Q2 2022 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
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Speaker 2: Good afternoon everyone and welcome to TSMC second quarter 2022 earnings conference call.
Speaker 2: This is just so. tars encived the Director of Investor Relations in your host for today.
Speaker 2: To prevent. A set of COVID-19 teenam TM C is hosting our earnings comments. Call via live audio webcast through the company's website at tripw Dot T MC com.
Speaker 2: where you where you can also download the earnings release materials.
Speaker 2: If you are joining us through the conference call, your target minds are in prisoner mode right now.
Speaker 2: The format for today's event will be as follows. First, TSMC Vice President and CFO , Mr. Wunderhung, will summarize our operations in the second quarter 2022, followed by our guidance for the third quarter 2022.
Speaker 2: Afterwards, Mr. Phong and TSMC's CEO , Dr. C.C. Ray, will join you to provide the company's key messages.
Speaker 2: Then, the SMC's Chairman, Dr. Mark Lew, will host the Q&A session, where our three executives will entertain your questions.
Speaker 2: As usual, I would like to remind everybody that today's discussions may contain third looking statements that are subject to significant risks and uncertainties, which could cause actual results to different materials from most contained in the third looking statements.
Speaker 2: Please refer to the same quarter notice that appears on our press release.
Speaker 2: Now, I would like to turn the call over to TSMC CFO , Mr. Wunderhorn, for the summary of operations and the current quarter guidance. Thank you, Jeff. Good afternoon, everyone, and thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2022.
Speaker 2: After that, I will provide the guidance for the third quarter.
Speaker 2: Second quarter revenue increased 8.8% sequentially in NT, or 3.4% in US dollars, as our second quarter business was supported by strong HPC, IoT, and automotive-related demand.
Speaker 2: Second quarter-grace margin increased 3.5% is points sequentially to 59.1%. Sightly ahead of our guidance as we enjoyed a more favorable foreign exchange rate, caution improvement and value-telling.
Speaker 2: Likewise, operating margin increased 3.5% to 49.1% in line with our gross margin increase.
Speaker 2: Overall, our second quarter EPS was 9.14 NT, and our EPS was 39.2%.
Speaker 2: Now, let's move on to revenue-type technology.
Speaker 2: 5 nanometer process technology contributed 21% of Rav4 revenue in the second quarter, while 7 nanometer counts for 30%. Advanced technologies, which are defined as 7 nanometer and below, accounted for 51% of room for revenue.
Speaker 2: Moving on to revenue contribution by platform. All six platforms increased in the second quarter. Small further increased 3% quarter of the quarter to account for 38% of our second quarter revenue. HPC increased 13% to account for 33%. IOT increased 14% to account for 8%.
Speaker 2: Automotive increased 14% to a count for 5%. And digital consumer electronics increased 5% to a count for 3%.
Speaker 2: Moving on to the balance sheet, we ended the second quarter with cash and marketable securities of Rentering Through A Trilene NT.
Speaker 2: On the liability side, current liabilities increased by 22 billion and T mainly due to the increase of 47 billion and T in accounts payable, partially all set by the decrease of 29 billion and T in short term loans.
Speaker 2: long term interest bearing debt increased by 124 billion NT, mainly as we raised 109 billion NT of corporate bonds during the quarter.
Speaker 2: Financial ratios accounts receivable turnover days decreased one day to 37 days, while days of inventory increased seven days to 95 days as we pre-built M5 ravers and increased rare materials inventory.
Speaker 2: Now let me make a few comments on cashflow and KPEX.
Speaker 2: During the second quarter, we generated about 339 billion NT in cash from operations, spent 218 billion in KPACs and distributed 71 billion for third quarter 21 cash dividend.
Speaker 2: Bonds pay a very increased by $109 billion as a result of this quarter's bond issue.
Speaker 2: ORL, our cash balance increased by 102 billion to 1.3 trillion NB at the end of the quarter.
Speaker 2: In most of our turns, our second quarter capital expenditure is total 7.34 billion.
Speaker 2: I have finished my financial summary. Now let's turn to our current quality guidance.
Speaker 2: Those on the current business outlook, we expect our third-core revenue to be between 19.8 billion and 20.6 billion US dollars, which represents an 11.2% sequential increase at the birth point.
Speaker 2: Based on the exchange rate assumption of one US dollars to 29.7 NT, Wales margin is expected to be between 57.5% and 59.5%. Operating margin between 47% and 49%.
Speaker 2: This concludes by a financial presentation.
Speaker 2: Now let me turn to our key messages.
Speaker 2: I will stop by making some comments on our second quarter and third quarter profitability.
Speaker 2: As a reminder, six factors determine TSMC's profitability, leadership technology development and ramp up pricing, cost, capacity utilization technology makes and for exchange rate.
Speaker 2: Compared to first quarter, our second quarter gross margin increased by 350 basis points sequentially to 59.1%, mainly due to a more favorable foreings change rate, cost improvement and value selling. And value selling.
Speaker 2: Compared to our second quarter guidance, our actual growth margins exceeded the high end of the range provided three months ago. As our guidance was based on exchange rate assumption of $1 to 28.8 NT, whereas the actual second quarter exchange rate was $1 to 29.42 NT.
Speaker 2: That's created about a 90 basis point difference in our actual second quarter Bush margin versus our regional guidance.
Speaker 2: We have just guided our third quarter gross margin to decline 60 basis from sequentially to 58.5% at the midpoint. As a sliding mer-favorable exchange rate assumption, we will be more than offset by higher inflationary costs including higher raw material and electricity costs.
Speaker 2: Looking ahead on our profitability, we will face challenges from rising inflationary costs from raw materials, the utilities and tools, increasing process complexity of reading notes, new investments in mature notes, and overseas fabric extensions.
Speaker 2: 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 growth margin of 53% and higher is achievable.
Speaker 2: Next, let me talk about other effective tattooing.
Speaker 2: For 2022, we've spent our tax rate to be between 10 and 11%.
Speaker 2: Starting in 2023, we will see the expiration of certain tax exemptions in Taiwan and effective tax rate will increase. And effective tax rate will increase.
Speaker 2: However, Taiwan government is in the process of drafting certain new tax exemption regulations and is currently in the common period.
Speaker 2: Therefore, we will provide a further update on the artwork of our Tetrae in 2023 and beyond when more details become available.
Speaker 2: Now, let me turn the microphone over to CC.
Speaker 3: Thank you, window. We call everybody, stay safe, and hear you during this time.
Speaker 3: First, let me start with our near-term course outlook.
