Q1 2022 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
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Good afternoon, everyone and welcome to Tsmc's first quarter 2022 earnings conference call.
This is Jeff <unk>.
<unk> director of Investor Relations and your host for today.
To prevent the spread of COVID-19, TSMC is hosting our earnings conference call.
Live audio webcast through the company's website at Triple W about TSMC Dot com.
You can also download the earnings release materials.
If you are joining us through the conference call. Your dialing 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 first quarter 2022, followed by our guidance for the second quarter 2022.
Afterwards, Mr Huang and Tsmc's CEO Dr. C C Wei.
Joining me provide the company's key messages.
Then we will open the line for Q&A.
As usual I would like to remind everybody that today's discussions may contain forward looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statements.
Please refer to the safe Harbor 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 Good afternoon, everyone. Thank you for joining us today.
My presentation will start with financial highlights for the first quarter 2022 .
After that I will provide the guidance for the second quarter.
First quarter revenue increased 12, 1% sequentially and T terms or 11, 6% in U S dollar terms.
As our first quarter business was supported by strong H B C and automotive related demand.
First quarter gross margin increased two nine percentage points sequentially to 55, 6%, mainly as we continue to sell our value and improved cost.
Operating margin increased three nine percentage points sequentially to 45, 6%, primarily due to lower vaccine donation expense as compared to the fourth quarter.
Overall, our first quarter EPS was $7 82 entities and others was 36, 2%.
Now, let's move onto revenue back technology, five nanometer process technology contributed 20% of wafer revenue in the first quarter Wow seven nanometer.
Accounted for 30% advanced technologies, which are defined as seven nanometer and below accounted for 50% of wafer revenue.
Now moving on to revenue contribution by platform.
Our fixed platforms increased in the first quarter.
Smartphone increased 1% quarter over quarter to account for 40% of our first quarter revenue.
H P C increased 26% to account for 41%.
<unk> increased 5% to account for 8%.
Promotive increased 26% to account for 5%.
In D C increased 8% to account for 3%.
Moving onto our balance sheet, we ended the first quarter with cash and marketable securities of $1 three trillion entity.
On the liability side current liabilities increased by 83 billion NT.
Due to the increase of $6 2 billion in accrued liabilities and others.
And the increase of 30 billion in short term loans, partially offset by the decrease of 21 billion and accounts payable.
Long term interest bearing debt increased by 19 billion empty as we raised $20 billion of corporate bonds during the quarter.
On financial ratios accounts receivable turnover days decreased two days to 38 days, while days of inventory remained at 88 days.
Now, let me make a few comments on cash flow and Capex.
During the first quarter, we generated about 370 to 72 billion 19 cash from operation.
Spend 252 billion in Capex and distributed 71 billion for our second quarter 'twenty, one cash dividend.
Bounced weibo increased by 20 billion due to the bond issuance.
Overall, our cash balance increased 87 billion to one two trillion at the end of the quarter.
In U S dollar terms, our first quarter capital expenditures totaled $9 3 billion.
I have finished my financial summary, now, let's turn now to our current quarter guidance.
Based on the current business outlook, we expect our second quarter revenue to be between $17 6 billion, an $18 2 billion in U S dollars.
Which represents a one 9% sequential increase at the midpoint.
Based on the exchange rate assumption of one U S dollar to a 28.8.
T.
Gross margin is expected to be between 56 and 58%.
Operating margin between 45 and 47%.
In addition, we maintain our 2022 capital budget to be between 40, and 44 billion U S dollars.
This concludes my financial presentation.
Now, let me turn to our key messages.
I'll start by making some comments on AR.
First quarter and second quarter profitability as a reminder, six factors determining tsmc's profitability.
Leadership technology development and ramp up.
Rising cost reduction capacity utilization technology mix and foreign exchange rate.
As we discussed earlier.
First quarter gross margin increased by 290 basis points sequentially to 55, 6%, mainly due to cost improvement and value selling efforts.
And a more favorable foreign exchange rates.
Our gross margin guidance provided three months ago was based on exchange rate assumption of one U S dollars.
With 27 six.
Fixed <unk>, whereas the actual first quarter exchange rate was one of the US dollar to $27 95 and team.
This created above 50 basis point difference in our actual first quarter gross margin versus our original guidance.
We have just guided our second quarter gross margin to further increase by 140 basis points sequentially to 57%.
At the midpoint, primarily due to a more favorable exchange rate assumption of one U S dollar to 28.
<unk>, which grew more than 100 basis points gross margin tailwind.
And continued cost improvement and value selling efforts.
Looking ahead on our profitability, we continue to face challenges from rising inflationary cost.
Increasing process complexity of reading notes.
Investments in mature nodes and overseas fab expansions.
Despite the manufacturing cost challenges and excluding the impact of foreign exchange rate of which we have no control over.
Taking the other five factors into consideration we continue to believe a long term gross margin of 53% and higher is achievable.
Now, let me turn the microphone over to CCT.
Thank you your window.
We hope everybody stays safe and healthy during this time.
First let me start with our near term demand and inventory.
We concluded our fourth quarter revenue of <unk>, $491 1 billion or U S dollars 17 points, you're experiencing which is above the high end of our guidance.
Mainly due to better demand from smartphone and automotive related applications.
Forecast three months ago, and customers are continuing need to ensure supply security.
These are emerging to you all for coal we agreed a uncertainties.
