Q2 2024 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call
I am Su Zhikai from the Corporate Relations Department of TSMC
Well see the tide. She then Byron when she's food as food to the Cai.
Speaker Change: Welcome to TSMC's 2024 Q2 Investor Conference today.
Waning, but Julian lifetime, John Page, you can see the auditing our senior N E. R. G. The five years old anyway.
Speaker Change: Since this conference will be broadcast live to global investors simultaneously, we will be using English throughout. We appreciate your understanding.
Speaker Change: You'll you'd been possible ways. This young torrential towards you and culturally in Shenzhen Ball say, one way you change change N C O M wine senior and junior.
Speaker Change: Good afternoon, everyone, and welcome to TSMC's second quarter 2024 earnings conference and conference call.
Jeff Su: Good afternoon, everyone and welcome to Tsmc's second quarter 2024 earnings Conference and conference call. This is Jeff suit Tsmc's director of Investor Relations and your host for today.
Speaker Change: This is Jeff Su, TSMC's Director of Investor Relations, and your host for today.
Speaker Change: Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials.
Speaker Change: Today's event is being webcast live through Tsmc's website at Triple W. Dot TSMC Dot Com, where you can also download the earnings release materials if.
Speaker Change: If you are joining us through the conference call, your dial-in lines are in listen-only mode.
Speaker Change: If you are joining us through the conference call you a dial in lines are in listen only mode.
Speaker Change: The format for today's event will be as follows.
The format for today's event will be as follows.
Speaker Change: First, TSMC's Senior Vice President and CFO , Mr. Wendell Huang, will summarize our operations in the second quarter 2024, followed by our guidance for the third quarter 2024.
Wendell Huang: First Tsmc's senior Vice President and CFO, Mr. Wendell Huang will summarize our operations in the second quarter of 2024, followed by our guidance for the third quarter of 2024.
Speaker Change: Afterwards, Mr. Huang and TSMC's Chairman and CEO , Dr. C.C. Wei, will join me to provide the company's key messages.
Speaker Change: Afterwards, Mr Huang and Tsmc's, Chairman and CEO Dr. C. C. Wei will jointly provide the company's key messages.
Speaker Change: Then we will open both the floor and the line for the Q&A session.
Then we will open both the floor and the line for the Q&A session.
Speaker Change: As usual, I'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which would cause actual results to differ materially from those contained in the forward-looking statement.
Speaker Change: As usual I'd like to remind everybody that today's discussions may contain forward looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statements.
Speaker Change: Please refer to the safe harbor notice that appears in our press release.
Speaker Change: Please refer to the safe Harbor notice that appears in our press release.
Speaker Change: And now, I would like to turn the microphone over to TSMC's CFO , Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with the financial highlights for the second quarter of 2024. After that, I will provide the guidance for the third quarter of 2024.
Wendell Huang: And now I would like to turn the microphone over to Tsmc's CFO, Mr. Wendell Huang for the summary of operations and the current quarter guidance. Thank you Jeff. Good afternoon, everyone. Thank you for joining us today.
Wendell Huang: My presentation will start with the financial highlights for the second quarter of 'twenty 'twenty four.
Wendell Huang: After that I will provide the guidance for the third quarter of 'twenty 'twenty four.
Speaker Change: Second quarter revenue increased 13.6% sequentially in NT, or 10.3% in US dollars, as our business was supported by strong demand for our industry-leading 3 and 5 nanometers technologies, partially offset by the continuous smartphone seasonality.
Wendell Huang: Second quarter revenue increased 13.6% sequentially in N T or 10, 3% in U S dollars as our business was supported by strong demand for our industry, leading three and five nanometer technologies, partially offset by the continued smartphone seasonality.
Wendell Huang: Yeah.
Speaker Change: Gross Margin increased 10 basis points sequentially to 53.2%, mainly reflecting cost improvement and a more favorable foreign exchange rate, partially offset by the margin dilution from M3 REM.
Wendell Huang: Gross margin increased 10 basis points sequentially to 53.2%, mainly reflecting cost improvement and the more favorable foreign exchange rate, partially offset by the margin dilution from entry Rep.
Speaker Change: Due to the operating leverage, total operating expense accounted for 10.5% of net revenue as compared to 11.1% in the first quarter.
Wendell Huang: Due to the operating leverage total operating expense accounted for a 10, 5% of net revenue as compared to 11, 1% in the first quarter.
Speaker Change: Thus, operating margin increased 0.5 percentage point sequentially to 42.5 percent.
Wendell Huang: Thus operating margin increased <unk> five percentage points sequentially to 40 point, 42.5% overall, our second quarter EPS was 9.56 N T.
Speaker Change: Overall, our second quarter EPS was 9.56 NT and ROE 26.7%.
Wendell Huang: E 26, 7%.
Speaker Change: Now let's move on to revenue by technology
Speaker Change: Now, let's move on to revenue by technology, three nanometer process technology contributed 15% of wafer revenue in the second quarter, while five nanometer and seven nanometer accounted for 35% and 17% respectively.
Speaker Change: Three nanometer process technology contributed 15% of wafer revenue in the second quarter.
Speaker Change: while 5nm and 7nm accounted for 35% and 17% respectively.
Speaker Change: Advanced Technology
Speaker Change: Advanced technology.
Speaker Change: defined as 7nm and below accounted for 67% of wafer revenue.
Speaker Change: Defined as seven nanometer and below accounted for 67% of wafer revenue.
Speaker Change: Moving on to revenue contribution by platform.
Speaker Change: Moving on to revenue contribution by platform.
Speaker Change: HBC increased its bi-monthly revenue by 28% to achieve 52% of its second-quarter revenue, surpassing the 50% of its first-quarter revenue.
Speaker Change: H B C increased 28% quarter over quarter to account for 52% of our second quarter revenue, surpassing 50% for the first time.
Speaker Change: Smartphone decreased 1% to account for 33%. IoT increased 6% to account for 6%.
Speaker Change: Smartphone decreased 1% to account for 33% Iot increased 6% to account for 6%.
Speaker Change: Automotive increase 5% to account for 5%
Speaker Change: Oh, it's automotive increased 5% to account for 5% and D. C increased 20% to account for 2%.
Speaker Change: And DCE increased 20% to account for 2%.
Speaker Change: Moving on to the balance.
Speaker Change: Moving onto the balance sheet, we ended the second quarter with cash and marketable securities of two two trillion N T or 63 billion U S dollars.
Speaker Change: We ended the second quarter with cash and marketable securities of 2 trillion NT or 63 billion U.S. dollars.
Speaker Change: On the liability side, current liability is increased by 23 billion NT mainly due to the increase of 16 billion in accounts payable.
Speaker Change: On the liability side current liabilities increased by 23 billion N T mainly due to the increase of 16 billion and accounts payable.
Speaker Change: Long-term interest-bearing debt increased by $9 billion NT, mainly as we raised $12 billion in corporate bonds.
Speaker Change: Long term interest bearing debt increased by 90 billion N T mainly as we raised 12 billion in corporate bonds.
Speaker Change: On financial ratios, accounts receivable turnover days decreased by 3 days to 28 days.
Speaker Change: On financial ratios accounts receivable turnover days decreased by three days to 28 days.
Speaker Change: Days of inventory decreased by 7 days to 83 days, primarily due to higher N3 wafers shipped.
Speaker Change: Days of inventory decreased by seven days to 83 days, primarily due to higher end three wafer shipment.
Speaker Change: Regarding cash flow and Capex during the second quarter, we generated about 378 billion N T. In cash from operations spent 206 billion in Capex and distributed 91 billion for the third quarter twenty-three cash dividend.
Speaker Change: Spent $206 Billion in K-POWER
Speaker Change: and distributed $91 billion for a third quarter 23 cash dividend.
Speaker Change: Overall, our cash balance increased 101 billion NT to 1.8 trillion at the end of the quarter.
Speaker Change: Overall, our cash balance increased 101 billion N T to 1.8 billion trillion at the end of the quarter.
Speaker Change: In U.S. dollar terms, our second quarter capital expenditures total $6.36 billion.
Speaker Change: In U S dollar terms, our second quarter capital expenditures totaled 6.36 billion.
Speaker Change: I finished my financial summary
Speaker Change: I've finished my financial summary, now.
Speaker Change: Now, let's turn to our current quarter guidance.
Speaker Change: Now, let's turn to our current quarter guidance Bay.
Speaker Change: Based on the current business outlook, we expect our third quarter revenue to be between $22.4 billion and $23.2 billion.
Speaker Change: Based on the current business outlook, we expect our third quarter revenue to be between 22, 4.4 billion and 23.2 billion U S dollars.
Speaker Change: which represents a 9.5% sequential increase or a 32% year-over-year increase at the midpoint.
Speaker Change: Which represent a 9.5% sequential increase or 32% year over year increase at the midpoint.
Speaker Change: Based on the exchange rate assumption of 1 U.S. dollar to 32.5 NT, gross margin is expected to be between 53.5% and 55.5%.
Speaker Change: Based on the exchange rate assumption of one U S dollars to 32.5 N T. Gross margin is expected to be between 53, 5% and 55, 5%.
Speaker Change: Operating Margin Between 42.5% and 44.5%
Speaker Change: Operating margins between 42, 5% and 44, 5%.
Speaker Change: This concludes my financial presentation.
Speaker Change: This concludes by my financial presentations.
Speaker Change: Now, let me turn to our key message.
Speaker Change: Now, let me turn to our key messages I will start by talking about our second quarter, 'twenty, four and third quarter 'twenty for profitability.
Speaker Change: I will start by talking about our second quarter 24 and third quarter 24 profitability.
Speaker Change: Our second quarter growth margin was 53.2%, slightly ahead of the high end of our guidance.
Our second quarter gross margin was 53.2% slightly ahead of the high end of our guidance, mainly as we saw a higher than expected overall capacity utilization rate as compared to our forecast three months ago.
Speaker Change: mainly as we saw a higher-than-expected overall capacity utilization rate as compared to our forecast three months ago.
Speaker Change: We have just guided our third quarter growth margin to increase by 1.3 percentage points to 54.5% at the midpoint.
Speaker Change: We have just guided our third quarter gross margin to increase by 1.3 percentage points to 54, 5% at the midpoint.
Speaker Change: This is primarily due to the higher overall capacity utilization rate in the third quarter.
Speaker Change: This is primarily due to the higher overall capacity utilization rate in the third quarter.
Speaker Change: and better cost improvement efforts, including productivity gains.
Speaker Change: And better cost improvement efforts, including productivity gains.
Speaker Change: [inaudible]
Speaker Change: Partially offset by continued dilution from N three ramp up in five to entry tool conversion cost and higher electricity prices in Taiwan.
Speaker Change: excluding the impact of foreign exchange rate of which we have no control over and factoring in the margin impact from our global manufacturing footprint expansion plan.
Excluding the impact of foreign exchange rate of which we have no control over and factoring in the margin impact from our global manufacturing footprint expansion plans, we continue to forecast a long term gross margin of 53% and higher is achievable.
Speaker Change: We continue to forecast a long-term growth margin of 53% and higher is achievable.
Speaker Change: Next, let me talk about our 2024 capital budget.
Speaker Change: Next 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 the future.
Speaker Change: Three year or a K Pax is spent in anticipation of the growth that will follow in the future years, and our Capex and capacity planning is always based on the long term market demand profile.
Speaker Change: And our CAPEX and capacity planning is always based on the long-term market demand profile.
Speaker Change: As the strong structural AI-related demand continues, we continue to invest to support our customers' growth.