Speaker 3: We concluded our second quarter with revenue of NT 134 billion, or US starter 18.2 billion, supported by HPC IoT and Automotive Related Demand.
Speaker 3: Moving into the quarter 2022, we expect our business to be supported.
Speaker 3: By continuing the demand for our industry, the 5-dellometer and 7-dellometer technologies.
Speaker 3: and the internal side due to the softening device momentum in smartphone, PC and consumer ear market segments, we observe the supply chain is already taking action.
Speaker 3: and expect humanoid able to reduce the world's second half of 2022.
Speaker 3: After two years of pandemic treatment, stay at home demand.
Speaker 3: This type of adjustment is reasonable in our view. Our expectation is for the accessory in the semiconductor supply chain to take a few quarters to rebalance to a hair-seer table.
Speaker 3: We believe the current semi-conductor cycle will be more similar to a typical cycle. We saw few quarters of inventory adjustment.
Speaker 3: Daikri Su, first half, 2023.
Speaker 3: We have also internalized and prepared our sale for various different scenarios in case it is necessary.
Speaker 3: On the demand side.
Speaker 3: While we observe certain needs in consumer and market segment, other and market segments such as a data center, and automotive related, remain steady. Then we are able to relocate our capacity to support these areas. To support these areas.
Speaker 3: Despite ongoing inventory correction.
Speaker 3: Our customers demand continue to exceed our ability to supply.
Speaker 3: We expect our capacity to maintain throughout 2022 and our free course to be 30% in U.S. start-of-term.
Speaker 3: So we keep that in supporting TSMC's strong structural demand, all technology that is here, and the differentiation. All technology that is here, and the differentiation.
Speaker 3: Our strong portfolio in high-performance computing and our strategic relationship with customers. Our strategic relationship with customers.
Speaker 3: All of these vectors are taken to the point where he is a strength in the country industry.
Speaker 3: First, until now, the leadership in differentiation, TSMC's technology position is much stronger today than the previous years.
Speaker 3: Looking ahead to 2023, we are working diligently to provide the industry with a new technology, and making it available to all the product innovators.
Speaker 3: We are a successful member of INFLY, INVOP, INVOS.
Speaker 3: Then GF coming, when the hour of N3 will expand our customer product portfolio, then we increase our adjustable market.
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Speaker 3: The massive structural increase in the demand of computation and the opinion by the industry-megatron continues to feel great need for performance and energy efficient computing to require use of leading your technologies. NEWS
Speaker 3: Through our comprehensive IP ecosystem, we can optimize the process technology, where we can achieve and capture the structurally demand, and build the strong portfolio in high-performance computing.
Speaker 3: We are very HPC to be the main engine of TSMC's long-term course, and the largest contributed in terms of our incremental revenue course in the next several years.
Speaker 3: Third, our strategic relationship with our customers, our local industry developed and built so many years of collaboration and investment to enable customers success in the market.
Speaker 3: We continue to work closely with our customers and technology development to support our long-term demand and course.
Speaker 3: With all these three differentiating factors, we expect our capacity utilization to remain here and see in 2023. And our business to be thus volatile, there are more resilience, supported by the strong demand for our differentiated, indeed, and relevant advance and spatial technologies. and spatial terminologies.
Speaker 3: 900 to volunteer and C seven temp outlook.
Speaker 3: who are making economic categories for the near-term uncertainties that may persist. We believe that fundamental structure goes subject to the long-term semiconductor demand from the embrace.
Speaker 3: We continue to observe that silicon can increase across many and devices, filled by process technology and inclusion, with custom manufacturing technologies and as to make this tell her you please are a Sunday notification.
Speaker 3: For example, the number of CPUs, GPUs, and AI accelerators in the data center are increasing.
Speaker 3: The 5G smartphone carries substantially higher silicon content as compared to 4G smartphone.
Speaker 3: Third, ???cks delta the path continues to rise.
Speaker 3: Yes, who are the device-use records of many electronic devices may be fragile to go single digits a percentage range. In the next several years, the Silicon County records will be higher in the mid to high single digits per percentage range. Then support the relevant structural single conductor demand, then increase our adjustable rate for demand.
Speaker 3: KSMC's at KPS, in KPSH Premium, I always based on the long-term structural market demand profile and near-term factors.
Speaker 3: while working closely with our customers to plan our long-term capacity, and investing in leading energy and specialty technology to support the course.
Speaker 3: Our manager is proven to be so near to uncertainties and we went highly competent in our long-term growth outlook.
Speaker 3: Without technology leadership, manufacturing and capacity support and customers are trust. The SMC's world position to capture the strong multi-year course from the affordable structural link capturing the RFIG and SPC related applications is to deliver profitable goals for all shareholders.
Speaker 3: We reiterate our long-term revenue to be between Fouciu and Pantice, HGR, over the next several years your US out of ten.
Speaker 3: Next, let me talk about the tool that they will be updated.
Speaker 3: As a major player in the global semiconductor supply chain, the SMC worked closely with all our tools to bring our key projects and capacity in your minds.
Speaker 3: However, that many other industries, our suppliers, have been facing greater challenges in the supply chains.
Speaker 3: which are extending to a daily time for both at a once in maturen nose. As a result, we have spent some of our KPACs this year to be pushed out into 2023.
Speaker 3: KSMC is actively doing this part to help our tour suppliers address the supply chain challenges.
Speaker 3: In April , we said that we have increased regular high-level communications to trace the progress and send several teams on-site to support our suppliers.
Speaker 3: He said that we have increased regular high-level communications to trace the progress and sent several teams on-site to support our suppliers. He said that we have increased regular high-level communications to trace the progress and sent several teams on-site to support our suppliers.
Speaker 3: We have worked closely to identify critical chips that are gating the tool delivery. We are working dynamically with our customers and prioritized our river capacity to support these critical chips to help mitigate the chip constant issues.
Speaker 3: While challenges remain, the situation is improving. We do not expect any impact to our 2022 capacity plan and we are able to pull in the delivery schedule for a certain amount of tools for our 2023 capacity.
Speaker 3: We have been working closely with our customers for 2023 so that we can support their demand.
Speaker 3: Now, when we talk about the N3 and N3 status, N3 is on track for volume production in second half of this year with good yield. We have spent well-known contributions starting first half of 2023 with a smooth ramp in 2023 driven by both HPC and smartphone applications.
Speaker 3: Hence, we will further extend our N3 family with enhanced performance, power, and yield.
Speaker 3: and we will offer complete platform support for both smartphone and HPC applications.
Speaker 3: We observe a high level of customer engagement at N3E. The onboarding production is scheduled for around one year after N3E.