Moving into second quarter 2022 we expect our business to be supported by HPT and automotive related demand, partially offset by smartphone seasonality.
Hungary inventory in front, we expect the supply chain to continue to maintain a higher level of inventory as compared to the historical seasonal level for a longer period of time prolonged or by recent Kobe created a supply chain disruptions.
And uncertainties brought about by.
Political attention.
On the demand side.
Despite the recent macro related uncertainties, we continue to absorb the structural increase even though long term semiconductor demand underpinned by the industry makeup trend or white tea and <unk> related applications.
Multiyear mega trend towards support of Marquis that device unit Burlington cores.
And much more importantly drew.
Drive substantial semiconductor content enrichment in many of these devices across HPE smartphones automotive and Iot applications.
The solid technology leadership.
<unk> is well positioned to capture the strong structural demand we saw order volumes.
<unk> technologies.
We expanded our capacity to remain tight throughout 2022.
2022 will be another strong year for TSMC can we expect all four yield growth to likely be at or exceed the high end of our guidance range.
To high 20%.
U S dollar terms.
Yes.
Given the recent constrained in the towards supply chain, Let me talk about the tour, where we update.
As a major player in the global semiconductor supply chain.
TSMC will close any week or towards suppliers.
Two patent our capex and capacity buys.
However.
Like many other industries.
Our suppliers are facing great chatting GCE gas supply chain, one the continued impact of COVID-19.
<unk>, creating a neighbor.
Poland and chip constrained gas approaches.
And extending towards the review time for both <unk> and mature nodes.
TSMC, he's working closely with our suppliers.
<unk> taken several actions to do our part to help with the Asia supply chain challenges.
We have increased our regular hi, Deborah communications to trace of progress.
We have several teams outside to support our suppliers, who are now working closely with them to identify critical chimps.
Gauging the towards three Murray.
We are working with our customer to prioritize our wafer capacity to support their dose.
Critical chance.
To help mitigate the chip constraint issue.
By taking such actions.
Do not expect any impact to our 2022 capacity plan and we continue to work closely with our suppliers.
<unk> three <unk>.
So that we can ramp up our capacity to meet customers' demand.
Now I will talk about the materials a supply update.
<unk> operates.
<unk> enterprise risk management system.
Identify SaaS or revenue risk.
Proactively implementing risk mitigation strategies.
In terms of our material supply.
Tsmc's us.
Th M. A C is our strategy to continuously develop.
<unk>, so surprise solutions to build a well diversified global supplier base and to improve the local supply chain.
For specialty fluids.
For specialty chemicals and cases.
Including MEO and Geo.
So for a modern post our priority in different regions.
We have prepared a certain level of inventory stock on hand.
We are also working closely with our suppliers.
To further strengthen the resilience and has a tender of our supply chain.
We do not expect any impact on our operations from material supply.
Finally, taco bodily injury and answering E stages.
Alright entry technology, why use <unk> structure.
To deliver the best technology maturity performance and cost for our customers.
Reschedule or unchanged.
We're on track for volume production in second half of 2022 with <unk>.
We expect the ramp of <unk> to be driven by both HPT and smartphone applications.
We continue to see a higher level of customer engagement at entry.
Bear more new tape outs for industry for the fourth year as compare with again slide seven.
Yes, we will further extend our entry in February we see enhanced performance power and yield. We also observed a high level of customer engagement at <unk> and volume production is scheduled for one year after injury.
Our three nanometer technology will be the most Reits are foundry technology in both PPA and transistor technology when <unk> introduced.
In terms of profitability.
Our initial outlook for new node is always challenging.
Kenzie, increasing process complexity of gauging knows such outside in Sui.
Even greater challenges to achieving the corporate average gross margin.
Kevin to eight quarters.
Particularly as all greater profitability has improved.
Long term gross margin target of 43% and a higher.
As we have done prior nodes, we are continuing to work diligently with our cost improvement and where do we stand airport to ensure that we earn the right profitability and return how against <unk>.
We saw a technology to address you.
Strong customer demand, we are comprehend that are in shrimp Rimini, what now will be another large and long lasting node for TSMC.
These conclude our message and thank you for your attention.
Thank you <unk>. 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 to allow all of the participants an opportunity to ask their questions.
Should you wish wish to raise your question in Chinese I will translate into English before our management answers your question.
For those of you on the call. If you would like to ask a question. Please press Star Zero then one on your telephone keypad now.
Questions will be taken in the order in which they are received if.
If at any time, you would like to remove yourself from the questioning queue. Please press zero then too.
Now, let's begin the Q&A session. Operator can we please proceed with the first.
Caller on the line.
Yes, the first one to ask questions.
<unk> from Goldman Sachs go ahead. Please.
Hi, Thank you for taking my question Congrats on a great result.
I first wanted to still focus on the micro integration concern how does TSMC evaluate the impact from inflation and the geopolitical tension we understand that TSMC walk with customer closely but most of your customers probably don't have the full picture.
Demand fluctuation at the same time TSMC has reached close to capacity.
Capacity a couple of years I have to make that decision.
So you know how can can TSMC provide more cargos.
Strengthen the investor confidence.
Do we have any changes on our multiyear capacity expansion plan.
Okay. Bruce Please allow me to summarize your first question I think first question is related.
To the macro environment and inflationary concerns.
He wants to know how do we evaluate the impact from inflation.
