Q3 2024 Taiwan Semiconductor Manufacturing Co Limited Earnings Call

October 17, 2024

Operator: Welcome to TSMC's third quarter of 2024 earnings conference call.

Welcome to TSMC's 2024 Q3 Investor Conference

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Due to the fact that this event is broadcasted simultaneously to global investors, we will be using English throughout. Thank you for your understanding.

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Speaker Change: Good afternoon everyone and welcome to TSMC's third quarter 2024 earnings conference call.

Speaker Change: Good afternoon, everyone and welcome to Tsmc's third quarter 2024 earnings Conference call.

Jeff Su: This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcasts through the company's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode.

Speaker Change: This is Jeff Su, TSMC's Director of Investor Relations and your host for today.

Speaker Change: This is Jeff Sue Tsmc's director of Investor Relations and your host for today.

Speaker Change: TSMC is hosting our earnings conference called the Live Audio Webcast through the company's website at www.tsmc.com

Speaker Change: TSMC is hosting our earnings conference call via live audio webcast through the company's website at Triple W. Dot TSMC Dot com.

Speaker Change: where you can also download the Ernie's release material.

Speaker Change: You can also download the earnings release materials.

Speaker Change: If you are joining us through the conference call, your dial in lines are in listen only mode.

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

Jeff Su: The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the third quarter of 2024, followed by our guidance for the fourth quarter of 2024. Afterwards, Mr. Huang and TSMC's chairman and CEO, Dr. C.C. Wei will jointly provide the company's key messages.

Speaker Change: The format for today's event will be as follows

Speaker Change: The format for today's event will be as follows.

Speaker Change: First, TSMC Senior Vice President and CFO , Mr. Wendell Huang, will summarize our operations in the third quarter of 2024.

Speaker Change: First Tsmc's senior Vice President and CFO, Mr. Wendell Huang will.

Speaker Change: We will summarize our operations in the third quarter 2020 for.

Speaker Change: followed by our guidance for the fourth quarter, 2024.

Speaker Change: Followed by our guidance for the fourth quarter 2024.

Speaker Change: Afterwards, Mr. Huang and TSMC's Chairman and CEO , Dr. C.C. Wei.

Speaker Change: Afterwards, Mr Huang and Tsmc's, Chairman and CEO Dr. C C Wei will jointly.

Speaker Change: will join you provide the company's key messages.

Speaker Change: To provide the company's key messages.

Jeff Su: Then, we will open the line for a question and answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please do refer to the Safe Harbor notice that appears in our press release.

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

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

Speaker Change: As usual I would like to remind everybody that today's discussions may contain forward looking statements that are subject to significant risks and uncertainties.

Speaker Change: Which could cause actual results to differ materially from those contained in the forward looking statements.

Speaker Change: Please do refer to the Safe Harbor Notice that appears in our press release.

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

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

Speaker Change: And now, I would like to turn the call over to TSMC-CFO, Mr. Wendell Huang for the summary of operations and the current quarter-guides.

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

Wendell Huang: Thank you, Jeff.

Wendell Huang: Thank you, Jeff. Good afternoon, everyone.

Wendell Huang: Thank you Jeff.

Wendell Huang: Good afternoon, everyone. Thank you for joining us today. My presentation will start with the financial highlights for the third quarter of 2024. After that, I will provide the guidance for the fourth quarter of 2024. Third quarter revenue increased 12.8% sequentially in NT, as our business was supported by strong smartphone and AI-related demand for our industry-leading three nanometer and five nanometer technologies. Gross margin increased by 4.6 percentage points sequentially to 57.8%, mainly reflecting a higher capacity utilization rate and cost improvement efforts. Due to operating leverage, total operating expenses accounted for 10.4% of net revenue. Thus, operating margin increased by 5 percentage points sequentially to 47.5%.

Wendell Huang: Good afternoon, everyone.

Wendell Huang: Thank you for joining us today.

Wendell Huang: My presentation will start with the financial highlights for the third quarter of 2024.

Wendell Huang: After that, I will provide the guidance for the fourth quarter of 2024.

Wendell Huang: After that.

Wendell Huang: I will provide the guidance for the fourth quarter of 2024.

Wendell Huang: Third quarter revenue increased 12.8% sequentially in N.T.

Wendell Huang: Third quarter revenue increased 12, 8% sequentially and NT.

Wendell Huang: As our business was supported by strong smartphone and AI related demand for our industry leading 3 nanometer and 5 nanometer technology.

Wendell Huang: As our business was supported by strong smartphone and AI related demand for our industry, leading three nanometer and five nanometer technologies.

Wendell Huang: Gross margin increased by 4.6% percentage points sequentially to 57.8%

Wendell Huang: Gross margin increased by four six percentage points sequentially.

Wendell Huang: 257, 8%.

Wendell Huang: Mainly reflecting a higher capacity utilization rate and cost improvement F.

Wendell Huang: Mainly reflecting our higher capacity utilization rate.

Wendell Huang: Cost improvement efforts.

Wendell Huang: Due to Operating Levels

Wendell Huang: Due to operating leverage total operating expenses accounted for 10, 4% of net revenue.

Wendell Huang: Total operating expenses accounted for 10.4% of net revenue. Thus,

Wendell Huang: Operating margin increased by 5% percentage point sequential

Thus.

Wendell Huang: Operating margin increased by five percentage points sequentially to 47, 5%.

Wendell Huang: Reached 47.5%

Wendell Huang: Overall, our third quarter EPS was 12.54 NT, and ROE was 33.4%.

Wendell Huang: Overall, our third quarter EPS

Wendell Huang: Overall, our third quarter EPS.

Wendell Huang: was 12.54 NT and ROE was 33.4%.

Wendell Huang: It was $12 five four and T.

Wendell Huang: Zero.

It was 33, 4%.

Wendell Huang: Now, let's move on to revenue by technology. Three nanometer process technology contributed 20% of wafer revenue in the third quarter, while 5 nanometer and 7 nanometer accounted for 32% and 17%, respectively. Advanced technologies defined as 7 nanometer and below accounted for 69% of wafer revenue. Moving on to revenue contribution by platform, HPC increased 11% quarter over quarter to account for 51% of our third quarter revenue. Smartphone increased 16% to account for 34%. IoT increased 35% to account for 7%. Automotive increased 6% to account for 5%. DCE decreased 19% to account for 1%.

Wendell Huang: Now, let's move on to revenue by technology

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

Wendell Huang: Three nanometer process technology contributed 20% of wafer revenue in the third quarter.

Wendell Huang: while 5 nanometer and 7 nanometer accounted for 32% and 17% respect.

Wendell Huang: While five nanometer and seven nanometer accounted for 32% and 17% respectively.

Wendell Huang: Advanced technologies defined as seven nanometer and below accounted for 69% of wafer rep

Wendell Huang: Advanced technologies defined as seven nanometer and below accounted for 69% of wafer revenue.

Wendell Huang: Moving on to Revenue Contribution by Platform

Wendell Huang: Moving onto revenue contribution by platform.

Wendell Huang: HPC increased 11% quarter over quarter to account for 51% of our third quarter revenue.

Wendell Huang: <unk> increased 11% quarter over quarter to account for 51% of our third quarter revenue.

Wendell Huang: Smartphone increased 16% to account for 34%.

Wendell Huang: Smartphone increased 16% to California's 34%.

Wendell Huang: IOT increased 35% to account for 7%.

Wendell Huang: Iot increased 35% to account for 7%.

Wendell Huang: Automotive increased 6% to account for 5%

Wendell Huang: Automotive increased 6% to account for 5%.

Wendell Huang: DCE decreased 19% to account for one person.

Wendell Huang: DCE decreased 19% to account for 1%.

Wendell Huang: Moving on to the balance sheet. We ended the third quarter with cash and marketable securities of 2.2 trillion NT or 69 billion ULS dollars. On the liability side, current liabilities increased by 31 billion NT, while long-term interest bearing debt decreased by 38 billion NT. This change was primarily driven by the reclassification of 42 billion NT in bounce parable from non-current to current liabilities. In terms of financial ratios, accounts receivable turnover days remain steady at 28 days. Inventory days increased by 4 days to 87 days, primarily due to the pre-build of M3 and M5 wafer. Regarding cash flow and KPACs, during the third quarter, we generated about 392 billion NT in cash from operations, spent 207 billion in KPACs, and distributed 91 billion for fourth quarter 23 cash dividend.

Wendell Huang: Moving on to the balance.

Wendell Huang: Moving onto the balance sheet.

Wendell Huang: We ended the third quarter with cash and marketable securities of 2.2 trillion NT or $69 billion

Wendell Huang: We ended the third quarter with cash and marketable securities of $2 two trillion in tea.

Wendell Huang: Or 69 billion U S dollars.

Wendell Huang: On the liability side, current liabilities increased by 31 billion NT, while long-term interest

Wendell Huang: On the liability side current liabilities increased by 31 billion NT, while long term interest bearing debt decreased by 38 billion NT.

Wendell Huang: This change was primarily driven by the reclassification of 42 billion NT in bounce parable from non-current to current liable.

Wendell Huang: This change was primarily driven by the reclassification of 42 billion NT in bonds payable.

Wendell Huang: Non current to current liabilities.

Wendell Huang: in terms of financial

Wendell Huang: In terms of financial ratios.

Wendell Huang: Accounts Receivable Turnover Days Remains Study at 28 Days

Wendell Huang: Receivable turnover days remained steady at 28 days.

Wendell Huang: Inventory days, increased by 4 days to 87 days, primary due to the pre-build of M3 and M5 wave.

Wendell Huang: Inventory days increased by four days to 87 days, primarily due to the pre build of entry and five wafers.

Wendell Huang: regarding cashflow and cape

Wendell Huang: Regarding cash flow NK packs during the third quarter, we generated about 392 billion NT in cash from operations.

Wendell Huang: During the third quarter, we generated about 392 billion NT in cash from operations.

Wendell Huang: Spent 207 billion in KPOP

Wendell Huang: Spent 207 billion NK packs.

Wendell Huang: and Distributed 91 Billion for Fourth Quarter 23 Cash Divident.

Wendell Huang: And distributed 91 billion for fourth quarter 'twenty three cash dividend.

Wendell Huang: Overall, our cash balance increased 88 billion NT to 1.9 trillion at the end of the quarter. In U.S. Dollar terms, our third quarter capital expenditures total $6.4 billion.

Wendell Huang: Overall, our cash balance increased 88 billion NT to 1.9 trillion at the end of the quarter.

Wendell Huang: Overall, our cash balance increased 88 billion NT to one nine trillion at the end of the quarter.

Wendell Huang: In U.S. dollar terms, our third quarter capital expenditures total 6.4 billion

Wendell Huang: In U S dollar terms, our third quarter capital expenditures totaled $6 4 billion.

Wendell Huang: I have finished my financial summary. Now let's turn to our current quarter guidance. Based on the current business outlook, we expect our fourth quarter revenue to be between 26.1 billion and 26.9 billion U.S. dollar. which represents a 13% sequential increase or a 35% year-over-year increase at the midpoint. Based on exchange rate assumption of $1 USD to $32 NT, gross margin is expected to be between 57% and 59%, operating margin between 46.5% and 48.5%.

Wendell Huang: I have finished my financial summary. Now, let's turn to our current courted guide.

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

Wendell Huang: based on the current business owner.

Wendell Huang: Based on the current business outlook, we expect for our fourth quarter revenue to be between $26 1 billion and $26 9 billion U S dollars, which represents a 13% sequential increase or in a 35% year over year increase.

Wendell Huang: We expect our fourth quarter revenue to be between $26.1 billion and $26.9 billion in US dollars.