As the strong structural AI related demand continues we continue to invest to support our customers' growth.
Speaker Change: We are narrowing the range of our 2024 capital budget to be between 30 billion and 32 billion U.S. dollars as compared to 28 to 32 billion U.S. dollars previously.
Speaker Change: We are narrowing the range of our 'twenty 'twenty four capital budget to be between $30 billion and 32 billion U S dollars as compared to 28 to 32 billion U S dollars previously.
Speaker Change: Between 70% and 80% of the capital budget will be allocated for advanced process technology.
Speaker Change: Between 70, and 80% of the capital budget will be allocated for advanced process technologies.
Speaker Change: About 20% will be spent for specialty technologies and about 10% will be spent for advanced packaging, testing, mask making, and others.
Speaker Change: About 10% to 20% will be spent for specialty technologies and about 10% will be spent for advanced packaging testing matchmaking and others.
Speaker Change: At TSMC, a higher level of capital expenditures is always correlated with the higher growth opportunities in the following.
Speaker Change: T S M C. A higher level of capital expenditures is always correlated with the higher growth opportunities in the following years now.
Speaker Change: Now, let me turn the microphone over to Sissy.
Speaker Change: Now, let me turn the microphone over to C C.
Sisi: Thank you, window. Good afternoon, everyone.
Charlie Chan: Thank you your window and good afternoon, everyone.
Sisi: First of all, let me introduce our recent export demands.
Charlie Chan: First let me start with our near term demand outlook.
Speaker Change: We concluded our second quarter with revenue of 20.8 billion U.S. dollars, above our guidance in U.S. dollar terms.
Charlie Chan: We concluded our second quarter with revenue up U S start at 20.
Charlie Chan: 28 billion.
Speaker Change: Our guidance in U S dollar terms.
Sisi: Our business in the second quarter was supported by strong demand for our industry-leading 3nm and 5nm technology.
Speaker Change: Our business in the second quarter was supported by strong demand for our industry D. G suite nanometer and why nanometer technologies.
Sisi: Especially because of the ongoing intellectual disability
Speaker Change: Security.
Speaker Change: Setup by continuous smartphone she then entities moving.
Sisi: Moving into third quarter, 2024, we expect our business to be supported by strong smartphone and AI-related demand.
Speaker Change: Moving into third quarter 2024.
Speaker Change: We expect our business to be supported by strong smartphone and the AI related demand.
Sisi: for our leading-edge process technologies.
Speaker Change: For our leading edge process technologies.
Sisi: For the entire year of 2024, we predict that the overall semiconductor market, excluding memory, will increase by about 10%. This is unchanged from our forecast three months ago.
Speaker Change: Looking at the full year 'twenty 'twenty four we forecast the overall semiconductor market, excluding memory to increase by about 10%, which is unchanged from our forecast three months ago Eddie.
Sisi: Eddie Time
Speaker Change: And each time.
Sisi: We would like to expand our original
Eddie: We would have to expand our original.
Speaker Change: Definition.
Eddie: Foundry industry to foundry to zero.
Sisi: 2132.0
Sisi: also includes packaging and testing
Speaker Change: Could you also in cruise packaging testing.
Sisi: Mask manufacturing and others, as well as all IDM not involving memory manufacturing
Eddie: Banking, and others and or IDM, excluding memory manufacturers.
Sisi: We believe this new definition better reflects TSMC's expanding traceable market opportunities in the future.
Eddie: We believe each new definition better refractory T. H M sheets are expanding addressable market opportunities in the future.
Speaker Change: However, I want to emphasize here that TSMC will only focus on the most advanced back-end technologies.
Eddie: However.
Speaker Change: I want to emphasize here that TSMC will only focus on the most out of one to backend technologies, whose.
Speaker Change: which help our customers in leading-edge products.
Eddie: We have our customary in leading edge product.
Speaker Change: According to this new definition, the size of the national business is close to $25 billion in 2023, compared to $11.5 billion under the previous definition.
Eddie: Under this new definition the size of the foundry industry was close to 240 beta in the U S. Dollar in 2023 as compared to 115 billion U S dollars under the previous definition.
Speaker Change: With our new definition, we forecast the foundry industry growth to be close to
With our new definition, we forecast the foundry industry cores to be close to TERP.
Speaker Change: Close to 10% of the year 2024
Eddie: <unk> grew 10% year over year in 2024.
Speaker Change: TSMC is the shareholder of the foundry industry under our new definition
Eddie: TSMC as a share of the foundry industry under our new definition.
TSMC: Since 2023, a 28% increase due to our strong technological leadership and extensive customer base. We expect even greater growth since 2024.
Speaker Change: Was 28% in 2023 supported by our strong technology leadership and broader customer base. We expect this one to Florida inquiries in 'twenty 'twenty four.
TSMC: Over the past 3 months, we have observed strong AI and high-end smartphone-related demand from our customers as compared to 3 months ago.
Speaker Change: Over the past three months, we have of Joe Strunk, AI and high end smartphone related demand from our customers as compared to three months ago.
TSMC: Leading to the growth of the global supply chain, bringing growth to 3nm and 5nm engineering technology in the second half of 2024.
D D into ingredient or overall capacity utilization rate for our leading edge suite nanometer and five nanometer process technologies in the second half of 'twenty 'twenty four.
TSMC: We continue to expect 2024 to be a strong gold year for TSMC.
Speaker Change: Just we continue to expect 2024 to be a strong course year for TSMC.
TSMC: We are raising our 4-year guidance
Speaker Change: We are raising our full year guidance.
TSMC: And now expect our 2024 revenue to increase slightly above mid-20s percent.
Speaker Change: And now a spare to our 'twenty 'twenty four revenue to increase slightly above mid twenties adjourn.
TSMC: in U.S. dollar terms.
Speaker Change: In the U S dollar terms.
TSMC: Next, I will talk about TSMC's capacity planning process and investment discipline.
Speaker Change: Next I will talk about Tsmc's, our capacity planning process and investment discipline.
Speaker Change: This is important, especially when we have such high forecasted demand from AI-related business.
Speaker Change: This is important.
Speaker Change: Especially when we have such high forecasted demand from AI related business.
Speaker Change: TSMC's goal is to provide trusted technology and capabilities to the global IC industry in the coming years.
Speaker Change: <unk> mission is to be the trusted technology and capacity provider for the global logic IC industry for years to come.
Speaker Change: The continuously growing demand for AI represents a strong structural demand for the calculation of internet cooling efficiency.
Speaker Change: The continued a surging AI related demand suppose a strong structural demand for energy and fishing computing.
Speaker Change: As a key enabler of AI applications, the value of our technology position is increasing.
Speaker Change: As a key enabler of AI applications.
Speaker Change: Where do you of our technology position is increasing.
Speaker Change: Customers rely on TSMC to provide the most advanced design engineering and packaging technology.
Speaker Change: As customers a readout on TSMC to provide the most otherwise process and packaging technology at scale.
Speaker Change: in the most efficient and cost-effective manner
Speaker Change: In the most efficient and cost effective manner.
Speaker Change: As such, TSMC employs a disciplined framework to address the structural increase in the long-term market demand profile underpinned by the industry megatrends of AI, HPC, and 5G.
Speaker Change: As such TSMC impose employees.
Speaker Change: Sorry T S MGM pros our disciplined framework.
Speaker Change: To address the structure in.
Speaker Change: Inquiries in the long term market demand profile underpinned by the industry Mega trend of AI S. P E N G.
Speaker Change: We work closely with our customers to plan our capacity.
Speaker Change: We will close or do we saw customers to plan. Our capacity. We also have a rigorous and roll off system that evaluated and judges market demand from both a top down and bottom up approach to determine the appropriate capacity to be award.
Speaker Change: We also have a rigorous and cautious planning system to analyze and assess market demand, judging from both peaks and troughs to determine the appropriate construction capacity.
Speaker Change: Our capital investment decisions are based on four disciplines.
Our capital investment.
Speaker Change: As you know based on four disappears.
Speaker Change: Technical leadership, stable and responsible manufacturing, protecting customer trust, and achieving a lasting and healthy return.
Speaker Change: That is technology leadership.
Speaker Change: For example, and responsive manufacturing returning customers, a choice and earning a sustainable and hear see return.
Speaker Change: to ensure a proper return from our investment.
Speaker Change: To ensure a proper return from our investment both pricing and cost are important.
Speaker Change: both pricing and cost are important
Speaker Change: TSMC's pricing strategy is strategic.
Speaker Change: <unk> is our pricing strategy is strategic.
Speaker Change: not opportunistic to reflect the value that we provide
Speaker Change: The opportunity to re Brexit, where do you that we provide.
Speaker Change: Today, we are investing heavily in leading-edge specialties.
Speaker Change: Today, we are investing heavily in leading edge specialty.
Speaker Change: Advanced Packaging Technologies
Our revised packaging technologies to support our customers of course and enable their success.
Speaker Change: to support our customers' goals and enable their success.
Speaker Change: if customers do well.
Speaker Change: If customers do well.
Speaker Change: Iron City Metropolis
Speaker Change: TSMC should do well.
Speaker Change: For example, we are happy to see many of our customers' structure profitability improving in these past few years.
Speaker Change: For example, we are happy to see many of our customers our structure profitability improving in these past few years.
Speaker Change: At the same time, we are facing increasing price challenges due to enhanced design complexity and design costs.
Speaker Change: Same time, we faced a rising cost challenges due to increasing process complexity Eddie do note.
Speaker Change: There are also electricity calls in Taiwan
Chichi: Chichi, causing Taiwan.
Speaker Change: Global 5 Expansion in Higher Cost Regions and Other Cost Inflation Challenges
Chichi: Global fab expansion in higher cost regions and other costs the embracing challenges.
Speaker Change: Therefore, we will continue to work closely with our customers to share our values.
Chichi: Yeah.
We're continuing to work closely with our customer to see our way to you.
Speaker Change: We will also work diligently with our suppliers to deliver on cost performance.
Chichi: We will also work diligently with our suppliers to deliver on cost performance.
TSMC: We believe such actions will help TSMC earn a sustainable and healthy return so that we can continue to invest in technology and capacity to support our customers' goals.
Chichi: We believe such actions why have TSMC omnicell tenable getting here see return so that we can continue to invest in technology and capacity to support our customers of course.
Speaker Change: and fulfill our mission as a trusted country partner who is delivering profitable growth for our shareholders
Speaker Change: Yeah, and fulfill our mission as a trusted foundry partner well.
Speaker Change: Delivering profitable growth for our shareholders.
Speaker Change: Finally, I'll talk about our N2 status and A16 introduction.
Speaker Change: Finally, I will talk about a hour into state of ASEAN <unk> introduction, our two nanometer and <unk> technologies DSA industry in addressing the insatiable need for energy efficient computing and almost all the AI innovator a walking wish th M.
Speaker Change: Our 2nm and A16 technology is specialized in addressing the indispensable need for energy efficiency calculations, and almost all AI inventors collaborate with TSMC.
Speaker Change: T.
Speaker Change: We expect the number of the new tape hours for 2nm technologies in its first two years to be higher than both 3nm and 5nm in their first two years
Speaker Change: We expect a number of the new tape outs.
Speaker Change: For two nanometer technologies in each forced two years to be Howard you impose sui nanometer and.
Speaker Change: Five nanometer in Gale force two years.
Speaker Change: N2W offers 4 core efficiency and power benefits, 10-15% speed improvement at the same power, 25-30% power improvement at the same speed, and over 15% chip density improvement compared to N3E.