And the macro environment and also.
In terms of the capacity our customers may not have the full clear picture of end demand, but TSMC has to bear the risk of building the capacity multiple years ahead of time.
And will the Capex amplify our volatility so he wants to know if theres any color what keeps basically management confident for the Capex plan and color to strengthen investors' confidence in our capex.
Hi, Bruce.
<unk>, let me answer your question.
You know as we said at TSMC, you work closely with our customer to paint capacity.
And our Kpis.
Capacity expansion plan.
Actually based on customers are long term demand profile underpinned by the industry makeup brand. We do know that you were capacity based on speculation.
You advanced technology node, we have a leading position in a mature node our capacity to support customer demand for our differentiation differentiated specialty technologies.
We are focused on building effective capacity.
Is capacity that.
Brought out and produce a specialized approach technology with high yield rather than just plain capacity.
We are confident of our capacity build to support our customers of course.
Our utilization and profitability will be sustained.
And then also how do we I think the impact of inflation.
<unk>.
Well, presumably embracing delfin.
Impact.
All consumers by U K.
But let me trace them.
Overall demand.
Under the inflation environment.
Well the momentum that you saw.
The end market segment may slow down or a chassis in terms of device unit.
And market segment remains strong.
In fact, we have spent our HPLC, preferring to be TSMC has a strong piece of core U K to form in 2032, and the largest contributor to our growth.
If you were to buy the structural makeup trend driving increasing need for greater computational power and <unk>.
I appreciate you computed.
By Jim more importantly, the increasing silicon content and devices, such as <unk> mono phones, Pcs servers networking and automotive applications.
Much more important factor in supporting our strong semiconductor demand.
And we saw industry, leading technology, we are well positioned to capture all the opportunities.
Okay.
Okay, Bruce does that answer your first question.
Yes, Okay I want to go for that second question I think in the prepared remarks I noticed that there was no mentioning.
As I mentioned about the <unk>.
Sure.
Both of our competitor I salivate at schedule for the next generation Jackfish day can you comment on TSMC status for the gate all around especially in couple of months and the ramp up schedule.
Okay. So I think Bruce second question Bruce Please allow me to.
Make sure we got it is on the end to schedule. He said that all of our competitors have commented on their end to schedule and Bruce wants to know what is our into our plan.
Our into <unk>.
Hello, My name is on track, including the <unk> structure and progressing to our expectation.
Spare dollar into delivery.
B, the best technology maturity pro forma and calls for our customers. We are confident that into walk in keeping with our technology leadership to support our customer growth.
And.
We still plan the production in 2025.
Yeah.
So that.
The two year cadence remain unchanged for that.
It won't.
Thank you.
Okay. Thank you Bruce operator can we move onto the next participant please.
The next one to ask questions go cool, how do you how long from J P. Morgan.
Thanks for taking my question. My first question is on N three.
Given we had a less than one year from entry mass production start.
Could we talk a little bit about how should we expect and three revenues to be ramping up next year would it be similar to what we have seen with five and seven with roughly about 10% of next year's revenues being entry and also could you talk I think you highlighted that there would be a little bit more challenge.
To get entry to profitable B closer to corporate average given some of the moving parts could we elaborate a little bit more on that as well.
My first question. Thank you.
Okay. Goku. Please allow me to summarize your question. So Cocos question is really related to <unk> III. He wants to know the ramp up of <unk> III, what kind of revenue contribution can we expect will it be similar to the past patterns of en <unk> for about 10% of our wafer revenue in the first year and.
Also he would like to ask within Ccs comments about process complexity challenges what is the profitability outlook for entry is that correct local.
Okay.
Yes.
Okay, maybe wendell can address.
Hi, <unk>.
This is randall.
It's too early to talk about the revenue contribution essentially will begin volume production into second half of 'twenty.
Turning to with revenue contribution starting 2023.
In addition, este structural demand underpinned by the industry Megatrends is driving growth across all our notes the specific percentage of immune though as compared to the historical pattern may be less meaningful in the future. The overall, we are confident that sooner.
Meter will be the most advanced foundry technology when it is introduced.
With our strong customer engagement and tape out activity.
<unk> family will be another large and long lasting node for TSMC just like inside of seven families. Now about the gross margin as C. C said the initial outlook for a new node is always challenging.
And the increasing process complexity of leading nodes such as ensuring brings even greater challenges to achieving the corporate average gross margin in seven to eight quarters.
Partially also because our corporate profitability has increased.
And our long term gross margin target of 53% higher.
No.
It's a bit early to say when answering can reach the corporate average gross margin at this stage.
Because the volume production.
Hasnt started yet however, we will continue to work diligently on selling our value.
And cost improvement to ensure that we earn the right profitability and return.
You bet.
Considering the increasing process complexity of advanced nodes, such as century will deliver technology leadership manufacturing and capacity support and the ability to earn our customers' trust.
Enable us to earn our long term gross margin of 53% and higher.
Got it thank you very much.
My second question is.
On the more mature process technologies could you give us some.
Have you on the industry growth for specialty in mature technologies I think based on the data we look at it historically that hasn't really grown at maybe.
Low to mid single digit, but right now we see a lot of capacity being announced.
From mini foundries in these older specialty and mature process technologies, let's say defined as 28 nanometer and about so.
Can you talk a little bit about our growth.