Wendell Huang: which represents a 13% sequential inc- [inaudible]

Wendell Huang: or a 35% year-over-year increase at the midpoint

Wendell Huang: <unk> at the midpoint.

Wendell Huang: Based on exchange rate assumption of one US dollar to 32 NT.

Wendell Huang: Based on exchange rate assumption of one U S dollar to 32 N T.

Wendell Huang: Gross Margin is expected to be between 57% and 59%.

Wendell Huang: Gross margin is expected to be between 57% and 59%.

Wendell Huang: Operating Margin Between 46.5% and 48.5%

Wendell Huang: Operating margin between 46, 5% and 48, 5%.

Wendell Huang: This concludes my financial presentation.

Wendell Huang: Okay.

C.C. Wei: Now, let me turn to our key messages. I will start by talking about our third quarter 24 and fourth quarter 24 profitability. Compared to a second quarter, our third quarter gross margin increased by 460 basis points sequentially to 57.8%, primarily due to a higher capacity utilization rate and better cost improvement efforts, including productivity gains. Compared to our third quarter guidance, our actual gross margin exceeded the high end of the range provided three months ago by 230 basis points, mainly due to a higher than expected overall capacity utilization rate. We have just guided our fourth quarter gross margin to increase by 20 basis points to 58% at the midpoint.

Speaker Change: Now, let me turn to our key message.

Wendell Huang: Yes.

Speaker Change: Now, let me turn to our key messages.

Speaker Change: I will start by talking about our 3rd quarter 24 and 4th quarter 24 profitability.

Speaker Change: I will start by talking about our third quarter, 'twenty, four and fourth quarter 2000 and for profitability.

Speaker Change: Compared to a second quarter, our third quarter growth margin increased by 460 basis points

Speaker Change: Compared to a second quarter or third quarter gross margin increased by 460 basis points sequentially to 57, 8%, primarily due to higher capacity utilization rate and better cost improvement efforts, including productivity gains.

Speaker Change: Primarily due to a higher capacity utilization rate and better cost improvement efforts, including productivity gain.

Speaker Change: <unk>.

Speaker Change: Compared to our third quarter guide,

Speaker Change: Compared to our third quarter guidance.

Speaker Change: Our actual gross margin exceeded the high end of the range provided three months ago by 230

Speaker Change: Our actual gross margin exceeded the high end of the range provided three months ago by 230 basis points, mainly due to a higher than expected overall capacity utilization rate.

Speaker Change: We have just guided our fourth quarter gross margin to increase by 20 basis points to 58% at the midpoint.

C.C. Wei: This is primarily due to a higher overall capacity utilization rate in the fourth quarter, partially offset by continued delusion from N3 ramp up, higher electricity prices in Taiwan, and N5 to N3 tool conversion cost.

Speaker Change: This is primarily due to a higher overall capacity utilization rate in the fourth quarter.

Speaker Change: partially offset by continued delusion from N3 ramp up, higher electricity prices in Taiwan and N5 to N3-2 conversion cost. Next,

Speaker Change: Partially offset by continued dilution from entry ramp up higher electricity prices in Taiwan, and five to entry tool conversion cost.

C.C. Wei: Next, let me talk about our 2024 KPax. Every year, our KPax is spent in anticipation of the growth that will follow the future years. And our KPax and capacity planning is always based on the long-term market demand profile. As the strong structural AI-related demand continues, we continue to invest to support our customers' growth. We now expect our 2024 KPax to be slightly higher than 30 billion US dollars. Between 70 and 80% of the capital budget will be allocated for advanced process technologies. About 10 to 20% will be spent for specialty technologies, and about 10% will be spent for advanced packaging, testing, mass making, and others.

Speaker Change: Next let.

Speaker Change: Let me talk about our 2024 KP-

Speaker Change: Let me talk about our 'twenty 'twenty four capex.

Speaker Change: Every year, our KPACs are spent in anticipation of the growth that will follow the future

Speaker Change: Every year, our Capex is spent in anticipation of the growth that will follow the future years, and our Capex and capacity planning is always space on the long term market demand profile.

Speaker Change: and our KPACs and capacity planning is always based on the long-term market demand proof.

Speaker Change: As the strong structural AI-related demand continues, we continue to invest to support our customers growth.

Speaker Change: As the strong structural AI related demand continues we continue to invest to support our customers' growth.

Speaker Change: We now expect our 2024 KPACs to be slightly higher than 30 billion US dollars.

Speaker Change: We now expect our 2020 for capex to be slightly higher than 30 billion U S dollars.

Speaker Change: Between 70 and 80% of the capital budget will be allocated for events process technology.

Speaker Change: Between 70, and 80% of the capital budget will be allocated for advanced process technologies.

Speaker Change: About 10-20% will be spent for specialty technologies, and about 10% will be spent for advanced packaging, testing, mass making, and other

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.

C.C. Wei: At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. And as long as our growth outlook remains strong, we will continue to invest.

Speaker Change: At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years And as long as our growth outlook remains strong, we will continue to invest

Speaker Change: At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years and that's all as our growth outlook remains strong we will continue to invest.

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

C.C. Wei: Now, let me turn the microphone over to CC.

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

C.C. Wei: Thank you, Window.

C C: Thank you, window. Good afternoon, everyone. First, let me start with our near-term demand

C C: Thank you window.

C.C. Wei: Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our third quarter with revenue of US$23.5 billion, above our guidance in US data terms. Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry, the industry nanometer and five nanometer technologies. Moving into fourth quarter, we expect our business to continue to be supported by strong demand for our leading edge process technologies. We continue to observe extremely robust AI-related demand from our customers who are the second half of 2024, leading to increasing overall capacity utilization rate for our leading edge three nanometer and five nanometer process technologies.

C C: Good afternoon, everyone first let me start with our near term demand outlook.

C C: We concluded our third quarter with revenue of US$23.5 billion, above our guidance in US$10.

We concluded our third quarter with revenue of U S started $23 five bidding.

C C: Both our guidance in U S dollar terms.

C C: Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry in 3nm and 5nm technologies.

C C: Our business in the third quarter was supported by strong smartphone and AI related demand for our industry <unk> nanometer and five nanometer technologies.

C C: Moving into Force Quat

C C: Moving into fourth quarter.

C C: We expect our business to continue to be supported by strong demand for our leading edge process technology.

C C: We expect our business to continue to be supported by strong demand for our leading edge process technologies.

C C: We will continue to observe extremely robust AI-related demand from our customers who are the second half of 2024.

C C: We continue to observe extremely robust AI related demand from our customers, while the second half of 2024 D.

C C: leading to increasing overall capacity utilization rate for a leading S-3 nanometer-infinometer process technology.

C C: Leading to increasing overall capacity utilization rate for.

C C: For our leading edge three nanometer and five nanometer process technologies.

C.C. Wei: At TSMC, we define server AI processor as GPUs, AI accelerators, and CPUs performing training and inference functions, and do not include networking, edge, or undevice AI. We now forecast the revenue contribution from server AI processors to more than triple this year, than a count for mid-teens percentage of our total revenue in 2024, supported by our technology leadership and broader customer base. We are aware of position to capture the industry's growth opportunities.

C C: At TSMC, we defined server AI processor as a GPUs, AI accelerators, and CPUs performing training and inference functions, and do not include networking, edge, or un-device AI.

C C: At TSMC with <unk> silver AI processor asset Gpus.

C C: Accelerators.

C C: Cpus pro forming training.

C C: Inference functions.

C C: And to not including in crude networking edge or device AI.

C C: We now forecast the revenue contribution from server AI processors.

C C: We now forecast the revenue contribution from Sogou AI processors.

C C: to more than triple this year and account for mid-teens percentage of our total revenue in 2024.

Two more than triple this year and accounting for mid teens percentage of our total revenue in 'twenty 'twenty four.

C C: Supported by our technology leadership and broad customer base, we are well positioned.

C C: Supported by our technology leadership and broad.

C C: What our customer base, we are well positioned.

C C: To capture the industries of course, opportunity.

C C: To capture all the industries of course opportunities.

C.C. Wei: We now forecast our four-year revenue to increase by close to 30% in US data terms. Next, let me talk about our global manufacturing footprint update. TSMC's mission is to be the trusted technology and capacity provider of the global large-scale IT industry for years to come. All of our overseas decisions are based on our customers' needs, their value, some geographic flexibility, and necessary level of government support. This is also to maximize the value of our shareholders. In Arizona, we have received the strong commitment and support from our US customers and the US federal, state, and city governments, and have met civic progress in the past several months.

C C: We now forecast our four-year revenue to increase by close to 30% in U.S. other terms.

C C: We now forecast our full year revenue to increase by close to 30% U S dollar terms.

C C: Next, let me talk about our global manufacturing footprint update.

Next let me talk about our global manufacturing footprint to update.

C C: The TSMC submission is to be the trusted technology and capacity provider of the global large IT industry for years.

C C: Tsmc's our mission is to be the trusted technology and capacity provider of the global logic IC industry for years to come.

C C: All of our overseas decisions are based on our customers' needs, their various geographic precipities, and necessary level of government support.

C C: All of our decisions are based on our customers' need.

C C: Nobody was some geographic breadth of PDT and necessary level of government support.

C C: This is also to maximize the value of our shareholders.

C C: This is also to maximize the baidu of our shareholders.

C C: In Arizona, we have received the strong commitment and support from our U.S. customers and the U.S. federal, state and city government.

C C: In <unk> we.

C C: We have received a strong commitment and support from our U S customers.

C C: In the U S Federal state and city governments and have matched severe progress in the past several months.

C C: and have met severe progress in the past several months.

C.C. Wei: Our plan to build three fasts will help create greater economies of scale, as each of our five in Arizona will have a clear room area that is approximately double the size of a typical logical path. Our first step entered the engineering wafer production in April with four nanometer process technology, and the result is highly satisfactory with a very good yield. This is an important operational milestone for TSMC and our customers, demonstrating TSMC's strong manufacturing capability and execution. We now expect voting production of our Force 5 to start in the beginning of 2025 and are confident to deliver several of manufacturing quality and reliability from our FAP in Arizona as from our FAP in Taiwan.

C C: are planned to build three fasts, which will help create greater economies of scale. As each of our five in Arizona will have a kingdom area, that is approximately double the size of

C C: Our plan to build three Fabs why he helped create.

C C: Economies of scale as each of our fab are resolved now why have four key room area.

C C: <unk> approximated it doubled the size of what <unk> called logical fab.

C C: Our first web.

C C: Our first Wap.

C C: entered engineering wafer production in April with 4 nanometer process technology.

C C: Entered engineer wafer production in April with four nanometer process technology.

C C: And the result is a highly satisfactory with a very good yield.

C C: And the result is a highly satisfactory we saw very good yield D.

Speaker Change: This is an important operational milestone for THMC and our customers.

Speaker Change: D C said, an important operational milestone for TSMC and our customers.

Speaker Change: Demonstrating TSMC's Strong Manufacturing Capability and Exclusion

Speaker Change: Demonstrating tsmc's strong manufacturing capability and execution.

Speaker Change: We now expect voting production of our 4.5 to start in the beginning of 2025, and are confident to deliver several of manufacturing quality and reliability from our 5 in Arizona as from our 5 in Taiwan.

Speaker Change: We now expect volume production of our fourth fab two started in the beginning of 2025.

Speaker Change: And our confidence to deliver seven debut or better fracturing quantity and readout PDT form all fab in Arizona as form all Fabs in Taiwan.

C.C. Wei: Our second and third FAPs were utilized more advanced technologies based on our customers' needs.

Speaker Change: Our second and third parties will utilize more advanced technologies based on our customers' needs.

Speaker Change: Our second and third a fast what utilize more of our wireless technologies based on our customers' need.

