Q1 2024 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

Jeff Su: Good afternoon, everyone. I am Su Zhikang from the Taiwan Semiconductor Manufacturing Co. Ltd. Welcome to the Taiwan Semiconductor Manufacturing Co. Ltd. first session of the 2024 Legal Explanatory Session.,, Good afternoon, everyone, and welcome to TSMC's first quarter 2024 earnings conference call. This is Jeff Su, TSMC's Director of Investor Relations, and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials shortly. If you are joining us on the conference call, your dial-in lines are in listen-only mode.

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Good afternoon, everyone and welcome to Tsmc's first quarter 2024 earnings Conference call. This is Jeff Sue Tsmc's director of Investor Relations and your host for today.

Jeff Su: He has since he is hosting our earnings conference call via live audio webcast through the Companys website at Triple W. Dot T. S. N C Dot com, where you can also download the earnings release materials shortly.

Jeff Su: If you are joining us through the conference call. Your dial in lines are in listen only mode.

Jeff Su: The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the first quarter 2024, followed by our guidance for the second quarter 2024. Afterward, Mr. Huang and TSMC's CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open the lines for the question and answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statement.

Jeff Su: The format for today's event will be as follows.

Jeff Su: First Tsmc's senior Vice President and CFO, Mr. Wendell Huang will summarize our operations in the first quarter 2024, followed by our guidance for the second quarter 2024.

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

Speaker Change: Then we will open the lines for the question and answer session.

Speaker Change: As usual I would like to remind everybody that today's discussions may contain forward looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statements.

Jeff Su: Please refer to the Safe Harbor Notice that appears in our press release. And now, I would like to turn the call over to TSMC CFO, Mr. Wendell Huang, for a summary of operations and the current quarter guidance. Thank you, Jeff. Good afternoon, everyone.

Speaker Change: Please refer to the safe Harbor notice that appears in our press release on our press released.

Speaker Change: And now I would like to turn the call over to Tsmc's CFO, Mr. Wendell Huang for the summary of operations and the current quarter guidance.

Wendell Huang: Thank you Jeff Good afternoon, everyone. Thank you for joining US today my presentation will start with the financial highlights for the first quarter 'twenty 'twenty four.

Wendell Huang: Thank you for joining us today. My presentation will start with the financial highlights for the first quarter of 2024. After that, I will provide the guidance for the second quarter of 2024. First quarter revenue decreased 5.3% sequentially in NT dollars, or 3.8% in U.S. dollars, as our business was impacted by smartphone seasonality partially offset by continued HPC-related demand. Gross margin increased 0.1 percentage points sequentially to 53.1%, mainly reflecting product mix changes due to smartphone seasonality partially offset by a less favorable foreign exchange rate. Total operating expenses accounted for 11.1% of net revenue, which is lower than the 12% implied in our first quarter guidance, mainly due to tighter expense control.

Wendell Huang: After that I will provide the guidance for the second quarter 2024.

Wendell Huang: First quarter revenue decreased 5.3% sequentially NT dollars or three 8% in U S dollars as our business was impacted by smartphone seasonality, partially offset by continue H P C related demand.

Wendell Huang: Gross margin increased pulling one percentage points sequentially to 53, 1%, mainly reflecting product mix changes due to smartphone seasonality, partially offset by a less favorable foreign exchange rate.

Wendell Huang: Total operating expenses accounted for 11, 1% of net revenue.

Wendell Huang: Which is lower than the 12% imply in our first quarter guidance, mainly due to tight tighter expense controls.

Wendell Huang: Thus, operating margin increased by 0.4 percentage point sequentially to 42%. Overall, our first quarter EPS was $8.7 NT, and ROE was 25.4%. Now, let's move on to revenue by technology. 3 nanometer process technology contributed 9% of wafer revenue in the first quarter, while 5nm and 7nm accounted for 37% and 19%, respectively. Advanced Technology, defined as 7 nanometer and below, accounted for 65% of wafer revenue. Moving on, to Revenue Contribution by Platform. HBC increased 3% quarter over quarter to account for 46% of our first quarter revenue, while Smartphone decreased 16 percent to account for 38 percent. IoT increased 5% to account for 6%, automotive remained flat and accounted for 6%, and DCE increased 33% to account for 2%.

Wendell Huang: Thus operating margin increased 0.4 percentage point sequentially to 42%.

Wendell Huang: Overall, our first quarter EPS was $8 seven NT dollars and ROE was 25, 4%.

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

Wendell Huang: Three nanometer process technology.

Wendell Huang: Contributed 9% of wafer revenue in the first quarter.

Wendell Huang: <unk> five nanometer and seven nanometer accounted for 37% and 19% respectively.

Wendell Huang: Advanced technologies defined as seven nanometer and below.

Wendell Huang: [noise] accounted for 65% of wafer revenue.

Wendell Huang: Moving on to revenue contribution by platform.

Wendell Huang: H B C increased 3% quarter over quarter to account for 46% of our first quarter revenue.

Wendell Huang: Smartphone decreased 16% to account for 38% Iot increased 5% to account for 6%.

Wendell Huang: So motive remained flat and accounted for 6% and TCE increased 33% to account for 2%.

Wendell Huang: Moving on to the balance sheet.

Wendell Huang: We ended the first quarter with cash and marketable securities of $1 nine trillion N T or 60 billion U S dollars.

Wendell Huang: On the liability side current liabilities increased by 113 billion N T.

Wendell Huang: Moving on to the balance sheet, we ended the first quarter with cash and marketable securities of 1.9 trillion NT, or $60 billion. On the liabilities side, current liabilities increased by 113 billion NT mainly due to the increase of 140 billion in accrued liabilities and others, although partially offset by the decrease of $44 billion in accounts payable. The increase in accrued liabilities and others was mainly due to the reclassification of the temporary receipts from customers from long-term liabilities.

Wendell Huang: Mainly due to the increase of 140 billion in accrued liabilities and others.

Wendell Huang: Partially offset by the decrease of 44 billion and accounts payable.

Wendell Huang: The increase in accrued liabilities and others was mainly due to the reclassification of the temporary receipts from customers.

Wendell Huang: From long term liabilities.

Wendell Huang: Our financial ratios.

Wendell Huang: Counts receivable turnover days remained at 31 days, while days of inventory increased five days to 90 days, primarily due to ramp of three nanometer technologies.

Wendell Huang: Regarding cash flow and Capex during the first quarter, we generated about 436 billion N T. In cash from operations spent 181 billion in Capex and distributed 78 billion for second quarter 'twenty to 'twenty.

Wendell Huang: Our financial ratio. Accounts receivable turnover days remain at 31 days, while days of inventory increase 5 days to 90 days, primarily due to the ramp of 3 nanometer technology regarding cash flow and CAPEX. During the first quarter, we generated about 436 billion NT in cash from operations, spent $181 billion in CAPEX, and distributed $78 billion for second quarter 2023 cash dividends. In addition, we raised 23 billion NT in cash from bond issuance. Overall, our cash balance increased by $233 billion NT to $1.7 trillion at the end of the quarter.

Wendell Huang: Free cash dividend.

Wendell Huang: In addition, we raised 23 billion of N T in cash from bond issuances.

Wendell Huang: Overall, our cash balance increased 233 billion of N T to 1.7 trillion at the end of the quarter.

Wendell Huang: In U S dollar terms, our first quarter capital expenditures totaled 5.77 billion.

Speaker Change: I have finished my financial summary, now, let's turn to our current quarter guidance.

Speaker Change: We expect our business to be supported by strong demand for our industry, leading three nanometer and five nanometer technologies, partially offset by continued smartphone seasonality.

Speaker Change: Based on the current business outlook, we expect our second quarter revenue to be between $19 6 billion and $20 4 billion U S dollars, which represents a 6% sequential increase and.

Wendell Huang: In U.S. dollar terms, our first quarter capital expenditures totaled $5.77 billion. I have finished my financial summary. Now, let's turn to our current quarter guidance. We expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality. Based on the current business outlook, we expect our second quarter revenue to be between 19.6 billion and 20.4 billion U.S. dollars, which represents a 6% sequential increase and a 27.6% year-over-year increase at the midpoint, based on the exchange rate assumption of 1 U.S. dollar to 32.3 NT.

Speaker Change: 27, 6% year over year increase at the midpoint.

Speaker Change: Based on the exchange rate assumption of one U S dollar to a 32.3 N T.

Speaker Change: Gross margin is expected to be between 51 and 53%.

Speaker Change: Operating margin between 40 and 42%.

Speaker Change: Also in the second quarter, we will need to accrue the tax on the undistributed retained earnings as a result, our second quarter tax rate will be slightly above 19%.

Speaker Change: The tax rate will then fall back to 13% to 14% level in the third and fourth quarter and the full year tax rate will be between 15% to 16% compared to a 14, 5% in 2023.

Speaker Change: This concludes my financial presentation.

Speaker Change: Now, let me turn to our key messages I will start by making some comments on the impact from the April 3rd earthquake.

Speaker Change: On April 3rd an earthquake of 7.2 magnitude struck Taiwan and the maximum magnitude of our Fabs was five.

Speaker Change: Safety systems and protocols at all Fibs.

Wendell Huang: Gross margin is expected to be between 51 and 53 percent, and operating margin between 40 and 42 percent. Also, in the second quarter... We will need to accrue tax on the undistributed retained earnings. As a result, our second-quarter tax rate will be slightly above 19%.

Speaker Change: We're and initiate it immediately and all TSMC personnel are safe.

Speaker Change: Based on Tsmc's deep experience and capabilities in earthquake response, and damage prevention as well as regular disasters trails.

Speaker Change: The overall tool recovery in our fabs reach more than 70% within the first 10 hours.

Speaker Change: We're fully recovered by the end of the third day.

Wendell Huang: The tax rate will then fall back to 13-14% in the 3rd and 4th quarters, and the full year tax rate will be between 15-16% compared to 14.5% in 2023. This concludes my financial presentation. Now let me turn to our key message. I will start by making some comments on the impact of the April 3rd earthquake. On April 3rd, an earthquake of 7.2 magnitude struck Taiwan, and the maximum magnitude of our FAPS was 5. Safety systems and protocols at our pipes were initiated immediately, and all TSMC personnel are safe.

Speaker Change: There were no power outages no structural damage to our Fabs and there's no damage to our critical tools, including all of our UV lithography tools.

Speaker Change: That being said a certain number of wafers in process were impacted and had to be scrapped, but we expect most of the loss production to be recovered in the second quarter, and thus minimal impact to our second quarter revenue.

Speaker Change: We expect the total impact from the earthquake to reduce our second quarter gross margin by about 50 basis points, mainly due to the losses associated with wafer scrapped a material loss.

Speaker Change: Next let me talk about our first quarter 'twenty four in second quarter 'twenty for profitability.

Compared to fourth quarter 2023, our first quarter gross margin slightly increased by 10 basis points sequentially to 53, 1%.

Wendell Huang: Based on TSMC's deep experience and capabilities in earthquake response and damage prevention as well as regular disaster trails, the overall tool recovery in our fabs reached more than 70 percent within the first 10 hours and was fully recovered by the end of the third day. There were no power outages, and no structural damage to our fab.

Speaker Change: Primarily driven by product mix changes due to smartphone seasonality.

Speaker Change: We have just guided our second quarter gross margin to decline by 1.1 percentage points to 52% at the midpoint, primarily due to the impact from the earthquake on April 3rd as just discussed and higher electricity cost in Taiwan.

Wendell Huang: And there was no damage to our critical tools, including all of our EUV lithography tools. That being said, a certain number of wafers in process were impacted and had to be scrapped. But we expect most of the lost production to be recovered in the second quarter and thus minimal impact on our second quarter revenue. We expect the total impact from the earthquake to reduce our second quarter growth margin by about 50 basis points, mainly due to the losses associated with wafer scraps and material loss.

Speaker Change: After last year's 17% electricity price increase from April 1st.

Tsmc's electricity price in Taiwan has increased by another 25% starting April 1st this year.

Speaker Change: This is expected to take out 70 to 80 basis points from our second quarter gross margin.

Speaker Change: Looking ahead to the second half of the year, we expect the impact from higher electricity cost to continue and dilute our gross margin by 60 to 70 basis points.

Speaker Change: We also expect the higher electricity cost to indirectly due to higher materials chemical and gases and other variable costs.

Wendell Huang: Next, let me talk about our first quarter 24 and second quarter 24 profitability. Compared to fourth quarter 2023, our first quarter gross margin slightly increased by 10 basis points sequentially to 53.1%, primarily driven by product mix changes due to smartphone seasonality. We have just guided our second quarter growth margin to decline by 1.1 percentage points to 52% at the midpoint, primarily due to the impact of the earthquake on April 3rd, as just discussed, and higher electricity costs in Taiwan. After last year's 17% electricity price increase from April 1st, TSMC's electricity price in Taiwan has increased by another 25% starting April 1st this year.

