Q4 2023 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
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Speaker Change: Good afternoon, everyone and welcome to Tsmc's fourth quarter 2023 earnings Conference and conference call.
Speaker Change: It's great to see everyone in person once again this is Jeff Sue Tsmc's director of Investor Relations and your host for today.
Today's event is being webcast live through Tsmc's website at Triple W. Dot TSMC Dot Com, where you can also download the earnings release materials.
Speaker Change: If you are joining us through the conference call. Your dial in lines are in listen only mode.
Speaker Change: The format for today's event will be as follows.
Speaker Change: First Tsmc's, Vice President and CFO, Mr. Wendell Huang will summarize our operations in the fourth quarter 2023, and full year of 2023, followed by our guidance for the first quarter of 2024.
Speaker Change: Afterwards, Mr. Huang Tsmc's CEO Dr. C C Wei and Tsmc's Chairman, Dr. Mark Liu will jointly provide the company's key messages.
Speaker Change: Then tsmc's chairman Dr. Mark Liu will host the Q&A session, where all three of our executives will take your questions.
As usual I'd 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.
Speaker Change: Please refer to the safe Harbor notice that appears on our press release.
Speaker Change: And now I would like to turn the microphone over to Tsmc's CFO, Mr. Wendell Huang for the summary of operations and the current quarter guidance. Thank you, Jeff happy New year, everyone. Thank you for joining US today My presentation will start with financial highlights for the fourth quarter and the <unk>.
Renzhao Huang: Recap our full year 2023 after that I will provide the guidance for the first quarter 2024.
Renzhao Huang: Fourth quarter revenue increased 14, 4% sequentially in NT dollar or 13.6% U S dollars as our fourth quarter business was supported by the continuous strong ramp of our industry, leading three nanometer technology.
Renzhao Huang: Gross margin decreased 1.3 percentage points sequentially to.
Renzhao Huang: 253%, primarily due to margin dilution from three nanometer ramp.
Operating margin decreased 0.1 percentage point sequentially to 41, 6% slightly ahead of our guidance, mainly due to operating leverage on higher revenue.
Renzhao Huang: Overall, our fourth quarter EPS was nine point to one N T and ROE was 28, 1%.
Renzhao Huang: Now, let me move on to revenue by technology.
Renzhao Huang: Three nanometer process technology contributed 15% of wafer revenue in the fourth quarter.
Renzhao Huang: While five nanometer and seven nanometer accounted for 35% and 17% respectively.
Renzhao Huang: Advanced technologies defined as seven nanometer and below.
Renzhao Huang: Accounted for 67% of wafer revenue.
Renzhao Huang: On a full year basis, three nanometer revenue contribution came in at 6% of 2023 wafer revenue.
Renzhao Huang: Five nanometer was 33% and seven nanometer was 19%.
Renzhao Huang: Advanced technologies accounted for 58% of total wafer revenue up from 53% in 2022.
Renzhao Huang: Moving on to revenue contribution by platform.
Renzhao Huang: <unk> increased 17% quarter over quarter to account for 43% of our fourth quarter revenue.
Renzhao Huang: Smartphone increased 27% to account for 43%.
Renzhao Huang: Iot decreased 29% to account for 5%.
Renzhao Huang: Hello, Teva increased 13% to account for 5% and DCE decreased 35% to account for 2%.
Renzhao Huang: On a full year basis smartphone Iot DCE decreased 8%, 17% and 16% respectively.
Renzhao Huang: <unk> remained flat, while automotive increased 15% in 2023.
Renzhao Huang: Overall, HBC accounted for 43% of our 2020 fee revenue.
Renzhao Huang: Smartphone 38%.
Renzhao Huang: Iot, 8% and automotive 6%.
Renzhao Huang: Yeah.
Renzhao Huang: Moving onto the balance sheet, we ended the fourth quarter with cash and marketable securities of $1 seven trillion in tea or 55 billion U S dollars.
Renzhao Huang: On the liability side current liabilities decreased by 56 billion N T.
Renzhao Huang: Mainly due to the decrease in accounts payable.
Renzhao Huang: On financial ratios accounts receivable days decreased four days to 31 days while days of inventory also declined 11 days to 85 days, primarily due to a higher three nanometer wafer shipments.
Renzhao Huang: Regarding cash flow NK packs during.
Renzhao Huang: During the fourth quarter, we generated about 395 billion NT and cash from operations.
Renzhao Huang: <unk> hundred 70 billion in Capex and distributed 78 billion for the first quarter twenty-three cash dividend.
Renzhao Huang: Overall, our cash balance increased 154 billion to 1.47 trillion at the end of the quarter.
Renzhao Huang: In U S dollar terms, our fourth quarter capital expenditures totaled 5.24 billion.
Okay.
Renzhao Huang: Now, let's look at the recap of our performance in 2023.
Renzhao Huang: <unk> hundred three was a challenging year for the global semiconductor industry.
Renzhao Huang: But our technology leadership enable TSMC to outperform the foundry industry.
Renzhao Huang: Our revenue decreased eight 7% in U S dollar terms 269 billion.
Renzhao Huang: S or decreased 4.5% empty turns to 2.16 trillion and tea.
Renzhao Huang: Gross margin decreased 5.2 percentage points to 54, 4%, mainly reflecting lower overall capacity utilization and three nanometer ramp partially offset by a more favorable foreign exchange rate.
Renzhao Huang: To extend our technology leadership.
Renzhao Huang: We continue to expand our R&D investment in three nanometer and two nanometer development. Despite a lower revenue base in 2023.
Renzhao Huang: Thus operating margin decreased six nine percentage points to 42, 6%.
Renzhao Huang: Overall full year EPS declined 17, 5% to 30 to 34 N T and <unk> was 26, 2%.
Renzhao Huang: On cash flow. We spent 34 5 billion U S dollars or 950 billion N T and K packs.
Renzhao Huang: While generating 1.7, Chilean N T in operating cash flow and 292 billion in free cash flow.
Renzhao Huang: We also paid 292 billion NT and cash dividends in 2023.
Renzhao Huang: I have finished my financial summary, now, let's turn to our current quarter guidance.
Renzhao Huang: We expect our business in the first quarter to be impacted by smartphone seasonality, partially offset by continued <unk> related demand.
Renzhao Huang: Based on the current business outlook, we expect our first quarter revenue to be between $18 billion and $18 8 billion U S dollars.
Renzhao Huang: Which represents a 6.2% sequential decline at the midpoint.
Renzhao Huang: Based on the exchange rate assumption of one U S dollars to 31.1 N T.
Renzhao Huang: Gross margin is expected to be between 52 and 54%.
Renzhao Huang: Operating margin between 40 and 42%.
Speaker Change: This concludes my financial presentation.
Speaker Change: Now, let me turn to our key messages.
Speaker Change: I will start by making some comments on our fourth quarter 'twenty three in first quarter 'twenty for profitability.
Speaker Change: Compared to third quarter, our fourth quarter gross margin decreased by 130 basis points sequentially to 53%.
Speaker Change: Primarily due to the margin dilution from the continued ramp up of our three nanometer technology.
Speaker Change: We have just guided our first quarter gross margin to be flat sequentially at 53% at the midpoint.
Speaker Change: Primarily as a less favorable foreign exchange rate assumption is offset by a product mix changes due to a smartphone seasonality.
Speaker Change: Looking at full year 'twenty 'twenty four given the six factors that determine our profitability. There are a few puts and takes I would like to share.