C.C. Wei: The second FAP is scheduled to begin voting production in 2028, and our third FAP was begin production by the end of the decade. This TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner and an effort of the US semiconductor industry.

Speaker Change: The second five is scheduled to begin volume production in 2028, and our third five will begin production by the end of the day.

Speaker Change: The second fab is scheduled to begin volume production in 'twenty 'twenty eight and our certified what became production by Gn belt to Deca.

Speaker Change: The TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner and an effort of the U.S. Semiconductor Industry.

Speaker Change: This th empty you walk continue to play a critical and integral rule.

Speaker Change: In our customer's success, while remaining a key partner and a neighbor of the U S semi conductor industry.

C.C. Wei: Next, in Japan, thanks to the strong support from the Japan Central, prefectural, and local governments, our progress is also very successful. Our force specialty technology FAP has completed all process qualifications. Voting production was started quarter and we are confident to deliver the same level of manufacturing quality and reliability from our FAP in Kumamoto as from our FAPs in Taiwan. The end preparation for our second specialty technology FAP in Kumamoto has already begun; then construction will begin in four quarter next year.

Speaker Change: Next, in Japan, thanks to the strong support from the Japan Central, Prefecture and local governments, our progress is also very successful.

Speaker Change: Next in Japan.

Speaker Change: Thanks to the strong support from the Japan Central prefectural and local governments.

Progress is also very successful.

Speaker Change: Our first specialty technology lab has completed all process quantification. Voting production was started in quarter and we are confident to deliver the same level of manufacturing quality and reliability from our lab in Kumamoto.

Speaker Change: Our fourth specialty technology Fab has completed all process qualification.

Speaker Change: Volume production was studies quarter, and we are competent to deliver the same level of manufacturing quality and reliability from all fab in Kumamoto.

Speaker Change: As form our facts in Taiwan

Speaker Change: As form all Fabs in Taiwan.

Speaker Change: The end preparation for our second specialty technology fab in Kumamoto has already begun, then construction will begin in 4th quarter next year.

Speaker Change: That and preparation for a second specialty technology fab in Kumamoto.

Speaker Change: He has already begun.

Speaker Change: Construction will begin in fourth quarter next year.

Speaker Change: This second fact was support our strategic customers for consumer, automotive, industry, and HPC-related applications involving production is targeted by the end of 2027.

C.C. Wei: This second FAP was support our strategic customers for consumer, automotive, industry and HPG related applications, and voting production is targeted by the end of 2027.

Speaker Change: <unk> second flat, while support of our strategic customers for consumer automotive industrial and HPV related.

Implications.

And volume production is targeted by the end of 2027.

C.C. Wei: In Europe, we have received strong commitment from the European Commission and the German federal state and city government. Together with our JV partners, we heard a groundbreaking ceremony in August for our specialty technology FAP in Dresden, Germany. This FAP will focus on automotive and industry applications, utilizing 12-16 FAP and 20-28 process technologies.

Speaker Change: In Europe , we have received strong commitment from European Commission and the German Federal State and City Government.

Speaker Change: In Europe we.

Speaker Change: We have received strong commitment of all of them European Commission.

Speaker Change: And the German federal State and city couple months.

Speaker Change: Together with our J.B. partners.

Speaker Change: Together with our JV partners, we held a groundbreaking ceremony in August for our specialty technology Fab in Dresden, Germany.

Speaker Change: We hear the groundbreaking ceremony in August for our Specialty Technology 5 in Tristan, Germany.

Speaker Change: This graph will focus on automotive and industrial applications, utilizing 12-16 wind-fast and 20-28 process technology.

Speaker Change: This fab will focus on automotive and industrial applications user rising 12, 16, Finfet and 2028 process technologies.

C.C. Wei: Voting production is scheduled to begin by the end of 2027. Under today's recommended globalization environment, our C5 costs are higher for everyone, including TSMC and all other semiconductor manufacturers. Heaven says that we will leverage our fundamental competitive advantage of manufacturing technology leadership and not scale manufacturing base. The TSMC will be the most efficient and cost-effective manufacturer in the region that we operate while continuing to provide our customer with the most advanced technology at scale to support their growth.

Speaker Change: What important scene is scheduled to begin by the end of 2027?

Speaker Change: Volume production is scheduled to begin by the end of 'twenty 'twenty seven.

Speaker Change: Under today's recommended globalization environment, over C5 costs are higher for everyone, including TSMC and all other semiconductor manufacturers.

Speaker Change: Under today's though for incremental good word I use India broadband, our Wuxi fab cost, Ohio for everyone.

Speaker Change: <unk> TSMC and all other semiconductor manufacturers.

Speaker Change: Haven't said that. We will never achieve our fundamental competitive advantage.

Speaker Change: I will say that we are leveraging our fundamental competitive realities of manufacturing technology leadership and large scale manufacturing base.

Speaker Change: of Manufacturing Technology Leadership, and not-scaled manufacturing base.

Speaker Change: The TSMC will be the most efficient and cost-effective manufacturer in the region that we operate.

Speaker Change: Does TSMC wont be the most efficient and cost effective manufacturer in the regions that we operate while continuing to provide our customer with the most advanced technology a scale to support our growth.

Speaker Change: while continuing to provide our customer with the most advanced technology scale to support their growth.

C.C. Wei: This concludes our key message, and thank you for your attention.

Speaker Change: This concludes our key message and thank you for your attention.

Speaker Change: This concludes our key measures and thank you for your attention.

Speaker Change: Okay. Thank you, CC. This does conclude our prepared statements. 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: Okay. Thank you C. C. This does conclude our prepared statements.

Operator: Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it into English before management answers your question. For those of you on the call, if you would like to ask a question, please press the star, then one on your telephone keypad now. If at any time you would like to remove yourself from the questioning queue, please press star two. Now let's begin the Q&A session.

Speaker Change: 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 although participants an opportunity to ask their questions.

Speaker Change: Should you wish to raise your question in Chinese, I will translate it into English before your management answers your question.

Speaker Change: Should you wish to raise your question in Chinese I will translate it into English before 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 one on your telephone keypad now. If at any time you would like to remove yourself from the questioning queue, please press star

Speaker Change: For those of you on the call. If you would like to ask a question. Please press. The Star then one on your telephone keypad now.

Speaker Change: At any time, you would like to remove yourself from the questioning queue. Please press star two.

Speaker Change: Now, let's begin the Q&A session. Operator, can we proceed with the first participant on the line?

Speaker Change: Now, let's begin the Q&A session.

Operator: Operator, can we proceed with the first participant on the line, please?

Speaker Change: Operator can we put sorry can we proceed with the first participant on the line. Please.

Operator: The first one to ask questions.

Speaker Change: The first one to ask questions, Gokul Hariharan, Donald J.P. Mobile, go ahead.

The first one to ask questions.

Speaker Change: Hi, Lang from Jpmorgan go ahead. Please go ahead.

Operator: Thank you.

Lang: Yeah, thank you. Good afternoon, C.C. Vandal and Jeff. My first question is on the AI investments and the growth that you see. Recently, obviously, there's been a lot of questions about ROI of JNAI investments, whether this could end up being a bubble. How does TSMC view this trend as you're making your capacity plans given you are enabling pretty much?

Lang: Yes. Thank you good afternoon, TCE Wendell and Jeff My first question is on the AI.

Gokul Hariharan: Good afternoon, CC, Vandal, and Jeff. My first question is on the AI investments and the growth that you see. Recently, there have been a lot of questions about the ROI of GNI investments, whether this could end up being a bubble. How does CSMC view this trend as you are making your capacity plans, given you are enabling pretty much the processing capacity for pretty much everybody? What gives you the confidence that this is going to be a more longer-run growth cycle? Relative to this, could CC also talk a little bit about what do you think about the duration of this current semiconductor cycle?

Lang: Investments and the growth that you see recently, obviously, there's been a lot of questions about auto why of G&A, I investment where that could end up being a bubble.

Lang: Does TSMC view this trend as you're making your capacity plans given you are enabling pretty much the.

Lang: Processing Capacity for pretty much it.

Lang: Processing capacity footprint pretty much everybody and what gives you the confidence that this is going to be a more longer run growth cycle.

Lang: and what gives you the confidence that this is going to be a more longer-run growth cycle and relative to this good CC also talk a little bit about what do you think about the duration of this current semiconductor cycle. Do you think it will continue into the next couple of years or are we getting close?

Lang: And relative to this.

Lang: Could you also talk a little bit about what do you think about the duration of this current semiconductor cycle do you think it will continue into the next couple of years or are we getting closer to the peak of the cycle. That's my first question.

Gokul Hariharan: Do you think it will continue into the next couple of years, or are we getting closer to the peak of the cycle?

Gokul Hariharan: That's my first question.

Speaker Change: Okay, thank you, Gokul. Please allow me to summarize your first question. So, Gokul's first question has two parts. The first part I believe is more focused on the AI-related demand, the ROI and sustainability of this. He knows recently there's been a lot of questions about the return or ROI from generative AI investments. And therefore, how do we view this trend is the worry that this demand sustainability or maybe a bubble. And very importantly, certainly what gives us the confidence that this could be a more long run of sustainable demand cycle for AI.

Operator: Thank you, GoCo. Please allow me to summarize your first question. GoCo's first question has two parts.

Speaker Change: Okay. Thank you go call. Please allow me to summarize your first question. So Cocos first question has two parts.

C.C. Wei: The first part I believe is more focused on the AI-related demand, the ROI and sustainability of this. He knows recently there's been a lot of questions about the return or ROI from generative AI investments. And therefore, how do we view this trend? Is there a worry that this demand sustainability or maybe a bubble?

Speaker Change: The first part I believe is more focus on the AI related demand.

Speaker Change: Roy and sustainability of this.

Speaker Change: He notes recently Theres been a lot of questions about the return or ROI from generative AI investments and therefore, how do we view. This trend is still worry that this demand sustainability or may be a bubble and very importantly, certainly what gives us the confidence that this could be a more long run sustained.

C.C. Wei: And very importantly, certainly, what gives us the confidence that this could be a more long-run sustainable demand cycle for AI?

Speaker Change: Both demand cycle for AI.

C.C. Wei: Okay, GoCo. Let me answer your question. Simply, whether this AI demand is real or not. And my judgment is real. We have talked to our customers all the time, including our hyperscaler customers who are building their own chips. And almost every AI innovator is working with THMC. And so we probably get the deepest and widest look of anyone in this industry. and Huai Se is real because we have our real experience. We have used the AI and machine learning in our FAB and R&D operations. By using AI, we are able to create more value by driving greater productivity, efficiency, speed, qualities.

Speaker Change: Okay, Gokul, let me answer your question. Simply, whether this AI demand is real or not, okay? And my judgment is real.

Speaker Change: Okay Koku, let me answer your question simply who is are these that AI demand is real or not okay and my judgment is a real.

Speaker Change: We have talked to our customers all the time, including our hyperscader customers, who are building their own chips.

Speaker Change: We have talked to our customers all the time, including our Hyperscale customers, who are building gal on chips.

Speaker Change: And almost every AI innovator is working with TSMC. And so we probably get the deepest and why this is the look of anyone in this industry.

Speaker Change: And almost every AI innovators these working with TSMC.

Speaker Change: And so we probably get the D piece and why does the book of anyone in this industry.

Speaker Change: And Huai, he is real because we have our real experience.

Speaker Change: And why I say, it's real because we have a.

Speaker Change: Our real experience.

Speaker Change: We have used the AI and machine learning in our FAF and R&D operation.

Speaker Change: We have using the AI and machine learning in all fab and R&D operations.

Speaker Change: By using AI, we are able to create more value by driving greater productivity efficiency speed

Speaker Change: By using AI, we are able to create more value by driving greater productivity efficiency speed quantities.