Speaker Change: In addition, we expect our overall business in the second quarter of the year to be stronger.

Speaker Change: Then the first half and the revenue contribution from three nanometer technologies is expected to increase as well, which will dilute our gross margin by three to four percentage point in second half of 'twenty four as compared to a two to three percentage points in first half of 'twenty four.

Speaker Change: Yeah.

Speaker Change: Finally, as we have said before we have a strategy to convert some five nanometer tools to support three nanometer capacity given the strong multi year demand.

Speaker Change: We expect this conversion to dilute our gross margin by about one to two percentage points in the second half of 2024.

Speaker Change: To manage our profitability in second half 'twenty 'twenty four we will work diligently on internal cost improvement efforts, while continuing to sell our value.

Speaker Change: Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans. We continue to forecast a long term gross margins of 53% and higher is achievable. Okay Ah sorry to interrupt window, because we have been informed that some.

Wendell Huang: This is expected to take out 70 to 80 basis points from our second quarter growth margin. Looking ahead to the second half of the year, we expect the impact of higher electricity costs to continue and dilute our growth margin by 60 to 70 basis points. We also expect the higher electricity costs to indirectly lead to higher materials, chemicals, and gases, and other variables.

Speaker Change: Some of the.

Speaker Change: Audience are having difficulty.

Speaker Change: Into the website to the call so let's pause a few minutes.

Speaker Change: And will continue once we resolve the issue. Thank you everyone for your patience.

Wendell Huang: In addition, we expect our overall business in the second quarter of the year to be stronger than the first half, and the revenue contribution from three nanometer technologies is expected to increase as well, which will dilute our gross margin by three to four percentage points in the second half of 2024, as compared to two to three percentage points in the first half of 2024. Finally, as we have said before, we have a strategy to convert some 5 nm tools to support 3 nm capacity given the strong multi-year demand. We expect this conversion to dilute our gross margin by about one to two percentage points in the second half of 2024.

Speaker Change: Okay.

Speaker Change: Yeah.

Jeff Su: To manage our profitability in the second half of 2024, we will work diligently on internal cost improvement efforts while continuing to sell our value. In the longer term, excluding the impact of foreign exchange rates and considering our global manufacturing footprint expansion plan. We continue to forecast a long-term growth margin of 53% and higher is achievable. Okay, sorry to interrupt, Wendell, because we have been informed that some of the audience are having difficulty linking through the website to the call. So, let's pause for a few minutes, and we'll continue once we resolve the IT issue. Thank you, everyone, for your patience.

Speaker Change: Yeah.

Jeff Su: Since on the telephone call, sorry, we're having a little bit of an IT issue. We should expect, hopefully, to resolve it very soon. So, just please hang on for a few more minutes, and thank you for your patience. Okay. Thank you, everyone, for your patience. Sorry about the technical issues. We believe the webcast, if you're through the TSMC website, you should be able to log back in and listen to the webcast. For those of you on the line or having difficulty with the telephone, I think try the webcast first, and the telephone line should be available shortly.

Jeff Su: Again, sorry for the inconvenience, and thank you for your patience. In light of the fact that we had these technical issues, I think we'll restart with Wendell Huang, our CFO, to give our guidance, and then we will go into our prepared remarks. Thank you. Thank you, Jeff.

Wendell Huang: Let me repeat my guidance for the second quarter again. For the second quarter of 2024, we expect our business to be supported by strong demand for industry-leading three nanometer and five nanometer technologies, partially offset by continuous smartphone seasonality. Based on the current business outlook, we expect our second quarter revenue to be between 19.6 billion and 20.4 billion U.S. dollars, which represents a 6 percent sequential increase or a 27.6 percent year-over-year increase at the midpoint.

Wendell Huang: Based on the exchange rate assumption of 1 U.S. dollar to 32.3 NT, gross margin is expected to be between 51 and 53 percent, and operating margin between 40 and 42 percent. Also, in the second quarter, we will need to accrue the tax on the undistributed retained earnings.

Wendell Huang: As a result, our second quarter tax rate will be slightly above 19%. The tax rate will then fall back to 13-14% levels in the 3rd and 4th quarters, and the full year tax rate will be between 15-16% compared to 14.5% in 2023. Now that this financial presentation has concluded, let me now repeat our key message. I will start by making some comments on the impact of the April 3rd earthquake. On April 3rd, an earthquake of 7.2 magnitude struck Taiwan, and the maximum magnitude at our fabs was 5. Safety systems and protocols at ALFAPS were initiated immediately, and all TSMC personnel are safe.

Wendell Huang: Based on TSMC's deep experience and capabilities in earthquake response and damage prevention, as well as regular disaster drills, the overall tool recovery in our fabs reached more than 70% within the first 10 hours and was fully recovered by the end of the third day. There were no power shortages, no structural damage to our fabs, and there was no damage to our critical tools, including all of our EUV lithography tools. That being said, a certain number of wafers in process were impacted and had to be scrapped, but we expect most of the lost production to be recovered in the second quarter, and thus, a minimal impact on our second quarter revenue. We expect the total impact from the earthquake to reduce our second quarter gross margin by about 50 basis points, mainly due to the losses associated with wafer scraps and material loss.

Speaker Change: So on the telephone call sorry, we're having a little bit of IP issue, we should expect hopefully to resolve it very soon so just please hang on for a few more minutes and thank you for your patience.

Wendell Huang: Next, let me talk about our first quarter 2024 and second quarter 2024 profitability. Compared to the fourth quarter of 2023, our first quarter growth margin slightly increased by 10 basis points sequentially to 53.1 percent, primarily driven by product mix changes due to smartphone seasonality. We have just guided our second quarter growth margin to decline by 1.1 percentage points to 52% at the midpoint, primarily due to the impact of the earthquake on April 3rd, as just discussed, and higher electricity costs in Taiwan. After last year's 17% electricity price increase from April 1st, TSMC's electricity price in Taiwan has increased by another 25% starting April 1st this year.

Wendell Huang: This is expected to take our 70 to 80 basis points from our second quarter growth mark. Looking ahead to the second half of the year, we expect the impact from higher electricity costs to continue and dilute our growth margin by 60 to 70 basis points. We also expect the higher electricity costs to indirectly lead to higher materials, chemicals, and gases, and other variables. In addition, we expect our overall business in the second half of the year to be stronger than in the first half.

Wendell Huang: And revenue contribution from three nanometer technologies is expected to increase as well, which will dilute our gross margin by three to four percentage points in the second half of 24 as compared to two to three percentage points in the first half of 24. Finally, as we have said before, we have a strategy to convert some 5 nm tools to support 3 nm capacity given the strong multi-year demand. We expect this conversion to dilute our gross margin by about 1-2 percentage points in the second half of 2024. To manage our profitability in the second half of 2024, we will work diligently on internal cost improvement efforts while continuing to sell our value. In the longer term,

Wendell Huang: Excluding the impact of the foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term growth margin of 53% and higher is achievable. Finally, let me talk about our 2024 capital budget. Every year, our CAPEX is spent in anticipation of the growth that will follow in the future. Our CAPEX and capacity planning is always based on a long-term market demand profile.

C.C. Wei: We reiterate our 2024 capital budget is expected to be between 28 billion and 32 billion U.S. dollars as we continue to invest to support customers' growth. Out of the 28 to 32 billion KPECs for 2024, between 70 and 80 percent of the capital budget will be allocated to advanced process technology. About 10% to 20% will be spent on specialty technologies, and about 10% will be spent on advanced packaging, testing, mask-making, and others.

C.C. Wei: Now let me turn the microphone over to C.C. Thank you, WINDOW. Good afternoon, everyone. Before I start, I would like to take a moment and make a few remarks. On April 3rd, TSMC experienced a major-scale earthquake of 7.2 magnitude.

C.C. Wei: Our deepest sympathies and hearts go out to all those who are affected by this tragedy. I also want to recognize and deeply thank all of our employees and our suppliers for their dedication and hard work during this time. Although it was the largest earthquake in Taiwan in the last 25 years, we worked together tirelessly and were able to resume full operation at all our labs within three days with minimal disruption, demonstrating the resilience of our operation in Taiwan.

C.C. Wei: Lastly, I would also like to extend our great appreciation to our customers for their understanding and support as we work to recover the lost production during the second quarter. Now, let me start my prepared remarks with our near-term demand outlook. We concluded our first quarter with revenue of US$18.9 billion, slightly above our guidance in U.S. data terms. Our business in the fourth quarter was impacted by Smartphone Seasonality.

Speaker Change: Okay. Thank you everyone for your patience sorry about the technical issues, we believe the webcast if you're through.

C.C. Wei: Partially offset by continuing HPC-related demand. Moving into the second quarter of 2024, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continuous smartphone seasonality.

Speaker Change: Through the <unk>.

Speaker Change: TSMC website, you should be able to log back in and listen to the webcast.

Speaker Change: For those of you on the line or having difficulty with the telephone I think tried the webcast first and the telephone line should be available shortly again, sorry for the inconvenience and thank you for the patients.

C.C. Wei: Looking at the full year 2024, macroeconomic and geopolitical uncertainty persists, potentially further weighing on consumer sentiment and end market demand. We thus expect the overall semiconductor market, excluding memory, to experience a more mild and gradual recovery in 2024. However, we lower our forecast.

Speaker Change: In light of the fact that we had these technical issues I think we'll we start with the Wendell Huang our CFO to give our guidance and then we will go into our prepared remarks. Thank you.

Wendell Huang: Thank you, Jeff sorry, everyone.

Wendell Huang: US repeat the guidance for second quarter again for the second quarter of 'twenty 'twenty four we expect our business to be supported by a strong demand for our industry, leading three nanometer and five nanometer technologies, partially offset by a continuous smartphone seasonality.

C.C. Wei: 2024 Overall Semiconductor Market Excluding Memory is forecast to increase by approximately 10% year-over-year, while Foundry Industry Growth is now forecast to be mid to high teens percent. Both are coming off the steep inventory correction and low base of 2023. Having said that, we continue to expect 2024 to be a healthy growth year for TSMC. Supported by our technology leadership and broader customer base, we expect our business to grow quarter over quarter throughout 2024 and reaffirm our four-year revenue to increase by low to mid-20 percent, in U.S. dollar terms.

Wendell Huang: Based on the current business outlook, we expect our second quarter revenue to be between $19 6 billion and $20 4 billion U S dollars, which represents a 6% sequential increase or a 27, 6% year over year increase at the midpoint.

Wendell Huang: Based on the exchange rate assumption of one U S. Dollar to 32.3 N T. Gross margin is expected to be between 51, and 53% operating margin between 40 and 42% Ali.

Wendell Huang: Also in the second quarter, we will need to accrue the tax on the undistributed retained earnings as a result, our second quarter tax rate will be slightly above 19% there.

C.C. Wei: Next, I will talk about the strong AI-related demand outlook. The continual surge in AI-related demand supports our already strong conviction that structured demand for energy-efficient computing is accelerating in an intelligent and connected way. TSMC is a key enabler of AI applications. AI technology is evolving to use increasingly complex AI models, which need to be supported by more powerful semiconductor hardware. No matter which approach is taken, it requires the use of the most advanced semiconductor process technology.

Wendell Huang: The tax rate will then fall back to 13% to 14% level in the third and fourth quarter and the full year tax rate will be between 15% to 16% compared to 14, 5% in 2023.

Wendell Huang: Yeah.

Speaker Change: That concludes the financial presentation, let me I'll repeat our key messages.

Speaker Change: I will start by making some comments on the impact from the April 3rd earthquake.

Speaker Change: April 3rd an earthquake of 7.2 magnitude struck Taiwan and the maximum magnitude at our Fabs was five.

C.C. Wei: Thus, the value of our technology position is increasing; customers rely on TSMC to provide the most advanced process and packaging technology at scale, with a dependable and predictable cadence of technology innovation. In summary, our technology leadership enables TSMC to win business and enables our customers to win business in the Indian market. Almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing power. We forecast revenue contribution from server AI processors to more than double this year and account for 13% of our total revenue in 2024. For the next five years, forecasted to grow at a 50% CAGR, and increase to more than 20% of our revenue by 2028. Several AI processors are narrowly defined as GPUs.

Speaker Change: Safety systems and protocols at our Fabs were initiated immediately and all TSMC personnel are safe.

Speaker Change: Based on Tsmc's deep experience and capabilities in earthquake response, and damage prevention as well as regular disastrous drills. The overall to recovery in our Fabs reached more than 70% within the first 10 hours and were fully recovered by the end of the third day.

Speaker Change: They're well known power shortages, no structural damage to our Fabs and Theres no damage to our critical tools, including all of our UV lithography tools.

Speaker Change: That being said a certain number of wafers and process were impacted and had to be scrapped, but we expect most of the lost production to be recovered in the second quarter, and thus minimal impact to our second quarter revenue.

