quarter guidance.

We expect our business in the first quarter to be supported by HBC related demand.

<unk> recovery in the automotive segment and the milder smartphone seasonality than in recent years.

Based on the current business outlook, we expect our first quarter revenue to be between $16 6 billion and $17 2 billion U S dollars, which.

Represents.

Seven 4% sequential increase at the midpoint.

Based on the exchange rate assumption of one U S dollar to 27, 6%.

Gross margin is expected to be between 53% and 55%.

Operating margin between 42% and 44%.

Lastly, our 2022 effective tax rate is between 10% to 11%.

This concludes my financial presentation, now I will move on to our key messages.

I will start by making some comments on our 2022 capital budget and depreciation.

Every year, our Capex is spent in anticipation of the growth that will follow in the future years, we are witnessing a structural increase in underlying semiconductor demand underpinned by the industry Megatrends of <unk> related and <unk> applications.

In 2021, we spent 30 billion U S dollars to capture the strong demand and support our customers' growth.

In 2022, our capital budget is expected to be between 40 to 44 billion U S dollars.

Out of the 40 to 44 billion Capex for 2022.

Between 70, and 80% of the capital budget will be allocated for advanced process technologies, including two nanometer three nanometer five nanometer and seven nanometer.

About 10% will be spent for advanced packaging and mask maybe.

And 10% to 20% will be spent for specialty technologies.

Our depreciation expense is expected to increase by low to mid teens.

Percentage year over year in 2022 as newly incur depreciation will be partially offset by other notes rolling off depreciation.

With this level of Capex spending in 2022.

We reiterate that TSMC remains committed to a sustainable cash dividends on both an annual and quarterly basis.

Now, let me turn the microphone over to Cc.

Thank you window.

We hope everybody stays safe and healthy during this time.

First let me start with our 2022 outlook.

We expect 2022 to be another strong growth year for TSMC.

For the full year of 2022, we forecast the overall semiconductor market excluding memory.

<unk> grew approximately 9%.

Foundry industry growth.

Is forecast to be close to 20%.

For TSMC, we are confident we can outperform the foundry revenue growth.

And core between mid to high 20% in 2013 to U S dollar term.

Our 2022 business will be fueled by strong demand for our industry, leading at a variety of CNS specialty technologies.

Where we see strong interest from all four course platform, which are smartphone.

<unk> Iot and automotive.

Entering 2022, we expect the supply chain to maintain a higher level of inventory.

Here too the historical seasonal level, given the industries continue need to issue a surprise security.

While the short term imbalance may or may not persist we continue to observe.

The structural increase in long term semiconductor demand underpinned by the industry makeup trend of <unk>.

SPG related applications.

We also observed a higher silicon content in many devices, including automotive Pcs servers networking and smartphones.

As a result, we expect our capacity to remain tight throughout 2022, as we believe our technology this year.

Labour TSMC to capture the strong demand for our revised specialty technologies.

Next let me talk about Tsmc's long term growth outlook and profitability.

We're entering a period of higher structural growth.

As the technology becomes more pervasive get essential in People's lives.

In the digital transformation accelerates the semiconductor industry, where you use supply chain is increasing.

As we embark upon the <unk>.

Intelligent a more connected to award work you are massive requirement for computation power.

And prepare Greek greater need for energy efficient computing, which demand greater use of gauging edge technologies.

The multiyear megatrends of <unk> related applications.

Hey, Marty so unit volume growth.

More importantly spur substantial semiconductor.

Content enrichment in HPE.

Smartphones automotive and Iot applications through a series of structural increase in the long term market demand profile.

She is working closely with our customer to plan, our capacity and investing in leading edge and specialty technology to support here.

<unk>.

At the same time as we are committed to achieve a sustainable.

Proper return that enable us to invest to support our customers of course and deliver long term profitable course for our shareholders.

Over the last three years, we have raised our capex spending from U S. $14 9 billion in 2019 to use $30 billion in 2021, ASO embracing anticipation of course that will follow.

During the same period.

Our revenue in U S. Dollar term has increased.

34.

6 billion in 2019 to $56 8 billion in 2021.

One six times and our EPS by $1 seven times.

Speaker 1: Looking ahead, as the world's largest reliable and effective capacity provider, with our technology leadership, manufacturing excellence, and customer trust, we are well positioned to capture the growth from the forever industry mega trend with our differentiated technology.

Looking ahead as the worlds largest reliable and effective capacity provider with our technology leadership manufacturing excellence.

Customers Trust, we are well positioned to capture the cores from the flavor industry Mega trend, we saw differentiated technologies.

Speaker 1: We expect our long-term revenue to be between 15 and 20 percent bigger over the next several years, in U.S. terms, of course, fueled by all four growth platforms, which are smartphone, HPC, IoT, and automotive.

We are spirit, our long term revenue to be between 15 and 20% CAGR over the next several years.

U S. Dollar terms of course fueled by all four core platform, which our smartphone SPG Iot and automotive.

Speaker 1: With the increasing need for computation, SPC will be the strongest driver of PSMC's long-term growth.

We saw increasing need for computation SPG, what be the strongest driver of Tsmc's long term growth.

Speaker 1: and expected to be the largest contributor in terms of our incremental revenue growth we said CPU, GPU and AI accelerators are the main growth area for our HPC platform.

Again expected to be the largest contributor in terms of our incremental revenue growth.

CPU GPU and AI accelerators are the main course area for our SPG platform.

As we invest.

Speaker 1: using edge and specialty technology to support our customers' demand, we continue to face manufacturing cost challenges due to increasing process complexity at D

Leading edge specialty technology to support our customers' demand.

We continue to face manufacturing cost challenges due to increasing process complexity at leading edge node.

Speaker 1: new investment in mature nodes, expansion of our global manufacturing footprint, and rising materials and basic commodity costs.

New investment in mature node expansion of our global manufacturing footprint and rising material and basic commodity cost.

Speaker 1: We are continuing to work closely with our customers to support their growth, and our pricing strategy will remain strategic, not optimistic, to reflect our value creation.

We are continuing to work closely with our customer to support their growth.

Our pricing strategy will remain strategic.

Not opportunistic to refer to our value creation.

Speaker 1: We will also work diligently in our own FAB operation and with our suppliers to deliver on cost improvement.

We'll also work diligently in all.

Fab operation.

And with our suppliers to deliver on cost improvement.

Speaker 1: By taking such actions, we believe a long-term gross margin of 53% and higher is achievable. We can earn a sustainable and proper return of greater than 25% ROE suited cycle.

By taking such actions, we believe our long term gross margin of 43% and the higher is achievable.

And we can earn a sustainable proper return.

Greater than 25% Roe.

That cycle.

Just.

Speaker 1: Even as we shoulder a greater burden of K-PEX investment for the industry, we can continue to invest to support our customers' growth and deliver long-term profitable growth for our shareholders.

Even as we showed a greater burden of Capex investment for the industry.

<unk> continued to invest to support our customers of course and deliver long term profitable course for our shareholders.

Now I will talk about <unk>, and <unk> and four <unk>.

Speaker 1: Now I will talk about N5, N4P, and N4X stations.

Speaker 1: As our N5 entry is 30 years of RAM, demand continues to be very strong, driven by smartphone and HPC applications.

Sorry, if I enter your 30 year so room.

Demand continues to be very strong driven by smartphone and HPT applications.

Speaker 1: our N5 has proven to be the industry's most competitive leading edge technology.

Our <unk> has proven to be the industry's most competitive leading edge technology.

To fully and highest in five families of performance power and tasty improvement for next wave five nanometer products. We also introduced <unk> and four <unk> technologies.

Speaker 1: to further enhance our N5 family's performance, power, and density improvement for next wave 5 nanometer products. We also introduce N4P and N4X technology.

<unk> offers 11% pro forma as boost.

Speaker 1: N4P offers 11% performance boost as compared to N5 with 22% improvement in power efficiency and 6% density gain. N4P is designed for easy migration from N5 to N5.

Compared to <unk>, five which is 22% improvement in power efficiency.

6% density gain <unk> designed for easy migration for <unk>.

With his protons tape in our schedule for second half 2022.

Speaker 1: which is products taking our schedule for second half 2022. We also introduced N4X as an offering specially optimized for workload intensive HPC applications.

We also introduced the envoy S as an offering especially optimized for workload in Tennessee <unk> applications.

Speaker 1: N4AX will offer much more circuit performance boost over N5 and is expected to enter risk production in first half 2023.

<unk> will offer much more circuit performance boost over in fly EMEA.

EMEA expected to enter risk production in first half 2023.

Speaker 1: We saw continuous enhancement of our in-flight process technology.

With our continuous enhancement of our NPI process technologies, we expect demand for our <unk> family to continue to grow in the next several years and.

Speaker 1: We expect the demand for our N5 family to continue to grow in the next several years and for N5 family to be a large and long-lasting note for TSMC.

<unk>, formerly to be large and long lasting node for TSMC.

Speaker 1: Next, let me talk about N3 and N3e stators.

Next let me talk about <unk>, III and <unk> status.

Speaker 1: N3 technology-wide use fintech transistor structure to deliver the best technology maturity, performance and cost for our customers.

<unk> technology, why use finfet transistor structure to deliver the best technology maturity performance and costs for our customers.

Speaker 1: Our N-suite technology development is on track. We have developed complete platform support for both HPC and smartphone applications.

Our <unk> technology development is on track.

<unk> developed.

Please pray for the support for both the SPG and smartphone applications.

Speaker 1: Yen's reproduction was starting second half of 2022.

<unk> production was filed in second half of 2022.

Speaker 1: We continue to see a high level of customer engagement at N3 and expect the more new tape outs for N3 for the fourth year as compared with N5.

We continue to see a high level.

Customer engagement at industry.

Expect the more new tape outs for industry for the fourth year.

<unk> and <unk>.

Speaker 1: N3E will further extend our N3E family with enhanced performance, power and yield. We also observe a high level of customer engagement at N3E and voting production is scheduled for one year after N3E.

Hence we will further extend our industry firmly we see in high performance power and yield we also observed a high level of customer engagement at industry volume.

Production is scheduled for one year after injury.

Speaker 1: how 3 nanometer technology will be the most advanced sub-1-3 technology in both PPA and transistor technology when it is introduced.

Our three nanometer technology will be the most advanced foundry technology in both PPA and transistor technology when it is introduced.

Speaker 1: With our technology leadership and strong customer demand, we are confident that our N3 family will be another large and long-lasting node for TSMC.

With our technology leadership and strong customer demand.

We are comfortable that our industry family will be another large and long lasting node for TSMC.

Speaker 1: Finally, let me talk about our mature note capacity strategy.

Finally, let me talk about our mature node capacity strategy.

Speaker 1: TSMC's strategy at Mature Node is to work closely with our customers to develop specialty technology solutions to meet customers' requirements and create differentiated and long-lasting value to customers.