C.C. Wei: And think about it, let me use one percent productivity gain, not worth almost equal to about 1 billion to TSMC. And this is tangible, or I benefit. And I believe we cannot be the only one company that has benefited from this AI application. So I believe a lot of companies right now are using AI and for their own improving productivity, efficiency, and everything. So I think it's real. Did I answer your question?

Speaker Change: And think about it, let me use one percent productivity gain, not worth almost equal to about 1 billion to TSMC.

Speaker Change: And you think about it let me use.

Speaker Change: 1% productivity gain norwalk, almost equal to about a one bidding to TSMC.

Speaker Change: And this is a tangible ROI benefit.

Speaker Change: And this is a tangible ROI benefits.

Speaker Change: and I believe we cannot be the only one company that...

Speaker Change: In IPD, we are we cannot be the only one company that.

Speaker Change: have benefited from this AI's application.

Speaker Change: Have benefitted from Dci Ai's application.

Speaker Change: So I believe a lot of companies right now are using AI and for their own improving productivity efficiency in everything.

Speaker Change: So I believe a lot of company right now are using AI.

Speaker Change: And.

Speaker Change: For gel on improving productivity efficiency and everything so I think is real.

Speaker Change: So I think it's real [inaudible]

Speaker Change: Did I answer your question?

Speaker Change: Did I answer your question.

Gokul Hariharan: Yeah, that's clear.

Speaker Change: Yeah, that's clear, maybe, yeah, could you also talk a little bit about how this feeds into your view of the current semiconductor cycle also?

Speaker Change: Yeah, that's clear maybe.

Gokul Hariharan: Maybe, yeah, could you also talk a little bit about how you how this feeds into your view of the current semiconductor cycle also CC? So, so Coco, the second part is so if we have a we believe the AI demand is real, but how do we view the overall semiconductor demand in cycle? Do we I think Coco, you're saying do we think it's reach peak? Yeah, peak out already. Oh, okay, I forgot to answer this one. The demand is real, and I believe it's just the beginning of this debate. All right.

Could you also talk a little bit about how you how that feeds into your view of the current semiconductor cycle also OCC.

Speaker Change: So, Gokul, the second part is, so we believe the AI demand is real, but how do we view the overall Semiconductor demand in cycle? Do we, I think Gokul, you're saying, do we think it's rich peak, peak out already? Oh, okay, I forgot to answer this one. The demand is real, and I believe it's just a beginning of this debate, all right? So, one of my key customers said,

Speaker Change: So Google is the second part is so we have a we believe the AI demand is real but how do we view the overall semiconductor demand and cycle do we I think all you're saying do we think it's reached peak peak out already.

Speaker Change: Okay, I forgot to answer each one <unk>.

Speaker Change: The demand is real and I believe he is just the beginning of restocking, but alright. So one of my key customers Seth.

C.C. Wei: So one of my key customers said the demand right now is insane. You know, that's it's just a beginning is a form of scientific to be engineering. Okay, anyway, continue for many years. And then the overall semiconductor demand, I think overall semi conduct demand, except that the AI I think is everything stabilized and start to improve.

Speaker Change: The demand right now is in share.

Speaker Change: The demand right now as they extend.

Speaker Change: You know, it's just the beginning. It's a form of scientific to be engineering.

It's just the beginning is that for most scientifically to be engineering.

Speaker Change: Okay, anyone continue for many years.

Speaker Change: Okay, Andy will continue for many years.

Speaker Change: and then the overall semiconductor demand. Overall semiconductor demand, except the AI, I think is everything stabilized and start to improve.

Speaker Change: And then the overall semiconductor demand I think overall semiconductor demand except that the AI.

Speaker Change: I think it's everything stabilized and start to improve.

Gokul Hariharan: Okay, Coco. Yeah, that's that clear. Thanks.

Speaker Change: Okay, Koku. Yeah. That's that player. Thanks. Thanks. You see, my second question is more to do with capex. I think usually if you look at the past cycles of strong demand uptake, the SMC's capex also starts to move up quite a bit. This time round 2023 and 2024, your capex has been reasonably stable. It's still a large number, but not really growing a lot in the 30 billion, 31 billion range.

Speaker Change: Okay Cool cool yeah, that's clear.

Gokul Hariharan: You see, my second question is more to do with. CapEx, I think usually if you look at the past cycles of strong demand uptake, the SMC's CapEx also starts to move up quite a bit. This time round 2023 and 2024, your capEx has been reasonably stable. It's still a large number, but not really growing a lot in the 30 billion 31 billion range. How should we think about look forward when we look forward into next couple of years. What are you doing? What are you planning for CapEx growth?

Speaker Change: Thanks.

Speaker Change: And my second question is more to do with.

Speaker Change: Capex I think usually if you look at the past cycles of strong demand uptick.

Speaker Change: <unk> Capex also starts to move up quite a bit.

Speaker Change: This time round 2023, and 224 your Capex has been reasonably stable. If it is still a large number but not really growing a lot in the 30 billion 31 billion range.

Speaker Change: How should we think about, look forward, when we look forward into next couple of years, what are you doing, what are you planning for Capex growth, is there any reservations that the essence we have about the pace of growth that the Capex is still a little bit lower, or should we expect that the Capex also should start accelerating, given you're growing at 30% this year and looks like you're preparing for pretty strong growth in next couple

Speaker Change: How should we think about look for award.

Speaker Change: And we look forward into the next couple of years. What are you doing what are you planning for Capex growth.

Gokul Hariharan: Is there any reservations that the SMC has about the pace of growth that the CapEx is still a little bit lower, or should we expect that the CapEx also should start accelerating given you're growing at 30% this year and looks like you're preparing for pretty strong growth in next couple of years as well.

Speaker Change: Is there any reservations at the assembly has about the pace of growth that the Capex is still a little bit lower or should we expect that the capex also should start accelerating given youre growing at 30% this year and it looks like you are preparing for a pretty strong growth. The next couple of years as well.

Gokul Hariharan: Okay, so Coco's second question is related to CapEx and looking out the next few years. So he notes that in past cycles, when demand is very strong, our capEx starts to move up. But, however, this time, even with what CC described, it's very real and the beginning of a strong AI demand these last two years, we kept our sorry, CapEx. It's not really been growing much.

Speaker Change: Okay, so Gokul's second question is related to CAPEX and looking out the next few years. So he notes that in past cycles, when demand is very strong, our CAPEX starts to move up. But however, this time, even with what CC described, it's very real, and the beginning of a strong AI demand, these last two years we kept our, sorry, CAPEX, it's not really been growing much. So here's question is, is that because we have any concerns or reservations around the demand sustainability, or what will the CAPEX start to look like the next several years, where we have to begin to stand it back up. Is that roughly what you're asking Gokul? Yeah, that's right, thanks, sir.

Speaker Change: Okay. So <unk> second question is related to Capex.

Speaker Change: Looking out the next few years. So he noticed that in past cycles. When demand is very strong our capex starts to move up but however, this time, even with what <unk> described is very real and the beginning of a strong AI demand. These last two years, we've kept our sorry capex.

Speaker Change: It's not really been growing much.

Wendell Huang: So here's question is if that because we have any concerns or reservations around the demand sustainability or what will the CapEx start to look like the next several years where we have to begin to stand it back up. Is that roughly what you're asking for? Yeah, that's right. Thanks, sir.

Speaker Change: So his question is is that because we have any concerns or reservations around the demand sustainability.

Speaker Change: Or what will the Capex starts to look like the next several years well we have to begin to step that back up.

Speaker Change: Roughly what you are asking local yes, that's right. Thanks, Jeff.

Wendell Huang: Okay, Gokul, we do not have a number for 2025 KPACs today to share with you. However, we always use a discipline and thorough system to determine the appropriate capacity to build. And we have a little expenditure is always going to be related with higher growth opportunities in the coming years. And as long as our growth outlook remains strong, we will continue to invest. Now, as C.C. said, next year looks to be a healthier. So it is very likely that our KPACs next year will be higher than this year.

Speaker Change: Okay, Gokul, we do not have a number for 2025 KPACs today to share with you.

Speaker Change: Okay Goku al.

Speaker Change: We do not have a number for 2025 K packs today to share with you.

Speaker Change: However, we always use a disciplined and thorough system to determine the appropriate capacity to build and we always review our KPAC plans on ongoing basis.

Speaker Change: However, we always use a disciplined and thorough system to determine the appropriate capacity to build and we always review our capex plans.

Speaker Change: Ongoing basis for TSMC, a higher level of capital expenditures is always going to be related with higher growth opportunities in the coming years.

Speaker Change: For TSMC, a higher level of capital expenditures is always going to be related with higher growth opportunities in the coming years and as long as our growth outlook remains strong, we will continue to invest.

Speaker Change: And as long as our growth outlook remains strong we will continue to invest.

Speaker Change: Now, as C.C. said, next year looks to be a healthy

Speaker Change: Now as C. C said next year looks to be a healthy year.

Speaker Change: So it is.

Speaker Change: Very like.

Speaker Change: Very likely.

Speaker Change: that our K-Packs next year will be higher than this.

Speaker Change: Our capex next year will be higher than that shift.

Speaker Change: and we will provide you more updates in January conference.

Wendell Huang: And we will provide you more updates in the January conference.

Speaker Change: And we will provide you more updates in January conference.

Gokul Hariharan: Okay, that's very clear.

Speaker Change: Okay, that's very clear. Thanks, thanks, Fando. I'll go back to the queue.

Speaker Change: Okay, that's very clear thanks, Thanks, Randall I'll go back in the queue.

Gokul Hariharan: Thanks, Fando. I'll go back to the queue. Okay, thank you, Gokul.

Speaker Change: Okay, thank you, Gokul. Operator, can we move on to the next participant please? Participant please.

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

Operator: Operator, can we move on to the next participant, please? Participant, please.

Connie Lin: Yes, Connie Lin from UBS. Aligned is open to you now. Thank you very much for taking my question. Good afternoon, very strong executions and margin. And so my first question is to follow up on the growth margin.

Speaker Change: Yes, Connie Lin from UBS, a line is open to you [inaudible]

Speaker Change: Yes, Connie Lee from UBS. Your line is open to you now.

Connie Lee: Thank you very much for taking my question. Good afternoon. Very strong executions on margin. And so my first question is to follow up on the growth margin. I'll look how should we think about into 2025 last quarter management quantify overseas expansion to download about two to three percent margin. But besides that, could you help us understand some of the other person takes how should we think about the depreciation growth into 2025?

Connie Lee: Thank you very much for taking my question.

Connie Lee: Afternoon, guys.

Speaker Change: Acacia is that margin.

Connie Lee: My first question is to follow up on that gross margin I'll like.

Connie Lin: I'll look how should we think about in 2025, last quarter management quantify overseas expansion to download about 2 to 3% margin. But besides that, could you help us understand some of the other puts and takes? How should we think about the depreciation growth into 2025? Okay, Sunny.

Connie Lee: How should we think about into 2025 last quarter management quantify overseas expansion to about 2% to 3% margin.

Connie Lee: But besides that could you help us understand some of the other puts and takes how should we think about the depreciation clock into 2025.

Speaker Change: Okay, Sunny. Thank you for your question. So, Sunny's question first is on the gross margin outlook into 2025. She notes last time Wendell had already shared that overseas fab with Daidu, our gross margin probably by 2 to 3%. She wants to know besides that, what other factors should we consider and also in terms of depreciation growth? Okay.

Speaker Change: Okay Sonny.

Wendell Huang: Thank you for your question. So Sunny's question first is on the growth margin outlook into 2025. She knows last time, Wendell had already shared that overseas that with our growth margin probably by 2 to 3%. She wants to know, besides that, what other factors should we consider, and also in terms of depreciation growth? Okay.