C.C. Wei: AI Accelerators and CPUs performing Training and Inference Functions, and do not include networking, edge, or on-device AI. We expect server AI processors to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth over the next several years. Now, let me talk about our global manufacturing footprint update. TSMC's mission is to be the trusted technology and capacity provider of the global logic IC industry for years to come.

Speaker Change: We expect the total impact from the earthquake to reduce our second quarter gross margin by about 50 basis points, mainly due to the losses associated with wafer scrapped and material loss.

Speaker Change: Next let me talk about our first quarter 'twenty 'twenty, four and second quarter 2020 for profitability.

Speaker Change: Compared to fourth quarter 2023, our first quarter gross margin slightly increased by 10 basis points sequentially to 53, 1%, primarily driven by product mix changes due to smartphone seasonality.

C.C. Wei: Even with the strong HPC and AI-related demand, it is strategically important for TSMC to expand our global manufacturing footprint to continue to support our U.S. customers' goals. increase customers' trust and expand our future growth potential in Arizona. We have received a strong commitment and support from our U.S. customers and Planned Parenthood Bureau 3-5, which helps to create greater economies of scale. Each of our fabs in Arizona will have a pin room area that is approximately double the size of a typical large-scale plant.

Speaker Change: We have just guided our second quarter gross margin declined by one one percentage points to 52% at the midpoint, primarily due to impact from the earthquake on April 3rd as just discussed and higher electricity costs in Taiwan.

Speaker Change: After last year's 17% electricity price increase from April 1st Tsmc's electricity price in Taiwan was has increased by another 25% starting April one this year.

Speaker Change: This is expected to take our 70 to 80 basis points from our second quarter gross margin.

Speaker Change: Looking ahead to the second half of the year, we expect the impact from higher electricity costs continue and dilute our gross margin by 60 to 70 basis points.

C.C. Wei: We have made significant progress in our first phase, which has already entered engineering wafer production in April with the M4 Process Technology. We are well on track for volume production in the first half of 2024. Our second phase has been upgraded to utilize 2-nanometer technologies to support..., to support the strong air-related demand, in addition to the previously announced 3-nanometer.

Speaker Change: We also expect the higher electricity costs to indirectly lead to higher materials chemicals and gases and other variable costs.

Speaker Change: Yeah.

Speaker Change: In addition, we expect our overall business in the second half of the year to be stronger than the first half and revenue contribution from three nanometer technologies is expected to increase as well, which will dilute our gross margin by three to four percentage points in second half 'twenty for us.

Speaker Change: Compared to a two to three percentage point in first half of 'twenty four.

C.C. Wei: We recently completed the topping off, in which the last steel construction beam was raised into place, and welding production is scheduled to begin in 2028. We also recently announced plans to build a certified facility in Arizona using 2 nanometer or more advanced technology, with production beginning by the end of the year. We are confident that once we begin volume production, we will be able to deliver the same level of manufacturing quality and reliability in each of our fabs in Arizona as from our fabs in Taiwan. In Japan, we held an opening ceremony in February in Kumamoto for our first specialty technology fair.

Speaker Change: Finally, as we have said before we have a strategy to convert some five nanometer tools to support three nanometer capacity given the strong multiyear demand. We expect this conversion to dilute our gross margin by about one to two percentage point in second half of 2024.

Speaker Change: To manage our profitability in second half of 'twenty four we will work diligently on internal cost improvement efforts, while continuing to sell our value.

<unk> term.

Speaker Change: Excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast our long term gross margin of 53% of and higher is achievable.

Speaker Change: Finally, let me talk about our 'twenty 'twenty four capital budget.

Speaker Change: Every year, our Capex is spent in anticipation of the growth that will follow in future years.

Speaker Change: Our capex and capacity planning is always based on the long term market demand profile.

Speaker Change: We reiterate our 'twenty 'twenty four capital budget is expected to be between 28 billion and 32 billion U S dollars as we continue to invest to support customers growth.

C.C. Wei: This fab will utilize 12, 16, and 22, 28 nanometer process technology and is on track for world production in the fourth quarter of this year. Together with our GFB partners, we also announced a plan to build a second Spatial G5, in Japan, with 40, 12-16, and 6-7 nanometer process technology to support strategic customers for consumer, automotive, industrial, and SPC-related applications. Construction is scheduled to begin in the second half of 2024, with production targeted by the end of 2027.

Speaker Change: Out of the 28 to 32 billion Capex for 2024 between 70 and 80% of the capital budget will be allocated for advanced process technologies.

Speaker Change: About 10% to 20% will be spent for specialty technologies and about 10% will be spent for advanced packaging testing masked named King and others now.

Speaker Change: Now, let me turn the microphone over to C C.

Charlie Chan: Thank you window.

Charlie Chan: Good afternoon, everyone before I start I would like to take a moment and make a few remarks.

Charlie Chan: On a per server.

Charlie Chan: He experienced a major scale earthquake of 7.2 mechanism too.

Charlie Chan: Tpa sympathies and heart go out to all those who are affected by this strategy.

Charlie Chan: I also want to recognize and deeply thanks, all of our employees and our suppliers for.

C.C. Wei: In Europe, we plan to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial applications, with our JV partners, where construction is scheduled to begin in the fourth quarter. Our overseas decisions are based on our customers' needs and the necessary level of government support.

For the dedication and hard effort, you'll read each time.

Charlie Chan: Although you had was that you said it was quaking in Taiwan in the last 25 years.

Charlie Chan: We work together tirelessly and were able to resume for operation.

Charlie Chan: All our fab, we used three days, we said Miramar disruptions.

Charlie Chan: Demonstrating the resilience of our operation in Taiwan.

Charlie Chan: Lastly.

Speaker Change: I would also like to extend our great appreciation to our customers with your understanding and support as we work to recover the lost production.

C.C. Wei: This is to maximize the value for our shareholders; in today's self-regulated globalization environment, costs will be higher for everyone, including TSMC, our customers, our competitors, and the entire semiconductor industry. We plan to manage and minimize these overseas costs. First, I priced strategically to reflect the value of geographic flexibility. Second, I worked closely with governments to secure their support. And third, leveraging our fundamental advantage of manufacturing technology leadership and our large-scale manufacturing base, which no other manufacturer in this industry can match.

Speaker Change: During the second quarter.

Speaker Change: Now let me I'll start my prepared remarks, with our near term demand outlook.

Speaker Change: We concluded our fourth quarter with revenue up U S powder eight important night period.

Speaker Change: Rytary approved our guidance.

Speaker Change: Start of terms.

Speaker Change: Our business in the fourth quarter was impacted by smartphone seasonality.

Speaker Change: Partially offset by continued <unk> related demand.

Speaker Change: Moving into second quarter 2024, we expect our business to be supported by strong demand for our industry D. Do three nanometer five nanometer technologies.

Speaker Change: Partially offset by continued a smartphone seasonality.

Speaker Change: Look it is a four year 2024 megawatt.

Speaker Change: <unk> economic and geopolitical uncertainty persists.

C.C. Wei: Even after factoring the higher cost of overseas fab, we are confident to deliver a long-term gross margin of 53% and higher and successful ROE upgrades in 2025, which we have committed to our shareholders. At the same time, KSMC will be the most efficient and cost-effective manufacturer in the region that we operate in, continuing to provide our customers with the most advanced technology at scale to support their... Finally, I will talk about our N2 stages. N2Technology leads the industry in addressing the inaccessible need for energy-efficient computing, and almost all AI innovators are working with TSMC.

Speaker Change: Potentially further weighing on consumer sentiment and end market demand.

We just expect the overall semiconductor market, excluding memory to experience a more mild and gradual recovery in 2024.

Speaker Change: We lowered our forecast for the 'twenty 'twenty four overall semiconductor market, excluding memory to increase by approximately 10% year over year.

Speaker Change: While foundry industry growth is now forecast to be mid to high teens percent.

Speaker Change: Both are coming of the steel to re correction and our pace of 2023.

Speaker Change: Having said that we continue to expect 2024 to be a here is of course a year for TSMC.

Speaker Change: Supported by our technology leadership and broader customer base, we expect our business to grow quarter over quarter throughout 2024, and reaffirm our full year revenue to increase by low to mid 20%.

Speaker Change: In the U S dollar terms.

Speaker Change: Next I will talk about the strong AI related demand outlook.

Speaker Change: The continuous surging <unk> related demand and support to our already strong convictions that structural demand for energy efficient computing, it's accelerating England intelligent and connected war.

C.C. Wei: We are observing a high level of customer interest and engagement at N2 and expect the number of new tape houses from 2 nanometer technology in 2022, the first two years to be higher than both 3nm and 5nm, in jail for two years. Our 2nm technology will adopt a narrow-sheet transistor structure and be the most advanced semiconductor industry. Technology in both density and energy efficiency, and to technological development is progressing well, with device performance and year on track or ahead of plan.

Speaker Change: TSMC is a key enabler of AI applications.

Speaker Change: AI technology is evolving to use ever increasingly complex EA mottos, which needs to be supported by more powerful semiconductor hardware no matter, which approach is taken it require use of the most advanced semiconductor process technologies.

Speaker Change: Just the value of our technology position each ingredient.

Speaker Change: As customers a readout on TSMC to provide the most advanced process and packaging technology at scale.

Speaker Change: With a dependable and predictable cadence of technology offerings.

Speaker Change: In summary, our technology leadership and neighbor TSMC to win business.

C.C. Wei: N2 is on track for volume production in 2025 with a RAM profile similar to N3. Our strategy of continuous enhancement and its derivative will further extend our technology leadership position and enable TSMC to capture the AI-related growth opportunities well into the future. This concludes our key measures.

Speaker Change: Neighbors, our customer to win business in India and market.

Speaker Change: Okay.

Speaker Change: Almost all the AI innovators are working with TSMC.

Speaker Change: Towards racer insatiable AI related demand for energy efficient computing power.

Speaker Change: We forecast our revenue contribution from silver AI processor to more than double this year and the Congo for low teens percent of our total revenue in 2024.

Speaker Change: For the next five years, we forecast to grow at 40% CAGR.

Jeff Su: And thank you for your attention. Okay, thank you, CeCe. This concludes our prepared remarks. Again, thank you, everyone, for your patience.

Speaker Change: And increase to higher than 20% of our revenue by 2028.

Speaker Change: So Roy AI processors are narrowly defined as gpus.

Jeff Su: Before we begin the Q&A session, I would like to remind everybody to please limit their 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. So, for those of you on the call, if you would like to ask a question, please press the star, then 1 on your telephone keypad now, and if at any time you'd like to remove yourself from the questioning queue, please press star, then 2.

Speaker Change: AI accelerators.

Speaker Change: <unk> pro forming training and importance of functions.

Speaker Change: And do not include in networking edge or antivirus AI.

Speaker Change: We expect silver AI processor.

Speaker Change: To be the strongest driver or our SPG pray for cores.

Speaker Change: And the largest contributor in terms of our overall incremental revenue cores in the next several years.

Speaker Change: Now, let me talk about our global manufacturing footprint to update here.

Speaker Change: TSMC submission.

Speaker Change: Is to be the trusted technology and capacity provider.

Speaker Change: Of the global IC logic IC industry for years to come.

Speaker Change: Given the strong HPE and AI related demand.

Speaker Change: It is strategically important for TSA, we should do to expand our global manufacturing footprint to continue to support our U S customers of course in.

Operator: So now let's begin the Q&A session. Operator, can we please proceed with the first caller on the line? Thank you. Yes, the first one to ask questions is Gokul Hariharan from JP Morgan. Yeah, hi.

Speaker Change: Inquiries customers a choice.

Speaker Change: And they expand our future growth potential.

Speaker Change: In Arizona.

Speaker Change: We have received a shrunk commitment and support from our U S customers and plan to build a three fabs, which care to create greater economies of scale each of our fab in Arizona why have a few room area that is approximately double the size of a typical logical player.

Gokul Hariharan: Good afternoon, and thanks for taking my question. My first question is on demand. So, CC, you kind of reduced the expectation for the overall semiconductor industry growth. Could you talk a little bit about where you have seen that slower pickup in demand? I think you talked about smartphones a couple of times during the call.

Speaker Change: We have met significant progress in all four square, which has already entered.

Speaker Change: Engineering wafer production in April we.

Speaker Change: With the info process technology.

Speaker Change: We are well on track for volume production in first half 2025.

Gokul Hariharan: Is it primarily the smartphone area where you've seen a slower pickup in terms of demand? And previously, a couple of quarters ago, you talked about cannibalization or a decline in regular data center demand due to the crowding out of AI and being a drag for TSMC. Do you see that the regular compute, regular data center networking kind of demand is coming back? Or is it still remaining muted, and most of the demand uptake is still focused on AI? Okay, so Gokul, thank you.

Speaker Change: Our second fire has been upgraded to utilize two nanometer technologies to support to support our strong a aggregated demand. In addition to the previously announced three nanometer.