Speaker 3: So, remember the technology will be the most advanced semiconductor technology in both PPA and transistor technology when it is introduced.
Speaker 3: Just we are confident that our N3 family will be another large and long-lasting node for TSMC.
Speaker 3: Finally, let me talk about the M2 stators.
Speaker 3: Our aim to technology development is soundtrack and progress in world to our expectation, which reached production schedule in 2024 and world production in 2025.
Speaker 3: After carefully evaluating an extensive period of development, our 2-nanometer technology will adopt narrow-sheet transistor structure to provide our customers with the best performance, cost, and technology maturity.
Speaker 3: And to our deliver full load performance and power benefit to address the increasing need for energy efficient computing with 10 to 15 speed improvement adjacent power, or 20 to 30% power improvement adjacent speed, and logic density of more than 20% increase as compared with the M3E.
Speaker 3: 2-megabits of technology will be the most advanced semiconductor technology in the industry in both density and energy efficient quantities introduced and will further extend our leadership position right into the future.
Speaker 3: This concludes our team message. Thank you for your attention.
Speaker 3: Thank you, Sisi. 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 the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question.
Speaker 3: For those of you on the call, if you would like to ask a question, please press the zero, then one on your telephone keypad now.
Speaker 3: Questions will be taken in the order in which they are received.
Speaker 3: If at any time you would like to remove yourself from the questioning queue, please press 0 and then 2.
Speaker 3: Now let's begin the Q&A session. Our chairman, Dr. Mark Liu, will be the host.
Speaker 2: Hello everyone. Thank you for coming to this conference.
Speaker 2: I wish you all healthy and well.
Speaker 2: I think we hope you have already answered some of your questions.
Speaker 2: But it definitely shows this company is...
Speaker 2: Stands on firm ground.
Speaker 2: and we will be prepared, proven, provenly, going through this new term uncertainty.
Speaker 2: In the meantime, we will be also confident and will prepared for our next growth.
Speaker 2: will be also confident and will prepared for mixed growth period.
Speaker 3: So now the flow is open for your question. Thank you Chairman. Operator, please proceed with the first call around the line.
Speaker 4: Yes, the first one to ask questions. The first one to ask questions. 90-year-brems. Maybe I can explain.
Speaker 5: Okay, yes, thank you. Congratulations on the good outlook. My first question, I'm wanted to have your view on the business cycle. You raised your outlook to 35% in a strong third quarter. With that strong outlook, I wanted to see what is driving your expectation for inventory drawdown in second half. And how broad you're seeing the inventory drawdown. You're seeing the inventory drawdown.
Speaker 5: And the follow up question I wanted to ask to that is, what is your view on the first half with your view customers will be drawing down through first half? Do you see under utilization and how severe do you expect that correction? Okay, Randy, please allow me to summarize your first question. So I think Randy, the first question is in looking at TSMT Stokeholder guidance and also looking at our full view question.
Speaker 5: much correction you're looking for in your business.
Speaker 3: Wendy, this is C.C. Wade, let me answer your question. Yes, we do have missed 30s of course in this year, but we also expect our customers start to take action to decrease the argument at level.
Speaker 3: How far we expect that a few quarters at least say into the first half of our 2020 last week you are continuing to do the inventory correction. As we continue to do the inventory correction.
Speaker 3: And the other way to TSMC's utilization, let me say that despite ongoing inventory adjustment in medical uncertainties, the structural record structure in the long-term thank you to our
Speaker 3: We are leading and differentiated algorithms and specialty technologies. The MS-1 HPC portfolio and strategic customer relationship, we expect our capacity to remain tight. And our business to be more resilient than we are competent in both our near term and on-term course outlook.
Speaker 3: leading and differentiated algorithms and specialty technologies. The MS-1 HPC portfolio and strategic customer relationship, we expect our capacity to remain tight. And our business to be more resilient, and we are competent in both our near term and long term course outlook. Did that answer your question?
Speaker 5: Yes, I mean to clarify, do you expect even through first pass to remain tight factoring in your tech position and some of the projects you have?
Speaker 6: Yeah, you remember.
Speaker 3: So I think Randy wants to ask in the first half of next year, do we expect our HADRIC capacity utilization given the ongoing inventory adjustment?
Speaker 6: I cannot give you an executive number but let me say he is here.
Speaker 6: Object-read number, we are talking about, let me say, here, see. Okay.
Speaker 5: Okay, great. Hey, my second question on the CAPEX are two parts. Just want to understand the pushouts, a little more wooded-safecting, the three nanometer, how much ramp, the five nanometer, or mature nodes. And if you could also discuss the framework for next year's CAPEX, I think you've made comments about, we could be above 40 billion, if you could give a framework for how you're thinking about next year's CAPEX.
Speaker 3: Okay, so Randy's second question is on the CAPEX. He wants to know with some of the two delivery issues, the CAPEX push out is this for three nanometers, is this for five nanometers, or just more on the mature node side. And he also wants to know how does this impact our CAPEX for 2023, as we said before, that 2023 could be 40 billion or higher. Okay, Randy, this is random.
Speaker 2: The first question as C.C. said in his prepared remarks that the schedule, the total level schedule changes as in more or both the events and the mature notes.
Speaker 2: We see a set in his prepared remarks that the schedule, the total delivery schedule changes currently as in more of both the events and the mature notes. Thank you.
Speaker 2: And the second question is about next year's KPax. It's too early to talk about next year's KPax. But as Roy said, we invest the KPax in the year for the future opportunities. So as far as the future, the future is always good. We will continue to invest. But of course, in this discipline matter.
Speaker 5: Okay, I just for this year with the pushout, what's your expectation for how much this year would be? And that's my final question, thank you.
Speaker 2: I think next year will be too early, but I can tell you that this year, it will be closer to the lower end of our previous guidance. The next year will be closer to the lower end of our previous guidance.
Speaker 3: Great, thank you. So, most of the other end of the guidance of 40 to 44 billion rendees.
Speaker 3: of the guidance of 40 to 44 billion rendees. Thank you.
Speaker 3: Okay, great. Thank you. Operator can move on to the next participant, please.
Speaker 4: Next one to ask questions is Bruce Lowe from Goldman Sachs.
Speaker 2: Hi, hi, thank you for taking my question. Conquestions of a great result. I think the management has said that the next few years, the revenue growth was still at 15 to 20% growth, and it is driven by the compound dollar content growth. Can you, this is actually the most, you know, a difficult part for the investor or the business diplomacy when we talk to the investor? How much is driven by the dollar content growth because investors do not really see the time soon?