TSMC is our strategy at a mature node is to work closely with our customers to develop specialty technology solutions to meet customer requirements.

<unk> depreciated and long lasting value to customers.

Speaker 1: We expect a multi-year industry mega trend of 5G and SPC and the higher silicon content in many end devices to drive increasing demand and mature node for certain specialty technology.

We expect the multiyear industry Mega trend of <unk> and SPG and.

And the higher silicon content in many end devices to drive increasing demand and mature node for certain specialty technologies.

We forecast 28 nanometer what be the sweet spot for our embedded memory applications in our long term structural demand at 28 nanometer to be supported by multiple specialty technologies.

Speaker 1: We forecast 28 nm would be the sweet spot for our embedded memory applications and our long term structural demand at 28 nm to be supported by multiple specialty technologies.

Speaker 1: In support of our specialty technology strategies, we are expanding our 28nm manufacturing capacity and size in China, Japan and Taiwan.

In support of our specialty technology strategy.

Expanding our 28 nanometer manufacturing capacity.

In China.

Japan.

And the Taiwan.

Speaker 1: Our capacity expansion is based on customers' need, business needs, and

Our capacity expansion is based on customers' need.

These opportunities.

Speaker 1: operating efficiency and cost-economic considerations.

Operating efficiency and cost economics PCL ratios.

Speaker 1: We believe the expansion of our mature node capacity will enable us to better serve our customers' needs and reach global talents in our differentiated specialty technology will enable us to capture the demand generated from the industry mega-trend and deliver long-term profitable growth for our shareholders.

We believe the expansion of our mature node capacity, while our neighbors to better serve our customers need enriched global tenants and our differentiated specialty technology.

Our neighbours to capture that demand generator form the industry Mega trend and deliver long term profitable course for our shareholders.

Speaker 1: this concluding our key message. Thank you for your attention.

This concludes our key message.

Thank you for your attention.

Speaker 2: Thank you, C.C. This concludes our prepared remarks. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time.

Thank you Sir this concludes our prepared remarks before we begin the Q&A session I would like to remind everybody to please limit your questions to two at a time.

Speaker 2: to allow all the participants an opportunity to ask their question.

To allow all of the participants an opportunity to ask their questions.

Speaker 2: Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question.

Should you wish to raise your question in Chinese I will translate it to English before our management answers your question.

Speaker 2: For those of you on the call, if you would like to ask a question, please press 0, then 1 on your telephone keypad now. Questions will be taken in the order in which to answer.

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 are received.

If at any time, you would like to remove yourself from the queue.

Speaker 2: If at any time you would like to remove yourself from the queue, please press 02.

Please press zero two.

Speaker 2: Now we will proceed to the Q&A session. Our Chairman, Dr. Mark Liu, will be the host.

Now we will proceed to the Q&A session, our chairman Dr. Mark Liu will be the host.

Hello, everyone. This is mark Liu.

I want to send my regards to every one of you during this pandemic.

Speaker 3: I want to send my regards to every one of you during this pandemic.

Speaker 2: and wish we have a happy and successful 2022. Thank you. Thank you, Chairman. Let's begin the Q&A session now. Operator, can we please proceed with the first caller on the line?

And we should we have a happy and successful 2022. Thank you.

Thank you chairman, let's begin the Q&A session now operator can we please proceed with the first caller on the line.

The first to ask questions Randy Abrams from credit Suisse.

Speaker 4: First, I ask questions. Thank you.

Speaker 5: Okay, yes, thank you, congratulations on the results and the outlook and margins. First question on the growth outlook. When we compare the growth expectation, mid to high 20% versus, I roll up the Fabless and IDM customers, they're about mid-teens.

Okay, Yes.

Thank you congratulations on the results and the outlook in margins.

First question on the growth outlook, when we compare the growth expectation mid to high 20%.

So if I roll up our Fabless and IDM customers.

They are about mid teens growth.

Speaker 5: So your outgrowth looks much wider than most years. Could you break it down a bit more, the factors between share gain, pricing moves, and also if there's any component of inventory built in there?

So Europe outgrowth looks much wider than most peers could you break it down a bit more the factors between share gain.

Rising moves and also.

If there's any component of inventory build in there.

Speaker 2: Okay, Randy, let me summarize your first question. I believe your question is referring to the 2022 growth outlook. And Randy is not – Right. And so Randy is saying TSMC's guidance of mid to high 20s percentage, his calculations show that the fabless industry is growing maybe around mid teens. So we will outgrow the foundry – I'm sorry, the fabless.

Okay, Randy Let me summarize your first question I believe your question is referring to the 2022 growth outlook and Randy.

And so Randy is that the same tiers.

Tsmc's guidance of mid to high <unk> percentage here.

His calculations show that the Fabless industry is growing maybe around mid teens. So we will outgrow the foundry.

Fabulous.

Speaker 2: And so he is wondering what is driving this outgrowth. Is it share gain, pricing, are there other factors such as inventory built into this? And if we can share.

And so he is wondering what is driving this.

Outgrowth is it share gain pricing are there other factors such as inventory built into this and if we can.

Sure.

Okay.

Speaker 1: Okay, let me answer the question. This is Shih-Chi Wei. Actually, the growth in 2022 is all the above you just mentioned. It's a share gain, it's pricing and also it's a unique growth.

Let me answer the question this is <unk>.

Actually the course in 2022 is all <unk> you just mentioned is a share gain is a pricing also.

Unicorn.

Did I answer your question.

Yes, mostly and maybe just a quick two quick follow ups to that.

Speaker 5: Yeah, mostly and maybe just a quick, two quick follow ups to that if if you could break the growth by platform, and if you could indicate just how much inventory like how much you think your customers want to put in place more inventory, like how big a component you think that factor is.

If you could break that growth by platform and if you could indicate just how much inventory how much you think.

Your customers want to put in place more inventory like how big a component if you think about factors.

Okay. So Randy as a follow up is can we.

Speaker 2: Okay, so Randy's follow up is, can we give our 2022 growth by platform outlook? And then how much of a role is inventory build playing in this growth?

Give our 2022 growth by platform outlook and then how much of a role is inventory build playing in this growth.

Speaker 3: Hi, Randy, this is Wendell. Let me answer the platform question. In 2022, we expect the HPC and automotive to grow faster than the corporate average. IoT, similar. Smartphones, close to the corporate average. That's the platform.

Hi, Randy This is Randall let me answer the platform question in 2022, we expect the SPC and automotive to grow faster.

Than the corporate average.

Iot similar.

Smartphones.

Close to the corporate average that's the platform growth.

Speaker 2: And then Randy's second part is how much of a role is inventory built playing in this.

And then Randy second part is how much of a rules inventory build playing in this.

While Randy as Cc mentioned that the key messages, we expect the inventory level to remain high.

Speaker 3: Well, Randy, as CeCe mentioned that the key message is we expect the inventory level to remain high, higher than before for a longer period of time, but we're not able to quantify that factor.

Higher than before for a longer period of time.

But we're not able to quantify that sector.

Okay.

Speaker 5: Okay, no, I think I'm, if I could ask a second question. You disclosed about the, you're getting more prepayments and a lot of customers have been disclosing those. If you could talk about the strategy behind this as far as the main objectives of the program and the protection you're looking for if we go into downturn with a scenario would be. So if you could disclose kind of that, strategy behind that.

If I could ask a second question you disclosed about the youre getting more prepayments and a lot of customers have been disclosing those if you could talk about the strategy behind this as far as the main objectives of the program and the protection you are looking for if we go into a downturn.

With that scenario would be if you could disclose kind of that the strategy behind that.

Speaker 6: Okay, Randy, the prepayment.

Okay.

Randy.

The prepayment.

Speaker 6: Yeah, we work closely and diligently with the customer to plan the capacity, including receiving their prepayments for capacity support. And we will continue to work with them to determine the best way to support them.

Yes.

We work closely and diligently with our customer plan the capacity.

Including receiving their prepayments for capacity support.

And we will continue to work with them to determine the best way to support them.

Speaker 6: Such commitments or prepayment will strengthen our cash position and help mitigate our capital risk in capacity.

Such commitments or prepayment will strengthen our cash position and help mitigate our capital risk in capacity now.

Speaker 6: Now, talking about securing a commitment,

Now talking about securing.

Capacity commitment.

We always work closely with our customers and we believe that technology leadership manufacturing excellence and earning customer trust.

Speaker 6: We always work closely with our customers and we believe that technology leadership, manufacturing excellence and earning customer trust are the best or the most effective way to secure customer commitments. So as long as we plan our capacity well based on the structure increase in the long-term market demand profile, we believe our utilization and profitability can be well protected.

The best or the most effective way to secure customer commitments. So as long as we plan our capacity well based on the structural increase in the long term market demand profile, we believe our utilization and profitability can be well protected.

Okay. Thank you Wendell Randy does that address your second question.

Speaker 2: Okay, thank you, Wendell. Randy, does that address your second question?

Speaker 5: Yeah, what's more about in a downturn, I guess, is it also a reassurance in terms of volume or some cash flow, like, to protect the amount you have to outlay? So it's also kind of an insurance policy of some sort.

Yes, it's more about in a downturn I guess is it sorry.

Reassuring in terms of volume or.

Some cash flow like to protect the amount you have to outlay for luxury.

And insurance policy of some sort.

Well.

Speaker 6: Well, yeah, Randy, I think as I just mentioned, the best way is to work with the customers and gain their commitment through our technology leadership, manufacturing excellence and therefore earning their trust. So if we plan our capacity well, based on the structural demand in the industry, then I think our utilization and profitability can be maintained.

Yeah, Randy I think.

As I just mentioned the best way is to work with the customers and gain their commitment through our technology leadership manufacturing excellence and therefore, earning their trust. So if we plan our capacity well based on the structure of demand in the industry that I think are you.

Utilization and profitability.

Can be maintained.

Speaker 2: Okay. Okay. Great. Thank you, Eduardo. Thank you. Thank you, Randy. And now we'll go directly to the next participant on the line.

Okay. Okay, great. Thank you and thank you yep. Thank you Randy operator can we.

<unk> to the next participant on the line please.

Speaker 4: Next one to our questions, Bruce Lu from Goldman Sachs. Go ahead, please.

Next onto our questions Bruce Lu from Goldman Sachs Go ahead. Please.

Speaker 4: Hi. Thank you for taking my question. Congratulations for the great results. I think management mentioned about $1 trillion semiconductor market price in 2020, around 30. So can we have more color about the primary market price by then? Or for the key growth drivers such as HPC, can TSMC provide a more quantitative forecast, for example, like what is the addressable market for ARM-based CPU in 2025 or 2030?

Hi, Thank you for taking my question congressional upgrade retail I think management mentioned about one trillion power semiconductor market I think 2020.