Speaker Change: We recently completed the tapping of increased the loss of skilled construction beam wassa razor into place and volume production is scheduled to begin.

Speaker Change: In 2028.

Speaker Change: We also recently announced plans to build a third of our being a resona using two nanometer or more advisor technologies.

Speaker Change: With production beginning by the end of the decade.

Speaker Change: We are confident that once we began volume production, we won't be able to deliver the same level of manufacturing.

Jeff Su: So Gokul's first question is a little bit two-part. So he notes that we have lowered our overall semiconductor x-memory growth forecast for this year to approximately 10% and foundry now to mid to high teens. So Gokul wants to understand in what segments or applications or areas are we seeing a slower pickup in demand? And then also, in terms of specifically AI versus traditional servers, how are we seeing that demand shape out, and what is the impact on TSMC? Is that generally correct, Gokul?

Speaker Change: Quality and reliability in each of our fab in Arizona as form our fab in Taiwan.

In Japan.

We had an opening ceremony in February.

Speaker Change: Kumamoto for all four specialty technology fab.

Speaker Change: This fab will utilize a 12 16 and 22 28 nanometer process technologies.

Speaker Change: And is on track for volume production in the fourth quarter of this year.

Speaker Change: Together with our JV partners, we also announced our plan to pure a second specialty fab.

Speaker Change: In Japan with 42 of 16, and the six seven nanometer process technologies too.

Gokul Hariharan: Yeah, and I think maybe since you called out smartphone, just maybe mention how you see the smartphone demand compared to maybe three months ago as well. Thank you. Well, Gokul, this is Xi Xiwei.

Speaker Change: To support our strategic customer for consumer automotive industrial and SPC related applications.

Speaker Change: And instruction is scheduled to begin in the second half 'twenty four.

Speaker Change: With production targeted by the end of 2027.

Speaker Change: In Europe, we plan to build a specialty technology fab in Dresden, Germany, focusing.

C.C. Wei: Let me answer your questions and some of your comments also. Yes, smartphone market demand is seeing a gradual recovery. But now, not a steep recovery. PC has been buttoned out, and the recovery is slow.

Speaker Change: And automotive and industrial applications with our JV partners, where construction is scheduled to begin in fourth quarter. This year.

Speaker Change: Oversee decision.

Speaker Change: Based on our customers that need an unnecessary level of government support this is to maximize the value for our shareholders.

C.C. Wei: However, AI-related data center demand is very, very strong, and traditional server demand is slow and lukewarm. IoT and Consumer Revenues Sluggish Automotive Inventory Continues to Correct, What does that mean to TSMC? Uh You know, the budget for each Hyperscale is favorable for TSMC, and we are able to capture most of the semiconductor content in an AI server area, as we define the GPU, AC networking processor, et cetera. Well, we have no presence in those CPU-only, CPU-centric traditional servers. So, we expect our growth to be rehearsed. Do I answer your question, Gokul?

Speaker Change: In today's self regimented cooperation in bromine.

Speaker Change: Cost will.

It will be higher for everyone, including TSMC, our customers, our competitors and the entire semiconductor industry.

Speaker Change: We plan to manage and minimize the oversea caused gap.

Speaker Change: By first pricing strategic Corey to reflect the value of geographic flexibility.

Speaker Change: Second working closely with government to secure their support and third leveraging our fundamental advantage of manufacturing technology leadership.

Speaker Change: Our large scale manufacturing base, which no other manufacturer in this industry can match.

Speaker Change: There is.

Speaker Change: Even after factoring the higher course of overseas Fab, we are confident to deliver our long term gross margin of 43% in Ohio.

Speaker Change: And sustainable ROE Aqua is again, 35%.

Speaker Change: That we have committed to our shareholder.

Speaker Change: At the same time TSMC, you won't be the most efficient and cost effective manufacturing in the region that we operate.

Gokul Hariharan: Okay, so yeah, just wanted to ask, is the smartphone the main change compared to, let's say, back in January, when you had more than 10% growth for semi, or is it across the board? You're seeing a slower recovery? So Gokul is asking sort of versus three months ago, where have we seen the major shift in the overall end market? Is there a particular area? Yeah, Gokul.

Speaker Change: We're continuing to provide our customer with most of our advisor technology a scale to support the upwards.

Finally, our Taco about Ah in two stages.

Speaker Change: Into technology. These are industry in attrition the insatiable need for energy efficient computing.

Speaker Change: And almost all AI innovators are working with TSMC.

Speaker Change: We are observing a high level of customer interest and engagement area into an S. Pegged a number of the new tape outs from two nanometer technology in its first two years to be higher again, both sui nanometer inspired by.

Gokul Hariharan: Three months ago, we projected that one of the platforms, the automotive platform, would increase this year, but now we're expecting it to decrease. So I think that is one of the areas that we saw. Okay, thank you. For my second question, I just wanted to understand gross margin trends. We talked about 3 to 4 percentage points of gross margin dilution from the N3 ramp in the second half of the year. Should we think that the N3-related gross margin drag is more severe than usual for what we have seen for leading-edge nodes in the past, or is it largely similar to what we have seen in N5 or N7?

Speaker Change: Five nanometer in.

Speaker Change: In the NGL for two years.

Speaker Change: Our two nanometer technology adopted narrow she tried she says.

Speaker Change: Eight structure I'm sorry.

Speaker Change: Mp's amongst our revised the semiconductor industry.

Speaker Change: Technology in <unk>.

Speaker Change: Both density and the energy appreciation.

Speaker Change: Into technology development is progressing well with device performance and Youre on track or ahead of plan and is on track for volume production in 2020 fly with a ramp profile similar to entry.

Speaker Change: With our strategy of continuously and husband into any Easter revert you will further extend our technology leadership position.

Gokul Hariharan: And when you go to N2, do you think that this will kind of be a similar pattern, or do you think that the gross margin dilution will be lower when we go to, like, future process nodes, given that N3 seems to be, at least compared to previous cycles, seems to be dragging a little bit more compared to, like, N5 or N7 in the past few years? Okay, thank you, Gokul. So let me summarize your second question. Basically, it's on gross margin. Gokul notes that N3, as Wendell said, will dilute our margin by three to four percentage points in the second half.

Speaker Change: And enable TSMC to capture the AI related of course opportunities we're into future.

Speaker Change: This concludes our key measures.

Speaker Change: Thank you for your attention.

Speaker Change: Okay. Thank you C. C. This concludes our prepared remarks again, thank you everyone for your patience.

We begin the Q&A session I would like to remind everybody to please limit your questions to two at a time to allow other participants an opportunity to ask their questions.

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 on your telephone keypad now.

Speaker Change: And if at any time you'd like to remove yourself from the question in queue. Please press star and then two.

Operator: So now let's begin the Q&A session. Operator can we please proceed with the first caller on the line. Thank you.

Jeff Su: So his question is, it seems that N3, the gross margin dilution or drag, is more severe than past nodes such as N5 and N7. Is that the case? And also, of course, with N2 upcoming, will we face a similar pattern, or what is the margin profile, which I think Wendell can. Yes, Gokul, it is true that N3 is taking a longer time to reach the corporate margin than the other nodes like N5 or N7. N5 or N7 before, it was like 8 to 10 quarters to reach the corporate level, but for N3, we think it will take about 10 to 12 quarters.

Speaker Change: Yes, so I first wanted to ask a question as Goku hunting Island J P. Morgan.

Goku: Yeah, Hi, good afternoon, and thanks for taking my question.

Speaker Change: Justin on demand. So C. C. You kind of reduce the expectation for the overall semiconductor industry growth could you talk a little bit about our that is the area, where you have seen that a slower pickup in demand I think you're talking about smartphone a couple of.

Speaker Change: Times in the call is it primarily the smartphone area, where you've seen us lower pick up in terms of demand.

And previously a couple of quarters back you talked about.

Speaker Change: Cannibalization or decline in regular data center demand due to the accounting out of AI and being a drag for TSMC.

C.C. Wei: And this is partly because N3 process complexity has increased, and also our corporate average gross margin has also increased during the period. But another reason is that we set the pricing of N3 very early, several years ahead of production. However, we experience a lot of cost inflation pressures in the following.

Speaker Change: Do you see that are the regular compute regular data center networking kind of demand that's coming back or is it still remains muted in most of the demand uptick is still focused on AI.

Speaker Change: Okay. So coke well. Thank you. So Cocos first question is a little bit two parts. So he notes that we have lowered our overall semiconductor ex memory growth forecast for this year to approximately 10% and foundry now to mid to high teens, so cocoa and wants to understand in what segments or applications or.

C.C. Wei: So as a result, N3 will take a longer time than N5 and N7 to reach the corporate average growth rate. For N2, based on what we can see so far, we are doing a better job on cost and selling our value, and we expect N2 to have a better margin profile than N1. Okay, that's very clear. Thank you.

Speaker Change: Areas are we seeing a slower pickup in demand.

Speaker Change: And then also in terms of specifically AI versus traditional servers, how we've seen that demand shape out and what is the impact to TSMC is that generally correct cocoa.

Cocoa: Yeah, and I think maybe since you called out smartphone just maybe mention how you'll see the smartphone demand compared to maybe three months back as well. Thank you.

Jeff Su: Okay, thank you Gokul. Operator, can we move on to the next participant, please? The next one to ask questions, Brett Simpson, Arate.

Cocoa: Well.

Speaker Change: Goku. This is C C Wei let me answer your questions and some of your coming also.

Brett William Simpson: Yeah, thanks very much. I had a question about the AI returns at TSMC. So I think it's clear that AI is producing a large profit pool for your customers, and HBM is also driving supernormal returns for memory players. So my question is, does TSMC believe they're getting their fair share of the returns in the AI value chain today? And is there scope for TSMC to raise prices for AI chips in the future? Thank you.

Yes, our smartphone game market demand is seeing graveyard recovery.

Speaker Change: Now not a steep recovery of course.

Speaker Change: She has been putting out and the recovery is slower.

Speaker Change: However.

Speaker Change: AI related data center demand is a very very strong.

Speaker Change: The traditional server demand is.

Speaker Change: Slow buccal warm.

Speaker Change: Iot and consumer remain sluggish automotive inventory continue to correct okay.

Speaker Change: What does that mean to TSMC.

Speaker Change: Uh huh.

Speaker Change: You know the.

Jeff Su: OK, thank you, Brett. So Brett's first question is looking at the AI related demand. He notes that AI customers are earning very good returns, HBM and other components as well. So his question is, whether TSMC, do we feel we are earning or capturing our fair value or right value of the returns? And I think about pricing, how would we price for AI? Basically, I think, sorry, that's your question, right? Well, let me answer the question. That's it.

Speaker Change: The budget for it.

Speaker Change: Our hyperscale.

Speaker Change: Payer watersheds shift a form traditional server to server.

Speaker Change: Is favorable for THF machine.

Speaker Change: And we are able to capture most of the semiconductor content.

Speaker Change: And AI servers area as we define the GPU issue networking processor et cetera, well.

Speaker Change: We have a law presidency in those CPU only hip youth centric tradition silver.

Speaker Change: So we have spurred our growth will be very healthy.

Speaker Change: Do I answer your question Goku.

Goku: Okay. So yeah just wanted to ask me is it smartphones the main change compared to let's say back in January when you had more than 10% growth for.

C.C. Wei: Thank you, Jeff. You know, we always say that we want to share our values. It is a continuous process for TSMC, and let me tell you that we are working on it. We are happy that our customers do well, and if customers do well, TSMC does well. So. Let me summarize what we are working on here, and we hope that we can share our values. Thank you, UCC.

Goku: Sami or is it across the board you are seeing a slower recovery.

Google: So Google is asking sort of versus three months ago, where have we seen.

Google: The major shift in the overall end market is there a particular area that we have seen.

Google: Goku.

Google: Just three months ago, we project that of one of the platforms automotive platform was a will increase this year, but now we're expecting a decrease so I think that is the the one areas that we saw was different.

C.C. Wei: For my follow-up question, I wanted to ask you about the lagging edge nodes at TSMC and looking at Q1 sales for 12 nanometer and above, your overall revenues for these nodes collectively were off 20% year on year, and it's only 35% of your overall sales. Can you maybe share with us whether you see any recovery at all this year at these nodes? And we're seeing a lot of government support in building out new fabs in the US and China around lagging-edge nodes. So are you concerned at all about structural over capacity for the older nodes this cycle? Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: My second question just wanted to.

Speaker Change: Understand gross margin trends are we talked about a three to four percentage point gross margin dilution from N three ramp in second half of the year.

Speaker Change: Should we think that the entry related gross margin drag is more severe than usual for what we have seen for leading edge nodes in the past artisan largely similar to what we've seen in five and seven.

Speaker Change: And when you can go to and two do you think that this little kind of meet the similar pattern or do you think that the gross margin.

Speaker Change: Dilution will be lower when you go to like future process nodes.