Speaker Change: And do what deliver if we all know the performance and power benefit which tend to 15 speed improvement at the same power or 25 to 30, plus empower improvement at the same speed of more than 15% chip density inquiries as compared with injury E.
Speaker Change: The progress of research and technology development is very fast.
Speaker Change: And to technology development is progressing well, which device performance and you're on track or ahead of plan.
Speaker Change: The performance and age of these devices are as expected or early expected. N2 is expected to be in internet production by 2025, similar to the competitive field of N3. Our continued enhancement strategy also introduces N2P. The N2 family, N2P has 5% more performance.
Speaker Change: And two is on track for volume production in 2020 by with a ramp of a similar two and three.
Speaker Change: We saw our strategy of continuously and husband, we also introduced into P. As an extension of our into Germany.
Speaker Change: And two P features a further 5% pro forma is.
Speaker Change: We said.
Speaker Change: Get a 5% to 10% electricity discount at the same speed at the top of N2
Speaker Change: At the same power or five to 10 per gym power benefit at the same speed and cobalt we end tool.
Speaker Change: N2PUI supports Smartphone and HPC applications. Volume production is scheduled for February 2nd.
Speaker Change: And two P was supported both smartphone and SPG applications.
Speaker Change: Volume production is scheduled for the second half, particularly ships.
Speaker Change: We also introduced the A-16 as our next product based on steel wire technology, featuring the Super Power Tire, or SPR, as an exclusive offering.
Speaker Change: We also introduced <unk>, our next neuroses base at technology, featuring Szuba powered real or S. P. R as a separate offering th.
Speaker Change: TSMC's SPR is an innovative and excellent backend power delivery solution that will force the industry to adopt another backend connection solution.
Speaker Change: T H M E. S. P. R E site in Nobody'd U bashing cross backside power delivery solution that is forcing the industry to incorporate that in our picks side of concur scheme to preserve gate density and device with perhaps a PDC.
Speaker Change: to preserve gate density and device with flexibility.
Speaker Change: Compared to N2P, A16 provides an additional 8-10% speed increase, while also offering a 15-20% speed boost and a 7-10% acceleration.
Speaker Change: Here, we say into P. A 16 provides a further 8% to 10% speed improvement. It just empower of tweaking to 20% power improvement at the same speed and additional 10, 7% to 10% chip density gear.
Speaker Change: A16 is most suitable for professional HPC products with strict signal routing and strict power distribution network. The yield is expected to be 2.5 centimeters in 2026.
Speaker Change: 16 is best suited for specific S. P. G pro doubt with Caterpillar I signaled route and gains powered delivery Nando War.
Speaker Change: The important thing is scheduled for second half 2020 ships.
Speaker Change: We believe N2, N2P, N16 and its derivatives will further extend our technology leadership position and enable TSMC to capture the growth opportunities way into the future.
Speaker Change: We believe and to into P. H C. M is derivatives will further extend our technology leadership position and enable TSMC to capture the poorest opportunities well into the future.
Speaker Change: This concludes our key messages, and thank you for your attention.
Speaker Change: This concludes our key base Gigi and thank you for your attention.
Speaker Change: Thank you, Cici. Thank you, Wendell. This does conclude our prepared remarks. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions.
Speaker Change: You see thank you Wendell a this does conclude our prepared remarks before we begin the Q&A session I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions.
Speaker Change: Questions we will take both from the floor and from the call. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question.
Questions will take both from the floor and from the call should you wish to raise your question in Chinese I will translate it to English before our management answers your question.
Speaker Change: For those of you on the call, if you would like to ask a question, please press the star, then the one on your telephone keypad now.
Speaker Change: For those of you on the call. If you would like to ask a question. Please press the Star then the one.
Speaker Change: On your telephone keypad now.
Speaker Change: If at any time you would like to remove yourself from the questioning queue, please press star two. Now we will begin the Q&A session. I would like to take the first few questions from the floor, then we will go on to the call. So let's begin.
Speaker Change: If at any time, you would like to remove yourself from the questioning queue. Please press star two now we will begin the Q&A session I would like to take the first a few questions from before then we will go onto the call. So let's begin.
Speaker Change: The first question we please take from Goku Hariharan from JP Morgan. Thank you.
Speaker Change: The first question week, please take from uncle, Harry <unk> from J P. Morgan. Thank you.
Speaker Change: Thanks, Jeff. Good afternoon, CC and good afternoon, Wendell. Thanks for giving us the picture in terms of how you are planning future capacity, just on AI accelerator and related capacity, both front end and advanced packaging.
Jeff Su: Thanks, Jeff.
Speaker Change: Afternoon, Fithian restaurant Wendell thanks.
Speaker Change: Thanks for giving us the picture in terms of how you are planning future capacity.
Just on AI accelerator and related capacity, both front end and advanced packaging.
Speaker Change: Clearly, every customer is queuing up at TSMC for capacity. I think last time we talked about this, maybe a couple of quarters back, CC, you mentioned we expect to see supply to kind of reach balance, supply demand to reach balance by end of this year.
Nearly every customer is queuing up at TSMC for capacity I think last time, we talked about this maybe a couple of quarters back a C. C. You mentioned, we expect to see apply to kind of reach balance supply demand to reach balanced by end of this year.
Speaker Change: Just wanted to see what is your current remark? How do you think about supply-demand balance for AI Accelerator and COWAS advanced packaging capacity? And I think in your symposium, you talked about 60% CAGR, component growth for COWAS capacity in the next four or five years. So could you talk a little bit about how much capacity for COWAS would you be planning to build next year as well? Like last year, you said you're going to be doubling the capacity this year. Now that we are in the middle of this year, maybe can we get a view on what is the capacity expansion for next year? That's my first question. Thank you. Okay, Gokul. All right. For the benefit of the audience online and in person, please allow me to kind of try to summarize your question. So Gokul's question, first of all, he understands and appreciates TSMC's discipline framework in terms of looking at how to build capacity. His question is that it seems that everyone today, AI accelerators and advanced packaging is queuing at TSMC to ask for capacity. So his question is, when do we, CC, expect supply-demand to reach a balance both for the accelerator side and then for the COWAS? At the symposium, we said COWAS capacity will grow at a 60% CAGR the next few years. He also wants to know, what are we planning to build or increase for 2025 COWAS?
Just wanted to see what is your current remark how do you think about supply demand balance for AI accelerator and go at advanced packaging capacity and I think I'm in a symposium you talked about 60%.
Speaker Change: CAGR compounded growth of our global capacity in the next.
Goku: For five years, so could you talk a little bit about how much capacity for gold was would you be planning to build next year. That's about like last year is that youre going to be doubling the capacity. This year now that we're in the middle of this year, maybe can we get a view on what is the capacity expansion for next year. That's my first question. Thank you, Okay, Goku alright for the benefit of the audience online and in Peru.
Goku: Please allow me to kind of try to summarize your question. So Cocos question first of all he understands and appreciates Tsmc's a disciplined framework in terms of looking at how to build capacity is question is that it seems that everyone. Today AI accelerators and advanced packaging is queuing at TSMC to.
Speaker Change: As for capacity. So his question is when do we see C expect supply demand to reach a balanced both for the accelerator side.
Speaker Change: And then for the coal was at the Symposium, we said cost capacity will grow at a 60% CAGR over the next few years. He also wants to know what are we planning to build or an increase for 2025 call us.
Speaker Change: Dog crying
Speaker Change: Goku.
Speaker Change: I also try to reach the supply and demand balance.
Speaker Change: I also tried to reached a surprise in demand Perez, but I cannot today.
Speaker Change: But I cannot today, the demand is so high, I have to work.
Speaker Change: The demand is so high I had to work very hard to meet by customers of demand we continue to increase.
Speaker Change: Very difficult to encounter
Speaker Change: Our customer demand continues to grow
Speaker Change: I hope sometime in 'twenty 'twenty firewall Todd. This morning, she had cycled reached to parents.
Speaker Change: Sometimes in 2025 or 2026, I can reach the balance.
Speaker Change:
Speaker Change: You're talking about the cake or those kinds of increases in core capacity. Now it's out of my mind. I mean, we continue to increase whatever, wherever, whenever we can.
Speaker Change: You're talking about the cake or all rose, Canada incremental inquiries all the coal was our capacity now is out of my mind, our Maui continuing to increase our wallet whatever wherever whatever I can okay.
Speaker Change: uh, if the supply continues to be
Speaker Change: It does supply continuing to be very.
Speaker Change: Bo Yitai
Very tight.
Speaker Change: all the way through probably 2025 and I hope it can be eased in 2026
Speaker Change: All the way through probably put it on the fly and I hope we can be eased in 2020 ships.
Speaker Change: This is the current situation
That's today's such situations.
Speaker Change: Any, any thoughts on next year capacity? Like, are you going to double your capacity again next year?
Speaker Change: Any any thoughts on next year capacity like are you going to double your capacity again next year will go off.
Speaker Change: The last thing is that this year I doubled it, right? More than double, okay. So next year, if I say double it, probably I will answer your question again. Next year I say more than double.
Speaker Change: They're not pay that Dci double you're right.
Speaker Change: More than double okay. So next year, if I say double is probably alloy answer. Your question again next year is it more than double.
Speaker Change: OK, we are working very hard, as I said.
Speaker Change: Okay, who are working very hard as I said.
Speaker Change: Wherever we can, whenever we can.
Speaker Change: However, we can whenever we can okay.
Speaker Change: Okay, thank you.
Speaker Change: Okay. Thank you.
Speaker Change: My second question is regarding gross margins. I think second half guidance already seems to be better than what originally we were thinking that gross margin could drop in second half, but looks like it's actually going up.
My second question is regarding gross margins I think our second half guidance already seems to be better than what.
Speaker Change: Originally we were thinking that gross margin could drop in second half, but it looks like it's actually going up.
Speaker Change: And looks like a lot of the headwinds on gross margin is coming in this year. So how should we think about gross margin looking forward for TSMC? Are we going to get back to the high 50-60% gross margin that we saw in 2022? Given that you got, you're selling more of your value, you have some of the entry tailwinds in terms of yield improvement coming through. Into that, I will also ask, how should we think about impact of subsidies and ITC credits as you start ramping your overseas locations? How does that impact cost and gross margin? Because there's also some subsidies coming in and currently TSMC is mostly talking about gross capex and gross.
Speaker Change: And it looks like a lot of the headwinds on gross margin is coming in this year. So how should we think about gross margin looking forward for TSMC are we going to get back to the high 50%, 60% gross margin that we saw in 2022, given that you've got you're selling more of your value you have.
Speaker Change: Some of the entry tail winds in terms of yield improvement coming through.
Speaker Change: Into that I would also ask how should we think about impact of subsidies and ITC credit as you start ramping yard overseas locations, how does that impact cost and gross margin because theres also some subsidies coming in and.
Speaker Change: Currently the SMT, mostly talking about growth capex in gross spend.
Speaker Change: Okay, so let me summarize Gokul's second question. It's around gross margin and profitability. He notes second half, 24 gross margins seems to be better than the expectation. So his question is really how should we think about gross margin in the next several years? He notes, as we said, we will sell our value and the dilution of N3 will gradually reduce. So where can the gross margins go back to a high 50s or 60% that kind of level that we saw a few years ago in 2022? Maybe that's the first part of his second question. I'll stop here and I'll get to
Speaker Change: Okay. So let me summarize <unk> second question is around gross margin and profitability. He notes second half 'twenty for gross margin seems to be better than are we their expectation. So his question is really how should we think about gross margin in the next several years.