And thirdly, so can we have more color about the foundry market stocks by an order for the key growth drivers such as HTC can TSMC provide a more quantitative forecast for example, like what is the addressable market for arm based CPU in 2025 2030.

Speaker 2: Okay, Bruce, let me summarize your first question. So Bruce is saying, we have talked about a $1 trillion foundry market by 2030, so he wants to know what can be the key drivers here, and also the role of HPC, including ARM-based in this outlook.

Okay, Bruce Let me summarize your first question so Bruce ethane.

We have talked about a one trillion foundry.

Foundry market by 2030, so he wants to know what can be the key drivers here and also the role of HBC, including arm based in this outlook.

Okay.

Speaker 3: Bruce, this is Mark. We don't have a very specific forecast for 2030.

Bruce This is mark.

We don't have a.

Very specific forecast for 2030 to share with you one trillion dollar is.

Speaker 3: share with you. One trillion dollars is our model and so has been quoted by general industrial comments.

Our model and so as being quoted by general industrial comments.

Speaker 3: However, we do believe the high growth approach to that number is happening. We believe the semiconductor industry growth will continue fewer by the, C.C. just mentioned, structure of Megatrend 5G and high performance computing. And also our leading edge technology provide the most energy efficient technology for computation and accelerate the digital transformation for the next several years. So, thank you.

However, we do believe the high growth approached a number is happening we believe the semiconductor industry growth.

We'll continue fueled by the Cc just mentioned structure of megatrend.

In high performance computing and.

Also our leading edge technology provide the most energy efficient technology for computation and accelerate their digital transformation for the next several years.

<unk>.

But if you look at the if we want me to comment on the foundry industry is pretty clear.

Speaker 3: But if you want me to comment on the foundry industry, it's pretty clear. The foundry industry growth will be higher, because in addition to Fabulous Company, IDM outsourcing will continue increasing in a fast growth rate. And most importantly, system companies will grow particularly faster during this period of time.

The foundry industry growth will be higher.

Because in addition to Fabulous company IDM outsourcing will continue increasing fast growth rate and most importantly system companies with growth, particularly faster during this period of time.

Speaker 3: So in that sense, we believe that foundry growth, foundry industry growth will have a good year better than other sectors.

So in that sense.

That says that we believe the foundry growth.

And the industry go through the half.

A good year.

Better than other sectors.

And then Bruce also asking about the role of HTC in this growth outlook, including the arm.

Speaker 3: And then Bruce also asking about the role of HPC in this growth outlook, including the ARM. Oh, well, ARM is a new phenomena. I think the CPU architecture no longer being dominated by one architecture. Multiple architecture provided their better integration with software, provide a much wider application of CPU.

Oh well.

<unk> is a is a new phenomenon I think.

CPU architecture no longer being.

Dominated by one architecture multiple architecture provided they're better integration with software provide a much wider application of Cpus and that no matter what the with the CPU.

Speaker 3: And that, no matter with the CPU.

Speaker 3: which architecture they are. Currently we are engaging to all CPU architecture customers.

Which architecture. They are currently we are engaging to our CPU architecture customers.

Okay, Bruce does that answer your first question.

Speaker 7: Yes, but I tried to ask a follow-up for the addressing for the HPC. I mean, within that HPC, we understand that this is the best-scoring segment. Can you provide some more like, you know, different like, you know, growth magnitude within the HPC? Which, you know, which part of the HPC is growing faster, and how big would that be in three to five years?

Yes, I tried to ask you a follow up for the attraction for the HTC I mean, we think that HPT. We understand that this is the fast growing effect can you provide some more likely in a different light growth magnitude within the HTC, which.

Each part of the HBC is going after and how big could that be in three to five years.

Okay.

Speaker 1: Well, Bruce, this is Hixiwei again. No, we cannot disclose all the details on each segment, for example, CPU, GPU, and AI accelerator, which one is more, you know, what kind of percentage. In fact, they are all growing, but, you know, for the specific percentage, we don't come in right now.

Bruce This is where again no we cannot.

[laughter] disclose all the details on each segment for example, CPU GPU and AI accelerators, which one is.

More.

What kind of percentage.

In fact they.

They are all boring but.

For the specific percentage.

Don't come in right now.

Speaker 7: Okay, Bruce? I'll attend. Thank you. Okay. Do you have a

Okay Bruce.

Thank you.

Okay.

Okay do you have a second question.

Speaker 7: Yes, the second question is regarding to the 28 nanometers. As we know that 28 nanometers is the biggest node among all the process nodes within TSMC and which suffered lower eutectic rate in 2018 and 2019. So with the recent announcement in Nanjing or Japan or even in Kaohsiung, we suggest another 50% of capacity growth in 28 nanometers along in TSMC.

Yes, and the second question is regarding to the 28 nanometer.

We know that on the 80 nanometer is the biggest note.

Among ordered process now, we think TSMC and which is software and lower you touched on in $2018 19, So with the reason announcement in managing our Japan or even goes strongly suggests another 50% of our capacity growth in 2028 nanometer alone in TSMC.

Not to mention light year in disappear.

Speaker 7: Not to mention your industry peers are all aggressive in expanding the 2018 economies. Can you provide more growth drivers and how can you feel comfortable to expand the capacity in this magnitude in the coming years when a lot of financial industry were talking about a down cycle or a cycle peak or oversupply in 2020?

Oh great.

Expanding the 28 nanometer can you provide like more like growth driver and how can you feel comfortable to expand the capacity of this magnitude.

The coming year, when a lot of large financial industry, we are talking about them.

Downside cycle peak oversupply in 2023.

Speaker 2: Okay, Bruce's second question is on 28 nanometer. He notes that we are, as C.C. said, expanding our capacity in 20 nanometer in various locations, but he also notes that other foundry peers in the industry are also expanding as well. So he wants to know the risk, I guess, of oversupply.

Okay. Bruce second question is on 28 nanometer.

He notes that we are FCC said, expanding our capacity in 20 nanometer in various locations.

But he also notes that other foundry peers in the industry are also expanding as well so he wants to know.

The risk I guess of oversupply.

A quick question.

Speaker 1: Well, good question. As you pointed out in 2018, 2019, we have a low utilization rate. It's just a little bit above 80%. But right now, we do observe that our long-term structural demand at 28 nanometer was to be well supported by multiple specialty technologies, such as a CMOS image sensor.

As you pointed out in 2018 2019, we have low utilization rate is just a little bit above 80%, but right now we do observe that our long term structural demand.

At 28 nanometer was to be well supported by multiple specialty technologies, such as Cmos image sensor.

Speaker 1: for multi-camera trends and better non-volatile memory applications and other specialty technologies.

For our multi camera or trend and better non volatile memory application and other specialty technologies.

Speaker 1: To be in one word, actually, the enrichment in the silicon content in many devices that developed in recent years help to support this demand.

To be in one work actually.

Enrichment in the silicon content.

<unk> many in devices that.

In recent years.

To support this demand.

Okay Bruce.

Great. Thank you. Thank you operator can we move on to the next participant please.

Speaker 2: Great, thank you. Thank you. Operator, can we move on to the next participant, please?

Speaker 4: Next question is Charlie Chan from Morgan Stanley .

Net client staff cuts and Charlie Chan from Morgan Stanley .

Hello, Charlie.

Are you on the line.

Speaker 8: Are you on the line? Yes, yes. Hello, can you hear me? Okay. We can hear you now. Let's go ahead.

Yes, yes, Hello can you hear me Okay. We can hear you now those go ahead.

Speaker 8: OK, thank you. And also, Happy New Year and congratulations for good results. So to management, my first question is about the macroeconomic risk. For example, inflationary pressure on the consumer tech demand.

Thank you.

Also happy new year and congratulations for a good result, so management of my first question is about.

The maker or economy risks for example in <unk>.

Mary Treasure and our consumer tech demand.

Speaker 8: And also, stay-at-home demand has been strong for two years. Order management would consider that could fade away and impact your PC, TV, or these semis.

<unk> demand has been strong for two years.

We'll consider that.

Fade away and in fact impact your PC TV semis and also lastly, the crypto mining demand has been very volatile right and now it seems like crude.

Speaker 8: And also, lastly, the crypto mining demand has been very volatile, right? And now it seems like crypto price also falls down. So I'd like to know, Meijing, whether you consider those kind of macro risks into your full-year revenue growth forecast. Thank you.

Crude oil price falls down so data no matter, whether you consider it as a kind of macro risk into your full year revenue growth.

Forecast thank you.

Speaker 2: Okay, so Charlie's first question is related to the macro outlook looking at concerns of inflation, work from home fading, consumer demand and also crypto volatility. What impact could this have on end demand for PC, TV and semiconductors and have we considered this into our outlook?

Okay. So charges first question is.

Related to the macro outlook looking at concerns of inflation worked from home fading.

Consumer demand and also crypto volatility.

What impact could this have on end demand for PC TV in semiconductors and have we considered this into our outlook.

Speaker 1: Maybe CC can address this. Well, Charlie, we expect the supply chain to maintain a higher level of inventory for longer that will further diminish the touring for

<unk> can address where Charlie.

Hi.

We expect the surprise tend to maintain a higher level of inventory for longer periods of time.

Speaker 1: given the industry's continued need to ensure the supply security.

Given the industries continue need to ensure the surprise security.

Speaker 1: But then we also observe the yen market momentum in certain segments may slow down or adjust in terms of units.

But then we also observed a year market momentum.

In certain Shukman may slow down or adjust in terms of unit.

Speaker 1: But the increasing silicon content in many end devices is a more important factor in supporting the strong semiconductor demand and will continue.

But the increasing silicon content in many yen devices is a more important factor in supporting the strong semiconductor demand and will continue.

Speaker 1: So even if just a correction were to occur, we believe you could be less volatile for TSMC due to our technology leadership position and structural MacArthur's

So even if <unk>.

Correction or to occur we believe it could be less volatile for TSMC due to our technology leadership position.

And the structure.

Mega trend demand.

Speaker 1: mega-strength demand of 5G related in HPC application.

<unk> related and HPE.

Occasion.

Speaker 1: you know, the substantial increase in silicon content, that will make sure we expect our capacity to remain very tight throughout 2022. You also mentioned about the cryptocurrency. Yes, we have affected that one year. Okay, great.

The substantial increase in silicon content.

Make sure we're expert our capacity to remain very tight throughout 2022, you also mentioned about crypto currency, yes, we have effective at one year.

Okay, Great Charley.

Charlie do you have a second question.

Yes, if I may.

Speaker 8: Yes, if I may. So, my second question is maybe to Wendell. That first quarter, let me see a great sequential broad rate. So, may I know that does the price-height benefit mostly reflected in 1Q, or there will be still some price-height benefits in the second quarter? And also, can you please...

And second question is maybe to the window.

First quarter revenue see a greater sequential growth rate so no that does.