Speaker Change: Given that the empty seems to be at least compared to previous cycle seems to be dragging a little bit more compared to like <unk> 507 in the past few years. Okay. Thank you cocoa. So let me summarize your second question basically is on gross margin go call notes that you know and three as Wendell said will dilute our.

Brett William Simpson: Okay, thank you, Brett. So Brett's second question is more about the mature nodes. He notes that the demand for our mature nodes, 12 nanometer and older, is down year over year.

Jeff Su: So he wonders sort of what the outlook is for the recovery of mature nodes in the second half of the year. I think that's the first part of his question. Okay, Brett, let me answer this question.

Speaker Change: Margin by three to four points percentage points in the second half. So his question is it seems that and three the gross margin dilution or drag is more severe than past nodes, such as <unk> and five and seven.

C.C. Wei: First, demand remains sluggish because, as we just announced, the whole semiconductor industry is gradually recovering, but not fast enough. So we expect it to gradually improve in the second half of 2024. As you mentioned, do we have a concern about overcapacity because of some of the companies that continue to build a lot of material capacity? For us, actually, our strategy at Mature Node is to work closely with our strategic customers to develop spatial technology solutions to meet their requirements, and we create depreciated and long-lasting value for customers. So we are less exposed to this possible overcapacity environment, and we believe that our utilization and profitability, as mature knowledge, can be well protected. Does that answer your second question, Brett?

Is that the case and also of course with into upcoming well, we face a similar pattern or what is the margin profile for N. Two.

Speaker Change:

Speaker Change: Which I think Wendell can address.

Wendell Huang: Ah, yes cocoa.

Wendell Huang: It is true that entry is taking longer time.

To reach the corporate margin than the other notes like in five or seven a.

Wendell Huang: And five of edge southern before with it was like eight to 10 quarters to reach the corporate.

Wendell Huang: But for elsewhere, you, we think it will take about 10 to 12 quarters.

Wendell Huang: This is partly because entry process complexity has increased.

Wendell Huang: And also our corporate average gross margin also increased during the period.

Wendell Huang: But another reason is that we set the pricing of entry very early several years ahead of production. However, we experienced a lot of cost inflation pressures in the following years. So as a result.

Wendell Huang: We will take a longer time than in five and seven two.

Wendell Huang: To reach the corporate average gross margin for and two based on what we can see so far is that we are doing a better job in cost and selling our value and we expect and two to have a better margin profile than entry.

C.C. Wei: Thank you. Okay, thank you Brett. Yeah, that's great, thank you Jeff. All right, thanks man. Operator, can we move on to the next participant? Next one, we have Randy Abrams, UBS.

Speaker Change: Okay, that's very clear thank you. Thank.

Speaker Change: Thank you.

Speaker Change: Okay. Thank you go call operator can we move on to the next participant please.

Speaker Change: The next one to ask question, Brett Simpson Arete.

Randy Abrams: Yes, I am. Thank you. I wanted to ask a question. I'm following up on Cici's comment about a ramp profile similar to three nanometers for two nanometers.

Brett William Simpson: Yeah. Thanks, very much I had a question on the AI returns at TSMC.

Brett William Simpson: So I think it's clear that AI is producing a large profit pool at your customer of ours and and the H B M is also driving supernormal returns for memory players.

Randy Abrams: Could you clarify the timing of the meaningful revenue ramp for that node? Is the expectation that it would be starting early 2026 and ramping up steeply through 2026, or any potential to pull that in? And then just a second question on that is, you noted the tape outs are higher. Would there be potential with higher tape outs than three and five for either a steeper ramp, or it ramps to be larger than the prior nodes once underway, or are we looking at a couple years? Okay, so Randy's first question is around two nanometers.

Speaker Change: So my question is does TSMC believe they're getting their fair share of the returns and the AI value chain today and is there scope for T. S. M. A C to to raise pricing for AI chips in future. Thank you. Okay. Thank you Brett. So first question I was looking at the AI related demand he notes that AI cost.

Speaker Change: Mers are earning a very.

Speaker Change: Good returns H P M and other components as well. So his question is that whether a TSMC do we feel we are urging we're capturing our fair value or right value of the returns and I think on pricing how would we price for AI basically I think that sorry.

Speaker Change: Your question right.

Speaker Change: Well, let me answer the question.

Jeff Su: So his first question is to CC. With that, we said that the N2 ramp profile will be similar to N3. We also said, of course, that production begins in 2025. So his question partly is when do we expect to see the revenue contribution, meaningful revenue contribution from N2? And then also, with N2 the tape outs being higher, what is the multi-year opportunity or contribution from N2, maybe in terms of revenue as compared to N3 or others? Randy, the N2's RAM profile we say is very similar to N3 because of looking at the cycle time.

Speaker Change: Jeff.

Speaker Change: You know.

Speaker Change: We always say that we want to see.

Speaker Change: Yeah all value.

Speaker Change: It is a continuous process for TSMC.

Speaker Change: And let me tell you that we are walking on game.

Speaker Change:

Speaker Change: We are happy that our customer too well.

Speaker Change: If customer to where TSMC as well so.

Speaker Change: Let me summarize what we are working on yet and we hopefully that we can sell our value.

Speaker Change: Right. Thank you.

Speaker Change: You see them.

Speaker Change: For my follow up question I wanted to.

Speaker Change: Yeah, that's that's great Jeff. Thank you. Thanks D C and my follow up question was on the lagging edge nodes.

C.C. Wei: We started N2 production in the second half of 2025, actually in the last quarter of 2025, cycle time, and all the kind of backend processes. And so we expect meaningful revenue will start from the end of the first quarter or beginning of the second quarter of 2026. That's what we mean that, you know, the profile is very similar to N3.

Speaker Change: Nodes at TSMC and looking at Q1 sales for 12 nanometer and above your overall revenues for these nodes collectively was off 20% year on year and it's only 35% of your overall sales can you maybe share with us whether you see a recovery at all this year at these nodes.

Speaker Change: And we're seeing a lot of government support and building new Fabs in the U S and China around lagging edge nodes Oh.

Speaker Change: Are you concerned at all about structural overcapacity for the older nodes to the cycle. Thank you.

Speaker Change: Okay. Thank you Brad So <unk> second question is more on the mature nodes. He notes that the demand for our mature nodes 12 nanometer and.

C.C. Wei: Now your second question is whether there has been a lot of engagement, and the table will be higher. And do we see a very steep kind of production? Well, we do expect that.

Older are down.

Speaker Change: Year over year, so he wonder sort of what is the outlook for the recovery of mature notes in the second half of the year I think that's the first part of his question.

Speaker Change: Okay, Brett let me answer this question.

C.C. Wei: But let me say again, N2 is very complicated work or a very, complex technology node. So my customers also take a little bit longer to prepare for the tape out. So that's why they all engage with TSMC in the early stage.

Speaker Change: Hi.

Speaker Change: First are the mature node demand remained sluggish because of our.

Brett William Simpson: Our site and so we just announced yet.

Brett William Simpson: The whole semiconductor industry.

C.C. Wei: And but for their product ramp-up, they will have their own product roadmap and their own business considerations. However, we still say that N2 will be a very, very big node for TSMC. Randy, did that answer your question? No, that's helpful, however. Yes, it does. No helpful color.

Brett William Simpson: Is grid jewelry recover but not foresee now so we expect to gradually improve in the second half of 2024.

As you mentioned that you do we have a concern on the overcapacity because of a.

Brett William Simpson: Some of the.

Brett William Simpson: Companies continue to build a lot of our mature node capacity.

Brett William Simpson: For us actually our strategy at a mature node is walk grocery we saw our strategic customer to divert our specialty technology solution to meet <unk> requirement.

Randy Abrams: My second question is just relating to the upward expectations you gave for the AI accelerators. Curious how that ties to how you're looking at the CapEx. If you see that we're entering either a higher growth or investment cycle, where capital intensity could need to rise above that mid-30s range that you set or at least in absolute dollars from the $30 billion this year, we should start growing or thinking about CapEx at least growing with revenue.

Brett William Simpson: And we create that depreciated and long lasting where due to customer. So we have we're less exposed to these are possible overcapacity environment and.

Brett William Simpson: And we believe that our utilization yet profitability a mature node can.

It can be well protected.

Speaker Change: Does that answer your second question Brett.

Randy Abrams: Okay, so Randy's second question is, basically, I think with such strong AI-related demand, what does this mean for our capex and capacity planning? And also, what does this mean for our capital intensity outload? Yeah, hi Randy.

Speaker Change: Great. Thank you.

Speaker Change: Okay. Thank you Brett Yeah, that's great. Thank you, Jeff Alright, Thanks Man operator can we move on to the next participant please.

Speaker Change: Next one we have Randy I brands, yes.

Speaker Change: Yes, I am. Thank you I wanted to ask a question following up on <unk> comment about.

Speaker Change: A ramp profile similar to three nanometer for 10 nanometer.

Randy Abrams: Could you clarify or the timing of the meaningful revenue ramp for that node is the expectation that would be starting early 2026 and ramping up through 2026 or any potential to pull that in and then just a second question on that is you know.

Jeff Su: For TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities. We work with our customers closely, and our capex and capacity planning are always based on the long-term structure of market demand profile that is underpinned by the multi-year megatrend. We always review our CAPEX plan on an ongoing basis, and as a key enabler of AI, we will work with our customers closely to plan the appropriate level of capacity to support their needs.

Randy Abrams: The tape outs are higher would there be potential with higher tape outs in three and five for either.

Randy Abrams: Either steeper or where it ramps to be larger than the prior nodes once underway or we're looking at a couple of years.

Speaker Change: Okay. So randy's first question is.

Speaker Change: Around two nanometer. So his first question is to see what that we said that the end to ramp profile will be similar to N. Three.

Speaker Change: We also set of course the production begins in 2020 fives or Heath's question, partly is when do we expect to see the revenue contribution meaningful revenue contribution from.

Jeff Su: And then in terms of capital intensity and capital expenditure dollar outload. Yeah, capital intensity in the past few years has been high as we invested heavily to meet the strong customer demand. Now the rate of increase for CAPEX is leveling off, so this year and the next several years, we are expecting that capital intensity is somewhere at the mid-30s level.

Speaker Change: And two and then also that with into the tape outs being higher what is the multi year.

Speaker Change: Opportunity or contribution from into maybe in terms of the revenue as compared to entry.

Speaker Change: Or other nodes.

Speaker Change: Well Randy.

Speaker Change: The into as a ramp profile, we say is very similar to the industry because of our look at it the cycle time we.

Speaker Change: We started into production.

Speaker Change: In the second half of 2020 fly actually end of last.

Randy Abrams: But, as I just said, if there are opportunities in the future, then we will invest accordingly. Does that answer your second question, Randy? If I could ask a quick follow-up. Yeah, Doug, sorry, I'll ask a quick follow-up. Is this going to be viewed as a bit of a digestion here, since you ramped up a lot of the three nanometer spending in the past couple years? So then as you kick off to like, I mean, should we look at it as a low or do, or should we see this as kind of a normal in that trend?

Speaker Change: Last quarter of 2020 fly and because of our.

Speaker Change: The cycle time, and all the kind of.

Speaker Change: Pet Chem process.

So we expect the volume for revenue was 34 months end of first quarter or beginning of the second quarter of 2026 that's.

Speaker Change: Why do we mean that.

Speaker Change: You know is the.

Speaker Change: The profile very similar to entry.

Speaker Change: Now you a second question is.

Speaker Change: They have been.

Speaker Change: A lot of engagement and the tape out of work be higher and do we hear voice deep.

Randy Abrams: So I think Randy's question is with, Randy, you're still asking about CAPEX. So, is that correct? Yeah, still in CAPEX. If it's a CAPEX digestion, you've ramped up a lot of 3 spending already in the 2 nanometers, still, a lot of that still in front of us. Yeah, Randy, I wouldn't call it a digestion year.

Speaker Change: The kind of production.

Speaker Change: Uh huh.

Speaker Change: Well, we do expect that but let.

Speaker Change: Let me say it again into he's a very complicated work.

Speaker Change:

Speaker Change: Complex the technology node, so my customer they also take a longer time.

Jeff Su: I mean, every year we invest based on the four looking business opportunities. And we constantly review that. So this is what we're seeing in the future. And that's what the funds that we're investing in. So, no, I wouldn't call it digestion.

Speaker Change: To prepare.

Speaker Change: Prepare for the tape out so that's why they all engaged with TSMC in the early stage and bad for their product and a ramp up.

Speaker Change: Daiwa have gel one product roadmap and their own business consideration.

Speaker Change: However, we still say that into what would be a very very big node for TSMC.

Jeff Su: Okay. Okay. Good. Thank you, Wendell.

Randy is that and so you know that's.

Speaker Change: That's helpful color.

Speaker Change: Yes.

Randy Abrams: Yeah no helpful color.

Jeff Su: Thank you. All right. Thank you, Randy.