Speaker Change: On the plus side, we expect our utilization rate to a rise in 2024 as our business recovers.
Speaker Change: However.
Speaker Change: As we move as we have said before and three is expected to dilute our gross margin by about three to four percentage points for the full year of 2024 as the revenue contribution will be much higher.
Speaker Change: Then in 2023.
Speaker Change: In addition, we have a strategy so that some of our N. Three capacity can be supported by N. Five twos, given the strong multiyear demand.
Speaker Change: Such a plan will enable higher capital efficiency in the mid to long term, but requires cost and effort in the near term.
Speaker Change: Most of that most of this conversion will occur in second half of 2024, and we expect it to dilute our gross margin by about one to two percentage point in second half of 2024.
Speaker Change: Finally, we have no control over the foreign exchange rate, but dime, maybe another factor in 2024.
Speaker Change: Long term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long term gross margin of 53% and higher is achievable.
Speaker Change: Next let me talk about our 2024 capital budget and depreciation.
Speaker Change: Every year, our Capex is spent in anticipation of the growth that will follow in future years.
Speaker Change: In 2023, we spent $30 4 billion U S dollars lower than our prior guidance of approximately $32 billion as we continue to tighten up our capital spending where appropriate given the near term uncertainties.
Speaker Change: In 'twenty or 'twenty, four or our capital budget is expected to be between 28 billion and 32 billion U S dollars as we continue to invest to support customers growth.
Speaker Change: Out of the 28 to 32 billion Capex for 2024.
Speaker Change: Between 70, and 80% of the capital budget will be allocated for the advanced process technologies.
Speaker Change: About 10% to 20% will be spent for specialty technologies.
Speaker Change: And about 10% will be spent for advanced packaging testing mask, making in others.
Speaker Change: Our depreciation expense is expected to increase close to 30% year over year in 2024.
Speaker Change: Mainly as we ramp up our three nanometer technologies.
Speaker Change: Finally, let me make some comments on our long term capex and cash dividend distribution policy.
Speaker Change: At TSMC.
Speaker Change: Higher level of capital expenditures is always correlated with higher growth opportunities in the following years.
Speaker Change: In the past few years, we have sharply increased our capex spending in preparation to capture our harvest of growth opportunities from HBC, AI and five mega trends.
Speaker Change: Despite a challenging 2023.
Speaker Change: Our revenue remains well on track to grow between 15 and 20% CAGR over the next several years in U S dollar terms.
Speaker Change: This is the target we communicated back in January 2022 Investor Conference.
Speaker Change: With our 'twenty 'twenty four capex guidance of 28 to 32 billion the rate of increase of our capital spending has begun to level off as we capture a harvest the growth.
Speaker Change: The objectives of Tsmc's capital management are to fund the company's growth organically generate good profitability preserve financial flexibility and distribute a sustainable and steadily increasing cash dividend to shareholders.
As a result of our rigorous capital management in November Tsmc's Board of directors approved the distribution of a 3.5 N T per share cash dividend for the third quarter of 2023 up from three <unk> previously.
Speaker Change: This will become the new minimum quarterly dividend level going forward.
Speaker Change: Third quarter twenty-three cash dividend will be distributed in April 2024.
Speaker Change: In 2023, Tsmc's shareholders received a total of 11.525 NT cash dividend per share.
Speaker Change: And they will receive at least 13.5 NT per share cash dividend for 2024.
Speaker Change: In the next few years, we expect the focus of our cash dividend policy to continue to shift from a sustainable to a steadily increasing cash dividend per share.
Speaker Change: Now, let me turn the microphone over to C C.
Charlie Chan: Jack your window.
Charlie Chan: Good afternoon, everyone first let me start with our 2024 outlook.
Charlie Chan: <unk> was a challenging year for the global semiconductor industry.
Charlie Chan: But we also witness the rising emergency generator AI related applications with TSMC as a key enabler.
Charlie Chan: 30th parish, REIT weakening global macroeconomic conditions, and higher inflation and interest rate.
Charlie Chan: Operator.
Charlie Chan: And the prolonged the global semiconductor inventory adjustment cycle.
Charlie Chan: Concluding 2023.
Charlie Chan: The semiconductor industry, excluding memory industry.
Charlie Chan: Try and about 2% while foundry industry declined about 13, <unk> year over year Tsmc's revenue declined eight 7% year over year in U S dollar term.
Charlie Chan: Despite the near term challenges, our technology leadership enable TSMC to outperform.
Charlie Chan: The poultry industry in 2023.
Charlie Chan: While we're positioning us to capture the future AI and high performance computing related growth opportunities.
Charlie Chan: Entering 2024.
Charlie Chan: We forecast Fabless semiconductor inventory to have returned to a here's your labor exiting 2023.
Charlie Chan: However.
Charlie Chan: So you cannot meet weeklies and geopolitical uncertainties persist.
Charlie Chan: Potentially for the wing.
Consumer sentiment in the market demand.
Charlie Chan: Having said that.
Charlie Chan: Our business has bottomed out on a year over year basis.
Charlie Chan: And we expect 2024 to be a here he coors year for TSMC.
Charlie Chan: Supported by continuous strong ramp of our industry, leading <unk> nanometer technologies.
Charlie Chan: Strong demand for the five nanometer technologies and robust the AI related demand coming.
Charlie Chan: Coming off the steep inventory correction and low base of 2023 for the full year of 2024, we forecast the upper row semiconductor market, excluding memory to inquiries by more than 10% year over year.
While foundry industry growth is forecast to be approximately 20%.
Charlie Chan: For TSMC supported by our technology leadership.
Charlie Chan: Broader customer base, we are confident to outperform the foundry industry growth.
We are spared to our business to grow quarter over quarter throughout 2024, and our full year revenue expect to increase by low to meet 20% in U S dollar terms.
Charlie Chan: Okay.
Charlie Chan: Next let me talk about a hour in three and <unk> ramp up and progress.
Our three nanometer technology are the most advanced semiconductor technology in both PPA and tranches of technology.
Charlie Chan: As a result.
Charlie Chan: Almost all the wars that smartphone SPG innovators.
Charlie Chan: Walking wish th M. He and three nanometer technologies.
Charlie Chan: Our entry successful foray into volume production and enjoy a strong ramp in second half 'twenty three accounting for 6% of our total wafer revenue in 2023.
Charlie Chan: <unk> further leverage the strong foundation of entry to extend our industry, formerly which enhances the performance power and yield.
Charlie Chan: History has already into volume production in the fourth quarter of 2023.
Charlie Chan: Supported by robust demand from customers in both smartphone and HPE applications.
Charlie Chan: We expect revenue from our three nanometer technology to more than triple in 2024 and accounted for a mid teens percentage of our total wafer revenue.
Charlie Chan: We also continue to provide for the enhancement of our entry technology, including entry P and the industry as well.
Charlie Chan: With our strategy of continuous enhancements of our three nanometer process technologies, we expect strong multiyear demand.
Charlie Chan: From our customers and are confident that our three nanometer family.
Charlie Chan: Another large and long lasting node for TSMC.
Charlie Chan: Now our Taco about AI related demand.
Demand in our into status.
Charlie Chan: Yeah.
Charlie Chan: Okay.
Charlie Chan: The surging AD related demand in 2023 supposed to our already strong conviction that the structural demand.