Speaker Change: For your question. So Sonny's question first is on the gross margin outlook into 2025. She notes last time Wendell had already shared that overseas that would dilute our gross margin probably by 2% to 3%. She wants to know besides that what other factors should we consider and also in terms of.

Speaker Change: Asian growth Okay.

Speaker Change: Stanley

Speaker Change: Studying it.

Wendell Huang: Sunny, it's again, it's totally to talk about 2025 in detail. But there are a few things I can share with you with the puts and takes for 2025. Indeed, we expect the dilution from N3 ramp to gradually reduce next year. We continue to sell our value. So these things will help, plus next year will be a healthy growth year. So utilization is also a positive. On the other hand, as we said, there will be 2 to 3 percentage point dilution from the overseas fabs when we begin to rent them. At the same time, we are also converting some of our N5 capacity to N3 to meet the strong demand for N3.

Speaker Change: It's, again, it's totally to talk about 2025 indeed.

Speaker Change: It.

It's again, it's too early to talk about 'twenty 'twenty five in detail.

Speaker Change: But there are a few things I can share with you, the puts and takes for 2025.

Speaker Change: But there are a few things I can share with you what the puts and takes for 2025.

Speaker Change: Indeed, we expect the dilution from N3 ramp to gradually reduce.

Speaker Change: Indeed, we expect the dilution from entry ramp to gradually reduce next year.

Speaker Change: We continue to sell our value so these things will help plus next year will be a healthy growth year so utilization is also a positive

Speaker Change: We continue to sell value. So these things by health plus next year will be a healthy both share. So utilization is also a positive.

Speaker Change: On the other hand, as we said, there will be two to three percentage point delusion from the overseas staff, but facts, when we begin to run...

Speaker Change: On the other hand.

Speaker Change: As we said there'll be two to three percentage point dilution from the overseas staff Fabs, when we begin to ramp them.

Speaker Change: At the same time, we are also converting some of our N5 capacity to N3 to meet the strong demand for N3.

Speaker Change: At the same time, we are also converting some of our N five capacity.

Speaker Change: And three to meet the strong demand for hands free.

Speaker Change: And also, don't forget, there's ramping the N2 in 2026, there will also be some preparation costs for ramping N2. And as we migrate every leading notes, more and more events, this preparation costs will become bigger and bigger.

Wendell Huang: And also, don't forget there's, we're ramping the N2 in 2026. There will also be some preparation costs for ramping N2. And every, as we migrate, every leading notes, more and more events, this preparation cost will become bigger and bigger. Now, he also knows that electricity cost has also risen very recently, and second time in the year, 14% higher for TSMC in October. This is after a 15% increase in 2022, a 17% increase in 2023, and a 25% increase in 2024. Basically, the price has doubled in the last few years. So next year, we think that electricity price for us in Taiwan will be the highest in all of the region that we operate.

Speaker Change: And also.

Speaker Change: Don't forget there is ramping the and two in 2026 there'll also be some preparation costs for ramping.

Speaker Change: Two and every as we migrate every leading nodes more and more events.

Speaker Change: This preparation costs will become bigger and bigger.

Speaker Change: No, but-

Speaker Change: No.

Speaker Change: He also knows that electricity cost has also risen very recently and second time in the year, 14% higher for TSMC in October This is after 15% increase in 2022, 17% increase in 2023 and 25% increase in 2024 [inaudible]

Speaker Change: You also know that electricity costs has also risen very recently, a second time in the year.

Speaker Change: 14% higher for TSMC in October.

Speaker Change: This is after a 15% increase in 2020% to 17% increase in 2023 and 25% increase in 2024.

Speaker Change: Basically the price has doubled in the last few years.

Speaker Change: So, next year, we think that electricity price for us in Taiwan will be the highest in all the region that we are

Speaker Change: So next year, we think that electric electricity price for us in Taiwan will be the highest.

Speaker Change: In all the regions that we operate.

Wendell Huang: And the higher electricity price plus other inflationary cost is expected to impact our growth margin by at least 1%. And finally, of course, we do not have any control or cannot forecast foreign exchange rate movement. 1% of foreign exchange rate movement dollar NT will have an impact of 40 basis points to our growth margin.

Speaker Change: and the higher electricity price plus other inflationary costs is expected to impact our gross margin by at least one percent.

Speaker Change: And the higher electricity price plus other inflationary cost.

Speaker Change: Is expected to impact our gross margin by at least 1%.

Speaker Change: And finally, of course, we do not have any control or cannot forecast for exchange trade movements.

Speaker Change: And finally of course, we do not have any control or cannot forecast foreign exchange rate movement.

Speaker Change: 1% of foreign exchange movement dollar NT will have an impact of 40 basis point to our gross mark.

Speaker Change: 1% of foreign exchange rate movement dollar M T.

Speaker Change: Well have an impact of 40 basis points to our gross margin.

Wendell Huang: Thank you, Wendy. So, Sunny, does that sort of give you a better understanding of the puts and takes for next year?

Speaker Change: Thank you, Wendy. So, Sunny, does that sort of give you a better understanding of the puts and takes for next year?

Speaker Change: Thank you Wendy so sunny does that sort of give you a better understanding of the puts and takes for next year.

Connie Lin: Yeah, that's very helpful. Thank you very much, Wendy.

Speaker Change: Yeah, that's very helpful. Thank you very much, Wendo. So, quick follow-up on, if any of you on depreciation increase into 2025, should we expect similar magnitude as this year, which grow about 25%. And also, quick follow-up on the two to 3% growth budget dilution for overseas. If I calculate correctly, without implied your overseas perhaps in the US and Japan could be running at close to 0% or very low growth margins to start with, would that be a conservative assumption that you are assuming at this point, yeah.

Speaker Change: Yeah, that's very helpful and thank you very much window. So quick follow up on if any of you on depreciation increase into 2025 should we expect similar magnitude.

Connie Lin: So, quick follow-up on, if any of you on depreciation increase into 2025, should we expect similar magnitude as this year, which grow about 25%. And also, quick follow-up on the 2% to 3% growth margin dilution for overseas. If I calculate correctly, without implied, your overseas perhaps in the US and Japan could be running at close to 0% or very low growth margin to start with. Would that be a conservative assumption that you are assuming at this point? Yeah.

Speaker Change: Vishay, which grew about 25% and also a quick follow up on the 30% gross margin dilution from overseas.

Speaker Change: If I calculate correctly does that imply you'll always.

Speaker Change: It is perhaps in the U S and Japan could be running at close to zero percent or very low gross margin to start with.

Speaker Change: Would that be a conservative assumption that you are assuming at this point yeah.

Connie Lin: Okay, well, that's too follow-up.

Speaker Change: Okay, well, that's too far up, so I might take that as the second question, but the first one is again, she has Sunny adults about depreciation next year. So yeah, Sunny, let's give you more depreciation guidance in the January conference, okay? Yeah. And then the second question really is about our overseas stats as we ramp up Arizona and Arizona in Japan. Sunny, I believe your question is

Okay, well, that's two follow ups, so I might take that as the second question, but the first one is again she had a sunnier doubts about depreciation next year. So yeah. So I think that does give you more depreciation guidance in the January conference, Okay and.

Wendell Huang: So, I might take that as the second question, but the first one is again, Sunny had asked about depreciation next year. So, yeah, Sunny, let us give you more depreciation guidance in the January conference, okay? And then the second question really is about our overseas stats as we ramp up Arizona and Arizona in Japan. Sunny, I believe your question is with that ramp and dilution of 2% to 3%. Does that imply the overseas stats profitability is more closer to break even or something like that? Correct, Sunny? Right, right.

Speaker Change: And then the second question really is about our overseas sites as we ramp up Arizona and Arizona in Japan.

Speaker Change: Sunny I believe your question is.

Speaker Change: With that ramp and dilution of 2% to 3%, does that imply the overseas side's profitability is more closer to break even or something like that? Correct, Sunny? Right. Right. Thank you, Jeff.

Speaker Change: With that ramp and dilution of 2% to 3% does that imply the overseas sites profitability is more closer to breakeven or something like that correct Sunny right right. Thank you Jeff.

Wendell Huang: Thank you, Jeff. Yeah, Sunny, the overseas stats have basically lower profitability than the facts in Taiwan, mainly because of a smaller scale and of next year will be initial ramp and higher cost. So, it will have a lower profitability, but it will gradually improve over the years. Now, don't forget, in Arizona and in Kumamoto, we are ramping more than one phase, one phase. So, when fact one begins to improve its profitability, the second phase comes in. and Arizona when Fat 2 improves the third phase comes in as similar situation in Kumamoto and that's the reason why we're saying that in the next three or five years we expect two to three percentage point delusion every year.

Speaker Change: Yeah, Sunny, the overseas fabs have basically a lower profitability than the fabs in Taiwan, mainly because of a smaller scale and of next year will be initial ramp and higher cost.

Speaker Change: Yeah, certainly the overseas Fabs.

Speaker Change: Has have basically a lower profitability than the fabs in Taiwan.

Speaker Change: Really because of a smaller scale.

Speaker Change: End of <unk> will be initial ramp and higher costs.

Speaker Change: So it will have a lower profitability, but it will gradually improve.

So.

Speaker Change: It will be it will have a lower profitability.

Speaker Change: But it will gradually improve.

Speaker Change: over the years. Now, don't forget, in Arizona and in Kumamoto, we are...

Speaker Change: Over the years now.

Speaker Change: The don't forget in Arizona and in Kumamoto, where a.

Speaker Change: Ramping more than one face, one face [inaudible]

Speaker Change: Ramping more than one phase one fabs, so when fab one begin to improve.

Speaker Change: So when fact one begins to improve its profitability, the second phase comes in.

Speaker Change: Profitability the second phase comes in.

Speaker Change: and Arizona, when Fat 2 improves, the third phase comes [inaudible]

Speaker Change: And then Arizona when fab two improves the surface comes in.

Speaker Change: A similar situation in Kumamoto, and that's the reason why we're saying that in the next three or five years we expect two to three percentage point delusion every

Speaker Change: Similar situation you're in Kumamoto and that's the reason why we are saying that in the next three or five years, we expect two to three percentage point dilution every year.

Speaker Change: Got it. Thank you very much.

Speaker Change: Got it thank you very much.

Speaker Change: Okay, thank you, Sunny. Operator can move on to the next participant, please.

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

Speaker Change: Next one, we have Charlie Chan from Morgan Sandler. Go ahead now.

Speaker Change: The next one.

Operator: Let's start from again and go ahead now.

Speaker Change: Charlie Chan from Morgan Stanley Go ahead now.

Charlie Chan: Mr. Jeff, CeCe, Wayne Liu, good afternoon everyone. First of all, congratulations on your very strong results and guidance. My first question is about your future investment power, investment for your customers and distributors. What impact will that have on your long-term growth profit targets? Because even without next year's price adjustments, your growth profit targets have already increased significantly, reaching 57%, 58%, which is higher than your customers. Therefore, do you think your pricing for your customers might be too aggressive? I also want to know, for these mature investors, what is your pricing strategy? What I want to ask is, first, your long-term growth profit targets, and second, how you will handle potential trust risks, as your growth profit targets are very close and you have prepared some price adjustments.

Charlie Chan: Mr. Jeff, and the CC Window collection. First of all, also a congress for your very, very strong results and guidance. So my first question is really about your future bargaining power to your customers and vendors. And what would that mean to your long-term growth margin targets? Because right now, even without the price of the judgment next year, your growth margin is already blow-off, right? It's already 57%, 58%. Higher than most of your customers.

Charlie Chan: Thanks, Jeff.

Charlie Chan: And C. C window. Good afternoon first of all so congrats for your very very strong results.