Randy Abrams: Second question is just relating to the upward expectations you gave for the AI accelerators.

Operator: Operator, can we please move on to the next participant, please? And next on to ask questions is Charlie Chan from Morgan Stanley. Hi, CC, Wendell, Jeff, good afternoon. Thanks for taking my question. So my first question is about selling the value.

Randy Abrams: Curious how that ties to how youre looking at the Capex. If you see that we're entering either higher growth or investment cycle.

Randy Abrams: Our capital intensity could need two alliance up above that mid Thirty's range that you said or at least in absolute dollars from the $30 billion. This year, we should start growing we're thinking about capex at least growing with revenue.

Charlie Chan: I think another caller also addressed this topic, but I want to go a little bit deeper. Because given all the experts, [inaudible] Based on our back-testing, I think... For 2035, so we can be comfortable that you can achieve the 53% gross margin in 2035. Thank you. Okay, so Charlie's first question is about TSMC's pricing strategy. He notes that TSMC, of course, makes a lot of efforts to deliver technology leadership and manufacturing excellence to our customers, but we also face a lot of cost challenges, whether from electricity price hikes or the higher cost of overseas fabs.

Randy Abrams: So Randy second question is basically I think with such strong AI related demand.

Randy Abrams: What does this mean for our Capex and capacity planning and also what does this mean for our capital intensity outlook.

Randy Abrams: Yeah, Hi, Randy.

Randy Abrams: For TSMC, a higher level of capital expenditures is always correlated with higher growth opportunity in the following years.

Randy Abrams: We work with our customers closely and our K packs and capacity planning always based on the long term structure of market demand profile.

Speaker Change: Is underpinned by the multiyear megatrends.

Speaker Change: We always review our Capex plan on ongoing basis.

Speaker Change: And as a key enabler of AI are we.

Speaker Change: We'll work with our customers closely to plan the appropriate level of capacity to support their needs.

Charlie Chan: So his question is, number one, I guess, what is our intention for the pricing strategy to sell our value? And then, number two, he would like to know what percentage range, if any. Okay Charlie, this is CC Way.

Speaker Change: And then in terms of the capital intensity on Capex for the outlook Yeah Yeah.

Speaker Change: The capital intensity.

Speaker Change: In the past few years it was high as we invest heavily to meet the strong customer demand.

Speaker Change: Now the increase the rate of increase for the Capex.

Speaker Change: Leveling off so this year in the next several years, we are expecting that the capital intensity is somewhere at the mid thirty's level, but as I just said.

C.C. Wei: First, I like to emphasize again, this kind of a pricing strategy is very confidential and totally between TSMC and the customer. However, let me explain a little bit. We do encounter some kind of higher cost in overseas or even recently inflation and electricity.

Speaker Change: If there are opportunities in the future years than we will invest.

Speaker Change: Accordingly.

Speaker Change: Does that answer your second question, Randy if I could ask a quick follow up.

Randy Abrams: Yeah, sorry, I'll ask a quick follow up it would this be viewed as a bit of a digestion year. Since you ramped a lot of the three nanometer spending in the past couple of years. So then as you kick off too I mean should we look at it as a lower or should we see this as kind of a normal in that trend.

C.C. Wei: We expect our customers to share some of the higher costs with us, and we have already started our discussion with our customer. And as I said, for the overseas supplier, we want to share our value, which also includes the flexibility of, in my customer's request to be in some certain area, and definitely TSMC, and the customer has to share the incremental cost. Charlie, did I answer your question? Yes, I think that answers my question. I think passing through some costs, or all the costs to the incremental cost to customers should be fair, especially when you are creating lots of value for your customers.

Speaker Change: So I think Randy's question is with Randy you're still asking about capex. So.

Speaker Change: Is that correct.

Speaker Change: Yes, sorry still on Capex, if it's a capex digestion your antigen.

Speaker Change: A lot of three spending already and the two nanometer is still a lot of that still in front of us.

Speaker Change: Yeah, Randy I wouldn't call. It a digestion year I mean every year, we invest based on the forward looking business opportunities and we constantly review that.

Speaker Change: So so this is what we're seeing in the future and that's why we're.

Speaker Change: Then the funds that we're investing in so no I wouldn't call it a digestion year.

Speaker Change: Okay. Okay. Good. Thank you. Thank you. Thank you alright. Thank you Randy operator can we please move on to the next participant please.

C.C. Wei: Thank you. And my second question is about AI. You know, I know your cost capacity has been very tight, very strategic. But I'm wondering how are you going to judge the demand or allocate the capacity to all the different types of AI semiconductors? Because we're hearing your major customers are demanding 2x capacity next year, so I'm wondering how we will allocate, meaning, will you still reserve a certain percentage for some smaller or strategic customers, no matter if those are ASIC or smaller GPU vendors?

Speaker Change: And that's on to ask questions Charlie Chan from Morgan Stanley.

Charlie Chan: I see the window, Jeff good afternoon, Thanks for taking my question.

Charlie Chan: So my first question is Oh, Sally Nevada.

Charlie Chan: Think a another color.

Charlie Chan: So you said the topic, but I want to Oh, a little bit deeper because even though the first Hugh Hugh you've made I know so ongoing cost challenge no matter the coming U S fab.

Charlie Chan: And Tracy cost hike.

Speaker Change: I'm not sure if you can give our investors.

Speaker Change: Kind of a range of about a potential price heritage estimate or kind of the the value you're getting to two to two two so to your customers.

Speaker Change: Based on our a big testing I think.

C.C. Wei: So what is the kind of benchmark you're going to allocate that capacity to customers? And are you okay with that? If your major customers' demand cannot be fulfilled by you, are you okay to give out or give some market share to some of your industry competitors?

Speaker Change: Based on your revenue and shipments in 2022 and to the Internet three Oh, we calculate your price high could be around 10% incident rate too.

Speaker Change: And price hike, 5% into the industry.

Speaker Change: So I'm not sure.

Speaker Change: Are you playing to a hike fries are in this kind of a range of magazine shoot for 2025. So we can be comfortable you can achieve the 53% gross margin into the 95. Thank you.

Charlie Chan: Thank you. Okay. Charlie's second question is around, I guess, basically our advanced packaging and more specifically CoWAS. And he, of course, notes that the CoWAS capacity is very strong today and also into 2025. So the capacity is very tight.

Speaker Change: So charges first question is about Tirasemtiv pricing strategy.

Speaker Change: Notes that TSMC of course makes a lot of efforts to deliver technology E. G leadership and manufacturing excellence to our customers, but we also face a lot of our cost challenges whether from.

Jeff Su: So his question is, how does TSMC decide how to allocate the capacity to customers? Will we have large customers, but will we reserve capacity to support smaller customers as well? And then lastly, would we be okay if customers wanted to use somebody else, so to speak? There are several parts to this. Charlie, let me say it again, the demand is very, very strong, and we have done our best. We have made every effort to increase the capacity, probably more than double this year as compared with last year.

Speaker Change: Electricity price hikes or the higher costs of overseas Fabs. So his question is number one I guess what is our intention about our pricing strategy.

Speaker Change: To sell our value and then number two he would like to know what percentage range if any.

Speaker Change: Okay Charlie.

Speaker Change: This is C C Wei.

Speaker Change: We're also like to emphasize again these kind of our pricing strategy.

Speaker Change: Is great competency or Andy totally that between TSMC and the customer However, let me explain a little bit.

Speaker Change: We do encounter some kind of a higher cost because in the old overseas or even recently the inflation.

The electricity.

Speaker Change: We expand our customer to share some of the higher costs with us.

C.C. Wei: However, it's still not enough to meet customers' demand, and we leverage our OSET partners on that tour. The complement of TSMC's capacity to fulfill customers' needs is still not enough, of course. But in my mind, my first priority is to make our customers successful, no matter which one.

Speaker Change: And we already started our discussion with our customer.

Speaker Change: And as I said for the overseas a fire, we wanted to share or where do you, which also includes our flexibility.

Speaker Change: Of.

Speaker Change: Yep sure predict so location or something like that.

Speaker Change: In my customer request to be in some certain area.

C.C. Wei: And of course, the long-term partners will have better, you know, cooperation with TSMC in terms of technology and processing complexity, so much easier to ramped up. However, no matter what, let me say again, the demand is very high, extremely high, and we are doing our best to increase the capacity to alleviate the shortage. We also leverage your OSET partners. We want to make sure that all our customers get support. Probably not enough this year, but for next year, we try, we try very hard, and you mentioned giving up some market share, that's not my consideration.

Speaker Change: Definitely.

Speaker Change: TSMC and the customer has to share the incremental cost.

Speaker Change: Sorry did I answer your question.

Speaker Change: Yes, I think our I think that answers that answers my question I think passing through some costs or other.

Speaker Change: The cost to integrate them into Costco customers should be fair, especially you are creating lots of value.

Cosmos: Cosmos. Thank you.

Speaker Change: And my second question is that at all.

Speaker Change: AI.

Speaker Change: I know the New York cause capacity has been very tight it's very strategic.

Speaker Change: But I am wondering how youre going to a.

Speaker Change: Judge that demanded or allocate the capacity to all the different type of AI semi customers.

Speaker Change: Because we were hearing your major cost or is that is demanding for to ask capacity next year.

Speaker Change: So I'm wondering how are we going to add okay. So I mean, well you still reserve a certain percentage for summit.

Charlie Chan: My consideration is to help our customers to be successful in their market. I see. So since your major customer said there's no room for, you know, other types of AI computing chips, but it seems like TSMC is happy to see some smaller customers, right? So is that the right interpretation of your comments?

Speaker Change: Waller illustrated your customers no matter, who does the AC or smaller GPU vendors.

Speaker Change: So what is the kind of a you know a benchmark are youre going to okay. There is a capacity to customers and are you okay with that.

Speaker Change: If you're a major customers' demand cannot be fulfilled by you.

C.C. Wei: Yes. Yeah. He said all costumers.

Speaker Change: Okay too to give out or are there some market share to some of your industrial competitors. Thank you.

Jeff Su: Thank you, Charlie. Okay. Thank you, Charlie.

Operator: Operator, can we move on? Yeah, thanks. Operator, can we move on to the next participant, please? Next one to ask questions: Bruce Liu from Goldman Sachs. Hi, thank you for taking my question. So I think, again, the question is coming back to AI still. I think currently most of the AI accelerators are mostly in 5 nanometers, which is N-1 compared to a smartphone for now.

Speaker Change: Okay. So.

Speaker Change: Second question is around I guess, basically our advanced packaging and more specifically co was.

Speaker Change: Of course notes that the cost capacity the demand is very strong today.

Speaker Change: And also into 2025, so the capacity is very tight. So his question is how does TSMC decide on how to allocate the capacity to customers with.

Speaker Change: When we have large customers, but will we reserve capacity to support smaller customers as well.

Bruce Liu: So when do we expect them to catch up or surpass in terms of technological node? Do we see them to be the technological driver in 2 nanometers or above? Okay, so Bruce's first question is about, again, looking at AI accelerators. He notes that, in his view, they're currently at five nanometers now. His question is, do we expect them to catch up? How do we see AI accelerators and also maybe HPC as a whole being the driver or adopter of PSMC's most leading-edge or advanced technology node?

Speaker Change: And then lastly, you know would we be okay, if customers want to use somebody else so to speak so several parts to this question.

Speaker Change: Charlie.

Speaker Change: Did you say it again the demand is a very very strong and we have done our best well, we put all the effort to increase the capacity at <unk>.

Speaker Change: <unk> more than doubled this year as compared with last year.

Speaker Change: However, there's still not enough to meet the customers demand and we leverage you are all set of partners that too.

Speaker Change: Complement of Tsmc's capacity to fall for your customers a need still not enough of course.

Speaker Change: But in my mind, My first priority is to make our customer to be successful.

Jeff Su: Is that correct, Bruce? Yes, that's correct. Okay, Bruce.

Speaker Change: No matter.

Speaker Change: Which one and of course, the long term partners will I have better cooperation with TSMC in terms of technology and processing complexity, so much easier to be ramp up however, no matter, what let me say again.

C.C. Wei: Let me answer the question. Yes, your observation is right. Today, all the AI accelerators, most of them are in the 5 or 4 nanometer technology.

Demand is very high extremely high and we are.

C.C. Wei: My customers are working with TSMC for the next node, even for the next, next node. They have to move fast, because, as I said, the power consumption has to be considered in the AI data center. So, energy efficiency is fairly important, so our three nanometer is much better than the five nanometer, and again it will be improved in the two nanometer. So all I can say is all my customers are working on this kind of a trend from 4 nanometers to 3 to 2. Bruce?

Speaker Change: Do our best to increase the capacity to alleviate.

Speaker Change: The shortage, we also leverage your OCI partners, we want to make sure that all our customers get a supported.

Speaker Change: Probably not in now this year, but.

Speaker Change: For next year, we try we try very hard.