Speaker 3: So for example like 15 to 20% growth for the next few years how much is driven by dollar content growth, how much is driven by the shipment or how much driven by the ASP or programming improvement? Okay, let me first thank you, let me summarize your first questions of this is really looking at our long-term growth. We said that between we were growing between 15 to 20% in Kager and in several years, he also know how to risk 15 to 20% how much is driven by certain content.
Speaker 6: Even that all the electronics devices, even the oil is a franchise where some kind of oil is still growing, and combined with all these and our way to selling with our customer, we are confident to say 15 to 20% takeer is achievable.
Speaker 1: Okay.
Speaker 2: Okay, thank you. So my next question is for the mature node and the specialty capacity expansion. I think Chairman recently commented that you will expand your mature node and specialize capacity by 50% by zero in next three years. I mean, this number looks a bit big. I mean, can you tell us about how do you achieve the 50% capacity expansion by the new capacity for conversion and where are those cement? How do you see those?
Speaker 3: If that all new capacity expansion is some of this also coming from logic conversion to specialty and then also what applications are driving this.
Speaker 6: What let me answer the question. 50% increase. We mean that 50% is an indispensable technology of capacity, those mean the overall capacity increase.
Speaker 6: We did this because of our customers' lead and we worked closely to support their growth.
Speaker 6: So, it's not a plan 50 percent increasing the large capacity. No, it's a special piece.
Speaker 3: If I may add a little bit, the expansion also will include both the new capacity and conversion of existing capacity.
Speaker 2: So how confident you are, I mean, in terms of this kind of traffic expansion, what kind of application which will keep your confidence to this kind of increase. So because in the past I've 20 years, your capacity expansion is mostly in the event snow.
Speaker 3: So this is, once you know, right is keeping the SMC confident to have such expansion on these specialty technologies, as most of our expansion in the past has been focused on the advanced nodes.
Speaker 6: Bruce, you are right. In the past years, TSMC only increased the leading arts capacities.
Speaker 6: with the not increasing specialties in the past few years, except a few upgrades from large to two specialties. But this time is different. First, because we can see the second content continue to increase on all the edge devices. It's not included on the demand on the leading edge capacity. We also require the specialties, content, inside.
Speaker 6: And so, at the edge of our customers are requested. TSMC are closely worked with our customer and to expand our specialty capacities.
Speaker 6: absorbed
Speaker 3: Very, very competent. Thank you.
Speaker 3: Thank you. Thank you, please. Operator, can you move on to the next participant, please? Operator, can you move on to the next participant, please?
Speaker 4: Next one to ask questions, suddenly in from UBS.
Speaker 7: Hi, good afternoon. Thank you for taking my questions and congrats on the strong results. So my first question is on the semi-cycle. So my first question is on the semi-cycle.
Speaker 7: Earlier that you have done some analysis on the semi-cycle for 2023. So I just wonder what your current face case for semi-growth for 2023. Do you think if you would be like a typical down-cycle like in 2015-2019, would it be more meaningful correction? Thank you.
Speaker 3: Okay, Sunny, thank you. Sunny's first question is on the semi-conductor cycle. She wants to know what is a TSMC space case for 2023. Do we think there will be more of a typical cycle such as in 2015 or 2019 or will be a more of a meaningful correction, I believe, or her words?
Speaker 2: Yeah, hey, something, yes. Our base case is a typical, where of a typical down cycle. The inventory correction may be go for a few quarters through the first half of 2023. It's not like a big down cycle back in 208 or something like that. There's something like that. The inventory correction may be going for a few quarters. The inventory correction may be going
Speaker 7: Got it. Thank you. And so my second question is on three nanometer as we are ramping up the technology in second half. How should we think about the revenue contribution into 2023? In terms of possibility, would the three nanometer ramp up have any impact into Q4, or if the impact will be mostly from Q1 next year?
Speaker 3: Okay, and so thank you, Sunny. So, the second question is on 39-meter. With the ramp, she wants to know what type of revenue contribution from N3 in 2023, and also with the ramp of N3, what will be the impact to profitability when should we feel and what type of impact from N3? Thank you. That's correct, Mike Sunny.
Speaker 3: So thank you so much. So the second question is on 39-meter. With the ramp she wants to know what type of revenue contribution from N3 in 2023, and also with the ramp of N3, what will be the impact to possibility when should be feared and what type of impact from N3. Thank you. That's correct, Mike Sonny. That's right. Thank you, Jeff. Thank you.
Speaker 3: Sure. Okay, Sunny. In terms of revenue contribution from M3, I have to say that nowadays it's less meaningful to talk about the revenue contribution of a leading note at the very beginning when we start to ramp it compared to the in the past, because the total pie is increasing and we believe it will continue to increase.
Speaker 3: Dollar amount wise is certainly bigger than the previous notes at the very beginning stage. This is your first question. In terms of profitability dilution, we expect that the impact between 2 to 3% percentage points in growth margins in the first year, 2093.
Speaker 7: Got it. Thank you. That's very clear. Thank you very much.
Speaker 3: Thank you, Sunny. Operator can move on to the next participant, please.
Speaker 4: Now it's turn for Goku Harin Haran, JP Morgan. Go ahead, please.
Speaker 3: Okay, are you on the line you might have to unmute. Okay.
Speaker 4: By first. on the...
Speaker 3: Go go sorry you're breaking up can you try again repeat your question please
Speaker 4: Yeah, sure. Thank you. OK.
Speaker 8: midcycle.
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Speaker 3: Okay, let's try one more time because you continue to break out. Let's try one more time. If not, I will have to ask you to dial back in. Sorry, please repeat your question again.
Speaker 3: I will try one more time because you continue to break out. Let's try one more time. If not, I will have to ask you to dial back in. So I'll please repeat your question again. Sure. Hi. Thank you.
Speaker 8: Yes. Okay. I thought. Okay. Inventor. Could you talk? What is it? Expectation. Expectation. Expectation. Expectation. Expectation.
Speaker 8: Okay, I thought. Inventor. Could you talk? What is the expectation? Okay.
Speaker 8: He got...
Speaker 3: Okay, go back to the top. I'm sorry, no line is very unstable, so I will ask you to please try to get back into the queue and we'll address your question. Okay, operator can we move on to the next caller please, apologies for that.
Speaker 4: Next month, I ask question, perpetual, direct-centren or at-a research,
Speaker 5: Yeah, thanks very much. I had a question on the inventory burn off that you were signaling potentially for first half, 23. Can you talk more broadly about fabulous days of inventory today and how you see this trending in the second half of the year? And then in terms of your outlook for the overall semis industry, what is your current view for 2022 growth and 2023 growth? And has your view changed in the last three months? Thank you.