Hi benefit mostly reflected in <unk>.

Sales.

Price benefits in the second quarter.

And also can you please repeat the.

Depreciation grew.

<unk> guidance year on year for 2022, Thank you.

<unk> chartered let me summarize your second question. So his question is directed to Wendell.

In terms of the first quarter revenue sequential growth how much of the price.

Price hike is reflected in this and we will a price hike be reflected in subsequent quarters.

Charlie we're not able to break down those numbers for you, but we continue to work closely with our customers.

<unk> demand and also sell our value.

That's why we are focusing on.

Speaker 2: And the depreciation guidance, Charlie, this year is low to mid-teens year-on-year increase. Thank you.

And the depreciation guidance Charley this year is low to mid teens year on year increase thank you.

Okay. Thanks, Okay. Thank you operator can we move on to the next participant please.

Speaker 1: Okay, thanks. Okay, thank you. Operator, can we move on to the next participant, please?

Speaker 4: Next one to ask questions, Gokul Kalihalan from JPMorgan.

Next one to ask questions <unk> from J P. Morgan.

Speaker 9: Happy New Year and thanks for taking my questions. First of all, could you give us an update on how we think about CAPEX going into the next couple of years as well?

Happy new year and thanks for taking my questions first of all could you give us update on how we think about capex going into next couple of years as well.

Speaker 9: given the growth expectation is also now higher in the 15 to 20 percent range. Do we expect CAPEX to peak out this year or should it continue to grow into next year? And maybe, Wendell, could you also talk a little bit about how we think about capital intensity? When do we expect that to peak and what is more like the steady state as we get to the end of this particular growth period 2020 to 2025? That's my first question.

Given the growth expectation is also now higher than the 15% to 20% range.

Do we expect Capex to peak out this year or should it continue to grow into next year and maybe could you also talk a little bit about how do we think about capital intensity.

When do you expect that to peak and.

What is more like the steady state as we get to the.

And of the.

Particular growth for 2020% to 25% that's my first question.

Speaker 2: Okay, Gokul, let me summarize your first question. Gokul is asking about our capex outlook. He notes that our growth is now higher at 15 to 20% CAGR for the next several years.

<unk>, let me summarize the allow me to summarize your first question cocoa is asking about our capex outlook and notes that we our growth is now higher at 15% to 20% CAGR for the next several years. So his question is how should you think about the Capex is 2022 the peak how does capex look for the <unk>.

Speaker 2: So his question is how should he think about the capex? Is 2022 the peak? How does capex look for the next few years? And also in terms of the long term capital intensity.

Next few years and also in terms of the long term capital intensity.

Okay.

Speaker 6: Hi, Gokul, this is Wendell. Regarding CAPEX number, this year we've guided 40 to 44 billion.

Hi, <unk> this is wendell.

Regarding capex number.

This year, we guided 40 to 44 billion.

Speaker 6: Now, remember that we spend the CAPEX in a given year for the growth prospect in the next several years.

Now remember that we.

Spend the capex in a given year.

The growth prospect in the next several years so whenever there is.

Speaker 6: So whenever we think the growth outlook is good, we will continue our disciplined investment going forward. We are not able to give guidance on CAPEX beyond 2022 today.

We think the growth outlook is good we will continue our discipline investment going forward.

We are not able to give.

Give a guidance on capex beyond 2022 today.

Speaker 6: and also the capital intensity. Whenever we enter into a higher period of growth, like today, the capital intensity will be high and which is appropriate. Now, if the growth were.

And also the capital intensity whenever we enter into a higher period of growth like to date.

The capital intensity will be high and which is appropriate now.

If the growth were to slow down.

Speaker 6: the capital intensity will decline accordingly.

The capital intensity will decline accordingly.

Speaker 6: from what we can see at this moment, longer term, maybe mid-thirties remains appropriate level.

From what we can see at this moment.

Longer term maybe.

Maybe mid Thirty's remains appropriate level.

Okay. Thank you does that answer your first question.

Speaker 2: Okay, thank you. Does that answer your first question? Go cool.

Goku.

Hello, Cocoa are you on mute.

Speaker 9: Thanks for answering the first question. My second question is about one of your IDM customers, which has been a top 10 customer for TSMC. Do you know him? No. No. No. No. No. No.

Sorry, thanks for answering the first question.

My second question is about one of your IDM customer, which has been a top 10 customer for TSMC.

Speaker 9: but now they are also re-entering the foundry market aggressively and wanting to compete head-to-head with the SMC.

Now, they're also reentering, the foundry market aggressively and wanting to compete head to head with TSMC.

Speaker 9: How does TSMC navigate this situation, given the market is also expecting this customer to be a bigger revenue contributor for TSMC in the HPC area over the next couple of years? Just wanted to understand how management thinks about this business relationship, given that for some of the other IDM customers who are foundry competitors, TSMC doesn't do much direct business with them.

How does TSMC navigate this situation.

Given the market is also expecting this customer to be a bigger revenue contributor for TSMC in the HBC.

Over the next couple of years, just wanted to understand how management thinks about the sensor relationship.

That for some of the other IDM customers, who are foundry competitor systems. It doesn't do much business with them.

Speaker 2: Okay. Gokul, let me summarize your second question. Gokul's second question is in terms of a specific IDM customer of TSMC, but this customer is also entering Foundry and also, you know, so his question is how do we navigate the relationship given that in the past, we do not really work with IDMs who compete with us. Okay.

Okay <unk>, let me.

I'll now summarize your second question is cocoa second questions in terms of specific IDM customer of TSMC.

But this customer is also entering foundry.

And also <unk>.

So his question is how do we navigate that relationship given that in the past.

We do not really.

Work with Ibm's, who compete with us.

Okay Kaku.

This is <unk>.

Let me emphasize that we always operate in good faith and support.

Speaker 1: Let me emphasize that we always operate in good faith and support all our customers openly and fairly.

Our customer openly and fairly.

Speaker 1: and the IDM customer has been the same. That's also that the TSMC is a good customer. We also understand that the IDM customer has their own plans for future insertion, and we already have taken this into our capacity planning consideration.

And the IDM customer has been the same.

That's a that's also that tsmc's.

Good customer we also understand that IDM customer has gel on plans for future in sourcing and.

And we already have taken this into our capacity planning and consideration.

Did I answer your question.

Is there any way for you to protect your longer term growth when you deal with this kind of a customer.

Speaker 9: Is there any ways for you to protect your longer term growth when you deal with this kind of a customer?

Speaker 9: Just wanted to understand how it differs from your traditional Fabless customers where I think that insourcing question is not really on the table.

Just wanted to understand how it differs from your traditional fabless customers, where I think that in sourcing question is not really on the table.

Well as I said, we have already taken into.

Speaker 1: Well, as I said, we have already taken into our capacity planning consideration. And our capacity planning is based on the long-term market demand profile, underpinned by the industry mega-trend of 5G and HPC.

This into our capacity planning and consideration.

And our capacity is based on the long term market demand profile underpinned by the industry makeup trend of ISG and SPC.

Speaker 1: and the semiconductor content enrichment variant devices.

And the semiconductor content enrichment and devices.

Speaker 1: And we do not depend on any one single customer or product.

And we do not depend on any one single customer.

<unk>.

Okay.

Okay. Okay. That's clear. Thank you very much. Thank you <unk> operator can we move on to the next participant please.

Speaker 2: Okay, Gokul? Okay, that's clear. Thank you very much. Thank you, Gokul. Operator, can we move on to the next participant, please?

Next onto ask questions Roland <unk> from Citigroup.

Speaker 4: Next one to ask questions, Roland Xu from City Group.

Speaker 4: Hi, good afternoon and congratulations for your very good result and outlook. First question of me is, you know, C.V. also mentioned you always build your capacity according to customers' long-term demand profile. But in the past, from time to time, you overbuild capacity for sound nodes due to customers' focus always changed.

Hi, good afternoon, and congrats for very good result and outlook.

Our first question.

Is that.

So I think you also mentioned you always build capacity according to customers the long term demand profile.

In the past a fantastic day.

You other build capacity for some node due to customers our focus always change. So how confident you are these tie to our account.

Speaker 7: So how confident you are this time to effectively spend huge capex from 2021? And why do you think customers' forecast this time are more real than any time before? And also, what's your take of this semiconductor cycle? Will this cycle change or risk your capex spending plan going forward? Thanks.

<unk> spent huge capex from 2021 and.

Do you think customer forecast at this time are more real anytime.

Anytime before and also what's your take of business semiconductor cycle. While this is a cycle change.

Well your Capex spending plan going forward.

Okay. Roland So volumes first question is really.

Speaker 2: Okay, Roland. So Roland's first question is really, you know, CC said that we build our capacity according to the long-term demand profile. His question is though, you know, customers' forecasts can change. So how confident can we be and how do we see this current cycle playing out? Is that correct, Roland?

<unk> said that we build our capacity according to the long term demand profile.

His question is though customers forecast can change so how confident can we be.

And how do we see this current cycle playing out is that correct Roland.

Yes.

Speaker 1: Okay, let me answer this question. What is the difference? Actually, this time, we see a structural increase in long-term market demand due to the multi-year industry megatrend of 5G, HPC, and digitalization, as well as some of the short-term imbalance that the interruption of the supply chain brought about COVID-19 and geopolitical tension.

Okay. Let me answer this question.

For the difference actually this time.

We see a structural increase in long term market demand due to the multiyear industry Mega trend of <unk> and digitalization. So.

So as well as some of the short term imbalance that interruption of the supply chain brought about COVID-19 and geopolitically.

Rotation.

Let me see that comp.

Speaker 1: Let me say that, how confident we are, very confident, because as I said, long-term structural increase in the content and in the unit, this time we had the content increase as one of the important factors which we never reported before, and it was driven that the semiconductor industry had a higher utilization rate.

Competent we are very competent because as I say long term structural increase in the content in the unit Union that.

At this time, we add content increase at one of the important factor, which we never reported before.

What's driven that.

Semiconductor industry too.

At a higher utilization rate.

Because we have a very good technology leadership.

Speaker 7: I have also a question, part of the question is for the cycle. What's your take of the semiconductor cycle?

I have also a question.

Part of the question for the cycle.

Your tech of the semiconductor cycle now.

Speaker 1: Well, we cannot predict the cycle, right? But even if there is a cycle coming, we do believe that TSMC with its technology leadership and excellent manufacturing and the customers trust will be a better position in the uptrend world downturn cycle.

Well, we cannot pre.

Predict.

Nicole right, but even if just a cycle coming.

Do believe that TSMC, we see technology leadership.

And the external manufacturing and customers' trust.

We are better position.

In the upturn or downturn cycle.

Okay understood.

And.

Speaker 10: For my second question, with your faster revenue growth and better margin going forward, for TSMC apparently needs more capable and experienced management and employees for continuous growth going forward.