Speaker Change: And Hugh you mention about the given up some market share that's in and out of my consideration my consideration is to help our customer to be successful in their market.

Speaker Change: I see so so it seems here.

Speaker Change: Major customer set a theres snow no room for.

Speaker Change: The type of AI computing chips, but it seems like a TSMC is happy to.

Bruce Liu: But if that is the case, do we see? Yes, if that is the case, do we see a bigger revenue in the first two years of the $2 minutes because in the past, there was only the smartphone, but in $2, it would be both a smartphone and HPC cost. So Bruce is asking then, well, then, with such strong AI related demand, should we see more revenue from 2 nanometer in its first two years compared to past nodes? Yeah, Bruce, as we said, we believe our advanced technologies will be long-lasting nodes, larger nodes, N2 than N3 or N5. So the dollar value will certainly be higher.

Speaker Change: Thesis out of smaller customers right. So you said right our interpretation.

Speaker Change: About your comment yet.

Speaker Change: Yeah.

Speaker Change: He said all costs. Thank you yeah. Thank you Charlie.

Speaker Change: Okay. Thank you Charlie operator.

Speaker Change: Yeah. Thanks, operator can we move on to the next participant please.

Speaker Change: Next one to ask questions Bruce Lu from Goldman Sachs.

Zheng Lu: Hi, Thank you for taking my question. So I think the again a question on script are all coming back to why I still I think currently most of the a a salary eaters are mostly in a five dollar meters, which is N minus one comparing to a smartphone for enough. So when do we expect them to catch up or surpassing tenths of technologic node or do we.

Jeff Su: I think Bruce, we're looking at these opportunities over a multi-year period, so as Wendell and CeCe just said, certainly with the demand that we're seeing, we do expect N2 revenue contribution to be even larger than N3, just like 3 is a larger contribution or larger no than 5, etc., etc. I see. So my second question is on dividends. We do see very strong free cash flow in the first quarter. And, you know, the capital intensity, as Wendell mentioned, is stabilizing, and we have even started to pay a huge amount of return in tax.

Zheng Lu: See them to be their technology driver in two nanometers or above.

Speaker Change: Okay. So Bruce is first question is about again looking at.

Speaker Change: AI accelerators he knows that in his view that they're currently at five nanometer now do his question is do we expect them to catch up how do we see AI accelerators and also maybe H P. C. As a whole being the driver of adopter of Tsmc's, most leading edge or advanced technology node.

Speaker Change: Is that correct Bruce.

Speaker Change: Yes, that's correct Okay Bruce.

Zheng Lu: Let me answer the question, Yes, you are.

Zheng Lu: Observation is right today or the AI accelerators are most of your MA in the five or four nanometer technology Mike.

Bruce Liu: So, you know, do we, you know, can we be more aggressive in terms of dividends? The current dividend level is much, much lower than 70% of free cash flow in the back of the envelope calculation. So can we expect to see more dividends in the coming quarters? Okay, thank you, Bruce. So Bruce's second question is about the cash dividend policy. He notes that, you know, in the first quarter, we're generating very, very strong free cash flow. As we have said, the capital intensity is beginning to stabilize, and also we are paying a very high retained earnings tax.

Zheng Lu: My customer all walking, which TSMC for that next node even for the next next node.

Zheng Lu: They have to move fast because as I said.

Zheng Lu: The power consumption.

Zheng Lu: Has to be considered in the AI data center so the.

Zheng Lu: Energy efficient is a fairly important so our street nanometre is much better agenda, five nanometer and again you'd want be imprudent in the two nanometer.

Zheng Lu: So.

Zheng Lu: All I can say is our all my customer walking in this kind of a trend from 40 nanometer two three to two.

Zheng Lu: Bruce but if that is the case do we see if.

Zheng Lu: If that is okay do we see a bigger our revenue in the first two years after two and I'll. Let me that's because in the past is the only smartphone Brian Kunal I mean, it would be both the smartphone and the H P C customers.

Jeff Su: So his question, I think, is, you know, what is the outlook? Can we pay more dividends in the coming quarters? Or what should investors be looking for? Yeah. Bruce, our dividend policy is, in principle, to pay 70% of our free cash flow in a year as a cash dividend.

Zheng Lu: So Bruce is asking then well then with such strong AI related demand should we see more revenue.

Zheng Lu: From two nanometer.

Jeff Su: So I would not just look at quarterly cash, or free cash flow, to make a judgment. But indeed, as we said before, now that we're harvesting the heavy investment that we did in the past few years, we expect our dividend policy to stretch to steadily increasing from the sustainable level in the past few years. Thank you. Okay, thank you, Bruce. Operator, can we move on to the next participant, please? Next, we have Laura Chan from Citi. Hello, hi, good afternoon.

Zheng Lu: In its first two years compared to past nodes.

Zheng Lu: Yeah.

Zheng Lu: Yeah.

Zheng Lu: As we said we believe it will be a our advanced technologies will be long lasting note a larger nose into then in three or five.

Zheng Lu: So the dollar value was certainly the larger yeah, I think Bruce Linton weird locating at these opportunities in a multi year period. So there's one door and says he just said certainly with the demand that we're seeing we do expect into revenue contribution to be even larger than in three just like there is a larger contribution or larger northern <unk>.

Operator: Thank you for taking my question. My question is about the HAI. We know that CeCe mentioned that the smartphone and the PC recovery is still probably prolonged, but we are also seeing that the AI PC or AI smartphone is getting quite popular. So I'm just wondering what TSMC's view on this kind of HAI device takeoff maybe later or 2025 and what the implication is for TSMC. That's my first question. Okay, thank you, Laura.

Zheng Lu: Fifth etcetera etcetera.

Speaker Change: Oh I see so my second question is for our dividend.

Speaker Change: We do see very strong free cash flow in the first quarter and you know the capital intensity S. Window mentioned is stabilizing and we even started to pay off a huge amount of Italian tax so yeah do we cant.

Speaker Change: Can we turn more aggressive in terms of dividend current dividend level is much much lower than 70% of free cash flow in the back of envelope calculation. So can we expect to see more dividends.

Speaker Change: Quarters.

Speaker Change: Okay. Thank you Bruce So Bruce as a second question is on the cash dividend.

Operator: So Laura's first question is about AI, but more specifically, edge or what we call on device AI. She notes that there's AI being added, you know, to smartphones and also AI for PCs. It's quite timely. So she wants to know how we see this trend and, more importantly, what is the implication for TSMC? Is that correct, Laura?

Speaker Change: Policy. He notes that you know in the first quarter, we're generating very very strong free cash flow.

Bruce: As we have said the capital intensity is beginning to stabilize and also that we are paying a very high retained earnings tax. So his question I think as you know what is the outlook can we pay more dividends in the coming quarters or what should.

Bruce: Investors expect.

Bruce: Yeah.

Bruce: Uh huh.

Speaker Change: Bruce the our dividend policy is in principle to pay 70% of our free cash flow in the year as cash dividends.

Speaker Change: So I would not just look at quarter and quarterly cash free cash flow to Omega judgment, but indeed, as we said before now that we're harvesting the heavy investment that we did in the past few years, we expect our dividend policy.

Charlie Chan: Yes, thank you. Okay, Laura, let me answer the question. For edge AI or on-device AI, the first order of magnitude is the die size.

C.C. Wei: You know, with or without the AI, with the AI for the neural processor inside, the die size will be increased. Okay, that's the first thing we observe, and it's happening. And then for the future, I would think that the replacement cycle for smartphones or for those kinds of PCs will be accelerated a little bit in the future, at least. It's not happening yet, but we do expect that it will happen soon. And all in all, I would say that on-device AI will be very positive for TSMC because it will capture the largest share of the market. Did I answer your question, Laura?

Speaker Change: To a stretch to steadily increasing from the sustainable in the past few years.

Speaker Change: Thank you.

Speaker Change: Okay. Thank you Bruce operator can we move on to the next participant please.

Speaker Change: Next one we have Laura Chen from Citi.

Chia Yi Chen: Hello, Hi, good afternoon, and thank you for taking my question. My question is about the H E. I Oh, we don't as he mentioned that the smartphone lineup P. T recovery of scale, probably a prolonged yet we are also seeing Daddy AI P T or as my phone is getting quite choppy.

Chia Yi Chen: So I'm just wondering what's tsmc's here.

Chia Yi Chen: Just kind of H AI device take off on maybe later or 2025, and what the implications to TSMC.

C.C. Wei: Yes, thank you. And so, in that case... Yes, you're very helpful. So in that case, can we expect our demand for N3 to go up, because now it's still mostly on the smartphone or mobile? So can we expect that N3's revenue contribution in the second half or next year will be bigger, say like 20% plus in the second half of this year? Okay, sorry. Well, Laura's follow-on to the first question is, then should we expect that N3 demand in the second half or into 2025? Sorry, I didn't catch the exact percentage, but it should be a large percentage or significantly larger than it is today.

Speaker Change #101: That's my first question Okay.

Speaker Change #101: Hey, Thank you Laura so lowest first question is on AI, but more specifically edge or what we call on device AI. She notes that theres AI being added to.

Speaker Change #101: Two smartphones and also AI for P. CS is quite topical so she wants to know how do we see this trend more importantly, what is the implication.

Speaker Change #101: It's two TSMC is that correct Laura.

Speaker Change #101: Okay.

Chia Yi Chen: Yes. Thank you.

Speaker Change #102: Okay Laura.

Speaker Change #103: Let me answer the question.

Speaker Change #103: The edge AI or the AMT device AI.

Speaker Change #103: The first order of magnitude. It is the die size, you know without without the AI, we say AI for neuro processor inside the die size will be increased.

Speaker Change #103: That's a force we observe and is happening.

Speaker Change #103: And then for the future I always think of that replacement cycle for smartphone or for those are kind of a P. He won't be accelerated a little bit in the future at least if.

Jeff Su: Is that correct, Laura? Yes, thank you. Okay. As I said, we expect it to happen at, you know, a larger size. As I said, we already observed that, and for the replacement cycle to be accelerated, it will happen, but I cannot give you a definite number because, you know, it's too early to predict in 2025. But it's an upward trend, no doubt about it.

It's not happening yet, but we do expect that you are happening soon.

Speaker Change #103: All in all I would say that the device. He I wont be very positive for TSMC because of we capture the largest share of the market.

Speaker Change #104: Did I answer your question Laura Thank you and so in that case.

Speaker Change #104: Yes.

Chia Yi Chen: That's very helpful. Also in that case can we expect that the alright, the landlord and say because now is that still mostly on the small fall in novel. So can we expect that to anything.

C.C. Wei: And we expect we have a good business. Just to follow up on Cici's comments, last time we also said that this year's N3 revenue will be more than triple the revenue in 2023. My second question is about, again, advanced packaging. We know that TSMC has been working on the 3D IC for many years, so I'm just wondering what the current progress is. Will we expect to see more meaningful takeoff with our N2 roundup for, like, a high-computing PC? And between different kinds of technology, like hybrid bonding or TSV, what's TSMC's major consideration?

Chia Yi Chen: Contribution in second half or next year will be take or pay like a 20%, causing the second half of this year.

Speaker Change #105: Okay, sorry, well or follow on to the first question is then should we expect that a N three demand in the second half or into 2025, sorry, I didnt catch the exact percentage, but be a large percentage of our significantly larger than it is today.

Chia Yi Chen: Correct Laura.

Chia Yi Chen: Yeah. Thank you.

Chia Yi Chen: Certainly.

Chia Yi Chen: As I said, we expect to happen.

Chia Yi Chen: You know a larger size as I said, we already absorbed that and for the replacement cycle to be accelerated.

Chia Yi Chen:

Charlie Chan: Okay, so Laura's second question is about our advanced packaging solutions and 3DIC solutions. She's wondering what the outlook or take-up is for demand for the next several years. And she would also like us to comment on the consideration of TSV versus hybrid bonding. Wow, you asked a very technical question about TSV and hybrid bonding. It's all together. You know, the 3D IC packaging technology is very complicated, and our customers are starting to adopt it.

Chia Yi Chen: But I cannot give you a definite number because of a you know it's too early to predict in that 'twenty 'twenty fly.

Chia Yi Chen: But it's a it's an upward trend no doubt about it and we expand we have a good business.

Chia Yi Chen: Just a follow up on <unk> comments last time, we also said that this year entry revenue will be more than triple than the den.

Chia Yi Chen: Revenue in the 2023.

Speaker Change #106: Okay. That's very clear. Thank you see here on the Lingo. My second question is about again advanced packaging, we know what that person has working on the C. D. I see for many years. So I'm just wondering what's the current programs well, we expect to see more money for.

Charlie Chan: Not a big volume yet, but we expect it to start to grow this year. How big it will be is hard to say, but I think it is a trend. Whether it is micro-bumping or a hybrid connection depends on the customer's product requirements.

Speaker Change #106: <unk> Tec all phone when you call it and killed I ran up.