Growth rate for these mature process technologies going forward is it going to be materially higher than the 3% to 5% that we have seen in the past.
In most cases, we have seen older nodes grow for four to five years, and then kind of stagnate do we see that.
Aren't changing because of some of the content, but bulk so content per device.
And that makes that you've talked about.
Okay go call, let me summarize your second question.
The second question is <unk> second question was on the mature nodes and the outlook growth outlook for mature nodes. His question was how do we see the growth outlook at mature nodes.
In the past it has gone in his words about 3% to 5% do we think it can be materially higher than that on the mature nodes, which he defines as 28 nanometer and above.
Okay Goku.
We forecast a growth rate of more semiconductor ex memory industry to accelerate to high single digit percentage level in the next five years as compared to around 4% CAGR in the past 10 years.
The higher demand at mature nodes will be driven by structural factors such as an increase in long term demand for certain specialty technologies due to the multi industry megatrends of five G and H B C and increasing silicon content in many end devices as well.
As the acceleration of the July digitalization.
TSMC strategy at mature nodes is to work closely with our customers to develop specialty technology solutions to meet the requirement.
Create differentiated and long lasting value to customers.
We believe our differentiated specialty technologies.
US to capture the structural demand generated from the industry Megatrends and continue to support our customers' growth.
Goldcorp does that answer your second question.
Yes. Thank you.
Okay. Thank you <unk> operator can we move onto the next caller. Please.
Next I want to ask a question Charlie Chan from Morgan Stanley .
Sensor I was taking my question and congratulations for a great yourselves management.
Hi, My first question is about the.
<unk>.
Sami inventory debates, so may I clarify with the seafood that they'll come in and still believe that the supplies you need to keep our inventory for several reasons, but.
In fact, we are seeing that our PC smartphone Oems.
Working down channel inventory event.
As you know that that graphic cards are they are working down that you mentioned channel inventory.
So do you think that the high inventories is actually sticking out of a weaker demand.
Or anything that we miss here because in fact, we're seeing consumer tech.
You know inventory, we are seeing a correction. Thank you.
Okay, Charlie let me summarize your first questions or charges questions on inventory and demand. He wants to know where he notes that are the consumes parts of the consumer and demand seem to be weaker or softer than expected.
And so how does this also affect or our view on the higher level of inventory sort of our view I guess try to your question is really what is our view on the end demand given potential weakness in consumer and market segments and then what is our view on inventory is that correct.
Yeah, Yeah, and and you thought demand is indeed that deteriorating do you think the extra inventory should.
Should come down thank you.
Hi, Judy.
You are right some of the market Jackman exited the we start to see it will be solved and these days.
For those smartphone PC.
Cap rates.
But.
As I indicate on the end market segment, remembering shrunk alright, and so if you look at it.
Some of the.
In the supply chain, particularly in the <unk>.
The power management IC side, we still see very strong.
Demand.
And also because of <unk>.
Lowest kind of.
Supply chain disruption by Joe.
Emerging.
COVID-19 uncertainty so we.
We are continuing to absorb that.
Our customer while maintain a higher level of inventory.
And for a longer period of time, we continue to absorb that and as a result actually for TSMC. We are our capacity remain very tight throughout the whole year of 2022.
I see okay. So is it more.
Two of those are industrial automotive industry instead for consumer attack.
Am I right about your comments about inventory level.
Yeah.
Yes, you are right.
In fact, a very important issue.
Structural makeup trend.
Great.
Know that my customer.
A greater computation power energy appreciate in computing and <unk> is actually is a strong point of <unk> technology.
I see.
And my second question is.
Oh you are.
And three our progress so we can do the.
Here like that the good news and it goes about Youre answering E is actually.
Where are you progressing very very well.
So do you think there's a possibility that you could actually point you were answering E for maybe one or two quarters too.
Dress that customer's demand. So I think you could be a win win for both TSMC and that your customers do you see that.
Kind of a possibility and maybe convert some entry fee projects to entry earlier. Thank you.
Okay. So Charlie the second question is on M. <unk>. He knows the progress is going very well. So his question is is there a possibility to bring in the timing of entry to earlier and we will we convert and three capacity two and three E.
Exactly thank you.
Okay Charlie.
You are right again, I mean, that's our.
Our industry. He's a result is quite good.
And the progress they actually is ahead of our schedule.
And Paul you.
Yes, we are considering that.
So far I still did not have a very solid data to share with us how many miles this weekend for you, but yes.
In our plan.
And also the capacity.
Since we have a very strong demand on the <unk>.
We are still planning to have a.
Now cap has to support our customer.
And is that correct.
Thank you I'll be back to the queue.
Alright. Thank you Charlie operator can we move on to the next participant please.
The next one to ask questions Randy Abrams from credit Suisse.
Okay, Yes.
My first question I wanted to follow up on your change to outlook, where you took up from mid to high Twenty's to now high twenty's or or above could you discuss because it is in light of the macro and the softening you've seen on consumer could.
Could you discuss the factors for does it change how much might be attributed to market share technology.
Or how much to a certain platform. If you could give an update on your your view of the different platform fifth if.
Certain platform drove it and did you see any downward change on any of the four platforms.
Okay. Thank you Randy So let me summarize Randy's first question is about our full year outlook, which as Cc mentioned in his.
Key messages that we expect to be likely to be at or exceed the high end of our guidance of mid to high <unk>. So randy's question is.