Speaker 3: Okay, thank you Brett. So Brett's first question is looking at inventory and the overall industry. So his first question is about the inventory adjustment. We have said that it will likely be through first half of 2023. So what do we see for the Fabulous DRI trending in second half of this year?
Speaker 3: Yeah, yes, Fred. Respect the fabulous UI to come down in the second half of the year is gradually.
Speaker 3: And your second question? Come down throughout second half of this year. Correct. And then the second part of this question is, um. And then the second part of this question is, um.
Speaker 3: If that, I'm sorry again, your second part is looking at the industry. What is our current view on the semiconductor industry for 2022 and 2023 and how health are forecast changed.
Speaker 9: or not. That's right.
Speaker 9: Well, on the ends of the question.
Speaker 6: I'll focus on the semiconductor escuda memory.
Speaker 6: And the focus on the foreignry policy in 2022 we mean the same as we projected earlier. We mean the same as we projected earlier.
Speaker 6: for 2023 is truly to forecast. But as we said.
Speaker 6: The inventory correction will continue to go on. And for TSMC, because our technology positions must stronger today. And we also have a very strong portfolio in HPC and we have a long-term statistical relationship with customer. So we see 2023, even just inventory correction, is still a course year for TSMC.
Speaker 5: Okay. Um, Jeff, could I just have a second question? Is that possible? Sure. One more second question. Yeah.
Speaker 5: So we've been hearing from some other leading edge chip manufacturers that they are looking at the opportunity to work with project finance and companies when it comes to new fab builds. I think companies like Brookfield has been mentioned. How does TSMC view this trend? And is there a fab rental model or a way to reduce the free cash will burden in this industry as you bring on new fabs? Thank you.
Speaker 3: All right, so that second question is he wants to know what is TSMC's view, his observation with other companies in the industry are using project financing to building fat, the new fat rental model. So what is TSMC's view on this? Brett, we are not considering project financing now. Normally project financing entails stringed stricter terms and higher cost. We will find as the expansion mainly from our operating
Speaker 10: highest model demand because of you said that the make-roll slowdown or recession should impact the cold care pad and the high-end consumption.
Speaker 10: So I'm going to do you think that the so-called even three digestion will soon later apply to your data center, same customers and the high-end smartphone customers older in the coming quarters. Thank you.
Speaker 3: Okay, so Charlie's first question is looking at the inventory adjustment in right of the macro so down. He wants to know the replay for OC impact to cloud service provider capex or high in smartphone sort of to have inventory adjustment next. So start correct Charlie.
Speaker 6: Yes, thank you. Charlie, this is C.C. Wei. I think to answer your question, you might think they have too much of inventory in the HPC area. But, as we said...
Speaker 6: If I ch thoroughly.
Speaker 6: In our life, there are so many edge devices continue to create data. And those data need to be processed and we are sufficient speed and efficient power consumption. Thanks for watching.
Speaker 6: And that requires our DTH technology to provide the solution.
Speaker 6: In even the other inventory correction, or some things like that, we expect our business to be less volatile, and more resilient through the medium uncertainties, and also we are highly competent throughout in the two leaders. of people who have heard them.
Speaker 10: Yeah, so how about the iN smartphone inventory correction? Do you expect that, you know, top-ranked smart phone inventory to see correction as well on the semiconductor solution? Thank you.
Speaker 3: So Charlie also wants to know the expectations of high-end smartphone inventory correction on the summit event.
Speaker 6: To be frank, we do not see too much of an inventory and the high-end smartphone build up. I'm the high-end smartphone build up.
Speaker 9: So, no.
Speaker 10: Okay, great. Thank you. That's very helpful. And my second question is about your future technology development. So either Mark or C.C., can you please help me? So this is the first time you've disclosed the N2GAA logic density improvement. I think more than 20% of the logic density increase is still better than three of the market traders.
Speaker 10: But compared to the previous notes, there's a signal and so down. So do you think first of all, N2 is a full-note migration? And do you think that is a kind of a signal and so down of a more slow? And what does that mean to your K-pitch per K? For N2 versus N3? And lastly...
Speaker 10: backside Paul V. So I'm very interested in your kind of end to what it means to the long-term technology and also care packs. Thank you.
Speaker 3: Okay, maybe I'll summarize Charlie's second question into a few different parts. His first question is on M2 technology and he notes that the logic density gain is more than 20% but does this represent a significant slowdown, especially in the context of Moore's Law and what does this mean for technology as a whole? So, maybe Chairman can address.
Speaker 3: Let me answer your question. First of all, signatures mentioned are into would be the most advanced semiconductor technology in the industry. When it is introduced.
Speaker 3: At least in managing, we were closely with our customers. And we're done.
Speaker 3: about regarding the scale factor included.
Speaker 3: But Charlie, we from now on, we have to look at technology in a platform fashion.
Speaker 3: The interesting thing now is not just the way for scaling.
Speaker 3: The entertainment includes transistor scanning, but also includes a new power line structure, and also includes a new chiplet.
Speaker 3: Technology to allow the new architecture innovation in our customers.
Speaker 3: So this is the whole set of the technology offering composed to be in 2.0 liter.
Speaker 3: The scale in fact is smaller, but we really know the customer needs. Today is really about the power efficiency. This will be a full-mail power efficiency migration. To control the cost, that is the reason we control the scale effector, we will maintain the same value for the new generation of technology.
Speaker 3: So that's my report, yep.
Speaker 3: Great, and also, the Trashy is asking about the backside power.
Speaker 6: On end. Next slide, power delivery. Actually, we call this super power rail. It's powered by N2 platform offering. And at the proper time, we are introduced to the market whenever our customer needs it.
Speaker 10: Yeah, so if you put that together, right, it seems like a lower risk of free intensity that you have just a power via what does that mean to your KF's burden in the coming years? in the coming years.
Speaker 10: Yeah, so if you put that together, right, it seems like lower photography intensity, but you have power VR. What does that mean to your tech expert in the coming years? Thank you very much.
Speaker 3: Yeah, okay. Okay, okay, thank you, Charlie. Let's offer the camera to the next participant, please. Let's offer the camera to the next participant, please.
Speaker 4: Next on to ask questions, Laura Chan from Sleep Group.
Speaker 11: Hi, thank you for taking my questions and a congratulations for the good result. My first question is about your view on the key applications. Actually starting from the last quarter, we already see that high computing PC has been the key catalyst for TSNC. So I'm just wondering your view on the various architecture like the ARM base or X86, okay, we share with our view that what will be the key driver for...