Speaker Change #106: Before I go to a high computing P E and between different kind of a technology like our hybrid bonding or a T. S C. What's tsmc's a major consideration.

Speaker Change #106: Okay. So Laura as I guess second question or the yeah I think.

C.C. Wei: Okay, Laura. So starting this year, we will see, yes, just very quickly, so starting later this year, we will see 3DIC products from our customers. That's the current program. So Laura is asking, will we start to see 3DIC products from our customers? When?

Speaker Change #106: Second question is about our advanced packaging solutions and three D. IC solution. She's wondering what is the outlook or take up for the demand for the next several years and she also would like us to comment on the consideration of PSV versus hybrid bonding and such.

Speaker Change #107: Well you ask a very technical question above the T S, we and our hybrid bonding.

Jeff Su: Now. Okay, I'm sorry. I just say that, you know, customers are starting to adopt it now, and you are expected that they will be a product in the market soon. All right. Okay. Thank you. Thank you very much, Susie. Thank you. Thank you, Laura.

Speaker Change #107: It's all together you know the Sweetie Ice's pack.

Speaker Change #107: Packaging technology is very complicated.

Speaker Change #107: And our customers start to adopt it.

Speaker Change #107: Not a big volume, yet, but we ask Barry to start to grow from this year.

Speaker Change #107:

Speaker Change #107: How big you'd walk B, it's hard to say, but I think it is a trained.

C.C. Wei: Okay. In the interest of time, maybe we'll take questions from the last two participants on the call. Thank you. Operator.

Whether it is micro pumping or is a hybrid.

Speaker Change #107: Connection.

Speaker Change #107: It depends on the customers a product requirement.

Operator: Next one, we have Rolf Bulk from Neosuite Research. Yes, thank you for taking my question. Earlier in the call, you mentioned the possibility of converting so much of your N5 capacity to N3. But what I was wondering, considering the strong demand for AI chips and a recovery in smartphones, is there a scenario in which you would consider similar conversions from some of your older notes? just N7, given that utilization and revenues there are still well below peak levels.

Speaker Change #108: Okay, Laura just toggling final vitiello.

Chia Yi Chen: Yes, yes, that's just crazy so starting with Atlanta D. C. L. A C that the D I C products outside of our customers.

Chia Yi Chen: That that's the kind of progress.

Chia Yi Chen: So that lowers asking will we start to see a three D IC products from our customers a win.

Now.

Chia Yi Chen: Okay.

Chia Yi Chen: As far as the eye.

Chia Yi Chen: I I, just say that you know the.

Chia Yi Chen: The customer start to a top tier four now and your expected that their product in the market soon alright.

Speaker Change #109: Okay. Thank you. Thank you very much okay. Thank you. Thank you Laura Okay. In the interest of time, maybe we'll take a question from the last two participants on the call. Thank you operator.

Rolf Bulk: Thank you. Okay, so Rolf's first question is about tool commonality and conversion. He notes that we have already said we are using some of the N5 tools to support the strong multi-year demand for N3 for AI-related applications and such. His question is that given our 7nm is still underutilized, would we also consider converting 7nm tools to support more leading-edge, stronger demand? Well, let me answer this question. We can convert one technology node's capacity to the next one. It's because of GI's physical advantage.

Speaker Change #109: That's one that we have no real quote from New Street research.

Speaker Change #110: Yes. Thank you for taking my question earlier on the call you mentioned the possibility of converting so much you're en five capacity to entry.

Speaker Change #111: That's what I was wondering considering the strong demand for AI chips and a recovery in smartphones is there a scenario in which you would consider a similar conversions from some of your older nodes such as the N. Seven isn't that utilization of revenues there are still well below peak levels. Thank you. Okay. So Ross first question is about.

Speaker Change #111: Tool commonality and conversion he he notes that we have already said we are converting.

Speaker Change #111: Some of the capacity us using some of the M. Five pools to support the strong multiyear demand for in three.

Speaker Change #111: For AI related and as such his question is that given our seven nanometer is still.

Speaker Change #111: Under utilized when we also consider converting seven nanometer tools to support more leading edge a stronger demand.

Speaker Change #112: Well, let me answer this question are we.

C.C. Wei: That meaning, let me give you one example. 3 nanometer and 5 nanometer are adjacent to each other, the fabs, and they are all connected. So it's much easier for TSMC to convert from 5 to 3, but that doesn't mean that every node can do the same. That's one. And your question about the N7 was converted to N5, presumably. No, because we expect N7, in the next couple of years, you will pick up. Demand will pick up again. And you will probably repeat, the same kind of experience we have in 28 nanometers.

Speaker Change #112: We can convert one technology node are.

Speaker Change #112: Capex to the next one is because of a J so political appointees that meaning let me give you. One example.

Speaker Change #112: Three nanometer and five nanometer are adjacent to each other the fabs and they are all connected.

Speaker Change #112: So each much easier for TSMC to convert of one five to three <unk>.

Speaker Change #112: And.

Speaker Change #112: That doesn't mean that every node can do this year, that's one and your question about the in seven converted two in five pre.

Speaker Change #112: Presumably.

Speaker Change #113: No because we asbury in seven.

Speaker Change #113: In next couple of years. So you pick up the demand will pick up again and you won't repeat probably will repeat the same kind of experience we have in our 28 nanometer.

C.C. Wei: So today, no, we don't have any solid plan to convert the N7 into N5. Okay, Rolf, does that answer your first question? Thank you.

Speaker Change #113: So today no we don't have.

Speaker Change #113: And he started a plan to convert it in seven into in Fi.

Speaker Change #114: Okay. Ralph does that answer your first question. Thank you.

Speaker Change #115: To follow up sure.

Jeff Su: Yes, it does. Thank you, Jeff, and an unrelated follow-up. On SOIC, given that the technology is now being adopted more broadly, do you see a beginning of interest among your smartphone customer base to also adopt the technology? Could you comment on the likely timeline of adoption of SOIC in smartphones?

Ralph: Yes. It does thank you Jeff.

Speaker Change #117: And unrelated follow up.

Speaker Change #117: It's a follow up to Laura's question actually.

Speaker Change #117: On S Oh I see.

Speaker Change #117: Another technology is now being adopted more broadly do you do you see in beginning of interest of your smartphone customer base to also adopt the technology could you comment on the likely timeline of adoption of asphalt S O I see in smartphones.

Rolf Bulk: Thank you. Okay, so Rolf's second question is basically going back to SOIC adoption. His question really is pretty straightforward. Do we see a timeline, or can we give a timeline for the adoption of SOIC by smartphone applications?

Speaker Change #118: Okay. So Ralph second question, especially going back to our Soi see adoption. His question really is pretty straightforward do we see a timeline or can we give a timeline for adoption.

Speaker Change #119: Of Soi see by smartphone applications.

Jeff Su: Well, let me answer the question. This HPC product is the first one, and HPC customers are the first ones to adopt this 3D IC or SOIC.

Well, let me answer the question. This SPC protocol is of course, one specie customer ease of horse went to our properties.

Speaker Change #119: <unk>.

C.C. Wei: Advanced Packaging Technology and other areas. Let's wait and see. I cannot make any comment.

Speaker Change #119: Our revised packaging technology.

Speaker Change #119: And.

Speaker Change #119: Other area, let's wait, whereas he I cannot make any come in we are working on it.

C.C. Wei: We are working on it. Okay. Okay, well, yeah, thank you very much. Okay, operator, then we will go on to the last participant, please. Thank you. Yes, the last one to ask questions, Mehdi Hosseini from SIG.

Speaker Change #119: Yeah.

Speaker Change #119: Okay.

Speaker Change #120: Okay Yep. Thank you very much okay, operator than.

Speaker Change #121: We will go onto the last participant please thank you.

Speaker Change #121: Yes, the last one to ask question Martin you Hussaini from S. I G.

Mehdi Hosseini: Thanks for taking my question. You had a very nice upside to revenue expectations for the first half of 2024, but have kept the year-end unchanged. Is that a reflection of that slow recovery that you were highlighting, or would you prefer to wait to have more visibility before updating the 2024 targets?

Speaker Change #122: Yes, thanks for taking my question.

Martin Hussaini: Two from my end and you had a very nice upside to the revenue expectation for the first half of 'twenty four but has hit the year and unchanged is that a reflection of that it's slow recovery that you were highlighting or would you prefer to wait to have more visibility before updating.

Martin Hussaini: In 2024 for FY.

Martin Hussaini: 24 target.

Jeff Su: Okay, so Mehdi's first question is about our revenue outlook and guidance. His question is saying we have a nice upside to our revenue in the first half of this year, but we have kept the four-year guidance for growth low to mid-20s.

Speaker Change #124: Okay. So Moody's first question is about our revenue outlook and guidance.

Speaker Change #124: He's question, you're saying, we have a nice upside to our revenue in the first half of this year.

Speaker Change #124: But we have kept our full year guidance into to grow low to mid twenty's. So.

Speaker Change #124: Is that because.

Jeff Su: So is that because we are more... cautious in the second half? Or is it because we will see how things go? But I'm not sure if you mean by upside to the first half, Mehdi. You're saying, of course, our first quarter, as CeCe said, was slightly ahead of our guidance and US dollar terms, but very minutely. But yeah.

Speaker Change #124: We are more cautious on the second half or is it because we will see how things go but I'm not sure. If you mean by upside to the first half Med D. Youre, saying of course, our first quarter. As Cc said was slightly ahead of our guidance in U S. Dollar term, but very minutely, but yeah, yeah, I'm a D. A R R.

Jeff Su: Yeah, Mehdi, our guidance for the quarterly profile did not change. Well, we always said that quarter and over quarter, there would be growth, and also the four-year guidance would stay the same. So, I don't think there are any so-called upsides, as you just said, for the first half.

Speaker Change #124: Guidance for the quarterly profile did not change well, we always said that well quarter over quarter there'll be growth.

Speaker Change #124: And also the full year guidance stayed the same so.

Speaker Change #125: I don't think there is a so called upsides.

Speaker Change #125: As you've just said.

Speaker Change #125: Through the first half yes.

Mehdi Hosseini: Yeah. Okay, thanks for clarifying. Regarding the investment... in the U.S., especially for 2 nanometers.

Thanks for clarification.

Speaker Change #125: The investment.

Speaker Change #125: And U S, especially for three nanometer.

Mehdi Hosseini: Does that include advanced packaging, or would advanced packaging be mostly concentrated in the Taiwan region? Okay, so Mehdi's second question is that, of course, we have announced to build three fabs in the US, including two nanometers given the strong AI related demand. So his question is, then, what about the advanced packaging side? Will we also build advanced packaging in Arizona? Or, yeah, what is our plan? Well, let me answer this question.

Speaker Change #125: Does that mean.

Speaker Change #125: <unk> advanced packaging advanced packaging would be mostly concentrated in Taiwan region.

Speaker Change #125: Okay. So my second question is that of course that we have announced to build three fabs in the U S, including two nanometer given the strong AI related demand. So his question is then what about the advanced packaging side will we also be able to advance packaging in Arizona or yeah, what is our plan.

Speaker Change #126: Well, let me answer this question.

C.C. Wei: It is always the customer's decision, you know, for where the back-end services are done for their product. Uh, so in Arizona, uh, we are happy to see EMCO's recent announcement to build an advanced packaging facility that's very close to our AG5. Actually, we are working with EMCO and trying to support all our customers in AG and on their demand, for their needs.

It is always customers that decision you know.

Speaker Change #126: For where the backend salaries are down for the product.

Speaker Change #126: Ah so in Arizona.

Speaker Change #126:

Speaker Change #126: We are happy to see that M cause our recent announcement to Bureau advanced packaging facility, that's very close to our AG fab actually we are walking we saw M.

Speaker Change #126: M coal and try to support all our customer.

Speaker Change #126: In AG and.

Speaker Change #126: Ford yet for jet demand for their need.

C.C. Wei: Okay, Mehdi, does that address your second question? Yes, thank you. Okay, great.

Speaker Change #127: Okay Modi to sent address your second question. Thank you Okay. Great Alright, everyone. This concludes our question and answer session again, we do apologize for the technical difficulties. If you have anything unclear followed need to follow up. Please contact TSMC is I R and we'd be more than happy to help.

Jeff Su: All right, everyone. This concludes our Q&A session. Again, we do apologize for the technical difficulties. If you have anything unclear or need to follow up, please contact TSMC's IR, and we'd be more than happy to help.

Jeff Su: 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 TSMC's website at www.tsmc.com. So, thank you again for joining us today. We hope everyone continues to stay safe and healthy, and we hope to see you again next quarter. Goodbye, and have a good day.

Speaker Change #127: 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 tsmc's website at triple W. Dot TSMC dot com. So thank you again for joining US today, we hope everyone continues to say.

Speaker Change #127: Safe and healthy and we hope to see you again next quarter Goodbye and have a good day.