Charlie Chan: For energy efficient computing, what accelerate England, intelligent and connected ward.
Charlie Chan: Th M. He is a key enabler.
Charlie Chan: AI applications.
Charlie Chan: No matter, which approach is taken.
Charlie Chan: Technology is evolving to use more complex AI models.
Charlie Chan: The amount of computation required for training and inference is inquiry.
Charlie Chan: As a result.
Charlie Chan: Model needs to be supported by more powerful semiconductor hardware.
Charlie Chan: Who is your recourse use of the most advanced semiconductor process technologies.
Charlie Chan: Thus the way do you optician heat technology position is increasing.
Charlie Chan: We are all well positioned to capture the major portion of the market in terms of semiconductor component in AI.
Charlie Chan: To address in Shareable.
Charlie Chan: In case of all AI related demand for energy efficient compute empower customers have readout on th them here to provide the most leading edge processing technology and scale.
Charlie Chan: As a dependable and predictable cadence of technology offering.
Charlie Chan: It's just sometimes as process technology complexity increase year engagement lead time, which customer also started much earlier.
Charlie Chan: Just almost all the AI innovators are working with TSMC.
Charlie Chan: We are observing a much higher level of customer interest and engagement into.
Charlie Chan: As compared with eye injury at a similar stage for impulse S. P E and smartphone applications.
Charlie Chan: Two nanometer technology, well adapt narrow sheet transistor structure.
Charlie Chan: And be the most otherwise the semiconductor technology in the industry in both density and energy efficient when ETT introducing 2025.
Charlie Chan: Into technology development is progressing well.
Charlie Chan: Which device performance and yield on track or ahead of plan.
Charlie Chan: And two is on track for volume production in 2021.
Charlie Chan: With a ramp profile similar to injury.
Charlie Chan: As part of our way into technology platform. We also developed in two respects had power rail solution, which is better suited for specific HPE applications based on performance.
Charlie Chan: Cost and maturity considerably and.
Charlie Chan: And he'd of riches.
Charlie Chan: And to which backside Powell real won't be available in the second half of 2020 fly to customers, which production in 2020 Hicks.
Charlie Chan: With our technology of continuous enhancement into in each derivatives will further extend our technology leadership position and enable TSMC to catch all the AI related of course opportunities well into the future.
Charlie Chan: Finally, let me talk about our specialty technology strategies and mature node.
Charlie Chan: For TSMC today around 70% of our total revenue in 16 nanometer and more advanced node.
Charlie Chan: With rising contribution from three nanometer and two nanometer technology in the next several years.
Speaker Change: Number one on the inquiries.
Speaker Change: Those are mature node exposure is around 20% of our total revenue.
Speaker Change: Cassia and she's a strategy at mature nodes as to what week Rosary with strategic partner to bear of specialty technology solutions.
Speaker Change: Customers that requirement and create depreciated and long lasting value to customers.
Speaker Change: Our focus is to build a high your capacity for specialty technologies, rather than just the nominal capacity.
Speaker Change: So the development deployment of <unk>.
Speaker Change: Depreciated specialty technologies.
Speaker Change: The profitability of our mature node can.
Speaker Change: It can be around our corporate average gross margin.
Speaker Change: Looking ahead.
Speaker Change: We forecast 28 nanometer what be the sweet spot for our embedded memory applications.
Speaker Change: And we expect our long term structure of demand.
Speaker Change: 28 nanometer to be supported by multiple types of specialty technologies.
Speaker Change: So we are expanding our 28 nanometer specialty manufacturing capacity overseas.
Speaker Change: To support the long term structural <unk>.
Market demand, we believe demand for the depreciated specialty technology will remain steady despite the potential industry capacity inquiries.
Speaker Change: And our youth or I guess, you're right.
Speaker Change: And structural profitability and mature node can be well protected in the future.
Speaker Change: This conclude my present prepared remarks, and now let me turn the microphone over to Mark.
Mark Liu: Thank you C C.
Mark Liu: Uh huh.
Mark Liu: Good afternoon, everyone.
Mark Liu: First let me talk about our global manufacturing footprint update.
Mark Liu: Tsmc's mission is to be the trusted technology and a capacity provider for the global logic IC industry for years to come.
Mark Liu: In today's fractured globalization environment.
Mark Liu: Our strategy is to expand our global manufacturing footprint to.
To increase our customer trust.
Mark Liu: Expand our future growth potential.
Mark Liu: Reach for more global talent.
Mark Liu: Our overseas decision are based on our customers' needs.
Mark Liu: And a necessary level of government subsidy.
Mark Liu: Our support.
Mark Liu: This is to maximize the value for our shareholders.
Mark Liu: Firstly in Japan, we are building a specialty technology fab in Kumamoto.
Mark Liu: Which were utilized 12 and 16 nanometer.
Mark Liu: And 'twenty, two and 28 nanometer process technologies.
Mark Liu: We will hold an opening ceremony for this fab on February 24th next month.
Mark Liu: And volume production is on track for the fourth quarter of 'twenty 'twenty four.
Mark Liu: In Arizona.
Mark Liu: We are in close and constant communication with U S government.
Incentive and a tax credit support.
Mark Liu: And making strong progress in facilities supply chain infrastructure.
Mark Liu: Utility supply and equipment installation for our first fab.
Mark Liu: We continue to work closely.
Mark Liu: And developed strong relationships with our local union and trade partners in Arizona.
Mark Liu: Including recently signed an agreement with Arizona building and construction Trades Council.
Mark Liu: New framework.
Mark Liu: The operation.
Mark Liu: This agreement extends our collaboration across enhanced workforce training and development.
Mark Liu: Shared commitment to site safety.
Mark Liu: Hiring local workers.
In establishing a regular communication.
Mark Liu: It is a win win for all parties.
Mark Liu: We are well on track for volume production.
Mark Liu: And for 40 nanometer process technology in first half of 'twenty five.
Mark Liu: And are confident that once we begin operations.
Mark Liu: We will be able to deliver the same level of manufacturing quality and reliability in Arizona.
Mark Liu: S from our Fabs in Taiwan.
Mark Liu: In Europe, we plan to build a specialty technology fab in Dresden, Germany.
Mark Liu: Focusing on automotive and.
Mark Liu: In industrial applications with our joint venture partners.
Mark Liu: We continue to be in close communication with the German federal state and city governments.
Mark Liu: And they're coming commitment to this project remain strong.
Mark Liu: And unchanged.
Mark Liu: Fab construction is scheduled to begin in Q4 two.
Mark Liu: 2024 this year.
Mark Liu: In Taiwan.
Mark Liu: Of course, we continue to invest in and expand advanced technology capacities to support our customers' needs and their growth.
Mark Liu: Given the robust multi year demand for our three nanometer technologies, we are expanding our three nanometer capacity in Tainan Science Park.
Mark Liu: We are also preparing into volume production starting in 2025.
Mark Liu: We plan to build multiple fabs or multiple phases of two nanometer technologies in both Jimmy Choo and Cao Shuang Science parks.
Mark Liu: To support the strong structural demand from our customer see destination.
Mark Liu: In Taichung Science Park.
Mark Liu: The government approval process.
Mark Liu: Is ongoing and is also on track.
Why are the initial cost of overseas fab I.
Mark Liu: I previously mentioned are higher then tsmc's fab in Taiwan, we are confident to manage and minimize the cost cap.
Mark Liu: And remain commitment committed to deliver profitable growth and maximize the value for our shareholders.