Note you know as we said we will sell our value in the dilution of entry will gradually reduce so you know where can gross margins go back to a high fifties or 60% of that kind of level that we saw a few years ago in 2022, maybe that that's the first part of it says good question I'll stop here and I'll get to this thing.
Speaker Change: Sure. Gokul, let me share with you some of the puts and takes on gross margin 2025 and a little bit beyond that. You already talked, there are positives and there are negatives. You already mentioned positive will be a decrease in dilution from M3. We're selling our value and we continue to drive down our cost, increase the productivity. We are very good at that.
Speaker Change: Sure.
Speaker Change: Gogo, let me share with you some of the puts and takes on.
Speaker Change: On gross margin.
It's only five N and little bit beyond that.
Speaker Change: <unk> already talked to the positives and negatives you already mention a positive will.
Speaker Change: There will be a decreasing dilution from entry we're selling our value.
Speaker Change: And we continue to drive down our cost increase the productivity.
Speaker Change: That is we are very good at that on the other head that's used and five conversion two and three years as an example.
Speaker Change: On the other hand, let's use N5 conversion to N3 as an example.
Speaker Change: We are not ruling out the possibility of further converting more M5 to M3 because we are seeing very strong demand for M3
Speaker Change: We are not ruling out the possibility of further converting more than five to entry because we're seeing very strong demand for and three.
Speaker Change: If we decided to do that, of course there will be a negative impact on the year that we do that, but in the future years that will be beneficial.
Speaker Change: If we decided to do that of course, there will be a negative impact on the year that we do that but in the future years that would be beneficial.
Speaker Change: We continue to face inflation cost challenges, including electricity prices, etc.
Speaker Change: We continue to face cost challenges inflation cost challenges, including electricity prices.
Cetera, and also we are beginning the production of our overseas fab to overseas fast next year the phase one off.
Speaker Change: And also we are beginning the production of our overseas fab, two overseas fabs next year, the phase one of Arizona fab and phase one of the Kumamoto fab.
Speaker Change: Arizona Fab in phase one of the Kumamoto fab.
Speaker Change: We expect that the overseas fabs will dilute our gross margins by between two to three percentage points.
Speaker Change: We expect that the overseas Fabs will dilute our gross margins by between two to three percentage point next year and in the next several years.
Speaker Change: next year and in the next several years.
Speaker Change: So those are the puts and takes to give you the concept. However, we've taken all that into considerations with our efforts in managing the cost gap, especially between the overseas factor and Taiwan.
Speaker Change: So those are the puts and takes to give it a hung a concept however.
Speaker Change: We've taken all of that into considerations, our with our efforts and manage the cost gap, especially between the overseas fab in Taiwan.
Speaker Change: We're repeating and confident to say that 53% and higher gross margin is achievable.
Speaker Change: We're repeating and confident to say that 53% and higher gross margin is achievable.
Speaker Change: So I think that's the first part of your question. Yeah, that's right. And then maybe also just Gokul asked if it's possible to get back to the high 50-60% level that we saw in 2022.
Speaker Change: I think that's the first part of your question.
Coco: And then maybe also just Coco as it.
It's possible to get back to the high 50%, 60% level that we saw in 2022.
Speaker Change: If we have a very high utilization rate, everything else stays the same, possibly.
Coco: Yeah, if we have a very high utilization rate everything else stays the same possible.
Speaker Change: And then the second part of his question was, what is the impact from the different government incentives including the CHIPS Act, ITC credits in the U.S. etc. to the financials and also I think partly gross capex and net capex. Generally speaking, when subsidies are received,
Speaker Change: And then okay.
Speaker Change: Then the second part of his question was what is the impact.
Speaker Change: From the different government incentives, including chips Act.
Speaker Change: ITC credits in the U S et cetera.
Speaker Change: To the financials and also I think partly gross capex and net capex. Thank you.
Speaker Change: Generally speaking when subsidies are received than.
Speaker Change: Then you see that on the cash flow
Speaker Change: And then you see that on the cash flow statement.
Speaker Change: It will be used to offset the asset value that will be on the balance sheet.
Speaker Change: It'll be used to offset the asset value that will be on the balance sheet.
Speaker Change: When this fab begins to production, the P&L impact will come in.
Speaker Change: When this fab begins to production.
Speaker Change: The P&L impact will come in so generally speaking is like that different governor has different approach who providing the grants. So that's a different story.
Speaker Change: So, generally speaking, it is like...
Speaker Change: Different government has different approach in providing the grants, so that's a different story.
Speaker Change: But you can look at our financial state
Speaker Change: But you can look at our financial statements.
Speaker Change: There will be actual subsidy received in the periods of previous quarter and previous year. For example, 2023, we receive a total subsidies of slightly higher than 1.5 billion US equivalent and we receive that mainly in Japan.
Speaker Change: There will be actual subsidy received in the period of previous quarter and previous year for example, 2020 three.
Speaker Change: We receive a total subsidies of slightly higher than $1 5 billion U S equivalent and we received that mainly in Japan.
Speaker Change: Yeah.
Speaker Change: Okay, all right, great. Thank you. Let's move on. We'll take the next one from Charlie Chan from Morgan Stanley , then we'll go to Bruce Liu from Goldman.
Speaker Change: Okay, Alright, great. Thank you, let's move on and we'll take the next one from Charlie Chan from Morgan Stanley and then we'll go to Bruce Lu from Goldman.
Charlie Chan: Hi, C.C. Wendell and Jeff. Great to see you in person again. So, my first question is really about your progress of selling the value. I'm not sure what's the progress, and do you think for next year you're leading?
Speaker Change: I see the window and Jeff are great in theory person again.
So I have my first question is really about your progress over selling selling the value and measure our progress and do you think for next year you are leading edge capacity is going to be in shortage you stay the case.
Speaker Change: edge capacity is going to be in shortage. Is that the case? Will that increase your chance to sell more value to your customers?
Speaker Change: Does that increase your chance to.
Speaker Change: Sell more value to your customers.
Speaker Change: Okay, so Charlie's first question is around pricing, and he wants to understand the progress of, I guess, selling our value. And also in next year, looking at next year, particularly for the leading edge nodes, do we expect that in terms of the demand to be very full?
Speaker Change: Okay. So Chinese first question is.
Speaker Change: Around pricing and he wants to understand the progress of I guess selling our value and also in next year looking at next year, particularly for the leading edge nodes do we expect that in terms of the demand to be very full.
Speaker Change: Charlie, this kind of pricing strategy
Jody: Jody this kind of.
Pricing strategy.
Speaker Change: is very strategic
Speaker Change: Is very strategic.
Speaker Change: You are asking me about the stator.
Youre asking me about the status.
Speaker Change: So far so good
Jody: So far so good.
Speaker Change: And we will continue, this is an ongoing and continuous process, we will continue to share our values.
Jody: And we work until this is ongoing and continuous process are we.
Speaker Change: We're continuing to see or where do you.
Speaker Change: and
Speaker Change: And.
Speaker Change: By the way, my client is also doing very well.
Speaker Change: As a way of my customer doing very well also ku knew that so we should do well also.
Speaker Change: OK, you knew that, so we should do well also.
Speaker Change: So that is actually my follow-up question.
Speaker Change: So that that there is a actually my follow up crush out on this first question.
Speaker Change: First question, for different segments, for example, HPC customers are doing very, very well.
For different segments or akimbo H P. C customers are doing very very well.
Speaker Change: But for a smartphone customer, it's probably more sensitive to the cost.
Our smartphone cosmos, probably more sensitive to the cost do you expect that kind of difference.
Speaker Change: Do you expect a kind of difference of kind of value increase?
Speaker Change: Battery increase.
Speaker Change: Different steps
Speaker Change: For different customers.
Speaker Change: even at the same node. So Charlie is asking, how will we do the pricing? Will it be different between, for example, an HPC customer versus a smartphone customer at the same node? And also his question earlier was, do we expect the demand for the leading nodes to be very high next year?
Charlie Chan: Even Edison no same note. So Charlie is asking how will we do the pricing.
Charlie Chan: Will it be different between for example in the H P C customer versus the smartphone customer at the same node and also his question earlier was do we expect that demand for the leading node to be a very high next year.
Speaker Change: Since the pricing is strategic, it won't be flat.
Speaker Change: Thinks the pricing is a strategic so it won't be flat for every product sector.
Speaker Change: for every
Speaker Change: Product Check
Speaker Change: So it will be different
So it won't be different.
Speaker Change: OK, that's all I can share with you.
Speaker Change: That all I can share with you.
Speaker Change: and all my customers, they are looking for leading edge capacity.
Speaker Change: And or my customers.
Speaker Change: Looking for leading edge capacity.
Speaker Change: for the next few years.
The next few years.
Speaker Change: and we are working with them and so far we try our best to support them.
Speaker Change: And we are working with them.
Speaker Change: And so far we try our best to support him.
Speaker Change: both in pricing and in capacity.
Speaker Change: Both in pricing and in capacity.
Speaker Change: Thank you. And the second topic is definitely, over the past two days, there's a GFC co-risk. So, Mr. Donald Trump talked about, maybe a few years ago, Taiwan slash TSMC took a 100% chip business from the U.S. So, congrats on the positive high market share. However, the concern is growing, that the U.S. continues to depend on our islands, TSMC, and the chip production. So, our question is that, for shareholders, how TSMC is going to mitigate this potential GFC co-risk. For example, whether you are going to further expand your U.S. capacity, or even share the ownership with the U.S. government, And maybe a technical question to Wendell, for today, if we are shipping chips to the U.S. customers, do we need to pay for the U.S. tariffs?
Speaker Change: Thank you and second topic is devry.
Speaker Change: Over the past two days desert Zito arrays ISO Mr. Donald Trump took about maybe viewers ago, a paywalls last TSMC.
Speaker Change: <unk> took a 100% basis, our U S. So congress on their Pos brave high market share.
Speaker Change: However, the canzone, scoring right the U S continued pans out.
Speaker Change: Our islands TSMC and the chip production.
Speaker Change: So our question is therefore for shareholders, how TSMC is going to mean.
Speaker Change: <unk> detailed potential geopolitical risk for example, whether you are going to further expand your U S capacity or even share their ownership by was the U S garments and maybe a take taking your question to window for today right. If we are shipping chips to the.
Speaker Change: E Commerce customers, we need to pay for the U S tariffs.
Speaker Change: Okay, sorry. So Charlie's second question is around sort of overseas expansion and geopolitical risk. He notes the comments from former President Trump a few days ago, that Taiwan Semiconductor has taken, you know, 100% of the business. So his question is really, how does TSMC plan to mitigate the geopolitical risk? Does this include expanding capacity overseas, particularly in the US? Would we consider, I think part of this question was some JV or joint investments, whether with government or whether with partners? And the last question, I think, was more for Wendell about the tax or the tariffs, so to speak.
Speaker Change: Okay.
Speaker Change: Sorry, So tried to your second question is around sort of overseas expansion and geopolitical risks.
Speaker Change: He notes the comments from former President Trump a few days ago that Taiwan semiconductors taken you know a 100% of the business. So his question is really how does TSMC plan to mitigate the geopolitical risk does this include expanding capacity overseas, particularly in the U S.
Speaker Change: Would we consider I think part of this question was some JV or joining investments, whether with government or whether with partners and the last question I think it was more of a window of about the tax or the tariffs so to speak.