Charlie Chan: And the guidance. So my first question is really about your future body bargain power to your customers and vendors and what would that mean to your long term gross margin target.

Charlie Chan: Targets, because right now even without the <unk>.

Charlie Chan: Jasmine next year your gross margin is already a blow off price already 57% 58%.

Charlie Chan: Higher than most of your customers are so so with that.

Charlie Chan: So, with that, do you think you'll be a little bit too aggressive to further hike a price to your customers? And I'm also wondering for those mature notes. What's your pricing strategy here?

Charlie Chan: You think you'll be ready to be too aggressive too.

Charlie Chan: The hike apprised to your customers.

Charlie Chan: And I'm also wondering for dose.

Charlie Chan: Kind of mature notes what's your.

Charlie Chan: Pricing strategy here. So I wanted to ask are the implications to <unk>.

Charlie Chan: So I want to ask the implication to a number one, your long-term growth margin level. And secondly, are you going to handle the potential antitrust risk given your near monopoly and also prepare to do some price adjustments. Thanks.

Charlie Chan: Your long term gross margin level and secondly.

Speaker Change: We're going to handle the potential antitrust risk.

Speaker Change: Risk given your a malls.

Speaker Change: The animal lawfully and also are.

Speaker Change: I'm prepared to do some price adjustments.

C.C. Wei: Okay, so I think Charlie's question is sort of, we always say that we value selling and it's a continuous and ongoing thing. So he wants to know what does this status or look like with both customers and vendors. And then what is the implication to our long-term growth margin target? You know, and are we concerned about sort of monopoly or things like that?

Speaker Change: Okay, so I think Charlie's question is sort of we always say that we value selling and it's continuous and ongoing thing. So he wants to know what does this status or look like with both customers and vendors and then what is the implication to our long-term growth margin target and all we concern about sort of monopoly or things like that. Let me start that I think is the first part and then the mature part also rises.

Speaker Change: Okay. So Ah I think Charlie question is sort of we always say that we have value selling and it's continuous and ongoing thing. So he wants to know what.

Speaker Change: Does this status or look like.

Speaker Change: With both customers and vendors and then what is the implication to our long term gross margin target.

Speaker Change:

Speaker Change: And are we concerned about sort of monopoly or things like that let me start that I think is the first part and then the mature part I'll summarize later.

C.C. Wei: Let me start that. I think, is the first part, and then the mature part. I'll summarize later. Okay, Charlie. This is where let me answer your question. You know, selling our value actually is a continuous and ongoing process for TSMC. We view all our customers as a partner. And the progress of this effort and sharing our value is so, so good. Also, you are talking about we have more parking power with our equipment supplier. Again, we view them as our partner, so I don't use the parking power. We always work with them and to move to the next step.

Speaker Change: Okay, Charlie, this is where the millions of your questions are.

Speaker Change: Okay Charlie.

Speaker Change: This is C C Wei let me answer your question.

Speaker Change: You know, sharing our value actually is a continuous and ongoing process for TSMC. We view all our customers upon it, and the progress of this effort on sharing our value is so far so good.

Speaker Change:

You know theory, all value actually is a continuous and ongoing process for TSMC, we view all our customers our partner and the progress of our of these airport I'm sharing Alberta, you so far so good.

Speaker Change: Also, you are talking about we have more vacuum power with our equipment supplier. Again, we view them as our partner, so I don't use the vacuum power. We always work with them and to move to the next step. Both TSMC and suppliers and customers are all working together. With the purpose of that, we can have a TSMC customer to be successful in their market. That's my goal. If our customers do well.

Speaker Change: Also you are talking about we have more back in power with our <unk>.

Speaker Change: Equipment supplier.

Speaker Change: Again, we view, Jim as our partner so I don't huge in the PACU empower we always work with them.

Speaker Change: And to move to the next step.

C.C. Wei: And so, you know, both TSMC and suppliers and customers are all working together. And with the purpose of that, we can have a TSMC customer be successful in their market. Okay, that's my goal. If all customers do well. We can be good also, okay? And you mentioned one thing that I have already been concerned; you say that TSMC is a grass margin. Now it's how my customer is not true. You don't look at one of the biggest AI suppliers. They have a grass margin that I probably never be able to reach in my life. But anyway, we are very happy to see them be successful.

Speaker Change: So.

Speaker Change: Both TSMC and suppliers and customers are all working together.

Speaker Change: With appropriate so that we can have a TSMC as a customer to be successful in the market. Okay. That's my goal.

Speaker Change: <unk> customer will weaken.

Speaker Change: We can be good old-

Speaker Change: We can be.

Speaker Change: Good also okay and you mentioned once you then I.

Speaker Change: And you mentioned one thing that I have a little bit concerned you say that TSMC is a grass margin. Now it's how my customer is not sure. You don't look at one of the biggest AI suppliers. They have a grass margin that I probably never be able to reach in my life.

Speaker Change: Sure.

I have a really concerned you would say that TSMC. So gross margin now is a holiday or my customer is that true.

Speaker Change: You don't look at it one of the.

Speaker Change: <unk> AI supplier.

Speaker Change: They have gross margins that I, probably never be able to reach you might life.

Speaker Change: But anyway, we are very happy to see them be successful and we are in a different kind of business. We are capital intensive businesses so we need a very high cost margin to survive and to have a sustainable and healthy course. That's why we set up our pricing strategy.

Speaker Change: But anyway, we are very happy to see.

Speaker Change: The MP successful and we are in a different kind of business we.

C.C. Wei: And we are in a different kind of business. We are a capital intensive business. So we need a very high grass margin to survive. And to have a sustainable and here's the course.

Speaker Change: Capital intensive.

Speaker Change: <unk>, so we need a very high gross margin to survive.

Speaker Change: To have such technical and here see cores, that's why we set up our <unk>.

Charlie Chan: That's why we set up our pricing strategy. And then a quick one. I think part of Charlie's question is the second part.

Speaker Change: Pricing strategy.

Speaker Change: And then a quick one, I think, part of Charlie's question, the second part, Charlie, if I heard you, right, sort of the outlook for mature node in terms of pricing? No, I think Charlie, you're talking about ways that the antitrust, concern, or something like that.

Speaker Change: Yes.

Speaker Change: And then a quick one I think part of charges question and the second part Charlie If I heard you right is sort of the outlook for our mature node in terms of pricing.

Charlie Chan: Charlie, if I heard you by sort of the outlook for mature node in terms of pricing, no, I think Charlie, you're talking about the ways that the anti-trust concern or something like that. Did I hear you right? Yeah, I'm a little bit concerned, same as other investors as well. So yeah, I'm sorry. Okay. The anti-trust, meaning that TSMC has a very high market share and with some of unnecessary competition's methodology. Let me assure you that the last time we propose a new version of the factory to that old, which including the wave of manufacturing. And packaging, testing, mass making, and all others, all these kinds of things become more growing importance like packaging testing, mass making.

Speaker Change: No I think good.

Speaker Change: You were talking about the way the antitrust concerns or something like that.

Speaker Change: Did I hear you right? Yeah, I'm a little bit concerned, same as other investors as well.

Speaker Change: Did I hear you right, yeah, I'm a little bit.

Sam: Sure Sam.

Speaker Change: Investors as well.

Speaker Change: So, yeah, I'm sorry. Okay. The entire choice, meaning that TSMC has a very high market share and with some of unnecessary competition's methodology. Let me assure you that the last time we propose a new version of the factory to that old, which including the wave of manufacturing and packaging, testing, mass making, and all others. All these kinds of things become

So yeah, yeah, and so okay.

Speaker Change: The entire Schwab Dominion that TSMC has a very high market share and we saw some more unnecessary competition. So methodology, let me assure you that.

Speaker Change: The last time, we propose a new version of the <unk>.

Speaker Change: <unk>, two top hole, which including the wafer manufacturing.

Speaker Change: And our packaging and testing must making and all others. All these kind of seen become.

Speaker Change: More growing importance, like packaging testing must-making. Right now, probably it is about 10% of TSMC's total revenue. That's one. And all my competitors, their IDMs in particular, they also have their packaging testing and must-making. And so I think Fundry 2.0 is a better reflex TSMC's dressable market and our share is not probably around 30%. So not a dominant yet.

Speaker Change: Molly.

Speaker Change: Growing importance like our packaging testing must making right now probably ease so would it be higher than 10% Aqua tsmc's.

C.C. Wei: Right now, probably is a little bit higher than 10% of TSMC's total revenue. That's one. And all my competitors, they are IDMs in particular. They also have their packaging testing and mass making. And so I think one, three, two dollar old is better reflects TSMC's addressable market. And our share is not probably around 30%. So not a dominant yet. We are big, yes, because we perform well. But no, it's not a kind of an anti-trust concern. It's not in our picture, actually.

Speaker Change: Total revenue.

Speaker Change: That's one and all my.

Speaker Change: Competitor.

Speaker Change: They are idms in particular, they also have for the packaging.

Speaker Change: Packaging testing and mask, making and so I think foundry to tout it always.

Speaker Change: Is it better reflects tsmc's.

Speaker Change: Traceable market and our <unk>.

Speaker Change: Sure.

Speaker Change: It's probably around 30%.

Speaker Change: So not a dominant yet.

Speaker Change: We are big, yes, because we perform very well.

Speaker Change: We have big yes, because we pro formed we will.

Speaker Change: But, no, it's not a kind of an antitrust consent. [inaudible]

Speaker Change: But no it's not a condo by antitrust concerns.

Speaker Change: is not in our picture.

Speaker Change: The snarling our picture actually.

Charlie Chan: Okay. How do you deal? And so, your question? Yeah, yeah, thanks.

Speaker Change: Okay, Hari, did I answer your question? Yeah, yeah, thanks. Yeah, so just a little bit, I guess you won't stop your margin improvement until 75%. But anyway, I'll leave that kind of long-term margin fogged over guidance to the next caller or your next January guidance. But I do have a second question. You said, okay, Jeff, I can ask a second one. [inaudible]

Speaker Change: Okay. How did you did I answer your question.

Charlie Chan: Yeah, so just a little bit, I guess you won't stop your margin improvement until 75%. But anyway, I'll leave that kind of long-term margin.

Yeah, Yeah. Thanks, Yeah. So.

Speaker Change: Yes, it does.

Speaker Change: Cheating a little bit I guess, you won't stop you.

Speaker Change: Margin improvement until 75%, but anyway I'll leave it at that kind of long term margin.

Charlie Chan: I'll get over guidance to the next caller or your next January guidance. But I do have a second question. Is it okay, Jeff?

Speaker Change: Again, our guidance to the next caller or are you in next January.

Speaker Change: Guidance, but I do have a second question you said, okay. If I can ask a second one.

Charlie Chan: I can ask a second one.

Speaker Change: Quickly. Yes. Okay. Yeah. The second one is about your IDM also in opportunity, right? Also part of your foundry 2.0 because one of the major IDM opportunities in Intel and recently announced they want to spin off their foundry segments. Right? So number one, TSNC, do you agree it fed more also from Intel given this change? And even with TSNC considered to acquire part of Intel's FAF.

Operator: Yes. Okay. Yeah.

Speaker Change: Quickly, yes, okay. Yeah. The second one is about your.

Charlie Chan: The second one is about your IDM, also in opportunity, right? Also part of your Foundry 2.0. Because one of the major IDM opportunities in Intel, and recently announced they want to spin off their foundry segments, right? So, number one, Tess and C, do you really fed more also from Intel, given this change? And even with Tess and C, consider to acquire part of Intel's FAF in the long term. So I think that's that.

Speaker Change: And also we're seeing that.

Speaker Change: Opportunity right.

Speaker Change: Your foundry to point, though.

Speaker Change: Because one of the major idea of opportunities at Intel and recently announced they want to spin up their foundry segments right. So.