Now, let me talk about my retirement.
Mark Liu: On December 19th last year I announced.
Mark Liu: Is that I have decided.
Mark Liu: I started at TSMC 30 years ago.
Mark Liu: As a leader of a small four person fab construction team.
Speaker Change: Yeah, it's been my privilege to serve as chairman.
Speaker Change: TSMC.
Speaker Change: And after our legendary founder Doctor Morris chain over the last six years.
Speaker Change: During this time, we have reaffirmed our commitment to our mission.
Speaker Change: To be the trusted technology and capacity provider.
Speaker Change: The global logic IC industry for years to come.
Speaker Change: Why a hearing to our core values of integrity commitment.
Speaker Change: Innovation and customer trust.
Speaker Change: TSMC success is predicated on providing the industry's most leading edge.
Processing technology at scale.
Speaker Change: In the most efficient and cost effective manner.
Speaker Change: To enable all the innovators to successfully offer the best products to the world.
Speaker Change: We together have worked diligently to enhance our focus.
Speaker Change: On our technology leadership competitiveness.
Speaker Change: Global manufacturing footprint.
Speaker Change: Digital excellence.
Speaker Change: Sustainability and corporate governance to maximize the value for our customers and our shareholders.
Speaker Change: Yeah.
Speaker Change: The past 30 years with TSMC has an extraordinary journey for me.
Speaker Change: And I want to ask Dan My sincerest, thanks to our incredible talented team.
Speaker Change: And all our Tsmc's colleagues.
Speaker Change: Whose diligence dedication and a can do spirit have.
Speaker Change: I've made the company into what is today.
Speaker Change: Now Tsmc's nomination corporate corporate governance, and sustainability Committee of the Board has recommended a doctor Cc Wei to succeed as a company's next chairman subject to the election of incoming board in June 2024.
Speaker Change: If Dr. Wei is collected to be chairman. He should also continue in his current role as CEO.
Speaker Change: Supported by a deep and experienced team of senior executives.
Speaker Change: Many of whom have been with TSMC for many many years.
Speaker Change: As I look ahead to spend more time with my family and starting the next chapter of my life. After our AGM in June I remain fully confident in TSMC strategy.
Speaker Change: Leadership and execution.
Speaker Change: And firmly believe TSMC will continue to perform outstandingly in the years ahead.
Speaker Change: Thank you for your trust in TSMC.
Speaker Change: And the best is yet to come for the company and its shareholders.
Speaker Change: This conclude my messages.
Speaker Change: And our key messages together, thank you for your attention.
Speaker Change: [noise]. Thank you Chairman this concludes our prepared statements.
Speaker Change: So before we begin the Q&A session I would like to remind everybody to please again limit your questions to two at a time. So we can allow all the participants an opportunity to ask their questions.
Speaker Change: Questions will be taken both from the floor and also from the AR call online.
Speaker Change: Should you wish to raise your question in Chinese I will translate it to English before our management answers your question.
Speaker Change: So for those of you on the call. If you would like to ask a question. Please press. The Star then one button on your telephone keypad now.
If at any time you'd like to remove yourself from the questioning queue. Please press Star then two.
Speaker Change: So now let's begin the Q&A session again, our chairman Dr. Mark Liu will be the host let's take the first two questions from the floor. Please.
Mark Liu: Okay. Our first question comes from Charlie Chan from Morgan Stanley.
Mark Liu: As Jeff and.
Charlie Chan: Mark CZ and <unk> window is a great to see you again in person happy new year.
Speaker Change: No need to reinstate it either some are long question to you is the first question is to C. C.
Charlie Chan: I am very curious about your comments about the takeout you leadership right because your competitor no sell customer Intel.
Charlie Chan: States that Theyre PPA is ahead of your two nanometer even our cost is lower.
Speaker Change: So I want to cancel your opinion.
Speaker Change: Why there's a different story and how to recharge and given neither debate how kitchens is going to plan their future capacity for a data customer and also a competitor.
We want to seize this opportunity, but also avoid any over expansion. Thanks.
Speaker Change: Okay. Thank you Charlie just please allow me for the benefit of the audience here in person and online to summarize your question So Charlie.
Charlie Chan: First question is a mountain and sort of the technology leadership.
Charlie Chan: And also our relationship I guess, our capacity planning with a specific IDM. So the first part of question is on the technology part.
Charlie Chan: He noticed IDM it says there.
Charlie Chan: Tpa is ahead of Tsmc's, two nanometer and the cost can be lower yeah. We said our technology is industry, leading and so how do we reconcile the difference.
And also how do we plan the future capacity planning for such type of customer.
Charlie Chan: Charlie.
Charlie Chan: Union that make customers in him.
Charlie Chan: That's my customary at my competitor.
Charlie Chan: Let me repeat the last time, when I come in and their technology.
Speaker Change: Uh huh.
Speaker Change: The company stays the same.
Speaker Change: So that's a D a.
Speaker Change: Use that technology.
Speaker Change: Well be very similar or equivalent to th 70, Isa and repeat.
Speaker Change: We further checker again, we saw or the specs.
Speaker Change: Oh, the possible published in technology transistor technology and everything.
Speaker Change:
Speaker Change: Mccamish stays the same.
Speaker Change: With a big advantage in the technology maturity.
Speaker Change: Gods of in.
Speaker Change: In 2025, when you say that the our newest technology, where vehicle production for TSMC that won't be the 30 year.
Speaker Change: He is a very high volume production in the past.
So again.
Speaker Change: I don't want to.
Speaker Change: Make too much of it to come in on my customers a claim.
Speaker Change: But let me assure you.
Speaker Change: We continue to have our technology leadership.
Speaker Change: And we.
Speaker Change: We continue to have a.
Speaker Change: Broad based sell per customer.
Speaker Change: And almost everybody.
Speaker Change: Almost.
Speaker Change: They are walking with TSMC.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: You are.
Speaker Change: Aggressively expand our capacity because also seems more likely.
Speaker Change: Certainly we are expand our capacity was 28% to 32 building lots of big mummy.
Speaker Change: That would be useful for three nanometer and two nanometers are kept me Archie.
Speaker Change: Let me, let me add some color to this.
Speaker Change: I think Steve he has been very modest.
Speaker Change: I think he has claimed that three R. N. Three P is a pad comparable too there are 18 eight.
Speaker Change: We still.
Speaker Change: A firm or a statement.
Speaker Change: But I would like to you to look at a different perspective.
Speaker Change: And we'll see what the.
Speaker Change: On the other side claim might be right.
Speaker Change: But it's only to their own product.
Speaker Change: And IDM typically optimize their technology for their own product.
Speaker Change: We're foundry us, we optimize our technology for our customers product.
Speaker Change: So that's a big difference.
Speaker Change: What you use for them.
Speaker Change: High power server server could be very different than what used.
Speaker Change: What's the sketches all your hand smartphone or even large data.
Speaker Change: AI processors. So you should look at this I think the the time compare with PPA, we still affirm our statement.
Speaker Change: But I think that just look at our customers' action that just tells us all the stories.
Speaker Change: As Mark said, Jeff can it goes up for a second one yes.
So some months are first of all.
Speaker Change: I really appreciate your leadership I believe our global ambassadors appreciate your past six year create lots of per shareholder value. Thank you.
Speaker Change: So my question is about the content of your speech in November.