Speaker Change: OK, Charlie, so far we did not change any of our original plan of expansion of our Overseas Fire. We continue to expand in Arizona, in Kumamoto, and maybe future in Europe .
Charlie Chan: Okay Charlie.
Charlie Chan: So far we did not change any of our original plan of expansion.
Charlie Chan: Oh Wow overseas Fab, we continue to expand in Arizona in Kumamoto and maybe future in Europe.
Speaker Change: uh no change to Australia
Charlie Chan: No change to our strategy.
Speaker Change: Continue with our current practice
Charlie Chan: We continue our current practice.
Speaker Change: You mentioned about the JV No Okay
Speaker Change: You've mentioned about the JV.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: On the tariff, not that we know of. Normally, if there's an import tariff, the customers will be responsible for that, but no discussion, nothing.
Speaker Change: On the tariff.
Speaker Change: Not that we know off normally if there is a import tariff with the customers will be responsible for that but no discussion nothing.
Bruce Liu: Okay. Thank you. Thank you. Thank you, Charlie. All right. We'll take the next question from Bruce Liu from Goldman Sachs in the front, then we'll move online.
Speaker Change: Okay. Thank you. Thank you. Thank you Charlie Alright, we'll take the next question from Bruce Lu from Goldman Sachs on the front and then we'll move online.
Speaker Change: Thank you for taking my question. My question is, why don't we take up our gross margin or structural profitability target? I mean, TSMC has been saying for selling your value for the past couple of quarters without changing the margin target, i.e., you know, most likely you are passing through all the costs. But, you know, please, I can recall in 2021, I mean, TSMC did raise the gross margin target by then, because to support the future growth with more R&D. As the technology continues to be enhanced and more difficult, and one of your customers, at least, is supportive to suggest that you should charge even more. So, my question is, why is it that you don't raise your gross margin target when you are trying to sell your value, which we believe you deserve much higher value?
Thank you for taking my question My question.
Speaker Change #100: Is that why don't we take I'll take up our gross margin structure for the fitness target and then kiss and he has been saying for selling your value for past couple of quarters without changing the margin target I E. You know most likely you are passing through of course, but please I do recall in two.
Speaker Change #101: 'twenty, one I mean, TSMC do raise the gross margin target by them because to support our future growth with more R&D as the technology continues to be enhanced and more typical and one of your customer and this is supported that is to suggest that you should charge even more. So my question is why is that you don't raise your.
Speaker Change #102: Gross margin target. When you are trying yourself when you tried to sell your value, which we believe we deserve much higher value.
Speaker Change: Okay, so thank you, Bruce. So Bruce's first question is about profitability and value. Bruce seems to agree that TSMC is providing value to our customers. He also notes in 2021, indeed a few years ago, our gross margin target, long-term gross margin target was about 50%, and we're able to increase that to 53% and higher. So his question is really with everything that is going on today with the value of our technology enabling our customers more and more, why doesn't TSMC increase or revise up our long-term gross margin target from the current 53% and higher? Is that the essence? Bruce
Speaker Change #103: Okay. So thank you Bruce So Bruce. This first question is about profitability and value Bruce seems to agree that TSMC is providing value to our customers. He also of note in 2021, Indeed, a few years ago, our gross margin target long term gross margin target. It was about 50% and we're able to <unk>.
Kris: Kris that $2 53 per cent and higher. So his question is really with everything that is going on today with the value of our technology, enabling our customers more and more why doesn't TSMC increase or revised up our long term gross margin target from the current 53 and higher is that the essence.
Speaker Change #103: Bruce.
Speaker Change: Thank you for recognizing TSMC's value.
Zheng Lu: Thank you for recognizing TSMC, so where do you.
Speaker Change: I am working hard with our clients. As I said, this kind of pricing is strategic.
Speaker Change #106: I'm working with our customer.
Speaker Change #107: As I said this kind of pricing is a strategic.
Speaker Change: And thirdly, we want to share our values.
Speaker Change #107: And.
Speaker Change #108: Thirdly, we wanted to share our way too.
Speaker Change: uh changing the target in at this moment
Speaker Change #108: A change in the target in at this moment.
Speaker Change: I think
I think.
Speaker Change: I would like to emphasize 53% and higher, please put more attention to and higher.
Speaker Change #109: I would like to emphasize fifty-three parisien into higher a priest put more attention to enter higher.
Speaker Change: Subtitles provided by the Amara.org community
Speaker Change #110: The number I am not going to change.
Speaker Change: Change it at each time
Speaker Change #111: Changed it at each time when.
Speaker Change: When I have a moth
Speaker Change #111: When I have a moat.
Speaker Change: conversation with my customer and discuss with them. And I probably will give you in the higher portion. Okay.
Speaker Change #112: Conversation with my customary and discuss with them.
Speaker Change #112: And.
Speaker Change #113: I, probably won't give you into higher portion.
Speaker Change: Thank you
Speaker Change #115: Okay. Thank.
Speaker Change #114: Thank you.
Speaker Change: Thank you. My next question is for advanced packaging. So, management used to mention that advanced packaging margin was lower than the corporate edge but with higher RICs. But given the recent progress for the cohort and everything...
Speaker Change #114: Okay. Thank you.
Speaker Change #116: Next question is for advanced packaging so.
Speaker Change #117: Management used to mentioned that advanced packaging margin was lower than our copper AG, but with higher rois, but given that lease and progress toward the cohort and everything.
Speaker Change: You know, do we see a much better profitability for the co-workers? And given that it was so difficult to expand the capacity, are you planning to work with more partners to increase your co-workers' supply, which will solve your current supply demand issues?
Speaker Change #118: Do we see a much better profitability for the course and given that there is always so difficult to expand the capacity are you planning to work with more partners to increase your cohorts of supply, which was soft in your current supply and demand issues.
Speaker Change: Okay, thank you, Bruce. So Bruce's second question is around advanced packaging. Part of it is in terms of the profitability. He notes we used to say, which is true, it's lower than the corporate average profitability, but can earn a similar return or ROE. But his question is now with more and more co-ops demanding greater scale, is the profitability of advanced packaging, I think, approaching or at or above the corporate average? And also, given the tight supply, would we consider to work with more partners to help increase the capacity for co-ops to support our customers growth?
Zheng Lu: Okay. Thank you Bruce.
Speaker Change #119: So Bruce and the second question is around advanced packaging.
Speaker Change #120: Part of it as an instrument to the profitability. He notes, we used to say, which is true it's lower than the corporate average profitability, but can earn a similar return or our O E. But his question is now with more and more coal was demanding greater scale is.
Speaker Change #121: The ability of events packaging, I think approaching or at or above the corporate average and also given the tight supply will reconsider to work with more partners to help increase the capacity for cost to support our customers' growth.
Speaker Change #122: Uh huh.
Speaker Change: You are right, for advanced packaging, the gross margin used to be much lower than the corporate average. Now it's approaching the corporate average. We are improving it, because of...
Speaker Change #123: You are right for our revised packaging the gross margin used to be much lower than the corporate.
Speaker Change #123: Corporate average now it's approaching corporate average we're improving it has been.
Speaker Change #123: <unk> of our.
Speaker Change: Ah
Speaker Change #124: Uh huh.
Speaker Change: [inaudible]
Speaker Change #124: Skill of the.
Speaker Change: Economics and we put a lot of effort to reduce our cost
Speaker Change #124: Economics.
Speaker Change #125: And though we put a lot of effort to reduce our cost.
Speaker Change #124: So.
Speaker Change: The economic growth in the past two years has been very significant.
Speaker Change #126: This module is greatly improving in these two years.
Speaker Change: As a partner with OCEF, yes, we are doing this.
As for the working with Oh said partners, Yes, we are doing it.
Speaker Change: [inaudible]
Speaker Change #127: Those of our I guess our answer.
Speaker Change: Answer the question of whether the cooling capacity is sufficient
Speaker Change #131: So the question is whether the colt was a capacity you see now or not.
Speaker Change: is not enough
Speaker Change #129: He is not enough.
Speaker Change: and in great shortage.
Speaker Change #129: And getting greatest shortage.
Speaker Change: MING PAO CANADA YOUTUBE.COM Visible Mirror needs your support
Speaker Change #127: Job well did media my customers of course, so we are walking we saw wholesale partner and tried to.
Speaker Change: I have limited my clients, so we are working with OCEP and trying.
Speaker Change #127:
Speaker Change: Give my clients more energy
Speaker Change #127: Give more capacity to my customer so that they can or hear city and so the th M. He's a waiver can be sold here city.
Speaker Change: so that they can go to the city
Speaker Change: And so the TSMC's waiver can be sold here.
Speaker Change #127: Okay.
Speaker Change: Okay, thank you, Cici. Thank you, Bruce. Operator, can we move to the first participant online for his or her questions, please?
C.C.: Okay. Thank you C. C. Thank you Bruce operator can we move to the first participant online for their question his or her questions. Please.
Speaker Change: Yes, the first one we got is Brad Simpson. The second one we got is Brad Simpson. Everything.
Speaker Change #127: Yes, the first one we got Brett Simpson.
Brett William Simpson: Brett Simpson Arete.
Speaker Change: Yeah, thanks very much. My question is really about your capacity plans for the next node, that's N2, including A16. We're hearing that AI chip makers are looking to migrate more aggressively from N-1 to the leading edge, particularly due to backside power, because they're trying to lower their power budgets going forward. So my question, can you support this move? And if so, should we be expecting N2, A16 to be structurally a much bigger node than we've seen in the past few nodes? Thank you.
Brett William Simpson: Yeah. Thanks, very much my question was really about.
Brett William Simpson: Your capacity plans for the next node.
Speaker Change #132: And to <unk>, including a 16.
Speaker Change #135: We are hearing in the AI chipmakers theyre looking to migrate more aggressively from a minus one is a leading edge, particularly Judah backside power because they're trying to lower their power budgets going forward and so my question can you support this move and if so should we be expecting.
Speaker Change #132: And two a 16 to be structurally a much bigger node than we've seen in the past few nodes. Thank you.
Speaker Change: Okay, Brett, thank you. So Brett's first question is on capacity planning, particularly at the leading edge, N2 and A16. So he notes rightly that AI customers are migrating aggressively from N-1 in the past to the most leading node. He notes particularly A16, driven by the interest in backside power. So his question is, can we support this move in terms of capacity to support the customers? And also, whether thus N2 and A16 will be a much bigger node than our nodes in the past?
Speaker Change #133: Okay. Brett. Thank you saw breads first question is on our capacity planning, particularly at the leading edge and two in 2016. So he notes rightly that AI customers are migrating aggressively from N minus one in the past through the most leading node he knows particularly a 16 driven.
Speaker Change #137: By the interest and backside power. So his question is can we support this move in terms of capacity to support the customers and also weather does and to end 2016 will be a much bigger node.
Speaker Change #133: Our notes in the past.
Brett William Simpson: Brett, you are right.
Brett William Simpson: Brett Youre right.
Brett William Simpson: All the people want to move into
Speaker Change #136: All the people will want to moving into a kind.
Speaker Change: They are looking for more advanced technology to save power consumption by using a power-efficient mode.
Speaker Change #134: Douglas power efficient mode. So they are looking for the more bonds. Our technology. So that you can share the power consumption.
Speaker Change #100: Therefore, many of my clients want to quickly move to N2, N2P, N16.
Speaker Change #138: And so a lot of my customer want to move into a into into P. H X gene quickly.
Speaker Change #101: We are working very hard to build the capacity to support them.