For my second question.

With you.

Faster revenue growth and better margin going forward.

Four kids and apparently missed all capable and experienced management and employees Apple continues.

Growth going forward.

Speaker 10: However, some of your senior management are approaching legitimately retired age.

However, some of your senior management, a Porsche legitimately retire age so how you're going to return the experience and valuable management going forward and also by the way what's the purpose of the parallel recruiting for your R&D and manufacturing that.

Speaker 10: So how are you going to retain the experience and the valuable management going forward? And also, by the way, what's the progress of your talent recruiting for your R&D and the manufacturing side worldwide?

Why then.

Okay. So roeland second question is that his question really is around our talent.

Speaker 2: Okay, so Roland's second question is that, his question really is around our talent. Part of it is our senior management. How do we keep our experience and senior executives and also as we expand our global manufacturing footprint, what is the progress of our talent recruitment of engineers and R&D?

Part of it is our senior management.

How do we keep.

Our experienced.

Senior executives and also as we expand our global menu in factory footprint.

What is the progress of our talent recruitment of engineers and R&D.

Speaker 3: Roland, this is Mark. You're right. Our capable executives are our treasures. And that will bring the company forward.

This is mark.

Youre right.

Capable.

That is our treasures.

And that will bring the company forward.

Speaker 3: And as long as they are energetic and they will want to contribute for this company, there is no forced.

And as long as they are energetic and.

They will want to contribute for this company.

There is no there is no.

Forest.

Retirement.

For those top notch.

Speaker 3: For those top-notch executives, we will work with them.

<unk> we will.

Work with them.

If they want to stay.

And then also how about our talent recruitment globally as we expand.

Speaker 3: And then also how about our talent recruitment globally as we expand? Oh yes, talent recruitment it is currently our focus as the company deal with this fast-paced expansion.

Yes talent recruitment is.

Currently our focus as a company deal with this fast pace expansion.

Speaker 3: and we recruit particularly emphasize on the overseas recruiting and as you can see our expansion into US.

We recruit particularly emphasize on the overseas recruiting and as you can see our expansion into U S.

Speaker 3: manufacturing and also in Japan manufacturing and are the vehicle that we will be able to reach for more global talent.

Manufacturing and also in Japan manufacturing.

Are the vehicle that we will be able to reach for more global talent.

Speaker 3: through those operations and may extend to local R&D. So that is part of our strategy.

Through those operation.

And they may extend to local R&D.

That is all part of our strategy.

Okay.

Okay.

Speaker 2: Okay, great. Thank you, Roland. Operator, can we move on to the next participant, please?

Thank you Roeland, operator can we move on to the next participant please.

Next one we have Brett Simpson from Arete research.

Speaker 4: Next one, we have Brett Simpson from Aratay Research.

Yes, thanks very much.

Speaker 11: Thanks very much. My first question is for Wendell. Wendell, can you share with us how much prepayments and government subsidies TSMC received in 2021, and how we should think about prepayments and subsidies in 2022? And also, how do you account for this, particularly the subsidies, how do you account for that in the P&L going forward? Thank you.

My first question's for Wendell.

Wendell can you share with us how much prepayments and government subsidies TSMC received in 2021.

And how.

We should think about prepayments and subsidies in 2022 and <unk> and also how do you account for this particularly the subsidy is how do you account for that.

In the P&L.

Going forward. Thank you.

Speaker 2: Sorry, just to summarize Brett's question, so his first question, he wants to know how much prepayments and government subsidies that we receive in 2021, how much do we expect in 2022, and how do we account for these in our financial statements?

Okay, sorry, Yeah go ahead, sorry, just to summarize spreads questions. So the first question. He wants to know how much prepayments in government subsidies that we received in 2021, how many how much do we expect in 2022 and how do we account for these.

Our financial statements.

Speaker 6: Okay, Brad, let me talk about the prepayment first. At the end of last year, we have received a total of 6.7 billion U.S. dollars in prepayment, and those are included in the financial statement as temporary receipts from the customer.

Okay, Brad let me talk about the prepayment first at the end of last year.

We have received a total of $6 $7 billion in prepayment and you can those are included in the financial statement as temporary receipts from the customers.

Speaker 6: So, going forward, you can look at our quarterly financial statement and find that number.

So going forward you can look at our quarterly financial statement and <unk>.

That numbers.

Speaker 6: As to subsidies, you know, different countries have different incentives and they come in different forms. So some of them are related to asset reduction, some of them offset expenses and some of them are tax reductions and we follow that, we use different accounting treatment to record that in the financial statements.

As to subsidies.

Different countries have different.

Incentives and they come in different forms.

So they are some of them related to asset reductions some of them.

<unk> offset expenses and some other tax reductions and we follow that we use different.

Counting treatment.

Hi.

To recall that in the financial statements.

Okay. Thank you Wendell and I guess the prepayments.

Speaker 11: this year will be higher than 21. Is that a fair statement?

This year will be higher than 21 is that a fair statement.

Speaker 6: Well, I cannot share with you the details, but we expect that there are more.

Well I cannot.

Sure with the details, but we expect that there are more.

Okay. Thank you.

Speaker 11: OK, thank you. And my second question.

My second question.

Looking at the smartphone segment of your business. It grew 8% in 2021, which is well below some of your big customers.

Speaker 11: Looking at the smartphone segment of your business, it grew 8% in 2021, which is well below some of your big customers. You talk about silicon content drivers, 5G has been a really big hit.

Can you talk about silicon content drivers <unk> has been it's been a really big silicon content driver in 2021, and it will continue to in 2022. So I'm. Just wondering can you maybe just share with us your perspective on what happened in 2021 and smartphones.

Speaker 11: Silicon content driver in 2021 and it will continue to in 2022. So I'm just wondering, can you maybe just share with us your perspective on what happened in 2021 in smartphones? Why only 8% growth and how should we think about smartphones and the positive Silicon content drivers from 5G this year?

Why why only 8% growth and how should we think about smartphones.

And the positive silicon content drivers from <unk> this year.

Okay. So bretts question is focus on the smartphone he notes that our smartphone.

Speaker 2: Okay, so Brett's question is focused on the smartphone. He notes that our smartphone platform grew 8% in NT dollar terms year on year in 2021. So his question, I guess Brett, if I'm hearing you correctly, your question is sort of, you know, what is driving the slower growth in the smartphone despite the higher silicon content.

Platform grew 8% in NT dollar terms year on year end 2021. So his question I guess, Brian if I'm hearing you correctly. Your question is sort of what is driving the slower growth in the smartphone.

Right the higher silicon content.

Speaker 1: Well, let me answer the question. I mean, in terms of NT dollars, of course, it's only a percent, but in terms of the US dollar is much higher.

Where did we answer your question I mean in terms of NT dollars of course, it's only April but in terms of the U S. Dollar is much higher.

Alright.

And.

Speaker 1: And the silicon content continues to increase every year, so we expect that it will be one of the major contributors to TSMC's growth continuously.

And the silicon content is continuing to increase every year.

No.

We expect that to work.

One of the major contributor to TSMC support curiosity.

Okay. Thank you very much.

Speaker 3: Let me add, the global smartphone unit growth last year.

Let me add the global smartphone unit growth last year.

About 6%.

Speaker 3: So some of the, you see some of the company smartphone revenue may grow, it could due to the pricing. But we, our pricing.

So.

Some of the you see some of the company smartphone revenue may growth due to the pricing.

But we we are pricing strategy as you understand is strategic not optimistic so we grow with the smartphone.

Speaker 3: strategic, not optimistic. So we grow with the smartphone units.

Units.

In our business.

Thank you very much.

Speaker 2: Okay. Thank you, Brett. Operator, can we move on to the next caller, please?

Okay. Thank you Brett.

Operator can we move on to the next caller. Please.

Speaker 4: Next one is Charles Hsieh from Ningyanwen Company.

One is a challenged Shane from Needham <unk> company.

Yeah.

Hi, Thank you for taking my question I was just a very quick clarification CCR I think you mentioned about the three number of Paypal and the first do you expect that to exceed that number and five tape outs in the first year.

Speaker 12: Hi, thank you for taking my question. Just a very quick clarification. CCR, I think you mentioned about the N3 number of tape outs in the first year. You expect that to exceed the number of N5 tape outs in the first year. Since now you have both N3 and N3E, is that common on the original N3 alone or the N3 family, which includes both N3 and N3E?

Since now you have both and three of nine three.

Is that comment original and three alone and three family, which includes both answer it.

Sure.

Okay. So Charles' first question is that he wants to clarify in terms of tape outs.

Speaker 2: Okay, so Charles' first question is that he wants to clarify in terms of tape outs. When we say N3 tape outs are greater than N5 in its first year, is this N3 alone or N3 plus N3?

<unk> tape outs are greater than five in its first year is this and three alone or <unk> plus and <unk>.

Speaker 1: Why is it N3 for right now? Because of N3E, technology will be ready soon, and the mass production will be one year later. So now most of that is taped out, if all of them are N3.

Why are you, saying for right now because of <unk> we are.

Technology will be ready soon and the mass production worthy one year data.

Now most of that the tape out.

Jim.

Yeah.

Thank you so.

Speaker 12: Thank you. So, but now I want to ask my.

No one asked Mike.

Speaker 12: Question potentially that the gross margin profile for the N3, I know it's going to start to meaningfully contribute to revenue next year. You've said in the past that the newest process node will take about seven to eight quarters to reach the corporate average. But now this time, I think one difference about N3 is that you have both smartphone and HPC being supported at the beginning of the launch of the N3 node.

Question up here.

Retention really but the gross margin profile for <unk> I know, it's going to.

Start to meaningfully contribute to revenue next year.

You've said in the past that the newest process node.

We'll take about seven to eight quarters to reach the corporate average, but now this time I think one difference about L. Three is that you have both smartphone and HP.

Being supported.

Right at the beginning of the launch of the three node. So my guess is that the revenue for smartphone and HTC ramp could really go parallel one after another and which could really help you with volume revenue and.

Speaker 12: So my guess is that the revenue for smartphone and HPC ramp could really go parallel one after another and which could really help your volume, your revenue and your revenue.

Speaker 2: Could you comment on whether that seven to eight quarter of the margin dilution of the new rate of processing node may be starting from N3, it will become shorter? That's my question. Thank you. Thank you, Charles. Please allow me to summarize your second question. So, Charles' second question is looking at the N3, profitability and gross margin. He observes in the past, and you know typically it takes seven to eight quarters to reach the corporate average.

Could you comment on whether that 7% to eight quarter of the margin dilution of the new edge process node may be stocking and through you will become shorter.

My question. Thank you rich. Thank you Charles Please allow me to summarize your second question. So Charles the second question is looking at the.

Three profitability and gross margin he observed in the past and you know typically it takes seven to eight quarters to reach the corporate average, but at entry we have both developed both smartphone and HBC platform sort of these ramp in parallel could end three actually reach the corporate average and a shorter.