What is driving the higher or better full year outlook, given the macro environment looks a bit more shaky. If the technology is there market share et cetera, and what is the outlook by platform.
Randy.
We expect our HPE <unk> strongest of growing painful.
This year and the following years.
And you won't be the largest contributor to our growth.
This is all because of our structure, our omega trended to IV, increasing need for greater computational power and energy you've shown the computing.
As I said this kind of a technology do you happen to be Tsmc's strong potent.
So that all I can share with us how do we have a capital B <unk>.
<unk> added out of high hydropower.
Okay, and a follow up just on that.
Did you change.
So.
Oh, yes, yes, I wanted to know the other platforms. If you change your view on the smartphone.
Sure.
No for this year.
Randy we can share with you is that we see.
Iht's year over motive.
To grow faster than the debt.
Corporate average Iot similar small cell approaching the corporate average for the full year for the full year yeah. Okay. So it sounds like not much change.
My second question, it's more type two theres a lot of fear about do we head into a downturn.
A slowdown if you could give the other way in terms of flexibility on expansion plans.
Hopefully, we don't but if we go into a.
More of a recession.
How much flexibility with your fab plans across the U S Taiwan, Japan in Nanjing.
And on the other side with the prepayment.
And deposit is there flexibility on timing of shipments.
Full flexibility for customers, if they need to respond to slowing demand.
Okay. So Randy second question is about.
If there's a downturn or a slowdown.
Will this change or how flexible is the timeline for a new fab and capacity expansion plans, whether in Taiwan, Japan and overseas if the outlook changes for the worse and what is the flexibility of our prepayments with customers. If there was a downturn or slowdown.
Randy.
C C Wei.
Our capex and capacity expansion plan.
I'll always based on our customers that bocom demand profile.
This is underpinned by our <unk>.
Industry Mega trend.
As long as the Mega trend to continue which would be reviewed oil will continue to embrace to capture the growth that will follow.
So even a short term, we see a possibility of talking to them, which we do we still get a y impact too much to TSMC, if you might need to happen or continue our plant and we have competence.
So to capture the growth model.
Okay and on the customer side for there.
But deposits and capacity there locking in.
Randy actually.
We believe signing contracts to guarantee the loading in the future is not a common practice.
Focus really on technology leadership manufacturing excellence.
In earning customer trust as a more effective way to secure customer commitments now.
We work closely with our customer to plan the capacity, including receiving prepayments for capacity support and we will continue to work with them to determine the best way to support them.
Yes, so I think the answer for a customer siding capacity side is pretty aligned or similar does that answer your second question.
I mean, I guess just like in the past there was some flexibility like we saw the slowdown in utilization so.
I would think it's still work with customers on there.
In fact, they need to reschedule.
Because we've seen in the past by kind of if they have to adjust their utilization like I don't know if anything has changed in the model on that on that element.
No no nothing changing the model okay, great. Okay. Thanks, a lot.
Okay. Thank you Randy operator can we move on to the next caller. Please.
One Sunny Lin UBS.
It's your turn now.
Good afternoon, and thank you for taking my questions.
Congratulation on the strong performance. So my first question is on.
The pricing strategy for you going forward.
I mean, if we look at this up cycle, the tight supply and a strong restocking demand has supported a pretty meaningful price increase for foundry industry and TSMC throughout 2021.
So from here would you look to for the right price for some of the technologies are.
To justify rising cost of expansion and.
On the other hand, if the supply demand start to normalize do you think there could be an at risk to pricing.
Okay. So let me. Please allow me to summarize your first question. Her prior question was on pricing on both sides.
In an up cycle, but as D. We faced cost challenges royalty SMC consider to further raise the price and then on the flip side on the other hand, if demand were to soften I think sunny yours. The other hand was will be the risk to pricing to lower price is that correct. That's right. Thank you.
Jeff.
Okay, Sonny DCC Huey.
We do not come in.
Pricing details, but let me assure you that our pricing strategy is strategic not opportunistic or short term.
And customer I understand our effort to support our growth.
I'll see you said that.
You guys attempt to incoming.
And they're.
They are pretty side, either TSMC going to drop our price.
The answer is no.
Did I answer your question.
Thank you for the assurance.
That's very helpful.
My second question is to follow up on the <unk> ramp up so.
Just trying to get a better color on 2020, we understand that the math is pretty robust, but when we think about the potential revenue contribution.
For 2023.
With a lot of that equipment supply and delivery time.
That would be a capping factor for three nanometer.
The typical 10% revenue contribution.
Next year or do.
Do you think Theres still some time for you to try to accelerate the equipment expansion.
Okay. So second question is on <unk>, and <unk> and the ramp up a whole question. Once again is sort of around the revenue contribution of entry and specifically she is asking.
Whether the equipment suppliers on their towards delivery issues.
Issues.
Would affect the ramp up both and three in next 2023 and thus the revenue contribution.
Well.
We did see some of the issues on the tour <unk> and now we are still working nugget.
Said in a statement we are working on 2023, right now and we hope that.
We wont have any big issue, but right now we are not.
Ready yet to share with you that how much we can resolve the issue.
We have strong demand.
We tried to be worthy enough capacity for our customer.
And we are working we saw equipment supplier to get eaten up tour to expand our capacity.
Yeah.
Got it thank you very much.
Okay. Thank you Sunny operator can we move onto the next participant. Please next one to ask questions Rick Shea from Taiwan.