We are working very hard to build the capacity of the supported them today is DLP tight narrow a little bit actually today is a very tight EIOPA in.
Speaker Change #102: Today is a little bit tight, not a little bit actually, today is very tight.
Speaker Change #102: I hope in
Speaker Change #134: In.
Speaker Change #102: In the next one or two years, we can build enough capacity to support this demand.
Speaker Change #134: Next.
Speaker Change #134: Next year or the next two years. So we can build enough capacity to support this kind of a demand today, yes, we are working hard to support again.
Speaker Change #102: Today, yes, we are working hard to support them. And enough, not yet, but we are working hard to get it.
Speaker Change #134: And.
Speaker Change #134: You know not a year, but we are working hard to get it.
Speaker Change #134: Yeah.
Speaker Change #103: Does that answer your first question, Brett?
Speaker Change #134: Does that answer.
Brett William Simpson: And Brett.
Speaker Change #104: Yeah, that's great, Jeff. Thank you, CC Wei. My follow up question was for Wendell. I wanted to just dig into the gross margin dilution from N3. Where is that at today? And does the introduction of N3E structurally improve your N3 returns? I guess N3E is less capital intensive, there's less EUV layers. So I'm keen to understand if this drives better economics for TSMC, particularly as you start to ramp more N3 capacity in the second half of this year. Thank you.
Speaker Change #139: Yeah, that's that's great Jeff. Thank you C. C. Wei my follow up question was for Wendell.
Wendell Huang: I wanted to just.
Speaker Change #140: Dig into the gross margin dilution from an three where is that at today and does the introduction of an <unk> III E structurally improve your entry returns.
Speaker Change #141: I guess and three is less capital intensive theres less UV layers. So I'm keen to understand if this drives better economics for TSMC.
Speaker Change #142: Particularly as you start to ramp more empty capacity in the second half of this year. Thank you.
Speaker Change #105: All right, thanks, Brett. So Brett's second question is on the gross margin dilution from N3. He notes that N3E uses less EUV layers, less capital intensity. So his question is, as we ramp N3 more and more, does N3E structurally improve the returns and gross margin of N3 as a whole?
Speaker Change #143: Alright, Thanks, Brett So bread second question is on the gross margin dilution from <unk> and three.
Speaker Change #144: He he notes that N. Three he uses less UV layers less capital intensity. So his question is as we ramp and three more and more those N. Three E structurally improve the returns and gross margin of and three as a whole.
Speaker Change #106: Okay, Brett, we don't break it down between the different nodes within a family, but I can share with you, overall speaking, as we said before, N3 takes a longer while to reach the copper mark.
Speaker Change #145: Okay, Brad we don't break it down between the different Ah.
Speaker Change #146: No it's within the family, but I can share with you overall speaking as we said before and three takes a longer while two reached a copper mine.
Speaker Change #107: In the past, it was about 8 to 10 quarters. For N3, we're looking at 10 to maybe 12 quarters.
Speaker Change #147: In the past it was about eight to 10 quarters for entry we're looking at tend to maybe 12 quarters.
Speaker Change #107: But it is improving, and we expect it to continue to improve.
Speaker Change #147: But it is improving and we expect it to continue to improve.
Speaker Change #147: Okay.
Speaker Change #147: Thank you.
Speaker Change #108: Okay, thank you Brett. Operator, let's take the next set of questions from the next participant on the call, please.
Speaker Change #147: Okay. Thank you Brad operator, let's take the next.
Speaker Change #148: Set of questions from the next participant on the call. Please.
Speaker Change #109: The next question is from Charles Shi in Lincoln.
Speaker Change #149: Next one to ask question in childhood Shin from maintained go ahead. Please.
Yeah.
Speaker Change #110: Yeah, thanks for taking my questions. Maybe the first one, I just want to follow up. Wendell, I think I heard you talking about that potentially more N2I to N3 conversion, maybe beyond what you are trying to do right now, the conversion.
Speaker Change #150: Hi, Yeah, Thanks for taking my questions.
Shin: Maybe the first one I just wanted to follow up a window I think I heard you talking about that potentially more.
Shin: And imply to anchor it conversion.
Speaker Change #152: Maybe beyond that what you are trying to do right now the conversion.
Speaker Change #111: I just want to understand the overall philosophy here, because I think in the past, the TSMC does do this node-to-node conversion quite actively, let's say 10 nanometer to 7 nanometer, and probably even earlier, 20 nanometer to 16 nanometer.
Speaker Change #153: Just wanted to understand the overall philosophy here.
Speaker Change #154: Because I think in the past, but TSMC does do this node to node conversion quite actively let's say 10 nanometer to seven nanometer and probably even earlier 20 nanometer 16 nanometer.
Speaker Change #112: and I think you told us basically treat 10 and 7 as one large node, 20 and 16 as one large node. Should we start to really think about maybe 5 and 3 are just one big node and maybe more conversion, we should think about more of the N3 capacity growth will come from conversion going forward less from the greenfield investment, that's the first question.
Speaker Change #155: And I think that you you you told us basically treat 10 and seven as one large note plenty end of 16 as one large node shall we start to.
Speaker Change #156: Do we think about maybe fly in green are.
Just one big note and maybe more conversion what should we think about more of that inventory capacity growth will come from conversion going forward.
Speaker Change #157: Our Greenfield investments that's the first question.
Speaker Change #157: Okay.
Speaker Change #112: Okay, Charles. So Charles first question is really look at our conversion strategy. He notes that, you know, we have always talked about building in tool commonality to provide us flexibility. We have done so in the past at certain nodes like 20 and 16, 10 and 7. So his question is really, you know, we have said that we potentially convert more N5 tools to support the strong demand for N3 capacity. So his question is, should we investors and we'll start to think about N5 and N3 as one big node.
Okay. Charles So Charles' first question is really look at our our conversion strategy.
Speaker Change #158: He notes that you know we have always talked about building into a commonality to provide us flexibility we have done so in the past that certain nodes like 20 and 16.
Speaker Change #159: 10, and seven so his question is really.
Speaker Change #160: You know, we have said that we potentially convert more than five tools to support the strong demand for entry capacity. So his question is should we investors analysts start to think about and five and three as.
One big node.
Speaker Change #160: Okay.
Speaker Change #113: Right, you mentioned about 12 and 16, they are a big family. 7 and 10 are a big family. But five and three are not a big family in our definitions. At the same time, there are no to no tool commonality in TSMC is pretty high. So for five and three, the commonality of tools is over 90%. And these two nodes are adjacent, they're in all in Tainan Science Park. And so it's very easy to do the conversion.
Speaker Change #161: Right you mentioned about 12 and 16, they are a big family seven and 10 are a big family.
Five and three are not a big family in our definitions.
At the same time, there are no to know two commonality and TSMC is pretty high.
Speaker Change #161: So four five and three the commonality of tools is over 90% and these two nodes are adjacent there in all in Tainan.
Speaker Change #161: Science Park, and so it's very easy to do the conversions.
Speaker Change #161: Yes.
Speaker Change #113: Did I answer your questions?
Speaker Change #162: Did I answer your questions.
Speaker Change #113: Yes, may I ask a second question?
Speaker Change #162: Yes EMEA.
Speaker Change #163: Ask a second question.
Speaker Change #113: Certainly.
Speaker Change #163: Certainly.
Speaker Change #114: Thank you. There might be a question related to CoWAS. I think I heard CC say that there might be some technical difficulties on my end. I just want to clarify, maybe you will increase the capacity of CoWAS again in 2025. But there is a technical issue I want to understand better. Because your customers seem to be transitioning from CoWAS-S to the more advanced CoWAS-L and CoWAS-R. We learned that CoWAS-L and CoWAS-R do not require TSV and do not need large Sitka receivers. Does this help with the capacity issues you are facing to meet the demand balance target in 2025 or 2026? This is a two-part question. Thank you.
Speaker Change #163: Thanks.
Speaker Change #164: Maybe a question about cobalt I think iron ore.
Speaker Change #165: C C. You said maybe a.
Speaker Change #166: There's some technical difficulty on my side I just wanted to clarify maybe you're you may have double the cost capacity again.
Speaker Change #167: In plenty of quantified.
But a little bit more technical question I want I do want to better understand the technology constraints.
Speaker Change #168: Because your.
Speaker Change #169: Your customers seems to be migrating.
Speaker Change #170: From co ops as.
Speaker Change #170: To the more advanced version co ops.
Speaker Change #170: Costs are.
Speaker Change #170: And.
Speaker Change #171: We've learned that that caused all are.
Speaker Change #171: It does not require T. S need does not require a large set of kind of pose a.
Speaker Change #172: Does that help.
Speaker Change #173: At least to some degree the capacity constraints, you're facing overall co ops and does that help to maybe to achieve that goal of maybe getting back to the supply demand balance some point in 2020 pipeline timing sex and that's a tool.
Speaker Change #174: Pop question. Thank you.
Yu Shi: Okay, Charles. So Charles' question is really on COAS. First, he would like to clarify, we said that COAS capacity is more than doubling in 2024. He said, did we say, is he correct to understand we said it will double again in 2025? That's the first clarification. And then he would like to know, as customers migrate from COAS, as
Speaker Change #175: Okay trials. Those trials question is really on cost Firstly, you would like to clarify we said that our cost capacity is more than doubling in 2024. He said he.
Speaker Change #176: He did we say is he correct to understand we said it will double again in 2025, that's the first clarification and then he would like to know as customers migrate from core what's S. Two cost L and Carlos our solution a lot of technical churning challenges or benefits.
Speaker Change #116: Co-op's L and Co-op's R solution, a lot of technical challenges or benefits, changes, sorry, not challenges. Does it help alleviate the capacity constraints and would that allow Co-ops to reach supply-demand balance in 2025? So, one to clarify and one on the different solutions.
Speaker Change #177: Changes sorry, not challenging does it help alleviate the capacity constraints and would that allow us to reach supply demand balance in 2025, so want to clarify and one on the different solution.
Speaker Change #117: Well, boy, Charles, you really know all the detail of the technology.
Speaker Change #181: Well Boy Chars, you really know all the details of the technology you know the cole was our core Wassa is coauthor Iraq.
Speaker Change #118: You know the coax are, coax is, coax ill.
Speaker Change #119: No, no, no
Barbara: Brought Barbara.
Speaker Change #120: These are all because of the customer's requirements. So even if it is the same customer, they have different views on their different products. When I say our capability is doubled, it means all the different versions of silicone are combined together.
Speaker Change #178: All these kind of seeing needs are because of our customers a requirement. So.
Speaker Change #182: Even the same customer they have with different approaches for different product.
Speaker Change #178: When I say that we doubled the capacity. This is a submarine or the coupon version of the call was together.
Speaker Change #120: Uh, which portion is really double, which portion is much more than the other one?
Speaker Change #179: Which portion is really double which portion is much more than the other one.
Speaker Change #121: I'm not going to share with you because this is related to my customers' demand
Speaker Change #179: I'm not going to share with you because the dishes are related to my customers demand.
Speaker Change #122: So from last year to this year, we have already more than doubled. As I just mentioned, from this year to next year, we want to double again, or perhaps more than double. But I still need to work with our OZ partners to increase the overall supply to support my customers.
Speaker Change #179: So form last year to this year, we have more than doubled.
Speaker Change #179: And as I said from this year to next year we.
Speaker Change #179: We want to double again will probably want to more than double again, but still I have to work with our OEM partner to increase our overall supply to support of my customer.
Speaker Change #122: Whether that's this kind of a different version of the COAS or give me some flexibility today, yes and no. Because different version has a different tour set. But in common, some of the tours can be used by all the COAS.