Speaker 11: She's my phone penetration. That's my first question. Thanks.
Speaker 3: Okay, so lower first question. First she wants to know on HPC. She knows HPC has become the largest contributed by platform throughout revenue. So she wants to know, you know, what we'll look at over the next second years. How do we see HPC? Is this driven by on based or versus X86? I think that's the first part of her first question. I think that's the first part of her first question.
Speaker 6: or our HPC death penalty is going here and since TSMC is everybody's a funder. So we support post at the DCX and I'm based.
Speaker 6: Our HPC definitely is going here and see, and since TSMC is everybody's self-funded, so we support both X-RECX and Ampaste.
Speaker 6: you know, we'll appreciate for the high performance computing. Bose.
Speaker 6: you know, what would it say for the high performance computing? Both. And both are significant in the core. And both are significant in core.
Speaker 11: in TSMC. And then also, sorry. Yeah, it seems like TSMC already has a very high exposure on the on-base, so can we expect the next few years for their growth driver to more come from the X86? For their growth driver to more come from the X86?
Speaker 6: Can I answer this question? We have very high exposure to X86 also.
Speaker 3: But Laura, I think we have at most times and is still in this holds true that HPC will be the largest contributor and increasingly the main driver of KSMC's growth over the next several years.
Speaker 3: Yeah, thank you. Yeah, and Laura, your second question is the 5G smartphone penetration rate. We're still looking at about 50% at this moment.
Speaker 11: Okay, thank you. And if I can answer this question about the growth margin outlook, I think 59% is really amazing. And considering your care pack is disciplined and the consistent delivery in the advanced know, or maybe price hike as well, can we expect that we'll have more upside to your current 53% growth margin target?
Speaker 3: So lower second question is on the gross margin. She knows that gross margin for a second quarter, 59.1% is very high. So if they're upside to our long-term gross margin target of 53% in higher. Laura, as we mentioned before, there are six factors that affect our profitability every year. Excluding the foreings change rate of which we do not have any control wrong.
Speaker 3: The other factors taking into consideration, we are confident that a long-term growth margin of 53% and higher is achievable, and we're certainly, we're trying to work hard to deliver better than that.
Speaker 3: Okay, thank you very much. That's very helpful. Okay, thank you. Operator can we want to make specific please.
Speaker 4: Next one we have periodical podhe Haben hind you
Speaker 8: Thanks, let me try again. My first question is on the US expansion. And there've been a lot of commentary around a very high cost for US expansion. I think founder chairman Morse Chen also commented that the cost could be 30 to 40% higher for US compared to Taiwan. Could you talk a little bit about the US expansion and how the earth on the cloud swing? What kind of cost differential is the SMC seeing?
Speaker 3: So, Goukou, I think you have a question, again, you woke up, but I think your question is about how do we manage the cost gap and close the cost gap? So, is that a real question?
Speaker 8: And if you have discussions and negotiations with customers and governments regarding higher cost as well as the cost of the government, that's okay. So, again, that's okay. So, again, that's okay.
Speaker 3: So, okay, thank you, Gregor. So, Gregor wants to know with a higher cost, how are negotiations and discussions with governments, how are negotiations and discussions with customers about this cost differential.
Speaker 12: okay??
Speaker 12: Yes, I'm thinking that the cost in the FABY West is higher than we expected.
Speaker 12: while doing the construction stage of the fab.
Speaker 12: and during these past two years, we found that the labor cost in the state is high then reprained. And also some of the COVID supply chain interruption also was an unexpected.
Speaker 12: And with that we did confer this information to the...
Speaker 12: to the government at the location and it gave them a full perspective of the call gap.
Speaker 12: But, hopefully, if indeed, our customers in the US, they all want to know that fact. I mean, this is a lease from our customers. And we also believe there is an ample, amplified business opportunity there. So the cost is increasing, but the cost is not the only factors. And we're still working on the government's subsidy and we're continuing working on the cost reduction. And we're still working on the cost reduction.
Speaker 12: And every company have a different race to do, not use the cost. So that is they are working the process. Thank you. Thank you. Thank you.
Speaker 8: My second question, would TSMC consider any kind of a joint venture fab in the US with potential large customers?
Speaker 8: Historically, KSMC has done this with some of the customers like Altera and NXP, long back. Would you consider any kind of joint venture tabs potentially with any of the customers you have if the outsourcing opportunity is big enough? Thank you.
Speaker 3: Okay, so go go second question is again with TSMC consider any type of joint venture fab in the US for outsourcing. He notes we have done certain JVs in the past. So is just something we will consider in the US for outsourcing opportunities.
Speaker 12: Yes, let me answer this question again. And this are other. Decorr styles in team play these are. Project in layout main page. Thank you.
Speaker 12: Yes, let me answer this question again. This our yes, T-sense indeed has some true eventual arrangement. We need 20 years ago within US.
Speaker 12: But right now we understand with that experience, we understand our customers demand or we'll go up and down. And we don't want to limit this fact into a specific set of customers. It's open to our customers base to utilize. So no, this point, we do not plan to have a joint venture of any arrangement in this US.
Speaker 12: Right now we understand with that experience, we understand our customers demand or we'll go up and down. And we don't want to limit this fact into a specific set of customers. It's open to our customers base to realize. So no, this point we do not plan to have a joint virtual agreement in this US. Okay, go ahead.
Speaker 3: Operator, Hoku, okay, thank you, Hoku. Operator, can you move on to the next participant please.
Speaker 10: Next one to ask questions, Charles Shea from Niemann Company. Hi, good afternoon. Thank you for taking my question. I want to go back a quick clarification about the end three gross margin. You kind of mentioned probably first time quantified how much dilution you are expecting to be 3%. Can you let us know dilution relative to which number because...
Speaker 10: There's one long-term growth margin number, you see 3% and higher. And there is another one, which is where your growth margin is tracking. That's a few points above your long-term target. This is the kind of little bit moving target here. So can you clarify with us? Thank you.
Speaker 3: So Charles is asking, he can clarify our gross margin target. His question, well, I think, again, we talk about on three, a diluting two to three percent, ages for the first year, which is 2023. And so he's wondering, no, I think, try to question his different dilution continued. Does this change our long-term gross margin target? No?
Speaker 10: And maybe more, I think he's thinking about whether the growth, sorry, let me stop there. Is that your question, Charles? No, no, no. The 2 to 3% dilution relative to what is my question. Is it relative to your long-term growth market target? Is it 3% and higher or where you're attracting, which is 59, 58%. Yeah, that's my question.