Speaker Change: Number one our teeth and see do you see it. Furthermore, also seem from Intel.

Speaker Change: This change and even.

Speaker Change: But TSMC consider to acquire.

Speaker Change: In terms of fast.

Speaker Change: in a long term. So I think that's that. And also, I'll quickly comment on news reporting about Samsung's IDM also in opportunity. So that's my second part of the question.

Speaker Change: In the long term so I think that that's that and also can you comment on.

Charlie Chan: And also quickly coming on news reporting about Samsung's IDM also in opportunity. So that's my second part of question. Okay.

Speaker Change: News reporting about samsung's IDM outsourcing opportunity so.

Speaker Change: That's my second part of question.

Speaker Change: Okay, so Charlie's second part is on IDM outsourcing. He wants to know with the, I guess, US IDM and Foundry 2.0, how do we expect more outsourcing from this US IDM and how do we plan for the capacity? Would we consider, I think, to acquire part of this IDM's FAVs or manufacturing, and then how do we see

Charlie Chan: So, Charlie's second part is on IDM outsourcing. He wants to know with the, I guess, US IDM and foundry 2.0. How do we expect more outsourcing from this US IDM, and, you know, how do we plan for the capacity? Would we consider, I think, to acquire part of this IDM's FAF, or manufacturing, and then how do we see outsourcing from Samsung?

Speaker Change: Okay. So charges second part is on the IDM outsourcing he wants to no.

Speaker Change: <unk>.

Speaker Change: With the I guess U S IDM and foundry to point out how do we do we expect more outsourcing.

Speaker Change: From this U S IDM and how do we plan for the capacity.

Speaker Change: Would we consider I think to acquire part of this idms fabs or manufacturing and then how do we see.

Speaker Change: Outsourcing from Samsung.

C.C. Wei: Well, that's a lot of questions. Let me answer one of the easiest ones. Are we interested to acquire one of IDM's or so far? The answer is no. Okay. No, not at all.

Speaker Change: Well, that's a lot of questions. Let me answer one of the easiest ones. Are we interested to acquire

Speaker Change: Well, that's a lot of questions.

Speaker Change: Maybe it's a one of the easiest one interesting.

Speaker Change: Interesting to acquire.

Speaker Change: One of ITM's to suffer, the answer is no.

Speaker Change: Uh huh.

Speaker Change: One of IDM, so so far the English no.

Speaker Change: Okay, no, not at all.

Speaker Change: Okay.

C.C. Wei: Now, let's talk about the business part. It's always a customer's decision for their outsourcing strategy. But I look at the business of the IDM, one of the IDMs in California, which has been a very good customer to TSMC. And we continue to receive a sizable business from them to befriend with you. So, your question is whether that we continue to increase. That is too specific. So, let's wait for the next few quarters to answer your question. Okay.

No not at all.

Speaker Change: Let's talk about the business part. It's always a customer's decision for their outsourcing strategy.

Speaker Change: Now, let's talk about the business part.

Speaker Change: It always a customer's application for they are outsourcing.

Speaker Change: But I look at the business of the IDMs, one of the IDMs in California, which has been a very good customer to TSM.

Speaker Change: Strategy.

Speaker Change: But I I look at it the pygmies.

Speaker Change: After idms one of the idea of <unk>.

Speaker Change: California.

Speaker Change: Which has been a very good customer to TSMC.

Speaker Change: Thank you everyone. His video is very interesting. We will continue in the future. It's great. The same goes for everyone who provided good teaching materials for this. I don't know what everyone often does, whether it's doing promotions.

Speaker Change: And.

Speaker Change: We continue to receive a sizable business from them to be friends with you. So your question is...

Speaker Change: We.

Speaker Change: We are.

Speaker Change: Continue to receive a sizable business form Jim.

Speaker Change: To be Frank with you.

Speaker Change: Yeah. So your question so.

Speaker Change: He said that we continue to increase. That is too specific. So let's wait for the next few quarter to answer your question.

Speaker Change: Laser that we continue to increase that is too specific so let's wait for the next few quarters to answer your question.

Speaker Change: Okay. Thank you. Okay. All right. Thank you, Charlie. Operator, can we move on to the next person? Call her.

Charlie Chan: Thank you. Okay. All right.

Speaker Change: Okay.

Charlie Chan: Thank you, Charlie.

Speaker Change: Okay, Alright. Thank you Charlie operator can we move on to the next person caller. Please.

Operator: Operator, can we move on to the next person, caller, please? Yes.

Speaker Change: Yes, next one, Bruce Liu from Goldman Sachs. Go ahead, please. Okay, thank you for taking my question. My question is going back to the longer-term growth outlook. I think TSMC has been guiding for 15 to 20% revenue takers from 21 to 26. On the back of the INSAN AID men, do we have an update outlook for the revenue guidance beyond 206? In addition, when TSMD guided in 2021, TSMC achieved by 25% growth almost every year, except for 2023. So what kind of revenue growth outlook or the growth pattern in the next five years? Do we expect to be a more stable growth every year?

Bruce Liu: Next one, Bruce Liu from Goldman said. Go ahead, please.

Speaker Change: This next one Bruce Lu from Goldman Sachs Go ahead. Please.

Bruce Liu: Okay. Thank you for taking my question. My question is going back to the longer-term growth outlook. I think TSMC has been guiding for 15 to 20 percent revenue takers from 21 to 26.

Bruce Lu: Okay. Thank you for taking my question. My question is going back to the longer term growth outlook I think TSMC has been guiding for 15% to 20% in revenue K goes from <unk> to 'twenty six.

Bruce Liu: On the back of the INSAN AI demand, do we have an updated outlook for the revenue guidance beyond 2026? In addition, when TSMC guided in 2021, TSMC achieved by 25 percent growth almost every year except for 2023. So, what kind of revenue growth outlook or the growth pattern in the next five years? Do we expect to be more stable growth every year? Or do we expect to be a stronger growth for most of the year and the one year of weakness? Okay, so thank you, Bruce.

Bruce Lu: On the back of the insane AI demand do we have.

Bruce Lu: I'll look for for the revenue guidance beyond 2026.

Bruce Lu: <unk> when TSMC guided in 2021, TSMC achieved by 25% growth almost every year, except for 2000, <unk>. So what kind of like you know revenue growth out of our the growth pattern.

Bruce Lu: In the next five years do we expect to be a more stable growth every year.

Bruce Lu: Or do we expect to be a stronger growth for most of the year and the one year weakness?

Bruce Lu: Or do we expect to be a stronger growth for almost a year and one year weakness.

Bruce Lu: Okay, so thank you Bruce. So Bruce's first question is about our long-term growth outlook. He notes, yes, we did provide a long-term revenue growth caker between 15 to 20% caker in U.S. all the terms from 21 to 26. So he wants to know what is the updated revenue guidance beyond 20 to 26, and he also notes that when we provided this guidance in 2022, we basically were able to grow greater than 25% every year except for 2023. So he wants to know the next five years will be similar level every year, or will it be like strong years followed by down year sort of the pattern.

Bruce Lu: Okay. So thank.

Bruce Liu: So Bruce's first question is about our long-term growth outlook. He notes yes, we did provide a long-term revenue growth caker between 15 to 20% caker in US dollar terms from 21 to 26. So he wants to know what is the updated revenue guidance beyond 2026, and he also notes that when we provided this guidance in 2022, we basically were able to grow greater than 25% every year except for 2023. So he wants to know the next five years for the growth be you know similar level every year or will it be like a strong year followed by you know a down year sort of the pattern of the growth.

Speaker Change: Thank you Bruce Bruce. This first question is about our long term.

Speaker Change: Both outlook. He noticed yes, we did provide a long term revenue growth CAGR of between 15% to 20% CAGR in U S. Dollar terms from 21 to 26. So he wants to know what is the updated revenue guidance the outlook beyond 2026.

Speaker Change: And he also noticed that.

Speaker Change: When we provided this guide.

Speaker Change: Guidance in 'twenty 2022, we basically were able to grow greater than 25% every year, except for 2023. So he wants to know the next five years with the growth be you know.

Speaker Change: Similar level every year or will it be like a strong years, followed by you know down here sort of the pattern of the growth.

C.C. Wei: Okay, Bruce, that's a big question. You ask us whether the next five years worked as good as the past five years from 21 to 24 right now. We accept the 2023; we have a very good growth, as you said. It's always a 20% to 30%.

Speaker Change: Okay, proofs. Lots of big questions.

Okay Bruce.

Bruce Lu: Lots of good questions.

Bruce Lu: You asked us whether the next five years worked as good as the past five years from 21 to 24 right now. We accept the 2023, we have a very good world, as you said, it's always a 20% to 30%. Next five years.

Bruce Lu: Oscar so whether the next five years of work.

Bruce Lu: No.

Bruce Lu: As good as the past five years from 'twenty, one to 'twenty four right now.

Bruce Lu: We except for 2023, we have a very good world are.

Bruce Lu: As you said, it's always a 20% to 30%.

C.C. Wei: Next five years it will be very hearsly also to DSMC but I don't have a long-term caker number to update you but they won't be very hearsly also that's so far I can assure you. So a quick follow-up: does that in send AI demands card to help you to grow slightly faster than before? So Bruce wants to know what the very robust AI-related demand can we grow faster than before? I hope so, but as I said today, we don't we don't have a long-term caker number to share with you, okay.

Bruce Lu: Our next five years.

Bruce Lu: It will not be very hearsay also to DSMC, but I don't have a long-term care number to update you, but they will not be very hearsay also. That's so far I can assure you.

Bruce Lu: So it won't be where he or she also to TSMC, but.

Bruce Lu: I don't have a long terms our key goal number two update you, but they wont be wary here as he also that so far I can assure you.

Speaker Change: So, a quick follow-up does that incend AI-DMS card to help you to go slightly faster than before?

Speaker Change: So a quick follow up does that Incent AIP.

I mean, it's got to have your typical slightly faster than before.

Speaker Change: So Bruce wants to know, with the very robust AI related demand, can we grow faster than before? I hope so.

Speaker Change: So Bruce wants to know with the very robust AI related demand can we grow faster than before.

Speaker Change: I hope so but.

Speaker Change: today we don't we don't have a long-term care number to share with you okay okay let me switch to two nine meters and eight sixteen so I think that you know with the HPCD and you know for the doesn't know it's very strong we do see more customer engagement for two nine meters but at the same time we also see more children's design in two nine meters which might effectively lower the two nine meter way through area requirement so how should we think about your two nine meter capacity bill versus three five seven in the past and how do we see the A-16 migration beyond two nine meters

Speaker Change: As I said.

Speaker Change: Today, we don't.

Speaker Change: We don't have a long term keiko number to show.

Bruce Liu: Okay let me switch to two nanometers and 816 so I think that you know with the HPCD and you know for the doesn't know it's very strong. We do see more customer engagement for two nanometers but at the same time we also see more children design in two nanometers which might effectively lower the two nanometer way through area requirement.

Speaker Change: Okay.

Speaker Change: Okay, let.

Speaker Change: Let me switch to two nanometers and 16, so I.

Speaker Change: I think that you know.

Speaker Change: Yes.

Speaker Change: The HDD demand and.

Speaker Change: That doesn't isn't always very strong we do see more customer engagement for two nanometers, but at the same time, we also see more tableau defy in two nanometers, which might effectively lowered the two nanometer wafer requirement.

Bruce Liu: So how should we think about your two nanometer capacity bill versus three five seven in the past and how do we see the 816 migration uh uh uh be up to two nanometers. Okay, so Bruce's second question, as he says on two nanometer in 816, he notes certainly with HPCD and AI related, more and more engagement at two nanometer, but he also notes, or his observation with chiplets, that could reduce the demand for two nanometer. So he really wants to know sort of what is the capacity build or capacity outlook for two nanometer that we are looking at and also how do we see the migration from two nanometer to 816.