Yeah, Hi.
Hi, good afternoon, and thank you so much for taking my question.
My first question regarding <unk>.
You're okay with your revenue guidance for this year, I think you're saying that it should be at or even exceed.
Your you know mid to high twenties.
With guidance in U S dollars tons. So in that case are you revised OUI by your forecast for the global semiconductor as memory for this year and also the global foundry market forecast for this year.
Okay.
Risks are.
First question.
It is about a 2022 outlook sorry, Rick let me try to summarize so Rick notes that C. C. You said, a 2022 growth will likely be at or exceed the high end of our revenue guidance of mid to high Twenty's. So he wants to know.
What does this mean for our forecast or expectation for the semiconductor ex memory.
And.
And foundry markets.
So let me answer your question.
We are coming to us on TSMC is the performance.
On.
The whole industry semiconductors foundry industry, you meant to eat will be around 20% year over years of course.
All others, we are still.
I do understand.
The state tuition.
Now to be very ready to share with you yet.
Okay. Thank you so much so basically the strength is more TSMC company specific right.
That's because of our <unk> technology and you are right.
Okay, great. Thank you so much ICC and second question.
I think your customers had been waiting.
In a long queue since last year and I know this year Theres some macro issue, there's some change and you mentioned some demand.
Slowed down, but some others still very strong so I assume for any customers due at least in capacity will be filled up by others, but.
<unk> seen the Q is a short term need.
Or if that's the case when do you think the Q there was no more no more acute when do you think that would happen.
Okay. So Rick second question is about the C. C. You mentioned that our capacity will remain tight throughout 2022, but theses risks.
<unk> question is more about the Q or the line to wait.
As we said certain end market segments may slow down or adjust about others remained strong Rick's question is really if that way or list life shortening or when do we expect that to shorten.
So far as I said tsmc's capacity will be very tight.
90, now to support our customer so what do you view Opco. Please.
The least.
In the Q4 be logo was smaller it doesn't matter you still just not enough to support our customers and we are working very hard to support again.
Although I can't share with you.
Okay, Great that's very clear. Thank you so much again thank you.
Okay. Thank you Rick operator can we move on to the next participant please.
And that's on the line of Brett Simpson from Arete Research go ahead. Please.
Yeah. Thanks, Thanks, very much I had a question on your overseas Fab fab expansion plans.
I guess today, if we look at your wafer capacity, it's almost 100% in Taiwan.
Are you seeing any pressure from your strategic customers to accelerate your overseas plans for fab expansion and can you also share with US if you have a target for what portion of your wafer capacity long term might come from your overseas Fabs and then what time period might not happen. Thank you.
<unk>.
Okay. So bus, but first question is about our overseas expansion and global manufacturing footprint. His question is that are we seeing any pressure from strategic customers to.
To expand overseas and he wants to know what proportion or percentage of our capacity will be overseas by what timeframe.
Okay.
So the question in fact.
Looking about the overseas of App or the capacity we are building.
Our responsibility as TSA machine management to make the best decision for our customers and in the best interest of TSMC.
And we.
We are in close and constant communication with all of our customer and sulfide actually Yao priority securing capacity in our capitalized to support our business.
And also working with TSMC on technology deployment.
D Oar Oscar tissue machine to focus on.
And for the how much of the capacity to build outside let me share with you right now we have.
Oh, Fabien, Arizona, we sell five nanometer fab.
In Japan, we saw 28, and 16, Finfet technology and expanding our capacity in China with.
She came from <unk> 28 also repeat what are your Taiwan for 28 nanometers more capacity.
Definitely you have some future prem but.
Why are you increasing the next several years, but.
Not even now to share with us how many pristine BG in poultry.
Compared with <unk> two.
Technology.
Okay.
Uh huh.
Yeah, that's great.
Maybe just a second your second question.
On you mentioned and three E is coming one year after and three but can you give us an update around timing of two nanometer, which I believe is going to have a new transistor architecture gate all around.
I guess the move from and five to entry was more than two years, which is what you've typically been that cadence you've typically been running at or are we going to get back to two years with end to between and the ensuing that too. So that we'll see in end of 2020 for introduction for end two or will it take longer.
Thanks.
Okay. So second question is really on our end to end the cadence.
He wants to know that.
And five to entry is about more than two years.
Cadence between those two nodes for entry to aim to will it be back on a two year cadence.
And what's the timeframe for them too.
Our progress so far today for the end to end.
Is on track and the all I want to say is yes at the end of 2024 Youre at the reach production 2021 being production.
Probably close to the second half water.
Or the end of 2025.
That's all on schedule.
Okay, great. Thank you very much thank you very much.
Alright. Thank you Brad operator can we move on to the next participant please.
Next on behalf, Laura 10-K G I.
Hi, Good afternoon, and thank you for taking my question. My first question is about our advanced packaging development.
Can you share with us.
So kind of progress in advanced packaging.
In terms of the revenue contribution in the growth trend in that sense, we know that.
Yeah not of a high computing P C kinds relied on Tsmc's advanced.
Advanced packaging.
Service. So can we expect with your advanced packaging revenue.
It would be kind of a part of you are high computing PC growth outlook. That's my first question.
Okay. So lower first question is on <unk> or <unk> or advanced packaging progress. She wants to know the progress in terms of the revenue contribution.
The growth outlook for the packaging business and how correlated is it too high H P C platform.