Speaker Change: That's visualize about their kitchens in Ara for AI and you mentioned there are some very interesting data points, you use AI technology to improve their deferred gratification.
Speaker Change: So that year over year throughput by for example cameras.
Speaker Change: So now it's the generative AI can be very big.
Speaker Change: Big breakthrough Intertek ours, do you think Samsung or Intel by leveraging that generative AI can really a breakthrough in the catch up of your technology and also before your your retirement any kind of a big oncoming unfinished go or targets.
Speaker Change: For for TSMC. Thank you.
Speaker Change: Okay. Thank you Charlie So Charlie a second question is directed to chairman.
Speaker Change: He noted in November Chairman gave a speech, where he shared how TSMC has always been utilizing big data machine learning and AI to improve our operational efficiencies. His question is whether our generative AI will this enable all of our competitors to do the same thing in ketchup and narrowed the gap.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you Johnny.
Speaker Change: The talk I gave in last November was the audience is the Taiwan's industry companies.
Speaker Change: The purpose I wanted to give that is I see artificial intelligence.
Speaker Change: Can be a great opportunity for the industry in Taiwan.
Speaker Change: Just like Taiwan is.
Big country for semiconductor it can be a big country for artificial intelligence in the future that's how I encourage them.
Speaker Change: And as.
Speaker Change: As far as the <unk>, where there are competitor of using a AI of course of course, they use AI.
Speaker Change: And just look at the or the Ugly company a company in Silicon Valley are in U S.
Speaker Change: That's not a secret but on the other hand, AI is only east nascent stage.
Speaker Change: Only last November and our first large language data is there.
Speaker Change: An uncapped chatty PD announce we only see that tipped the iceberg, so I want to I O.
Speaker Change: I want to give a industry a optimistic note that even though.
Speaker Change: One nanometer.
Speaker Change: One nanometer could be challenging.
Speaker Change: But we have a new technology capability.
Speaker Change: Using AI to accelerate the innovation in.
Speaker Change: In science.
Speaker Change: And that is the that is apart and we have been working on that for many years already so.
Speaker Change: We open of course is a fair competition, it's no secret.
Speaker Change: You have another question about everyone well I still have a yes, indeed, how we retire in June.
Speaker Change: And from now to June is a long time.
Speaker Change: And the company a lot of thing can happen.
Speaker Change: And I think the I.
I hope, we definitely execute two Ccs forecasting off this year I think and bye bye.
Speaker Change: By the middle of this year I think we were pretty sure we can.
Speaker Change: Accomplish that.
Speaker Change: And.
Speaker Change: And of course that.
Speaker Change: C C. Just nation our technology development is is on the on the slew of success.
Speaker Change: And.
Speaker Change: By June next this year, we will know what we're going to fare in 2025.
Speaker Change: And I give our executive and milestone I don't want to share with you, but it's going to be very.
Speaker Change: Exciting but TSMC.
Speaker Change: And of course from now on and I simply want to encourage our people in TSMC.
Speaker Change: That the world has changed.
Speaker Change: Just like you mentioned, we have to use artificial intelligence for future technology.
Speaker Change: So we will go into a global it we try on a global.
Speaker Change: Footprint.
Speaker Change: And we are trying on digital excellence.
Speaker Change: Accidents, you mean, we can't compound.
Speaker Change: Hardworking of Taiwan.
Speaker Change: Taiwan engineer only we have to recreate our job too.
Speaker Change: Tap their talents.
Speaker Change: And levy.
Speaker Change: Lift up the semiconductor technology engineering to a different level.
Speaker Change: Based on what we already have.
Speaker Change: And of course, the corporate governance is one thing I always see my heart. During this transition I want to every executive and our board to adhere to the sound corporate governance, so that make sure all the process steps is abided by our.
Speaker Change: Typical governance rules.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you chairman, let's take the move onto the second person from the floor I think in front Bruce Lu of Goldman Sachs. Please.
Bruce Lu: Thank you.
Bruce Lu: Again, the question is definitely coming from AI for it for sure I think as Cc mentioned almost every AI chip is working with TSMC.
Bruce Lu: However, the investors' concern is always like the dollar content as a percentage as a percentage of customers cost for AI is a lot lower than smartphone or other chips. So as also mentioned that you fell a waiver or youre accustomed by the ear and you buy a bag is a lot more expensive. So can we expect that.
Bruce Lu: The dollar generated by TSMC.
Bruce Lu: In fact, AI can be increase in the coming years, either whether it's food light you know no migration all advanced packaging or anything we can expect or what kind of range. We can expect for that.
Okay. Let me summarize Bruce this first question I think again he is around AI related. He notes that are you know basically almost all the innovators are working with TSMC.
Bruce Lu: <unk> AI, but the value per chip that we seem to be capturing is lower than for a smartphone or PC.
Bruce Lu: His question is that I think can we expect the dollar value captured by TSMC to increase in the next few years and will this be dissidence value more come from the front end.
Bruce Lu: Process node wafer production or will it be through the advanced packaging solutions.
Speaker Change: Well, let me answer the easiest one first.
Speaker Change: The revenue come from the from Gagnon back in together.
Speaker Change: Okay.
Speaker Change: To kipp to kept shows or where do you. Yes, we are working longer it definitely but first let me say that I'm very happy that my customer has been very successful in the AI.
Speaker Change: Area.
Speaker Change: And we are a key enabler.
Speaker Change: For the AI applications.
Speaker Change: So far today everything you saw in the AI.
Speaker Change: He came from TSMC.
Speaker Change: Okay. Now here comes a question. She is out of how we are going to capture the value. We are walking nugget and they actually are we here.
Speaker Change: Today, they say that the component.
Speaker Change: Total where do you in the AI the whole AI data shanties of voice more percentage of month, if we narrowed down the AI, so component or the semiconductors.
Speaker Change: Where are you in the whole system, yes is there some more for sandy but for TSMC, we look at our hour here.
Speaker Change: He is a kicker that's.
Speaker Change: And of course read the every year is about 50%.
Speaker Change: And we our competence that we can capture more opportunities in the future. So that's why we said that.
Up to 2027, we are going to have a high teens.
Speaker Change: Of the revenue form a very narrow we define the AI application processor not to mention about the networking not to mention a bottle or others.
Speaker Change: Okay.
Speaker Change: And the.
Speaker Change: To further extend our where do you actually or the edge device, including smartphone, including the P. He does start to put the EI. So application side. They are they have some kind of a new reports I saw for example, so the silicon content will be greatly.
Speaker Change: Inquiries.
Speaker Change: Although the unit is actually up low single digits.
Speaker Change: In <unk>, but the silicon content is a more important so put all together if we ran some or the AI related application actually is quite a bit among the four th M heater.
Speaker Change: Okay. Bruce do you have a second question. Please the second question is more for the <unk>.
Bruce Lu: Technology leadership I mean.
Bruce Lu: As we moving into the night, our ship or you know.
Bruce Lu: Advanced node, we see another technologically by nowadays you know.
Bruce Lu: For example, like a high and a you know you'll be toward you know TSMC himself that even deal with other peers.
Bruce Lu: In the past like 2030 years, there are several technology divide that he has and he always choose the way decisions right. So can you tell us that why you choose.
Your current route compared year campaigns to your peers, what is the protein content, what's the advantage and how confident that TSMC can can leverage that to be the.
Bruce Lu: Peter Keith a second factor for the leading edge.