Speaker 3: Thank you, Charles. So Charles was asking you, and we talked about two to three percent dilution. Are we looking at 53% diluting from there? Or are we looking at 59% diluting from here? Charles, it's diluting from next year's Rose Margin S.R.E. forecast.
Speaker 3: It's neither 50-friens of 59. A very mind that we'll talk about 53 and higher. It already encoded the dilution effect from the N3 dilutions.
Speaker 9: Now, can you try this? Yes.
Speaker 3: Do we have a second question?
Speaker 10: I do. I have a more long question. Thank you, Chairman, for mentioning N2SFU package, which includes chocolates. I want to specifically ask you about shipments 3DIC. I think you recently talked about expanding SIOIC capacity by 20 times through 2026. That was quite a bit amount of capacity education.
Speaker 10: I think that one year ago you sort of mentioned SOIC is something you're targeting for high performance computing application. But given the amount of capacity increases, you're planning any updated thoughts on whether that can be a technology possibly at end to use or smartphone platform. Any other color you can give us would be great. Thank you.
Speaker 3: Okay, thank you, Charles. So, Charles, second question is on 3DIC. He notes that in particular, we have talked about SOIC and also expanding the capacity there. We have said in the past, this is primarily adopted by HPC applications. His question is, with such capacity expansion, do we also expect smartphone customers to adopt 3DIC solutions like SOIC at some point in the future? Is that correct, Charles?
Speaker 6: Yes, thank you very much. Okay, let me answer this question, Charles. So from the SOIC, it's primarily adopted by the HPC applications.
Speaker 6: Okay, because of that, it's very fit for their high speed and power efficiency. But for mobile adoption, you have to be in the chipless architecture. Interconnect density requirement, several other requirements, and we have other solution to address the mobile requirement.
Speaker 9: Okay.
Speaker 4: All right, thank you, Charles. Yeah. Thank you. Operator, can we move on to the next participant, please? Next one to ask question. Natti Husani, according to international.
Speaker 4: Yes, thank you for taking my questions. I just want to go back to the cat. I think the chairman has died.
Speaker 6: back in 2021, the shibagalli took, where the 100 billion of catacs during the 2021 through 2023 is, and now this morning you're highlighting the fact that catacetusia could be 40 billion. So if I use the 100 billion, the bogey suggests to me that your catacs could be down by as much as 8% to 10% in 2023, unless you are ready.
Speaker 3: that 100 billion guys, but I just wanna give some color on this. And I have a follow up. Okay, so Mideast's first question is on our catpex. He notes back in April of 2021, and we had guided for a hundred billion catpex in the next three years. And so now he's adding the map up for last year and this year, and wondering if that apply, sorry, imply it declining our catpex for 2023, whether we have a new revised guidance for the catpex then.
Speaker 3: Let me answer this. We're not going to talk about $100 billion today. We're not going to comment K-PACs beyond 2022. We've already given the guidance range of 2022. Now, as we mentioned before, every year when we invest in K-PACs, it is for the future growth opportunities. We believe the future outlook is good. We will continue.
Speaker 3: Okay, so Mindy also wants to follow up to ask about depreciation. Despite the increase in capex, why is the depreciation growth pretty flat or low so far this year? And then should we expect a step up in depreciation for 2023?
Speaker 3: Not many, every year there are new depreciation coming in, but at the same time there are depreciation getting all of the depreciation table.
Speaker 3: So some comes in, some goes out. This year, we expected depreciation will grow about with single digits from last year. It is so lower than when we guided at the beginning of the year because of some two delivery schedule changes that you mentioned earlier. Now, for next year, the Australia need to give a specific number, but the depreciation will be much higher than this year.
Speaker 3: Okay. And just, everyone had more of a particular question. Now, it's going to be one quick follow-up. Well, we have one and a half, I'll let you another half question, please, Nadine. Because we still have a few people on the line. Yeah. I'm making very quick. When I look at your customers, there are English news at a 25-year high. And I think everyone is very, take a look at the seasonality of the second half. And I'm just curious. I don't think that...
Speaker 3: the key variables, what are the key metrics, or what are the key strategies that you have in place that could mitigate the gross margin balance by this if your customers become more aggressive in inventory correction into next year's? Okay, so this question is noting customer inventory at customers are very high, so what would be the key variables or metrics for TSMC to mitigate our gross margin downside or risk if customers were to...
Speaker 3: adjust the inventory further. Is that correct, Mide? Yeah, I think you can more aggressive and inventory correction into first or next year. If there are any customers ready to become more aggressive on their inventory correction into first half next year. No introduction for sale.
Speaker 6: What I mean answers the question. As I were stating in the remark, you know, our customers are doing the inventory correction. But I said that customers at the time, they are still exceeding the TSMC's capability to
Speaker 6: support for this year. So even to do the inventory adjustment, what I say that the decretion demand versus the original number, TSMC's capacity is still very tight and remember he'll see in the utilization. So that's why we can keep our cross margin intact.
Speaker 3: Thank you. Okay. Thank you, Midee. The operator must move on to the next participant, please.
Speaker 4: Next on to ask questions is Bratleine Trump Bank of America. Bratleine Trump Bank of America.
Speaker 10: Hello, good afternoon everyone. Thank you for taking my question. So firstly, congratulations once again on these strong earnings. And my first question is about advanced packaging. We learned that advanced packaging is very, very important for case and case long term growth. And case and case has a great variety of offering to provide higher value to customers. So would you please share your insight on what are the key barriers?
Speaker 10: keep various R for wider adoption by clients. And would you expect the contribution makes to increase gradually, or if there is a point to see and explosive growth from the advanced packaging? And by the way, we saw the news about the 3DIBI in December in Japan and how we adapt into a salary to progress. Thank you very much.
Speaker 3: Okay, so that's question is on advanced packaging. I believe if I heard you correctly, what are the key barriers for wider adoption of our packaging solutions by customers? What is the long-term revenue growth outlook of the advanced packaging? Is it going to be exclusive growth or growth similar to the corporate average? And also the role of our 3DIC center in Japan in developing advanced packaging solutions?
Speaker 6: Okay, that's a very long question, but let me answer one by one. First, we developed a very relevant packaging technology to meet customers at demand. So, so far today, so I see we developed for the highest speed performance at PC applications first. And the other one, the military.
Speaker 6: Starting to be adopted by all the, by all HPC customers that's starting from today. So we expect is gradually, we're going up and until that's a two-millimeter I think you have a much more demand in that technology node for the 3DIC.