Laura Let me Yeah, let me answer the first part.
In 2021, the events packaging generated $4 $1 billion of revenue.
We expect that this year.
The growth will be similar to the corporate growth.
And during the five year next five years, we expect its growth in Canada will be slightly higher than the culprit.
Okay. Thank you very helpful.
And the correlation or with H P C.
Well Debbie answer that correlation actually.
<unk>.
So he soi.
Technology actually so for the <unk>, Hi, E and applications.
So that required.
Hi, <unk> and very low power and a very high performance.
So Paul we just you're into a small volume of production in 2022, and we expect this one will continue to grow.
That's why do we have today.
Okay. Thank you that's very clear.
My second question is more like a final on my I think C. C already mentioned a lot about the strategy of the Capex expansion.
You don't go to.
But we know that the equipment lead time has been quite low. So I'm just wondering in your specific areas of our process you are seeing the biggest impact.
What's your Akshay accordingly, or do you have any priority is for various that technology node.
<unk>.
Okay. So laws.
Second question is about capacity expansion and equipment lead time, given the tool delivery that <unk> talked about how she wants to know what areas or nodes or we've seen the biggest impact.
Re prioritizing how are we prioritizing this yes.
Yes.
I mean thats.
We.
We see these condo toward reprogramming unexpectedly.
From the beginning of this year and we are working very hard are we solid tour suppliers to resolve all the issues.
And so.
As for Christian multimodal, rich technology, or what being impact.
All of the leading edge technology, and mature node technologies capacity expansion or being impacted.
Certainly.
In order to support our customers' strong demand.
We are working very hard towards a tour suppliers to resolve all the issues.
And so far 2022, no problem, we are working on our 2023 and beyond I Hope I didn't.
A few months data that we can report is that the issue will be resolved, but we are still working very hard with our suppliers and to resolve order issue that all I can say right now.
Thank you very much that's very helpful.
Okay. Thank you Laura operator can we move on to the next participant please.
Next one to ask question, but the husseini from S. I G.
Yeah.
Yes. Thank you for taking my question. My first one has to do with better understand the demand dynamics.
Highlight at a better than average growth from HBC and in that context I'm. Just wondering how we should think about the mix of five and seven nanometer nodes by year end 'twenty, two or second half of 'twenty two.
Yeah.
Okay. So <unk> first question is looking.
Looking at the demand and also by node he wants to know how should he.
Expect the contribution or the mix from and five and seven in the second half of this year.
It wont be for antigen when just a reported a 40% rate.
I mean.
For the second half of this year.
The contribution to Tsmc's revenue, we work with you, Jeff with depression, combining Kevin and <unk> together.
Okay.
Hum.
It depends but I understand how that increase would look like compared to prior years.
In the second half usually against no contribution increases and with three in it.
Small <unk>.
<unk> I was just trying to better understand how second half of 'twenty two will look like in the past five years.
Yeah, I think that the second half revenues.
Normally higher that partially because of seasonality, but some of the products.
Okay, great. Thank you and one follow up thank you so much.
The color on the mix.
Oh, there's a migration to two nanometer you highlighted that the transistor change, but I also want to understand what is.
Underlying assumption.
Especially as it relates to the lithography. We also have another change coming up and going.
From <unk> to <unk>.
And I'm just curious to know if you are assuming.
You would be using UV or you would need holiday as you go into.
The important two nanometer.
Half of 'twenty five.
Okay. So maybe second question is on into a very specific question. He wants to know with into there's a change in transistor structure. He also wants to know on lithography side will we be using E movie or high in a collect mindy.
Yes. Thank you.
Well, let me answer your question.
Yes.
Lots into user of you we tour today in the industry.
And so we have a turnkey liberty your body weight and are very familiar with those high end <unk> tours.
While <unk>.
And we will continue to evaluate.
The higher network whenever we can guess Mr salary and.
Is <unk> the cost effective.
Who is there anything you say into or not.
I have not yet to be able to share with you.
Okay. Thank you so much.
Hey, Thank you Mehdi operator can we move onto the next participant.
Want to ask questions.
Charged from Needham and company.
Yeah. Good afternoon. Thank you for taking my question I wanted to ask my first question I had a little bit of longer term.
One up your IDM customers.
Well I don't want to call it the name, but that their CEO I believe revisiting your price over the last six months.
They think they.
They can both by we first phone you are at the same time compete with you in technology and that they are hoping and.
Plenty of 25 and beyond that will compete with you in the foundry business.
So there have been concerns that you.
You may not really.
Get a get a fair deal out of this.
A little bit of a complex relationship one kind of starting with very specifically I heard is that you may end up basically teaching this competitor, enabling their accelerated roadmap.
In the AD break away from you and compete against new specialty foundry business.
So maybe can you can you address this concern and that provide us some high level thinking tubing Baxter community and better public. Thank you.
Okay. Charles Let me summarize your first question first question is on the IDM customer.
That wants to buy.
Bio wafers or outsource with TSMC, but also said that they would like to compete in the foundry industry. So Charles Youre question is really.
Yes, two parts in the sense that.
How TSMC.
TSMC end up teaching this IBM and enabling their roadmap.
And how will we compete on the foundry side.
Gotcha.
Let me answer the question for Thunder competition.
Now as a leading pure play foundry TSMC, we have never been shoulder uncompetitive changing our 35 years of history.