Speaker Change #183: Who is it that these kind of a different version of the call was walk give me some flexibility.
Speaker Change #184: Today, Yes, and no because cuprum version has a coupon tore said, but income and some of the tours tour can be used.
Speaker Change #194: Used by all the coal was.
Speaker Change #122: But different versions have a different demand.
Speaker Change #183: But a different version I have would have a different demand.
Speaker Change #123: Okay, thank you, Cici. Thank you, Charles. We'll come back to the floor for the next two questions, please. We'll take the first one from Laura Chen from Citigroup, and then we'll go to Sunny Lin from UBS. Thank you, Jeff. Thank you for taking my question. My first question is also on the advanced node. I remember, Cici, you mentioned earlier that every client is now engaged with you on the two nanometers migration. So I'm just wondering that when we enter in maybe 2026, the second year, can we expect that the revenue contribution initially will be larger than what we had compared to N3? And also wondering that since the performance is much better, so can we expect the dilution period to also be shorter than N3?
Speaker Change #186: Okay. Thank you C. C. Thank you Charles will come back to the floor for the next two questions. Please we will take the first one from Laura Chen from Citigroup and then we'll go to Samuel <unk> from UBS. Thank you.
Chia Yi Chen: Thank you for taking my question. My first question also on that note I remember OTT you mentioned earlier that the epic clients are now engaged in the deal are either too narrowly tends that migration.
Speaker Change #189: Just one going bad when we entering mainly 2026.
Speaker Change #183: Okay.
Speaker Change #191: Yeah, Yeah, we expect that the revenue contribution initially will be larger than what we had comparing to LTE and also one doing that.
Speaker Change #187: I think the persona launch pad hey, so can we expect that the dilution appear there will also be shortening empty.
Speaker Change #124: OK, oh, sorry
Speaker Change #185: Okay, Oh, sorry.
Speaker Change #125: Sorry. So Laura's first question is about N2, basically, that, you know, almost every customer is engaging with TSMC on 2 nanometer technology. So her question is, do we expect the revenue contribution from N2 in 2026, therefore, to be larger than compared to N3 at a similar point in time of the ramp? And also, correspondingly, would the N2 margin dilution be less or better than N3, basically? I will give this kind of a mummy's question to the CFO .
Speaker Change #183: Sorry.
Speaker Change #188: So lowest first question is about and to basically.
Speaker Change #196: That you know almost every customers engaging with TSMC on two nanometer technologies saw her question is do we expect the revenue contribution from into in 2026, therefore to be larger than compared to N. Three at some point in time of the ramp and also correspondingly with the end to margin dilution.
Speaker Change #192: P less or better than entry basically I'll give these kind of among knees a question to the CFO.
Speaker Change #125: [inaudible]
Alright law the revenue, yes, it's going to be bigger.
Speaker Change #126: Growth Margin Delusion, it will be faster to reach corporate.
Speaker Change #193: Our gross margin dilution it'll be faster to reach corporate average.
Speaker Change #127: Very clear, very helpful, thank you. My second question is about packaging. We know that last time we also discussed that HAI will help TSMC in advancing projects and product ranges. I just want to know if you also see your HAI product customers transitioning to 3DIC or SOIC within the next two years, or can we expect more customers to transition to information on smartphones before that happens? Because currently, our understanding is that there is only one customer on the information side. I just want to know if we will see more customers transitioning to HAI's advanced packaging projects. Thank you. Okay, Liu Wei's second question is very specific but also about advanced packaging. There are more and more customers working on HAI equipment. Although not particularly specific, what does this mean and what impact does it have on the way of advanced packaging? We expect to see these HAI customers start using SOIC or 3DIC within the next two years, especially in smartphones. They will also use information.
Speaker Change #195: Okay, that's very clear and helpful. Thank you and also myself, who has seen Allison on the packaging side. We note that our last time, we had always thought of it.
Speaker Change #197: And H AI will also penalty, but TSMC in terms of the advance now with the Bay area I'm. Just wondering that do you also see dealer an H a advised client and moving kids TDI here and so I think anytime in the next two years or before that.
Happening or can we expect a more kind of on the smartphone side. They were also adaptor maybe info first because so far are understanding that info you only have one other thing.
Speaker Change #197: No.
Speaker Change #197: High single time, I'm, just wondering at what we see if.
Speaker Change #198: If we just add more clients, Tim Luke on the H AI side, our advanced packaging. Thank you. Okay. So Laura second question is very specific but I again in regards to advanced packaging with more and more.
Speaker Change #198: Customers working on edge AI devices.
Speaker Change #199: Without being overly specific but what does the mean or the implication for advanced pack to packaging solutions.
Speaker Change #200: We expect in the next two years to see these edge AI customers start to use S O IC or three D. I C.
Laura: Particularly smartphone will they still be using info or were they also consider these solutions as well is that correct Laura okay.
Speaker Change #128: Well, very technical question.
Laura: Well very technical questions.
Speaker Change #129: Let me share with you, as my customer moving into 2nm or 816, they all need to
Laura: Let me share with you as my customer moving into two nanometer or a 16.
I'll need to Uh huh.
Speaker Change #130: Probably taking the approach of chipless
Speaker Change #202: Probably taking the approach of chip less.
Speaker Change #131: So when you use chips, you must use packaging technology.
Speaker Change #203: So once you use your chip you had two using advanced packaging technologies.
Speaker Change #132: HAI for those smartphone customers
Speaker Change #203: The edge AI for Rosa Candlewood smartphone customer.
Speaker Change #133: Compared to HPC's customers, HPC moves faster because of concerns about frequency, latency, load, etc.
Speaker Change #203: As compared with the HPE customer edge fish is moving faster because of <unk>.
Speaker Change #204: Bedroom is concern data you see our footprint or those kind of team.
Speaker Change #133: For smartphone customers, they need to pay more attention to the screen.
Speaker Change #204: For smartphone customer data into our.
Speaker Change #205: Pay more attention.
Speaker Change #205: Please.
Speaker Change #133: All the aunts
Okay.
Speaker Change #205: Okay.
Speaker Change #133: Yeah, I'll catch you there.
Speaker Change #205: Yeah catch it up.
Speaker Change #205: Hey.
Speaker Change #134: Thank you very much. Thank you, Laura. We'll take the next question from Sunny Lin from UBS and then we'll go back to the call.
Speaker Change #206: Okay. Thank you Laura we'll take the next question from a Sunny Lin from UBS and then we'll go back to the call.
Speaker Change #135: Thank you, Jeff. Good afternoon, CC and Wendell. Thank you for taking my questions. So my first question is on your business opportunities for smartphone and PC. Last few years, both were experts for quite some time. And so how we should think about the units and silicon content for the coming two, three years? First part, a lot of questions on the type supply for 5 and 3 nanometers. And so are your customers engaging with you early on the planning into 2025 capacities for a better upgrade cycle? And then for silicon content, recall a few years back when 5G just started to ramp, you used to provide the silicon content expectations for 5G high-end and low-end smartphones. So I wonder, at this point of time, if you have any estimates for AI for smartphones going to the next two, three years?
Sunny Lin: Thank you Jeff Good afternoon. Thank you for taking my questions. So my first question is on your like for like portfolio P. C.
Sunny Lin: Yes.
Sunny Lin:
Speaker Change #208: Ah well EXPAREL for quite some time and so how we should think about the unit and silicon content for the coming two or three years our.
Speaker Change #209: First part.
Speaker Change #210: A lot of questions on the type of pipe of five and three nanometer.
Speaker Change #211: And so are your customers engaging with you early in the planning into 'twenty 'twenty five a capacity for better upgrade cycle and then for our silicon content I recall, a few years back when <unk> start to ramp I used to provide us silica content expectation off of <unk> high and low end smartphones.
Speaker Change #212: At this point of time, if you have any estimate for AI for smartphone going to next year, yes.
Sonny: Okay. Several parts to Sonny's first question she's looking at smartphone and PC. So the first part is she wants to know in terms of unit in silicon content, what is our expectation for smartphone and Pcs. The next few years.
Speaker Change #214: And fibers and three supply is very tight in terms of the capacity can do we have enough capacity to support a potential.
Speaker Change #215: Potential unit or upgrade cycle and.
Speaker Change #135: Last but not least, she's asking us to quantify the silicon content per device per segment from Edge AI.
Speaker Change #216: Last but not least she's asking us to quantify the silicon content.
Speaker Change #217: Per device per segment from <unk>.
Speaker Change #218: <unk> AI.
Speaker Change #136: Very long question, but let me answer the content first.
That's a very long question, but maybe.
Speaker Change #218: Let me answer the content for us.
Speaker Change #137: AI is very difficult. Now all customers want to put AI functions on Edge phones, so the replacement quantity will increase.
Speaker Change #219: AIA so harsh so that's our right now everybody all my customer want to put out their ear functionality into the H devices and so the die size will be increased.
Speaker Change #138: Ah
Speaker Change #218: Okay.
Speaker Change #139: I mean, it varies depending on the customer's product. But generally, a size increase of probably 5 to 10% is a good rule of thumb. As for unit growth, not yet.
Speaker Change #220: How much I mean, he is different from my customer to customer as a product.
Speaker Change #221: Basically property, you, 5% to 10% die size decrease won't be general.
Speaker Change #222: Rule unit or not yet.
Speaker Change #140: OK, because we did not see a sudden increase like a unicorn, but we expect this AI functionality to stimulate some of the demand, thereby shortening the replacement cycle.
Speaker Change #223: Because of all we did now he.
Speaker Change #224: Kind of a union of course suddenly inquiries, but we expect these AI functionality was stimulated some of the demand so stimulated a replacement to be shorter.
Speaker Change #140: Therefore, in terms of degree growth in a few years, you will start to see significant growth in about two years.
Speaker Change #224: So in terms of a union of course that are using a few years later.
Speaker Change #225: Probably two years of data you will start to see a big increase.
Speaker Change #140: in the edge device that's a smartphone and the PC.
In the H device that is smartphone and PC.
Speaker Change #140: and will we have enough capacity to support.
Speaker Change #226: And where we have enough capacity to support.
Speaker Change #140: This is the answer I was trying to avoid. It is very, very close.
Speaker Change #225: Okay.
Speaker Change #227: That's the one I tried to avoid the answer is very very tight.
Speaker Change #141: And we are working very, very hard to get enough capacity to support my customers.
Speaker Change #227: And we are working very very hard to get.
Speaker Change #227: In our Capex to support my customer.
Speaker Change #141: from now all the way to next year to 2020
Speaker Change #227: For now all the way through next year 2020 ships.
Speaker Change #142: Got it. Thank you, Cici, for the answer. So my second question is trying to look at the demand profile from different perspectives. If we look back in 2021 or early 2022, back then, demand was also pretty high. Customers were very aggressive on the demand forecast. Now, looking at GNI, obviously, the technology has lots of great potential, but a new technology could also have lots of volatility when it starts to ramp. And so how are we managing the volatility of the demand? Why do you think this time around is different versus COVID period? How do we get comfortable with our capacity planning?
Speaker Change #228: Thank you. Thank you for that answer. So my second question is tied to look at the demand profile from different perspectives.
Speaker Change #229: If we look back in 2021 or early 2022 patent in that was also pretty high.
Speaker Change #230: Customers, who are very aggressive on the demand forecast.
Speaker Change #231: Now looking at Jennie I, obviously, the technology have lots of great potential, but a new technology called also have lots of volatility.