Speaker 2: But at N3, we have both developed both smartphone and HPC platform. So if these ramp in parallel, could N3 actually reach the corporate average in a shorter duration?

Duration of time.

Speaker 6: Charles, this is Wendell. It is too early to say when N3 can reach the corporate average growth margin at this stage as the volume production has not started.

Okay. Charles this is wendell.

It is too early to say when industry can reach the corporate average gross margin at this stage.

As the volume production has not started yet however, the initial outlook for every new node always looks challenging and the increasing process complexity of leading nodes such as and three brings even greater challenges.

Speaker 6: However, the initial outlook for every new node always looks challenging.

Speaker 6: and the increasing process complexity of leading nodes, such as N3, brings even greater challenges.

Speaker 2: We will continue to work on selling our value and cost improvement to ensure that we earn the right profitability and returns.

We will continue to work on selling our value and cost improvements to ensure that we earn the right profitability and returns.

Okay. Charles does that answer your second question.

Yes, yes. Thank you. Thank you very much.

Speaker 2: Okay, thank you. Operator, can we move on to the next participant, please?

Thank you operator can we move on to the next participant please.

Next one to ask question Mehdi Hosseini from <unk>.

Speaker 4: Next one to ask questions, Matee Hussaini from SIG.

Speaker 1: Yes, thanks for taking my question. The first one actually is a follow-up on the gross margin. For the month quarter, you're guiding to 53 to 55, but your longer-term gross margin is around

Yes, Paul.

Taking my question the first one actually is.

Follow up on the gross margin for the March quarter, you're guiding to <unk> 53 to 55, but your longer term gross margin is around.

Speaker 10: 53 percent to the one in that

3% to <unk>.

Speaker 10: As we look beyond Q1, there is a downward trend in gross margin. And also, how should we think about the long-term operating margin?

As we.

As we look beyond Q1, there is a downward trend in the gross margin.

So how should we think about the long term operating margin I don't have the funnel.

Speaker 2: Okay, so Mehdi's first question is around gross margin. He notes our first quarter gross margin guidance is 53% to 55%. But Mehdi, let me clarify, our long-term gross margin guidance is 53% and higher gross margin. But nonetheless, Mehdi is asking, therefore, are we implying saying the margin outlook for the rest of the year will come down or decline?

Okay. So on <unk> first question is around gross margin. He notes on our first quarter gross margin guidance is 53% to 55%.

But maybe let me clarify our long term gross margin guidance is 53 and higher gross margin, but nonetheless medias asking therefore are we implying scene.

Margin outlook for the rest of the year.

We'll come down or decline.

Okay. Maggie this is.

Speaker 6: Okay, Mike T., this is Wendell. We're not prepared to talk about gross margin outlook for the subsequent quarters of the year but please be reminded that there are six factors affecting our profitability.

As Wendell.

We're not prepared to talk about gross margin outlook for the subsequent quarters of the year.

But please be reminded that there are six factors.

<unk> our profitability.

Speaker 6: Those factors include the ramp and development of our advanced technology, price, cost, mix, utilization and foreign exchange rate. The foreign exchange rate is something that we cannot control and hard to predict.

Those factors include the ramp and development of our advanced technology price cost mix utilization and foreign exchange rates. The foreign exchange rate is something that we cannot control and hard to predict.

Speaker 6: So, summarizing all those factors together, we're saying that the long term, we expect our gross margin to be 53% and high.

So you.

Summarizing all of those factors together.

Saying that the long term we.

We expect our gross margin to be 53% and higher ASP.

Speaker 6: As to operating margin, we're not giving out the operating margin guidance.

As to operating margin, we are not giving out the operating margin guidance.

As of now.

Speaker 10: Okay, thank you. And a quick follow-up. Can you also help us understand how the mix of revenue by technology like 7, 5 and 3 would change in 22 versus 21?

Okay. Thank you.

Quick follow up can you also help us understand how the mix so.

Revenue by process technology.

And then by then.

Would change in 'twenty two versus 21.

Okay.

Speaker 2: Okay, Midee's second question is asking revenue contribution by node. Hugh is asking,

Okay and then the second question is asking revenue contribution by node.

He is asking.

Speaker 2: that N7, N5 and N3, what contribution will that be in 2022 and how is that different versus 2021?

Net.

And seven and five and three.

What contribution will that be in 2022 and.

And how is that different versus 2021.

Okay.

Okay.

Speaker 6: Okay, but we're not prepared to give the breakdown for the revenue contribution by note today. But the M5 will continue to ramp, so we expect the revenue contribution to continue to rise throughout the year.

We're not prepared to give the breakdown.

For the revenue contribution by note today, but the <unk> side will continue to ramp. So we expect the revenue contribution to continue to rise throughout the year.

Speaker 2: Yeah, and I think we have said before, Madi, that N3 will begin the volume production in second half 2022 and you will start to see the revenue contribution in 2023.

Yes.

And I think we have said before I'm a D that.

Three we will begin the volume production in second half 'twenty, two and you will start to see the revenue contribution in 2023.

Okay, Greg congratulations on great execution.

Okay. Thank you Marty.

Speaker 7: Operator, can we move to the next participant?

Operator can we move to the next participant.

And next one to ask question sung <unk> from UBS.

Hi, Good afternoon. Thank you for taking my question and happy New year. So my first question is on <unk>. So you mentioned that the number of tape outs for Anthony.

Speaker 13: Hi. Good afternoon. Thank you for taking my question. Happy New Year. So my first question is on M3. So you mentioned that the number of takeouts for M3 is higher than M5 in the first year. So now that we are getting pretty close to the mass production, I want to get your sense on the overall capacity outlook for M3 compared with M5. And also, if you could give us any sense of M3 revenue contribution in the first year of mass production.

And five being the first year.

So now that we are getting pretty close to the mass production I want to get your sense on the overall capacity outlook for Anthony compared with five.

And also if I could if you could give us any sense of <unk> contribution in the first year of mass production.

Speaker 2: Okay, Sunny, so let me, please allow me to summarize your question. Her first question is on N3. Will N3 have a higher capacity or scale than N5?

Okay. Sonny So let me. Please allow me to summarize your question. Her first question is on <unk> III.

And three have a higher capacity.

Then or scale than five.

Well.

Speaker 1: Well, this is Xi Xiwei. I would like to say I'm not able to comment on the specific capacity, but I know that

This is <unk>.

I would have to say I am not able to come in on a specific capacity by node.

Speaker 1: With a strong level of customer interest and engagement, N3 will be another large and long-lasting node for TSMC, just like our N5 and N7.

With a strong level of customer interest.

Engagement, yes.

<unk>, another large and long lasting node for TSMC, just geico and five and seven.

Speaker 2: And then Sonny is also asking about the revenue contribution of N3. It's still too early.

And then finally, it's also asking about the revenue contribution of <unk> still too early.

To Taco Grande yes.

No problem.

Speaker 13: No problem. So a follow-up would be that if we think about the N5 ramp-up, I think the second wave customer adoption seems to only occur.

So a follow up will be that.

We think about that.

<unk> ramp up.

I think the second wave customer adoption.

Only correct.

In 2022, which is about two years after mass production.

Speaker 13: in 2022, which is about two years after mass production. Looking at N3, with higher contribution and faster adoption of HPC, could you help us think about what the ramp up could be like? Would the scale pick up a bit faster because of HPC? Thank you.

Looking at I'm sorry.

Uh huh.

Higher contribution.

Sure.

The option of HTC could.

Could you help us think about what the ramp up could be like.

Scott will pick up a bit faster because of SBC. Thank you.

Speaker 2: Okay, Sonny's second question is also...

Okay.

The second question is also.

Speaker 2: on N3 and she notes, her question is that in N5 the second wave of adoption occurred two years after the initial production but with N3 and the higher and greater interest from HPC customers. Would N3CA fast...

And three and she notes.

Her question is that.

Five the second wave of adoption occurred two years after the initial production, but within three and higher in greater interest from HTC customers.

With <unk> faster ramp up.

Well all I can say right now is.

Speaker 1: Well, all I can say right now is our customers' engagement on N3E, N3E, are quite...

Our customers are engagement among entry entry.

Quite.

Uh huh.

Al.

More than what we observe in the implies.

Speaker 1: more than what we observe in the M5. However, how to quantify that ramp up is too early to say. The engagement is very strong, or I can say.

However, how to.

Quantify that ramp up is too early to say the engagement is very strong.

I see that.

Speaker 13: Sure. Maybe a very quick follow-up on equipment supply. Are you seeing any potential bottleneck for you to ramp up a larger capacity for N3 next period, especially considering potential disruptions for ASML UV tools?

Sure.

A quick follow up.

<unk> supply.

Are you seeing any potential bottlenecks for you to ramp up our largest capacity.

Anthony next P. Yes.

Especially considering.

Potential disruptions for ace amount you'll be close.

Okay. So.

Speaker 2: Okay, so last question from Sunny is that in terms of our capacity expansion, are we seeing any bottlenecks or potential bottlenecks in our capacity plans, particularly in terms of ASML's EUV tools?

Last question from Sunny is that in terms of our capacity expansion are we seeing any bottlenecks or potential bottlenecks in our capacity plans, particularly in terms of Asml's UV tools.

Finally, this is a very good question.

Speaker 1: Sunny, this is a very good question. All I can say right now is that 2022, we are OK. And now we are working on 2023 so that we can revolve the capacity to meet customers' demands.

All I can say right now is 2022, we are okay and now we are working on 2023, so that we can ramp up the capacity to meet customers' demand.

Got it. Thank you very much. Thank you sunny operator, let's move on to the next participant please.

Speaker 2: Got it. Thank you very much. Thank you, Sunny. Operator, let's move on to the next participant.

Next one we have Sebastian Ho from broker Permian.

Speaker 4: Next one, we have Sebastian Ho from Neuberger Berman.

Hello can you hear me.

Yes, we can.

Speaker 5: Hello. Yes, thanks for checking my question. I only have one. This is more of a mathematic question. So, if I look past on TSMC there, your packet, how long did you translate your cat examined?

Hello.

Yes. Thanks for taking my question I only have one or more of them mathematic question. So if I look as TSMC there Youre pack.

How long did you transfer your capex to your revenue it looks like around like one seven times, which means that you use double your capex in three years Youre, probably a double your revenue in five years or triple or more more similar to that kind of the equation. So I'm curious about.

Speaker 14: to your revenue. It looks like around 1.7 times, which means that if you double your CapEx in three years, you'll probably double your revenue in five years.

Speaker 14: triple or more similar to that kind of the equation.

Speaker 14: So I'm curious about this time around, whether that kind of relationship or translation time still holds.

This time around.

Whether that kind of.

Relationship where translation Tom fill holes.