Speaker Change: Okay. Bruce's second question is in regards to I think to technology development and decision, making basically he notices that are today. There is divergence or his words divide between different companies technology decision, whether to adopt menno sheet transistor structure, whether to adopt high any tools.
Speaker Change: He noted in the past that this is always.
Speaker Change: Occurred in our industry, but TSMC has somehow manley.
Speaker Change: Managed to make the right decision. So he is asking especially how what do we look at or evaluate in our decision making process what are the pros and cons and advantages and probably most importantly, how confident we are we about our technology decisions going forward, whether nanometer high in a given our competitors actions.
Bruce.
Speaker Change: You ask a very technical question I am number assure everybody know that high <unk> or it's a neuroses Watergate or Iran, But let me answer your question.
Speaker Change: We always make the right decision and our track record shows that.
Speaker Change: Is that enough.
Speaker Change: Okay, Let me, let me elaborate a little bit more because of.
Speaker Change: Our technology is here is nobody only one do you can serve your customer.
Speaker Change: So we always walk we our customer to give them the best transistor technology.
Speaker Change: And the best power efficient technology.
Speaker Change: And at a reasonable cost.
Speaker Change: Okay.
Speaker Change: And more importantly.
Speaker Change: The technology maturity that into high volume production, that's all important everything everything counted together. So we every time, we know that there are some new structure new.
Speaker Change: New tools, such a higher knee you. We we look at it carefully look at it the maturity of the tours and look at the cost of the tours and look at the schedule of that.
Speaker Change: How to achieve it we always make the right decision at the right moment to serve our customer and so far all our customer are happy th M. He support Grace.
Speaker Change: Okay.
Speaker Change: Does that answer your question almost everybody, what with TSMC and two nanometer except one.
Speaker Change: Angie.
Okay. Thank you see alright, let's go to the online the take the next two questions from the participants we're dialing in via the conference call. Please operator could you. Please state the name and company.
Speaker Change: Yes.
Speaker Change: Oh Wow.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: E.
Speaker Change: Yeah.
Speaker Change: Okay Goldcor, Okay, I need you to slow down a bit because of the line is not that clear I do think I got his question, which is he wants to confirm.
Speaker Change: C. C. You mentioned that we have a very narrow definition, we call server AI processor contribution and that you said it can be high teens in five years' time, because the last time, we said low teens.
Speaker Change: Uh huh.
Speaker Change: The demand suddenly being increased.
Increase.
Speaker Change: Since our last.
Speaker Change: I think last year, the fourth quarter up to March or April one chat GBT become popular.
Speaker Change: Hi.
Speaker Change: So.
Speaker Change: Customer response quickly and Oscar TSMC to prepare the capacity posting from union back in and that's why we have.
Speaker Change: Have a comfort is that these are AI.
Speaker Change: Revenue why inquiries and we only narrowed down to the application processor by the way.
Speaker Change: So we look at arceo, rather we prepare the technology and the capacity in both our from yen and also back in.
And so you know we.
Speaker Change: It's in the early stage so far to date, we already see the inquiries the momentum.
Speaker Change: And we expect you know if you guys continue to check this one.
Speaker Change: The number will increase.
Speaker Change: I have a competent to say that although I don't know how much okay.
Speaker Change: So high teens you confirm.
Speaker Change: Or higher.
Speaker Change: Okay. So okay cocoa hopefully that clarifies that first question.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Uh huh.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Uh huh.
Speaker Change: A little bit about what.
Speaker Change: What happened.
Speaker Change: When we get back to close to full utilization, we are still running well below for my patients literally three.
Speaker Change: And could you also explain the gross margin dilution that you're expecting in second half military because of this.
Speaker Change: Drastically version, what exactly leads to that rough margin dilution and the.
Speaker Change: Like.
Speaker Change: One time kind of dilution that last for a little bit of time to kind of level of thought and Greg will be fine.
Speaker Change: Okay. Thank you go Corso.
Speaker Change: If I heard correctly cocoa second question is around gross margin. So two parts to it maybe the second part first which is he is asking I believe about this gross margin in the second half of this year, particularly with what a window had described there are planned to convert some of the capacity there.
Speaker Change: Gross margin impact here and is this a one time thing is this better capital what does this mean in the mid to long term profitability. That's the first part and then I'll go to the second.
Speaker Change: Right.
Speaker Change: Second half D.
Speaker Change: As I said there are two negative factors affecting our gross margin. This year. The first one is the entry delusion.
Speaker Change: The volume will be much bigger in the second half than the first half.
Speaker Change: So the second half impact from entry dilution will be between three to four percentage point.
Speaker Change: And also the en five capacity converted two and three that will mostly take place in the second half as well so that will be one to two percentage point.
Speaker Change: Okay. That's for this year.
Speaker Change: For the longer term.
Speaker Change: If you look at these two factors our entry Blue shell will gradually reduce because the profitability will continue to improve or increase in the next several years.
Speaker Change: And F. Five converted two and three it's a one time short term impact.
Impact on profitability, which will bring capital efficiency to us in the middle to long term and the benefits together, which would be much bigger than the the onetime hit.
Speaker Change: In the short term.
Speaker Change: So if you're talking about the longer term profitability.
Speaker Change: Including these two factors plus a worse.
Speaker Change: Selling our value of our technology value as Cc mentioned we.
Speaker Change: We continued to drive down the cost with Bill our capacity based on the long term market profile and not the short term cyclicality and therefore enable us to have a pretty good utilization. The only thing we are not able to control as foreign exchange rate. So if you put all these together we still believe.
Speaker Change: The 53% at higher long term gross margin is achievable.
Okay.
Speaker Change: Okay cocoa does that answer both parts of your question.
Cocoa: Yeah, So just to clarify so given the other.
Cocoa: At a much lower utilization than normal.
Speaker Change: What do you suggest Randall.
Randall: Is that gross margin should get back to the mid to high 50, once the up cycle starts to gain more momentum just like what we saw in 2022 is that.
Speaker Change: A reasonable expectation, yes, okay. Thank you Rocco, so Google really he's asking 53% and higher cannot be higher.
Speaker Change: Because of course, he looks at last year, the utilization was lower and we still managed to deliver so he's wondering once utilization goes back to four.
Speaker Change: Can it get to mid to high Fifty's.
Speaker Change: We are working on yet.
Speaker Change: Okay, certainly we prepare our capacity according to customers' demand last year is very challenging because everybody missed year forecast.
Speaker Change: And so did the TSMC.
Speaker Change: And so that you can raise your rate is.
Speaker Change: Pretty bad.
Speaker Change: And I believe everybody.
Speaker Change: Got more experience.
Speaker Change: In the next few years and so th M. Peter you guys you redo work continue to increase I guarantee that.
Speaker Change: Okay. Thank you.
M. Peter: Yes, we are working on it it can be.
M. Peter: Okay. Thank you thank.
Speaker Change: Thank you operator, let's move on to the take the question from the second participants on the call.
Speaker Change: The second one to ask question is Randy Abrams from UBS.
Randy Abrams: Okay, Yes, thank you and good luck to those markets.
Randy Abrams: Upcoming transition.
Randy Abrams: I wanted to ask going back to the question on the.
Randy Abrams: I think earlier you can see that.
Randy Abrams: Your competitors' process is actually pretty good for optimized to their own product.
Randy Abrams: Can you talk about your view on sustainability of that.