Speaker Change #231: And so how are we managing that volatility.
Speaker Change #231: Volatility of the demand.
Speaker Change #232: Why do you think this time around it's different back debt.
Jennie: Call it peer at how do we get comfortable with our capacity planning.
Speaker Change #142: Okay, thank you, Sunny. So Sunny's second question goes back to TSMC's capacity planning and CAPEX framework.
Speaker Change #233: Okay. Thank you Sunny Sunny and second question is goes back to Tsmc's capacity planning and Capex framework. So she notes. We you know today January 8th AI related demand is very strong, but she also notice a few years ago back in 2001 in 'twenty two demand was also a bearish.
Speaker Change #143: So she notes today AI-related demand is very strong, but she also notes a few years ago, back in 2001 and 22, demand was also very strong. Many customers were also very positive or upbeat on the future demand. And so today with such strong generative AI demand, how does TSMC plan its capacity appropriately? How do we manage, I think your word was volatility, how do we manage the risk? Basically, I guess, of not overbuilding capacity in this type of environment.
Speaker Change #237: Strong many customers were also very positive or upbeat on the future demand and so today with such strong generative AI demand how does TSMC planets capacity appropriately how do we manage I think your word was volatility how do we manage the risk basically I guess of not overbuilt.
Speaker Change #235: <unk> capacity.
Speaker Change #233: In this type of environment.
Speaker Change #143: I thought I explained that our capacity planning process, right, and the investment we have
Speaker Change #236: I thought I explained that our cap has he premium process right and the investment we have.
Speaker Change #236: Okay.
Speaker Change #238: Okay. It's all Arthur first question, he would like to understand more about superpower rail or our.
Speaker Change #239: Best in class backside powered solution as it relates to data center demand. He knows as we said that it brings greater power efficiency from the chip level. His question without specific numbers, but what does the mean for the system level power consumption savings what does that mean for our customers customers' ability in terms of total cost of one.
Speaker Change #240: Those ship in terms of the power savings and.
Speaker Change #144: Does it mean that the more you buy?
Speaker Change #241: Does it mean that the more you buy.
Speaker Change #145: The more you say.
Speaker Change #242: The more you save.
Speaker Change #146: The more you buy TSMC's waiver, the more you say yes.
Speaker Change #243: The more you buy tsmc's a waiver the more you save.
Speaker Change #243: Yes.
Speaker Change #244: Sorry, I, just I want to I like my customer.
Speaker Change #147: I like my coffee
Speaker Change #148: Uh your question
Speaker Change #245: Your question.
Speaker Change #149: Arthur, you say that 20% save in the chips.
Speaker Change #246: Sir you say that 20% saving the chips.
Speaker Change #247: Paul consult machine does that directory reprice to a you know indicated that the system house.
Speaker Change #149: Whether to respond directly shows that the system's power consumption has decreased by 20%
Speaker Change #248: Power consult machine were reduced by 20%.
Speaker Change #150: Probably not, because of the whole system, including the connection, including the networking, including the processes of power consumption.
Speaker Change #249: Probably not because of the whole system, including the connection including their networking, including the processors power consumption. So unless every component is favorable 20% then you cannot ship, 20%, but again the.
Speaker Change #151: So unless each element retains 20%, only then can you achieve it.
Speaker Change #151: But again
Speaker Change #151: The accelerator or the CPU is a big portion of the whole system's power consumption.
Speaker Change #250: <unk> or the GPU is a big portion of the whole systems.
Speaker Change #250: Our consulting sheet. So even it is not a 'twenty version is significant portion of it and so that's why all my customer want to use in the leading edge and they are very aggressive to move into the two nanometer technology.
Speaker Change #151: So even if it is not 20%, it is significant.
Speaker Change #152: So all my clients want to use Leading Edge. They are aggressively transitioning to 2nm.
Speaker Change #153: Thank you. So I also, you know, encourage the company to do the right thing. So energy efficiency computing is definitely our goal for human beings. And then, so I also would like to get more color about when you go into the A16, and when we expand the...
Well. Thank you so I also.
Speaker Change #251: I'll encourage a company to do the right thing.
Speaker Change #251: So energy efficiency computing that definitely our goal for human beings and then so I also.
Speaker Change #251: We'd like to get more color Paul when you go into the exit 16.
Paul: And when we expand the capacity, but everything because the bottleneck would be.
Speaker Change #153: What do you think is the biggest bottleneck?
Speaker Change #154: So Arthur's second question is in terms of A16, what would be the biggest bottleneck to expand our capacity of A16 to support our customers?
Arthur: Okay. So Arthur second question is in terms of a 16, what would be the biggest bottleneck to extend our capacity after 2016 to support our customers if any.
Speaker Change #154: Thank you
Speaker Change #155: We always say that, you know, when TSMC wants to expand the capacity
Speaker Change #254: We always say that.
Paul: You know when <unk>, you want to expand our capacity.
Speaker Change #156: We need the land, we need the electricity, we need the talent.
Speaker Change #255: We need the land we need the electricity, we need the talent the people and so all GFR.
Speaker Change #156: [inaudible]
Speaker Change #255: Okay. Thank.
Speaker Change #156: Thank you
Speaker Change #256: Thank you.
Speaker Change #157: Okay, thank you. And then in the interest of time, we'll take questions from the last participant on the floor, which is Brad Lin from Bank of America.
Speaker Change #257: Okay. Thank you and then in the interest of time, we'll take question from the last participant on the floor, which is bad then from Bank of America Merrill Lynch I think of Jeff probably taking my question. So I have two question. The first one would be on <unk>. During the compute tasks. We obviously have seen quite some big tech companies.
Speaker Change #158: Jeff, thank you for taking my question. So I have two questions. The first one will be on that during the computer. We obviously have seen quite
Speaker Change #159: announced that they are going to accelerate the Pordell launch cadence.
Speaker Change #258: <unk> announced that they are going to celebrate the launch cadence.
Speaker Change #160: So what's the implication to TSMC? Should that give TSMC a better visibility on the pipeline and also the capacity planning? And on the other side, so what are the major challenges that you might
Speaker Change #259: What's the implication to TSMC I showed that gave TSMC a better visibility on their part to our pipeline and also the capacity planning and on the other side. So what are the major challenges that you might face with this faced hurricanes.
Speaker Change #160: uh, face her.
Speaker Change #161: Okay, so Brad's first question is that that Computex recently, several companies announced their intention to accelerate their product cadence or product launches. So his question is, what does this mean? Implications to TSMC in terms of capacity planning in terms of supporting our customers, etc, etc. Is that right?
Brad: Okay. So brad's first question is that that Computex recently, several companies announce their intention to accelerate their product cadence or product launches. So his question is what does this mean implications to TSMC in terms of capacity planning in terms of supporting our customers et cetera, et cetera is that right. Okay.
Speaker Change #259: Yeah.
Speaker Change #162: Well, we like this kind of trend because of TSMC.
Well, we'd like this kind of a trend because of a TSMC is.
Speaker Change #163: very good as a leading edge development
Speaker Change #259: A very good at the leading edge development.
Speaker Change #164: So actually, for each of our products, it takes at least one and a half to two years from design.
Speaker Change #259: And so we actually we.
Speaker Change #261: Every protocol when they design it is tests of one and half years to two years.
Speaker Change #164: So we got this kind of message.
Speaker Change #261: We've got this kind of a message that says.
Speaker Change #164: Happy Dynamics
Speaker Change #262: Quite a long time ago.
Speaker Change #165: My clients announced because they are very happy.
Speaker Change #263: My customer announced it because they're so happy and so we are happy also to go they want us to show already so I took that Oh device.
Speaker Change #165: So we are also very happy because they want us to share our values
Speaker Change #165: I take that advice.
Speaker Change #262:
Speaker Change #262: But.
Goku Douglas: Goku Douglas.
Speaker Change #165: Okay, so...
Speaker Change #265: Okay. So to answer your question, yes, we have been prepared.
Speaker Change #165: To answer your question, yes, we have been prepared.
Speaker Change #166: It's not just because they announced it in June . We had already discussed it with them and prepared for such a change.
Speaker Change #265: And not only because of us in Q they announced it.
Speaker Change #265: <unk>.
Earlier, we already discussed with them.
Speaker Change #265: Even though we are prepared for these kind of changes.
Speaker Change #166: Got it. Thank you very much. So I would assume that would help.
Speaker Change #266: Got it. Thank you very much. So I was assuming that will help us well kind of sell that value easier.
Speaker Change #166: kind of felt the value.
Speaker Change #166: [inaudible]
Speaker Change #267: The second question would be on the well obviously, we should also see the biggest for cranes of their AI chips. So well there are quite some activity. This about a fan fan out panel level packaging. So do you think of that a solution will be kind of matching in the in the mid to long run or does.
Speaker Change #166: mentioned in the MeToo long run, or does TSNC have any plan to do the related investments?
Speaker Change #267: Does TSMC have how have any plan to do investments. Thank you. Okay. So Brad. The second question is that again with AI related chips that they're larger and larger die sizes. So his question is in terms of advanced packaging and specifically fan out panel level packaging is this something that here soon.
Speaker Change #167: Okay, so Brad's second question is that, again, with AI-related chips, that there are larger and larger die sizes, so his question is in terms of advanced packaging, and specifically fan-out panel-level packaging, is this something that TSMC is looking at or exploring to do? Would this be something for TSMC in the mid- to long-term?
Speaker Change #268: He is looking at or exploring to do.
Speaker Change #272: Would this be something 14th something in the mid to long term.
Speaker Change #168: Yes, we are looking at this as kind of a penetrable technology.
Speaker Change #270: AH Yes, we are looking at this as kind of a panel level fan out technology.
Speaker Change #169: But so far it has not matured, so I personally think it will take at least three more years to mature.
Speaker Change #270: But the maturity today is not.
Not yet so I personally I was thinking about the at least three years of data.
Speaker Change #169: in this, within these three years.
Speaker Change #273: Okay. In this we think these three years.
Speaker Change #170: We don't have any very solid solution for a die size bigger than 10 times the radical size.
Speaker Change #269: We don't have any breweries.
Speaker Change #269: Breweries, Saudi that solution for a die size bigger than 10 times of the reticle size today.
Speaker Change #171: Today we support our customers in achieving 5X, 6X chip specifications
Speaker Change #269: Today, we support all customer all the way to fiber.
Speaker Change #269: Six acts so chip size.
Speaker Change #171: I'm talking about the fuel size, the biggest fuel size.
Speaker Change #271: I'm talking about the pure size of the package size.
Speaker Change #171: Three years later, I believe in this project
Speaker Change #271: Three years of data I believe the panel fan out what be start to be introduced and we are working on it.
Speaker Change #171: We are researching
Speaker Change #171: and we will be ready for it as well, of course.
Speaker Change #271: And we will be ready for it as well of course.
Speaker Change #172: All right. Thank you, Cece. Thank you, Brad. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 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, everyone, for joining us today. We hope everyone continues to stay well, and we hope you will join us again next quarter. Goodbye, and have a great day.
Speaker Change #274: Alright. Thank you C C. Thank you Brad. Thank you everyone. This concludes our Q&A session before we can 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 to tsmc's website at trip.
Speaker Change #271: W. Dot TSMC dot com. So thank you everyone for joining US today, we hope everyone continues to stay well and we hope you will join US again next quarter Goodbye and have a great day.
Speaker Change #271: Okay.
Speaker Change #271: Okay.
Speaker Change #271: Okay.
Speaker Change #271: Okay.