Speaker 14: And if I look at your CapEx numbers in 2018, 2019 is where you start to move up CapEx aggressively.

And then if I look at your Capex numbers in 2018.

Turning to slide eight where you'll start to move our capex aggressively.

Speaker 14: and in three years you triple capex, in four years you quadruple your capex.

And your three year, you're a triple Capex for years, you quarter bore euro capex.

Speaker 14: So, if that equation continues to hold, then does that mean that you're by a...

So if that equation continuing to hold then does that mean that your buyer.

Bye.

By 2020.

Speaker 14: By 2023 or 2024, your revenue will exceed $100 billion U.S. dollars, and by 2025, your revenue will be around $130 to $140 billion U.S. dollars, which means that your long-term or next three or four years' revenue will be not just 15 to 20 percent, but actually 25 to 30 percent.

About two or 2023 or four your your revenue will exceed $100 billion by 2025 year revenue will be around 130 to 140 billion U S dollar, which means that your long term over the next three or four years revenue character, not just 15% to 20%, but actually two.

5% to 30%.

Okay.

<unk>.

Speaker 2: Next question really is about the relationship between CapEx and revenue.

The question really is about the relationship between Capex and revenue.

Speaker 2: He is asking on his calculation of course, how long does it take CapEx to translate into revenue? He observed in the past that CapEx doubling in three years led to revenue doubling in about five years. So now he wants to apply it to this time to say well if CapEx is tripled from 2018 then can he expect TSMC revenue to be 100 billion. Sebastian you said in …

He is asking on his calculation of course, how long does it take capex to translate into revenue he observed in the past that.

Capex doubling in three years led to revenue doubling in about five years. So now he wants to apply it to this time to say well if capex is tripled from 2018, then can he expect TSMC revenue to be 100 billion.

Sebastian you said in 2000.

<unk>.

4% to four or three tier relative level.

Speaker 2: 3 to 4, get around this level, and yeah. So $100 billion level in 2024, $130 to $140 billion in 2025. Okay.

2020, so a 100 billion level and kind of 2024 on June 30 to 140 billion in 2025.

Okay. Sebastian this is wendell.

Sure.

Speaker 6: Frankly speaking, we didn't do that kind of math ourselves, but what our guidance is, as CeCe mentioned earlier today, is 15 to 20 percent CAGR in the next several years. So CAGR doesn't mean that every year we'll grow that kind of a number.

Well frankly speaking, we didn't do that kind of math ourselves.

But our guidance is.

CC mentioned earlier today is 15% to 20% CAGR.

In the next several years, so if <unk> doesn't mean that every year, we'll grow that kind of the numbers.

Speaker 6: and also its next several years is a longer term.

And also.

The.

Next several years as a longer term.

Numbers, so I would not try to to use.

Mathematics that you just used.

Things are not that simple I think.

Speaker 14: Yes, thank you. Definitely not that simple. But maybe let me simplify the questions a bit or put another way is that the CapEx to revenue translation time, do you see any change on that now versus five or 10 years ago? Is it getting slower or faster or the same kind of pace?

Yes, Thank you definitely and divert simple, but maybe let me simplify the question a bit or put another way is that the capex to revenue translation time do you see any change on that now versus five or 10 years ago.

It is slower or faster or the same kind of a pace.

Yes.

Speaker 2: So, I think Sebastian is asking to try to simplify it in terms of CapEx to revenue. Are we seeing it at the same pace as in the past? Is it getting longer? Is it getting shorter? I think the Chairman can address this.

Yes, So I think Sebastian is asking so to try to simplify it in terms of capex to revenue.

We've seen it at the same paces in the past is it getting longer is it getting shorter I think chairman Ken addresses let me answer this.

Speaker 3: I think because of the equipment lead time is much longer and also the technology complexity is longer. So that might increase a little bit in terms of the lead time leading to revenue.

I think because of the.

The equipment lead time is much longer and also the technology complexity is longer so that may increase a little bit in terms of the lead time leading to revenue.

Okay. That's fair that's all from me. Thank you. Okay. Thank you. Thank you Sebastian operator can we move on to the next participant please.

Speaker 2: Okay, that's all from me. Thank you. Okay, thank you, Sebastian. Operator, can we move on to the next participant, please?

Next one will have low ash from <unk> go ahead, please hi.

Speaker 4: Next one, we have Lua Cheng from KGI. Go ahead, please.

Speaker 15: Hi. Thank you. Happy New Year. And thanks, Manny, for taking my question. I have a question on your overseas expansion. Just wondering, would TSMC consider a joint venture in Europe , like what you announced in Japan? And what's your current preference? Do you prefer 100 percent owned, or you would be more open for potential joint venture, like what TSMC did a long time ago in Wiffertech and Singapore with NXP before?

Hi, Thank you happy new year.

Thank you for taking my question I have for questions.

This expansion.

Just wondering our TSMC consider joint venture in Europe .

You announced in Japan.

Sure.

Preference still prefer 100% or.

Be more open for a potential joint venture like kind of what you can take a long time ago, when wafer tech and Singapore with NXP before that's my first question. Okay. So Laura let me summarize your first question is about our overseas.

Speaker 16: That's my first question.

Speaker 2: Okay, so Laura, let me summarize your first question. It is about our overseas FABs, and she's wondering, you know, will we consider joint venture as a future model going forward, whether it's in Europe or elsewhere? You know, is this something that we have done with WaferTech in the past and also recently with Japan? Is JV the new model going forward?

Fabs and she's wondering.

We consider joint venture as a future model going forward, whether it's in Europe or elsewhere.

Is this something that we have done with wafer tech in the past and also recently with Japan as JV, the new model going forward.

Speaker 3: Yes, thank you. Yes, Laura, this is Mark. To answer your first question about Europe , this is still very early stage we are assessing. To start an overseas fab, there are many, many considerations.

Yes, Laura this is mark.

To answer your first question about Europe .

This is still very early stage, we are assessing.

To start to overseas fab many many considerations.

Speaker 3: Among them, the top few is, first is our customers' needs.

Among them.

The top few is first is the.

Our customers' needs.

And.

Speaker 3: And so in this current planning in the JapanFAB, indeed, it was a joint venture. We haven't done joint venture for many years. And we think this joint venture is also a special case.

So in this current planning.

In the Japan Fab Indeed, it was a joint venture we Havent done joint venture for many years and we think this joint venture is also a special case.

Speaker 3: Typically, every TSMC Fab, no matter where it is located, will serve all the customers from around the world.

Typically every TSMC fab no matter, where it's located we will serve all the customer from around the world.

Speaker 3: And this Japan joint venture will also be the same.

And this Japan joint venture where also the same.

Speaker 3: However, in Japan we have a very large customer who is a...

However.

With in Japan, we have a very.

Large customer.

Who is a.

Speaker 6: have a single technology and we can also leverage their operating manufacturing experience in Japan which help us ramp in the learning curve. So that made us make the decision of a joint venture with Sony where we have majority share. So this is it.

Have a single technology.

And we can also leverage their operating and manufacturing experience in Japan.

Which help us ramp and owner and the learning curve.

And that made us make the decision.

Joint venture family, Sony we have.

A majority share.

Sure. So this is a special case.

And we typically.

Sure.

Cedar precede a solely on fine with that.

100% ownership.

So thank you that's very clear.

And also my second question.

<unk>.

Six space RF transceiver I recall back in <unk> back in June last year, you mentioned that the ASIC space RF transceiver for <unk>.

Can you give us more update as we know that there's a non much expansion on 16 nanometer.

Later, we shot a major technology now.

RF transceiver and with the limited supply.

Curious about that anchor space, our <unk> RF transceiver will that become the mainstream or.

TSMC.

Our capacity plan.

In this area and now also the client engagement for the bank.

Speaker 17: Thank you.

Speaker 2: Okay, Laura, let me try to summarize. She has a question about RF transceivers for 5G. She wants to know, there doesn't seem to be any major capacity expansion. So what is TSMC's strategy for RF transceivers for 5G and also N6?

Okay, Laura let me try to summarize.

<unk> of our RF Transceivers for <unk>.

He wants to know this.

It doesn't seem to be any major capacity expansion. So what is tsmc's strategy.

For RF Transceivers for <unk> and also <unk> six.

Speaker 2: Oh, you're talking N16 or N6? Sorry, Laura. N6, because right now most of the RF transceivers are in 16, I'm not understanding. Yep. So she wants to update on our N6 RF transceiver.

You are talking 2016 on six sorry, Laura.

And 60%.

Most of the RF transceiver in 16.

Yeah. So she wanted to update on our <unk> RF transceiver.

Speaker 1: Yeah, thank you very much. Okay, Laura. Yes. We always are working with our customers closely, right? And the customer makes their decision to choose which technology node to match their product design best.

Thank you very much.

Laura.

Yes, we always are working with our customers closely right and the customer make that decision to choose which technology node and to to matched product design best.

Speaker 1: And you are right, right now transceiver is starting moving from 28 nanometer to 16 and now moving to N6. We are expanding our capacity to meet the demand, that's all I can say.

And you are right right.

Right now she worries.

Moving from 28 nanometer 16, and now move into in hips.

We are expanding our capacity to meet that demand.

That's all I can say.

Does that answer your question.

Speaker 15: Yes, thank you. I think, can I follow up that we expect that N6 base RF will be the majority sometime, say, in 2023 or 2024?

Yes, Thank you I think.

Can I follow up that will we expect that fixed base higher for people majority sometime in.

In 2023 or four.

Speaker 1: So Laura's follow-up is, can we expect N6 RF to be the majority by 2023 or 2024? Well Laura, I should not comment on that. This is between TSMC and TSMC's customers.

So Laura follow up is can we expect and six RF to be the majority in 2002 by 2023 or 24.

Sure not coming in on that.

So between TSMC and TSMC as a customer.

Got it thank you very much.

Speaker 2: Okay, thank you. Operator, in the interest of time, I think we'll take the final two questions.

Okay. Thank you operator in the interest of time I think we will take the <unk>.

Final two questions.

Speaker 4: Next, once you have questions, please send cards from Cohen and Company.

Next one to ask questions.

<unk> from Cowen <unk> company.

Speaker 10: Well, thanks for answering my question and congrats on the really strong results. My first question is on growth margins. Wendell, you said long term growth margin of about 53%.

Yeah, Hi, Thanks for taking my question and congrats on the really strong results.

My first question is on gross margin Wendell you said long term gross margin of 53%.

Speaker 10: The last couple of quarters, you said it'll be over 50%.

The last couple of quarters as you said it would be over 50%. So is it factored into the price increases are the big reason for this increase.

Speaker 10: So is it safe to assume that the price increases are the big reason for this increase in gross margin and are these structural or are they cyclical? And is there some other variable in play given in gross margin improvement since it's interesting that CAPEX is growing up and the depreciation is not having an impact along the term of the gross margins? That's my first question.