And we know how to compete.
Alright and.
You asked about how to protect Tsmc's IEP was technology detail I'm glad we have won a championship process.
Design enablement system to ensure a productive engagement.
Our customers and.
While we can protecting our own IP as well as customers to IP.
We do not anticipate any issues at all.
And for the future actually.
These ideas and my take back.
Business banking into gel one house, we have already taken this into our capacity planning consideration already.
Did I answer your question Charles.
Yes, Thanks Cc.
So maybe.
Really just a follow up the second question actually is for.
Follow up to my first question. There has been some press reports I believe over the last two or three months I say TSMC is building potentially building a dedicated fab four.
This particular customer I'm not sure with.
Dedicated Apple production line for specific customers, it's really TSMC standard practice, however, can kind of provide your thinking.
Would the answer be no you flagged this customer's going to bring you a significant volume. Thank you.
Okay. So Charles taking question is.
And there's been certain media reports, saying that we will build a decade fab or production.
Certain IDM.
It's our practice or and what the answer is there'll be no. Even if there is lot volume behind such a dedicated capacity.
Well cost.
To be fair.
With you.
Our capacity planning as we said many times is 300 base under long term market.
<unk> profile.
Underpinned by the industries that make up <unk>.
In the semiconductor content enrichment in many in devices and we are not depend on.
Any single customer or product.
Did I answer your question.
Yes. Thank you.
Okay. Thank you operator.
Interest of time, I think we'll take the last two.
Participants questions. Please.
Okay and the next one to ask question is.
Sang <unk> from Cowen and company.
Yeah, Hi, Thanks for taking my question I have two of them. The first one is for Wendell.
In the March quarter, you know, there's quite a big difference between the revenue growth in the shipment growth for them.
Curious on your full year guidance of 20 or even beyond that for revenue growth.
It's coming from pricing any color there would be helpful. And then I had a follow up for <unk>.
Okay. So this is first question is in looking at our full year outlook. He wants to know how much of our growth. This year, how much of it is coming from price versus volume I guess.
Yeah, Chris.
Volume price and product mix are important.
Contributing factors in driving our growth.
But we do not have the specific breakdown to share with you.
Alright, no worries and then I had a follow up for C. C. You know clearly investors seem to be worried about a recession or a slowdown.
From your experience when you look at prior cyclical slowdowns or even macro corrections what are the leading indicators TSMC look for specifically is it a pricing slowdown is it push out of capacity is it customers breaking L. P. As what do you think is the first shoe to drop any color there would be helpful. Thank you.
Okay. Christian second question is in terms of looking at again the demand environment.
He wants to ICC in based on your past recessions or slowdowns.
Some of the leading indicators that we watch for.
Two as a signal do we look at pricing slowdown do we look at a slowdown in capacity and Capex what are the indicators that we look at.
Yeah.
Chris.
This is Chris.
Question to be asked because we all know Louise in cruise.
Working with our customers so we know that.
Each customers.
Demand and careful cost and.
We turn our capacity, we print our technology by working with them. So you have a downturn.
Sure we got the of course getting information from our customers.
And.
And are we correct them together.
We do get it in.
And we decided that our long terms.
Capex and capacity.
Which one is the leading indicator.
Is that.
Don't have a specific answer for your questions.
Thanks Susie.
Okay. Thank you operator, we'll take the.
Questions from the last participant. Please then thank you.
Yes, the last one to ask question is.
Ralph both from New Street research.
Yes. Thank you for squeezing me in.
At the beginning of the year you guided for advance process is to account for 70% to 80% of Capex spend.
Specialty nodes for 10% to 20%.
Now with the year now underway in the U S and better visibility on the demand in your different end markets can you share with us.
If youre thinking on capacity additions of advance versus specialty has changed or whether those those ratios that you gave originally still.
Thank you.
Okay. First question is about our Capex and Capex spending his question is.
You know what.
With the.
The past three months has the.
Allocation or breakdown between advanced and specialty technologies in terms of our Capex has that changed.
No no it has not.
Thank you that's helpful.
As a follow up you mentioned that you are working with suppliers to secure and further diversify your material supply.
Can you discuss whether you expect your material input cost increase.
In the second half of the year and how we should think about gross margin in the second half of 2022 in that context.
Okay. So second question.
Yes.
A little bit on materials costs, we have said that we are diversifying our materials supplier. So are we seeing the input costs increase and then what does this mean for the margin outlook.
In the second half, yes, sure. So let me answer that.
We do face manufacturing, causing challenges.
Partially due to the rising materials.
Inflationary cost.
We always work closely with our customers to provide value and.
We will continue to ensure that the pricing strategy reflects the value creation.
We will also work diligently.
In our fab operations and with our suppliers to deliver cost improvements.
By taking such actions, we believe we can achieve the long term gross margin of 53% higher and greater than 25% ROE through the cycle that will enable us to invest to support our customers' growth and to deliver profitable growth for our shareholders.
Yeah.
Thank you Ralph Okay. So thank you everyone. This concludes our Q&A session before we conclude today's conference. Please be advised that the replay of the conference will be accessible within one hour from now the transcript will become available 24 hours from now both of which will be available through Tsmc's website at.
Triple W Dot TSMC dotcom.
Thank you for joining us today, and we hope everyone continues to stay healthy and safe and we hope you will join US again next quarter Goodbye and have a good day.