Randy Abrams: But that IBM outsourcing with your own products from H P. C. If you look out over next two to three years. If you see that continue to grow or reverse where there could be a bit of a cooling off from some of the opportunity you have right in front of you now.
Speaker Change: Okay. Thank you Randy So Randy's first question goes back to the IDM.
Randy Abrams: His question is you know with the IDM St. Their technology is pretty good what is the risk or how do we see the sustainability of this ibm's outsourcing business to TSMC in the next two to three years.
Randy Abrams: Can this continue to grow or will this reverse and go back in house to the idea and how do we manage or plan for this.
Speaker Change: Hey, Randy.
Speaker Change: Sure.
Randy Abrams: That's a good question actually we have tacking into a comparable order considerations, including the IDM.
Speaker Change: I can't do it by Jim Scheel, we have pulled out one into consideration actually in our capacity planning actually we took a very conservative way to prepare our capacity in this kind of a situation.
Speaker Change: Okay I cannot speak more because of you know that's.
Speaker Change: Our strategy.
Speaker Change: Okay. If I can ask a follow up actually just the Capex, where I think earlier you ship it.
Speaker Change: Rate of increase would slow down, but I think still implying that should increase over time as you grow.
Speaker Change: You could discuss that.
Speaker Change: The capex that you're guiding for flat should we think of it as a pause, whereas if you start to move into two nanometer should be another.
Speaker Change: Waves of increase and second part somewhat related but curious about the geographic expansion theres been a lot of press about new Fabs in Japan, second fab and potential third advanced fab and it feels like the first fab went smoothly. So are you starting to redirect or think more expansion in Japan.
Speaker Change: Rather than.
Speaker Change: U S or potentially both you have both options as you move to three nanometer.
Speaker Change: Okay, Randy that's a lot of questions. So I'm going to take that as your second question. Okay. Basically so the first part of it is about the Capex E notes that wasn't all said the rate of increase is beginning to level off Randy's question is for this year and take the midpoint 30 billion is basically flat. So is this just a temporary pause in the capex.
Speaker Change: And with two nanometer in the upcoming years should we expect the dollar amount to go back up that's the first part.
Speaker Change: Okay Randy.
Speaker Change: Capex dollar about every year may vary.
Randy Abrams: It's a it depends on the different situation.
Randy Abrams: The rate of increase definitely is slower than the past three years.
Randy Abrams: And if you look at I think the other way of looking at that is the capital intensity.
Randy Abrams: In the past three years, the highest point as 2021 so it's going to be.
Randy Abrams: It was over 50% and then followed by 47% and 43 and this year. If you do the math is going to be mid Thirty's, we spike in the next several years. It will remains around 30 percentage capital intensity.
Speaker Change: Okay and then the other part of Randy's question is on the geographic expansion. He he knows a lot of reports, saying we may build a second fab in Japan and that we even may build a third. So his question is really are we redirecting our overseas expansion focus more to Japan or.
Speaker Change: Or has it changed anything in the U S are Randy.
Speaker Change: Randy I think that's what you're trying to ask right.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Can you can you repeat the question again.
Speaker Change: So Randy is saying look he knows there's a lot of talk we're going to build a second fab in Japan, maybe three so he's just wants to know are we shifting our overseas expansion focus to Japan or from the U S or is there any big significant change.
Speaker Change: No no I think.
Speaker Change: U U Japan.
Speaker Change: Second the fab in Japan is in serious evaluation stage, we haven't announced to the public yet and we are still discussing with the.
Speaker Change: Japan government, although many they're very cooperative so you.
Speaker Change: You might be waiting for that but.
Speaker Change: But that technology was still be.
Speaker Change: Either a seven or 16 Tech Tau technologies.
Speaker Change: And remember the.
Speaker Change: Our cultural fab the first fab used to be 28 nanometer or seven nanometer now is becoming two nanometer. So that is the shift.
Two four the if there is a second fab in Japan, that's our current plan.
Speaker Change: And as far as I know that's helpful.
Speaker Change: For a minute to quickly three nanometer because five nanometer was slightly delayed with three nanometers still come two years after the new Panther I and.
Speaker Change: In Arizona.
Speaker Change: So in Arizona, Randy wants to know that we have five nanometer in first half 'twenty five whats the plan for the second fab with three nanometer.
Speaker Change: Oh.
Speaker Change: Yes, we are the second fab shell is under construction.
Speaker Change: But what technology in that shale is still in under discussion and think that also has to do with the.
Speaker Change: Has to do with.
Speaker Change: How much incentives that fab.
The U S government can provide.
Speaker Change: And.
Speaker Change: Yes, there'll be a gap.
Speaker Change: We current planning is 27 or 28, yeah there'll be a timeframe.
Speaker Change: To be honest, mostly most all the fab in overseas.
Speaker Change: What actually be loaded with technology being set up really is the decision of customers' demand in that area and a timing. So nothing is definitive but we are trying to optimize the value for the overseas fab with TSMC.
Speaker Change: Okay. Thank you chairman and thank you Randy Alright in the interest of time, we'll take the next too far from the floor I think theres one here, our first Laura Chen from Citibank.
Laura Chen: Thank you very much for taking my question. Thank you gentlemen, Mark C. T. A windowing, Jeff happy New year, I think we got a lot of discussion about our leading position in the most advanced now so I just have a question about what's your view longer mature no dynamic and particularly we are seeing that globally.
Laura Chen: Consider it a geopolitical tension so we assume that the fab all over the place in the world. So do you see that in the longer term any concern on industry wide overcapacity.
Laura Chen: That person who is our strategy and also what's your view on how your mature node.
Speaker Change: Well that's my first part okay. Thank you Laura so her for Lora is first question is on mature node strategy and profitability. She notes with the geopolitical dynamics that theres a lot of capacity being built on the mature nodes.
Speaker Change: So her question is do we see or expect in industry wide oversupply and probably more importantly, what is the impact to tsmc's mature node strategy and profitability.
Speaker Change: Oh I see.
Speaker Change: Think of your observation is right they might be.
Speaker Change: Too much of a capacity being built right now for mature nodes.
Speaker Change: So the concern on overcapacity is wanted.
Now, let's talk about <unk> as I said at the AGM. She inquiry the mature node capacity for specialty technology differentiated with others.
Speaker Change: We work with customer and that kind of a capacity actually effective capacity as we are near me it.
Speaker Change: Is with a commitment from customers are loading in for the mutual business.
Speaker Change: And because we offer the way do for our customer to design their product. So we believe that they can retain their products or where do you. Even the capacity is fraud data in the.
Speaker Change: Industry.
Speaker Change: And so long as our customers do well.
Speaker Change: T H M she's doing well.
Speaker Change: And so the profitability as I said in my statement, you don't want be a wrong that copper read every.
So.
Speaker Change: We don't have concerns.
Speaker Change: What we see for TSMC okay.
Speaker Change: Could be a industry issues.
Speaker Change: Very helpful. Thank you and also my second question is back to AI related as we know that a lot of investor I care a lot about your advanced packaging progress.
Speaker Change: We also know that that person he got a very good progress on TDI E. S. L. I see so can you share with us.
Speaker Change: Our progress developmental RP I'll call us what's your plan, although with D. D. I E. What's the schedule and capacity you are aiming for in the next 30 years.
Speaker Change: Thank you Laura So Laura second question is on advanced packaging. She notes again, the strong demand for AI related applications. So advanced packaging. The progress of course cobalt demand is very strong. Her question is really I think beyond <unk> into true three D. ICR integration solutions, such as Soi see.