Gross margin in the structural or the.

Cyclical.

Is there some other variable in play given and gross margin improvement.

That capex is going up but the depreciation is about having an impact longer term on the gross margin.

Speaker 2: Okay, Krish, let me summarize your first question. So, Krish notes that Wendell and C.C. said our long-term gross margin target last time we said 50% and higher. Now today we said 53% and higher. So is this because of price?

<unk>.

Okay, Chris Let me summarize your first question so Chris notes that.

Wendell.

And <unk> said, our long term gross margin target.

Last time, we said, 50% and higher now today, we said, 53% and higher so is this because of price.

Speaker 2: And is this a cyclical?

And is this a cyclical.

Element only or is this something structural.

Speaker 2: element only or is this something structural in terms of a higher 53% and higher long-term gross margin target?

In terms of a higher 53% and higher long term gross margin target.

Yeah.

Speaker 6: Yeah, well, let me share with you that. We're talking about long term, so several years down the road. I think that shouldn't be a secret.

Well, let me, let me share with you that we're talking about long term so several years down the road.

I think that shouldn't be a cyclical.

Speaker 6: issue. So previously it's long term 50% and higher. Now it's long term 53% and higher.

Issue.

Previously as long term, 50% and higher now is long term, 53% and higher okay. So that's the difference.

Speaker 6: So that's the difference. And we are working closely with our customers and suppliers to both sell our value and drive our cost improvements. So this is the result of all these efforts together.

We are working closely with our customers and suppliers.

To both sell value and drive our cost improvement. So those are the this is the result of all these efforts together.

Got it got it Alright, and then my second question is kind of a two part question with the Capex and the Opex question.

Speaker 10: Got it. Got it. All right. And then my second question is kind of a two-part question. It's a CAPEX and the APEX question. You spoke about 40 to 44 billion in CAPEX.

You spoke about 40 to 43 billion in Capex can you just tell us how much of the Capex is going to be split between Taiwan, and U S and Japan like a geographic breakdown of the 40 to 45 billion and then on the Opex side I understand you don't want to comment on long term opex, but I'm just kind of curious.

Speaker 10: Can you tell us how much of the capex is going to be split between Taiwan, US and Japan? Like a geographic breakdown of the 40 to 44 billion? And then on the opex side, I understand you don't want to comment on long term opex, but I'm just kind of curious with rising global inflation and your interest in recruiting talent in Arizona, how to think about opex growth relative to inflation growth?

And global completion.

Sure.

Interest in recruiting talent in Arizona.

What do you think about opex growth relative to the inflation.

Speaker 2: Okay, so Christian's second question first is in terms of the capex guidance that we gave this year, $42-44 billion. He wants to know what portion is for overseas capacity as compared to Taiwan.

Okay. So christian's second question first.

Of the Capex.

Guidance that we gave this year of $42 44 billion. He wants to know what portion is for overseas capacity.

Capacity as compared to Taiwan.

Okay.

Speaker 6: For this year, out of the $40 and $44 billion, we really cannot comment on the split between overseas and Taiwan. We normally split or give the breakdown guidance between advanced and mature specialty.

This year out of the $40 to $44 billion.

Really don't.

Cannot comment on the split between overseas and.

Taiwan, we normally split.

Ill give the breakdown guidance between events and mature specialty nodes.

Speaker 2: And then the second part is on OPEX. What is the impact, although we're not giving an operating margin, but rising global inflation, we're trying to recruit talent overseas. What is the outlook for our OPEX?

And then the second part is on Opex, what is the impact, although we're not giving the operating margin guidance, but rising global inflation, we're trying to recruit talent overseas what is the op outright outlook for Opex.

Speaker 6: very hard, work very hard to control our operating expenses and to achieve operating leverage. You can probably see from the track records in the past few years and past few quarters that we're always able to achieve operating leverage. And that's something that we will continue to work very hard.

Very hard work very hard to.

Our operating expenses.

And to achieve operating leverage you can probably see from.

The track record in the past few years and past few quarters that we're always able to achieve operating leverage and thats something that we will continue to work very hard on.

Got it. Thank you very much okay. Thank you krish operator in the interest of time, we will take the last participants questions.

Speaker 2: Thank you very much. Okay. Thank you, Krish. Operator, in the interest of time, we will take the last participant's question.

Speaker 4: Last one to ask questions, frankly, from HSBC. Go ahead, please.

Last one to ask questions frankly from HSBC go ahead. Please.

Alright. Thank you for taking my question just had a question maybe if I can follow up on the Capex I think a year ago. You guys gave a longer term three year Capex target I understand this time your capex than we've given for 2022.

Speaker 18: All right, thank you for taking the question. Just had a question, maybe if I can pull up on the CapEx.

Speaker 18: I think a year ago, you guys gave a longer-term three-year CapEx target. I understand that at this time, your CapEx is only given for 2022. I just want to understand, is there more uncertainty about giving a longer-term CapEx that is why we're not seeing maybe a longer-term target?

Okay.

Are there any is there more uncertainties about giving a longer term capex debt.

Then.

Yes.

Longer term target.

Speaker 18: being given. And I think last quarter you guys also talked about your capex intensity was and it's going to be more than 50% in 2021, but long term target in the 30s.

Given and I think last quarter you guys also talked about your capex intensity.

And it's going to be more than 50% in 2021.

Long term targeting in the third.

Please.

Speaker 18: But the last part I think it was implied that it was not going to come down to the 30s in the next two or three years, is that still the case?

But last quarter I think it was implied that it was not going to come down to 30 in the next two to three years is that still the case.

Paul.

Speaker 2: Okay, so Frank's first question is on CapEx. He said we had talked about 100 billion CapEx in the next three years. His question is, why are we not guiding for next three years' CapEx now? Is there some concern we have?

So Frank first question is on Capex Hughes said, we had talked about 100 billion capex in the next three years.

His question is why are we not guiding for next three years Capex now is there some concern we have.

Okay, Frank we'll not comment okay back solve the beyond 2022 to date.

Speaker 6: Okay, Frank, we will not comment on KPAC's outlook beyond 2022 to date. Please be reminded that every year our KPACs stand in anticipation of the growth that will follow. So, as long as our growth outlook looks good, then we will continue our investment approach, the disciplined investment approach, to support of customers and capture the growth opportunity.

Please be reminded that every year, our capex spend in anticipation of the growth that will follow so as long as our growth outlook looks good then.

And then we will continue our investment approach the disciplined investment approach to support of customers and.

Capture the growth opportunities.

Speaker 6: And as regarding the capital intensity, as I said earlier, that in the period of high growth like today, it is quite normal or it is appropriate for the capital intensity to be high.

And as regarding that.

Yes, the capital intensity.

Yeah.

As I said earlier that in the period of high growth like today.

Is quite normal or it is appropriate for the capital intensity to be to be high.

Speaker 6: and if our growth were to slow down, then the capital intensity is expected to decline accordingly. So from what we can see at this moment,

And if growth were to slow down then the capital intensity.

Is expected to decline accordingly, so from what we can see at this moment.

Speaker 6: you're asking several years from now, or probably if a normal situation will probably be in the mid 30s.

Youre asking several years from now or probably.

If a normal situation will probably be in the mid thirty's.

Speaker 18: Okay, but is that likely in the next two or three years or is it going to be further out? Long term, several years.

Okay.

Likely in the next two or three years, where it is going to be further out.

Although long term several years.

I think I'll give you a year by year and keep rates, yes, okay.

Speaker 2: I think we'll give you year by year updates. Yes. Ok.

Okay.

Speaker 18: And I guess my second question is, I think a consistent message on this call was really about the semi-content, structural semi-content growth. I think you guys have mentioned this a couple of times in this call. Over the past year, though, I just wanted to get your sense of

Great and then I guess my second question I think a consistent message on this call was really about the semi content structural semi content growth. I think you guys have mentioned this a couple of times on this call over the past year, though I guess I just wanted to get your sense.

Speaker 18: in the semi-content growth, something that seems like it's been well understood, but has there been an incremental supply...

Within the content growth for me it seems like it's been well understood.

Has there been incremental surprise in terms of its going to be content.

Speaker 18: in terms of the semi-content for you guys over the past year that led to a more positive structural long-term growth and if so, can you share what application or are we seeing content growth in mature nodes as well?

For you guys over the past year that led to a more positive.

Structural long term growth.

Can you share it.

What application or are we seeing content growth in the mature nodes as well.

Speaker 2: Okay, so Frank's second question is on the semiconductor enrichment. His question is what, you know...

Okay. So <unk> second question is on the semiconductor enrichment.

His question is what.

Speaker 1: you know what are we seeing, have we seen upside in the last year and in terms of what specific applications are driving the semiconductor content enrichment. Maybe CC can address this last question. Yeah sure. I will give you a live example. If you look at the new car being introduced in the market, you will find out that the semiconductor content has been dramatically increased.

What are we seeing how we see upside in the last year and in terms of what specific applications are driving the semiconductor content enrichment, maybe <unk> can address this last question sure I won't give you a lively example, if you look at it that new car being introduced in the market.

Find out that the semiconductor content has been dramatically increased.

Speaker 1: And the same happened to data centers, servers, etc.

And the same happened to.

Data center, civil and et cetera et cetera.

Speaker 18: Okay. Okay. So, sorry, I just got to follow up. So, is it fair to say then that the semi-content work is something that is structured across all nodes, including advanced as well as some of the specialty areas?

Okay.

Thanks, Michael.

Sure.

Is it better than that.

Content growth is something that is structurally across all nodes.

<unk> advances as well as some of the specialty areas.

Speaker 1: So Frank's question then with the semiconductor enrichment, is this only for the leading nodes? Will this also – is this also hold true at the mature nodes as well? Well, it's across all the technologies that I can say. I'll give you one example again. If you look at the ADAS, that's a leading edge technology. If you look at the power management, that's a mature technology.

So Frank's question then with your semiconductor enrichment is this only for the leading nodes where this also is this also holds true at the mature nodes as well.

Cross all the technologies that I can say.

Give you. One example, again if you look at the Adas that our leading edge technology, if I look at the power management, that's a mature technology.

Okay, Alright, Frank Thank you. Okay. Thank you. Thank you Susie. Thank you Frank 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 one hour from now the transcript will become available 24 hours from now both are going to be available through.

Speaker 2: All right, Frank. Thank you. Okay. Thank you. Thank you, C.C. Thank you, Frank. 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 one hour from now.

Speaker 2: The transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com. So thank you for joining us today. We hope everyone continues to stay healthy and safe. Happy New Year and we hope you join us again next quarter. Goodbye and have a good day.

<unk> web site at Triple W. Dot TSMC dot com. So thank you for joining US today, we hope everyone continues to stay healthy and safe happy New year, and we hope you join US again next quarter Goodbye and have a good day.