Speaker 6: That's what we expect. And we expect also of these 3DICs, of business who are the hearsay. Probably a little bit ahead of TSMC's growth forecast. Now, let me turn to the 3DIC center in Japan. We will establish a 3DIC center because of Japan has fundamental advantages and the raw material also under packaging area. For example, the substrate.
Speaker 6: They are the number one in the world. And we need that one technology to complement the TSMC's 3DIC technology so we can solve our customer better. And that's why we are a service 3DIC technology development center over Jia.
Speaker 10: Did I answer your question? Yes, very clear. Thank you. Thank you, sir. So maybe another follow-up that's also about the IIC sub-shay. So ABFIC sub-shay currently plays a very important role in the advanced packaging, of course, especially for co-wast. And the sub-shay area demand potential in largest with the increasing advanced packaging penetration. So with the rising integration level of chips, you expect the new material to potentially replace ABF.
Speaker 10: and any time to secure substrates apply or upgrade the design for TSMC's future requirements. And maybe one last follow-up is that if we compare 2.5D and 3D, would you need more substrates for 3D? Thank you. Okay, well, bad question is on substrates. He wants to know what the development of substrates in the adoption. We see further development in terms of new materials. And we see more substrates used in 3D IC versus 2.5D. And we see more substrates used in 3D IC versus 2.5D.
Speaker 6: technology. We are not going to develop any commodity of the substrate technology to compete in the market. No, we are developing for the very high performance computing where we largely substrate to support the SMC's customer. That's our purpose. That's our purpose. That's our purpose.
Speaker 3: Okay, thank you, CC. Operator, can you move on to the next participant?
Speaker 4: Next one to ask questions, I'm Chris and Carl from Goening Company.
Speaker 4: Yeah, hi, thanks for taking my question. I had two of them. The first one is...
Speaker 8: When I look at your full year guidance of 35% revenue growth, it looks like calendar 4Q of the December quarter is going to be sequentially done more than 10% and that hasn't happened in a long time. So I'm kind of curious, how much of that is driven by demand versus effects?
Speaker 8: And then the second question follow up is, if I look at a CapEx run rate, the first half is running at about 17 billion, which is below the low end if you're fully your guidance. I'm kind of curious, what are the two delivered costs in the push out of CapEx internet? Is it like EUV? Is it like depth H tools? Any color on that would be super helpful. Thank you very much.
Speaker 3: Okay, so Chris has two questions. First, he's looking at the four-year guidance to grow mid-30s, and he says this implies a decline in the fourth quarter. No, I don't think so. We did the calculation. Maybe you can do that again. It's at least up.
Speaker 3: Yeah, of course I would note that we talk about new for these guidance as CC said that is in US dollar terms, okay And then the second On capex and sort of looking at the capex His question is we have already said it will be closer to the lower end of the range You know some of what is driving the The capex is totally based so it is in the way what types of equipment
Speaker 12: Now, I don't think we can go into that kind of details, but some of them got pushed out to next year as CC mentioned. In every year, the KPAS profile can be different quarter by quarter.
Speaker 3: Yeah. OK. Thank you very much. Thank you. OK. Thank you. Operator, in the interest of time, I think we will take questions from the last two participants please.
Speaker 4: Okay, let's move on to the next. Yes, the next one to ask questions, frankly, some HSCC. Yes.
Speaker 5: Thank you. I want to just ask a question on, I guess, the overall profitability and also pricing, because it seems like this year we started to see a foundry price increase and a bit unusual for TSMC. Going into next year, it looks like there's some anticipation of further price increases. But at the same time, we're also seeing potentially inventory correction. So just to understand, the pricing strategy itself is just more of a reflection of...
Speaker 4: perhaps the structural probability for this cycle being different than the past, or are there any kind of costs that we're seeing this time that we haven't seen in past cycles?
Speaker 3: Okay, so Frank's first question is pricing. He wants to know what is driving our pricing strategy, how do we cost inflation or factors playing into it, and really what drives businesses pricing. And really what drives businesses pricing.
Speaker 12: Yeah, we do not comment on pricing details that these are the private discussion between us and our customers. Having said that our pricing is strategic and value-driven, not opportunistic or cost-price. We were closely with our customers to provide our value and we will continue to ensure that our pricing reflects our value creations, including technology, ecosystems,
Speaker 12: and services and capacity support. But by taking all these actions, we believe we can achieve a long-term gross margin of 53% and higher. We do face manufacturing cost challenges. As we mentioned, rising raw materials, utilities and tool costs, et cetera. But having said that, we still think that the 53% of long-term gross margin is achievable, and 50% of the higher.
Speaker 4: Okay, thank you. Thank you for that question. Yeah, sorry. Sure. My second question is, I understand I can see the overall view on that, but it's given what you guys just talked about the overall cycle. I know you still have some leadership in the event side and everything else, but is there a potential, though what's like the effect where your customers could see a stronger second half this year and anticipation of price increases? And with the adjustment going to next year that we see some more weakness in the first half.
Speaker 3: more than it has been in the first half. Okay, well, I think second question is, you know, with pricing, could there be a situation where customers, I guess, will pull in more of their business to a second half this year and thus we would see weaker first half next year?
Speaker 6: No, we did not see that. We are actually working with our customers and we try our best to support our customer. As I said, even right now, our capacity remember tight.
Speaker 6: So, you know, the switching between the back seat is the first quarter and this year's second half. No.
Speaker 6: Oh?
Speaker 6: We did not see that. Just somebody put it.
Speaker 3: Great. Thank you. Thank you. Okay. Operator, can we take questions from the last participant please?
Speaker 13: Yes, the last one to ask questions, Robert Sanders from Deutsche Bank. Yeah, hi, thanks for taking my questions. I just love to. The first one is just, if you could just discuss how much of next year's revenue is under LTA. The reason I'm asking is because there are some people in the mock thinking that... in the mock thinking that...
Speaker 13: Customers may be fearful of pushing out waifers because they may be jeopardizing agreements for next year And then the second question would be just to On the chiplet question. I was just wondering what percentage of two nanometers at HPC designs will be using a Chipplet architecture is it the majority? What's the adoption rate? Thanks Our first question is, we want to know how much percentage of revenue to long-term agreements with customers?
Okay, and then his second question is on N2, he wants to know for HPC applications on N2, what is the percentage or that may adopt the chiplet on architecture approach.
I cannot read the number, but let me assure you that the number of the customer using the chip lives in the end two or the two nanometer technology are starting in police and that will become a major approach in the two nanometer and the following technology. Okay, thank you, CC. Thank you, Robert. Thank you, everyone. This concludes our Q&A session. Before we conclude to this conference, please be advised that the replay of the conference will be accessible with the...