Speaker Change: What is the progress that we see the engagement from customers the capacity and basically the outlook for these segments of the business.
Speaker Change: The demand and the actuaries are very strong today's situation there we can.
Speaker Change: Oprah in our capacities, who support our customer.
Speaker Change: And that can be Xinhua continue probably all the way through next year. Although we are very are working very hard to inquiries a capacity. For example, this year, we are doubling our output.
Speaker Change: <unk> now and so we continue to increase for the next year.
Speaker Change: The progress so far so good because we English there on the advanced packaging technology for more than 10 years already.
Speaker Change: So we expect the gross rate for cole was four three D. I E or the four soi he per se. It wont be mode is 50% kicker in the next few years.
Speaker Change: At East.
Speaker Change: And so we are competent.
Speaker Change: The demand is there.
Speaker Change: Is th him he's a capability to over eat now capacity to support our customer.
Speaker Change: I fall color here David.
Speaker Change: By the next year do you have any preliminary thoughts.
Speaker Change: Our talk to you next year.
Speaker Change: Okay. Thank you we have a question here from Brad <unk> from Bank of America Merrill Lynch.
Speaker Change: I think in the interest of time, we'll take one question Oh sorry.
Speaker Change: From yourself and then we'll take one more from the line and then one more in person if theres any.
Speaker Change: All right.
Speaker Change: Hello, Oh, Okay. Thank you for taking my question. So well. So my question would be still around in three and also IBM to us we understand either demand is weak.
Speaker Change: We can definitely increase our business author business certainty by gaining market share. So do we expect.
Speaker Change: Some more contribution or market share gains, especially from the idea inside or any more contribution from Pcs I maybe.
Speaker Change: By the end of the year or any time soon thank you.
Speaker Change: Okay. So brad's first question is about IDM outsourcing I think again, given the technology leadership that we have and he wants to know do we expect more business or outsourcing.
Speaker Change: From the IDM by the end of this year or and how do we see it as the uncertainty going forward.
Speaker Change: That is too specific you you see the IDM outsourcing I know, whom you talk about.
Speaker Change: So I better not to make any come in I still what I said, we take everything into consideration, we welcomed the business, but we prepared our capacity expansion.
Okay got it. Thank you very much your second question, yes. So that is on the other best packaging. So we know that of course as of right now as a mainstream so half the management has seen their clients comfort into either a collage arc, Hawaii al and then what's the implication to your revenue and margin profile.
Speaker Change: Okay. So it's also a very specific to specific question, but again.
Speaker Change: Bad wants to know you know Carlos as seems to be the mainstream today to see customers switching to cobalt L or carbos R and what's the margin implication.
Speaker Change: Or does it make a joke I even do you know what is called co author Oracle was the ear.
Speaker Change: But anyway, we are working with customer to support them, we said.
Speaker Change: Antiquated capacity, although it is not 100% in now, but we do our best.
Speaker Change: And we're developing that next generation cohorts.
Or something like that for our customer and is all walk we already meet that.
Speaker Change: It will come to buy all my customers. So we are preparing the capacity for you.
Speaker Change: Okay got it. Thank you Raj that last analyst question. That's two questions and then another question, so basically well I want to say it well. Thank you Mark for your leadership contribution endeavor for the past 30 years, not just for Taiwan, not that's what TSMC Bowers of Taiwan, and we all wish you a happy retirement and OSA.
Speaker Change: Then your chapter of life. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: We'll take the final question is from the last two participants let's go online first then we have one in final in person okay. Operator.
Speaker Change: Next from the call Eric Greenspan, calling from TD Cowen go ahead. Please.
Eric Greenspan: Yeah, Hi, Thanks for taking my question I feel all of them.
Eric Greenspan: That's one.
Eric Greenspan: Can you talk about revenue growth for the year.
Eric Greenspan: And again from gross margin getting pumped in pharma wonder how to think about gross margin for the full year in the context of the fact that.
Eric Greenspan: He hasn't been done and we're going to grow in the low to mid 20%.
Speaker Change: What growth Robin for full year 2024, and then I had a follow up okay.
Speaker Change: Okay, Krish again, sorry, we cannot hear you that clearly online, but I think his question is correct me if I'm wrong with revenue outlook that we gave low to mid twenty's growth in U S. Dollar term what does the outlook for the full year gross margin.
Speaker Change: Is that what you're asking yeah. Okay.
Speaker Change: That's right yes.
Speaker Change: Right. So I just mentioned a couple of the puts and takes on the gross margin of this year and I'll also said that the second half we will have a higher <unk>.
Speaker Change: Solutions from two factors.
Speaker Change: But we're not ready to give our full year guidance on gross margin yet.
Speaker Change: So we will talk about that.
Speaker Change: As time goes by.
Speaker Change: But let me say this longer term with all the factors together still 53% or higher is definitely we're very confident in achieving that.
Speaker Change: Okay does that ensco very helpful.
Speaker Change: Sorry, Chris why don't you go to a follow up playing out.
Well quick follow up and I'll give brocade, Bangalore Mark for all the support.
Speaker Change: A follow up in terms of revenue growth for this year.
Speaker Change: Well, it's simple quarterly exhibit D C and smartphone roughly 40 people in our revenue.
Speaker Change: We're going to go up with it.
Speaker Change: HBC or smartphone is going to be better, but you have to get to the low to mid 20%.
Speaker Change: Okay, Krish, sorry, again, we cannot hear you that clearly, but I think I got the gist of your question maybe the way.
Speaker Change: Krish is question is what you know the components that's driving the revenue growth. This year, maybe we can share with him by the four growth platforms.
Speaker Change: Chris.
Speaker Change: H B C will be will have the highest growth.
Speaker Change: Actually much higher than the corporate.
Speaker Change: The other three platforms were all grow although slower than the corporate.
Speaker Change: Well. Thank you very much. Thank you. Thank you. Thank you Brandon.
Speaker Change: Okay, Yeah, no problem Krish. Okay. Then we will take the final question from the floor or the first row here.
Speaker Change: Nikolas Barrett of Macquarie.
Nikolas Barrett: The microphone is on you can go on thanks.
Nikolas Barrett: Very quick two questions. Thank you very much Jeff.
Nikolas Barrett: Is it possible or would you expect that some of your a reason that customers could be only customers in Arizona.
Nikolas Barrett: That's some U S customers only want to buy wafers made in the U S.
Speaker Change: Sorry. Your question is will customers in Arizona only be U S customers is it possible that some U S customers on the Walmart U S made wafers.
Speaker Change: Would it be answer that question.
Speaker Change: Sure.
Speaker Change: Arizona Fabs for everybody.
Speaker Change: But majority is a U S customer you are right.
Speaker Change: Sure. Thanks.
Speaker Change: Thanks.
Speaker Change: Do you have another question no okay.
Speaker Change: Well if not then all this does conclude our Q&A session before we conclude today's conference. Please be advised that the replay of the conference will be accessible within 30 minutes from now and the transcript will become available 24 hours from now both of which are going to be available through our website Tsmc's website at triple W. Dot here since.
Speaker Change: <unk> dot com. So thank you again, everyone for joining US today, we hope everyone continues to stay well and we hope you will see join US again next quarter Goodbye and have a great day. Thanks.
Yeah.
Speaker Change: Yeah.