Speaker Change: How should we think about your two nanometer capacity bill versus the three five is having in the past and how do we see the <unk> migration.

Speaker Change: Yeah.

Speaker Change: Okay, so Bruce's second question, as he says, on 290 meter and 816, he notes certainly with HPC and AI related more and more engagement at 290 meter, but he also notes or his observation with chiplets that could reduce the demand for 290 meter. So he really wants to know sort of what is the capacity build or capacity outlook for 290 meter that we are looking at. And also, how do we see the migration from 290 meter to 816? Is that correct Bruce?

Speaker Change: Uh huh.

Speaker Change: Okay. So Bruce as a second question as he says on two nanometer 16, he noticed certainly with HBC and AI related more and more engagement at two nanometer, but he also notes or his observation with chip let's.

Speaker Change: That could reduce the demand for two nanometer. So he really wants to know sort of what is the capacity build or <unk>.

Speaker Change: Capacity outlook.

Speaker Change: For two nanometer that we are looking at.

Speaker Change: And also how do we see the migration from two nanometer to a 16 is that correct Bruce.

Bruce Liu: Is that correct, Bruce? Yes.

C.C. Wei: Okay, let me answer this question. Yes, the chiplet has become kind of, you know, our HPC, especially our HPC customer strategy. It's going to reduce the capacity for two nanometer meter because they become chiplet. There is no; actually, we have many, many customers interested in the two nanometer. And today, with their activity with TSMC, we are actually seeing more demand than we ever dreamed about it as compared with the N3. So we have to prepare more capacity in N2, N3. And following by A16, again, A16 is the very, very attractive for the AI service chips.

Speaker Change: Okay.

Speaker Change: Okay, let me answer this question. Yes, the chiplet has become...

Speaker Change: Okay. Let me answer this question yes.

Speaker Change: Chimera has it become.

Speaker Change: Kind of

Speaker Change: Kind of.

Speaker Change: Especially regarding our HPC customers' strategy, will it reduce the 2nm capacity because it becomes a chip? The answer is no. In fact, we have many customers interested in 2nm, and today, regarding TSMC's activities, we actually see more demand than we expected compared to N3. Therefore, we need to prepare more resources for N2 than for N3. Additionally, A16 is very advantageous for AI service chips, and the demand is also very high, so we are working hard to prepare the 2nm A16 capacity.

Speaker Change: You know, our HPE, especially our SPG customers our strategy.

Speaker Change: <unk> is going to reduce our capacity for two nanometer because become chip as there is no actually we.

Speaker Change: We have many many customer interest you have in the two nanometer and today, we said Gee our activity with TSMC.

Speaker Change: Yes.

Actually she.

She.

Speaker Change: More demand Gen. We ever dream about at <unk> in three so we have two PPO more kpis in yen too.

Speaker Change: And three and following by a 16 again, a sheeting use a very very attractive for the.

AI Sogou is chips and so the answer is the demand is also very high. So we are working very hard to prepare boza, two nanometre AG kings capacity.

C.C. Wei: And so, actually, the demand is also very high. And so we are working very hard to prepare both two nanometer HPC's capacity. Okay, Bruce, did I answer your question? Yes, perfect.

Speaker Change: Okay, Bruce, did I answer your question? Yes, perfect, thank you. All right, thank you. Operator can move on to the next participant please.

Speaker Change: Okay.

Speaker Change: That answer your question, yes, perfect. Thank you.

Bruce Liu: Thank you. All right.

Operator: Thank you.

Operator: Operator, can we move on to the next participant, please?

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

Speaker Change: Now Brett Simpson from Arrow T, Light is open to you now.

Brett Simpson: Now, Brad Simpson from Eritage. Light is open to you now.

Now Brett Simpson from Arete lie this open to you now.

Brett Simpson: Yes, thanks very much.

Brett Simpson: Yeah, thanks very much. My question was on the long term planning around AI, keen to understand how TSMC gets comfortable with customer demand for AI beyond 2025. And I asked this because it takes a couple of years before you can build a fab. So you need to be taking early

Brett Simpson: My question was on the long-term planning around AI. I am keen to understand how TSMC gets comfortable with customer demand for AI beyond 2025. And I ask this because it takes a couple of years before you can build a fab. So you need to be taking early, an early view on what does AI look like in 2026, 2027. So how are you specifically cooperating on long-term plans for capacity with these AI customers? What commitments are these customers giving you? And I guess, historically, we've seen hyper-scaler CAPEX go through digestion periods. So how do you de-risk the capacity plans here for AI as we go through this, you know, really every demand period?

Brett Simpson: Yes, Thanks very much my question was on the long term planning around AI.

Brett Simpson: Can you understand how TSMC gets comfortable with customer demands for AI beyond 2025, and I ask this because it takes a couple of years before you can build a fabs. So.

Brett Simpson: So you need to be taking early.

Brett Simpson: and early view on, you know, what does AI look like in 2026, 2027? So how would you, how are you specifically cooperating on long-term plans for capacity with these AI customers? What commitments are these customers giving you? And I guess, historically, we've seen hyper-skiller CAPEX go through digestion periods. So how do you de-risk the capacity plans here for AI as we go through this, you know, really every demand period? Thank you.

Brett Simpson: An early view on.

Brett Simpson: What does it look like in 2026 2027, so how would you how are you specifically cooperating on long term plans for capacity with these AI customers what commitments are these customers, giving you.

Brett Simpson: I guess historically, we've seen hyper scaler Capex go through digestion periods. So how do you de risk the capacity plans here for AI as we go through this really.

Brett Simpson: Thank you.

Brett Simpson: Heavy demand period. Thank you.

C.C. Wei: Okay, so Brad's first question, again, is on the long-term planning around AI demand. His question is really for beyond 2025. Given the times, how do we plan our capacity for the long-term? How do we get comfortable around the customer demand related to AI beyond 2025? I think that is just your question, Brad. Well, okay, Brad. Yeah, let me say again that we did talk to a lot of our customers. Almost every AI innovator is working with us. And that's including the hyper-scarers. So if you look at the long-term market, long-term structuring market demand profile, I think we have some picture in our mind, and we make some judgment, of course.

Speaker Change: Okay, so Brett's first question again is on the long term planning around AI demand. His question is really for beyond 2025, given the lead times, how do we plan our capacity for the long term? How do we get comfortable around the customer demand related to AI beyond 2025? I think that is your just of your question, Brett.

Speaker Change: Okay. So perhaps first question again is on the long term planning around the AI demand. His question is really.

Speaker Change: For beyond 2025, given the lead times, how do we plan our capacity.

Speaker Change: For the long term, how do we get comfortable around the customer demand related to AI beyond 2025.

Speaker Change: I think that that is your gist of your question Brett.

Brett Simpson: Wow, okay, that's great, Jeff, that can be, yeah, let me, uh...

Brett Simpson: Okay, great, yes that can be.

Brett Simpson: Yeah, Let me say again that are we did talk to a lot of our customer almost every AI innovator all walking with us.

Brett Simpson: Say again that we did talk to a lot of customers, almost every AI innovator working with us.

Brett Simpson: and that including the hyperscalers.

And that includes in the Hyperscale rose.

Brett Simpson: So if you look at the long-term market, long-term structuring market demand profile, I think we have some picture in our mind, and we make some judgment, of course, and we work with them on a rowing basis, and so...

Brett Simpson: So if you look at the long term market long term structure and market demand profile.

Brett Simpson: I think we have some a picture in our mind and we make some judgment of course, and we work with them on.

C.C. Wei: And we work with them on a rolling basis. And so... So, how we prepared our capacity, actually just like a window said, we have a disciplined and a rough system to pin the appropriate level of capacity. And that, to support our customers' needs also to maximize our shareholders' value, that's why we are always keeping our mind. Okay.

Brett Simpson: On a rolling basis.

Brett Simpson: The entire film was shot with Google Pixel 4

Brett Simpson: And so.

Brett Simpson: How we prepared our capacity? Actually, just like a window said, we have a disciplined and the rough system to pin the appropriate level of capacity. And that to support our customers needs also to maximize our shareholders' value. That's what we always keep in our mind.

Brett Simpson:

Brett Simpson: How we prepared our capacity actually just the NYCHA window said, we have a disciplined and zuroff system too.

Brett Simpson: To pin the appropriate level of capacity.

Brett Simpson: And that the to support our customers' needs also.

Brett Simpson: To maximize our shareholders' of where do you that's why we always keeping our mind.

Brett Simpson: Okay.

Speaker Change: Okay, okay. My follow-up. Yeah, that's great. Thanks, C.C. I guess my follow-up question, we've read a lot about Taiwan having energy challenges, and this comes at a time when TSMC is preparing for a big node with two nanometer. So my question is, are there any power challenges to overcome when you're building out your N2 fabs, especially in Sinshu and Gau Chen? And does it make sense for TSMC to plan for nuclear power? I mean, we see a lot of hyperscalers are planning for nuclear power in the US to build at gigawatt facilities. How do you think about nuclear power in future for TSMC fabs?

Brett Simpson: Okay. Okay.

Brett Simpson: My follow-up. Yeah, that's great. Thanks, C.C.

Speaker Change: My follow up yeah. That's that's great. Thanks. Thanks D. C. I guess my follow up question, we've read a lot about Taiwan, having energy challenges and this.

Brett Simpson: I guess my follow-up question: we've read a lot about Taiwan having energy challenges, and this comes at a time when TSMC is preparing for a big node with two nanometer. So my question is, are there any power challenges to overcome when you're building out to your end-to-fabs, especially in Senshu and Gau Chen? And does it make sense for TSMC to plan for nuclear power? I mean, we see a lot of hyperscalers are planning for nuclear power in the U.S. to build at gigawatt facilities. How do you think about nuclear power in future for TSMC fabs?

Speaker Change: This comes at a time when TSMC is preparing for a big node with two nanometer. So my question is are there any power challenges to overcome.

Speaker Change: Are you building out your end two fabs, especially in since you and go Shang.

Speaker Change: And in.

Speaker Change: And does it make sense for TSMC to plan for nuclear power I mean, we see a lot of Hyperscale as a planning for nuclear power in the U S to build out gigawatt facilities. How do you think about nuclear power in future for TSMC Fabs. Thank you.

Brett Simpson: Thank you.

Brett Simpson: Okay. Thank you, Brett.

Speaker Change: Okay, thank you, Brett. So Brett's second question, he notes that Taiwan electricity and energy, there are a lot of challenges with this. So, how do we plan for this, especially when we're bringing on new notes, are there, what are the power challenges to overcome, given the state of Taiwan's energy, and then would we consider even nuclear power for ourselves to help support?

Operator: So, Brett's second question: he notes that Taiwan electricity and energy, there are a lot of challenges with this. So, how do we plan for this, especially when we're bringing on new nodes? Are there what are the power challenges to overcome given the state of Taiwan's energy, and then would we consider even nuclear power for ourselves to help support? Okay, Brett. You know, yes, we are building manifabs in Taiwan, and that requires electricity, water, and the land. We continue to work with the government. Actually, we have a very close communication with government and to tell them that our requirement, our plan, and we got an assurance from the government saying that they were supporting TSMC's growth, and we believe that.

Speaker Change: Okay. Thank you Brett So bread second question he notes that Taiwan electricity and energy are there are a lot of challenges with this so how do we plan for this especially when we're bringing on new nodes are there what are the power challenges to overcome.

Speaker Change: Given the state of Taiwan's energy and then would we consider even.

Speaker Change: Clear power for ourselves to help support.

Speaker Change: Okay, Brett.

Speaker Change: Okay great.

Speaker Change: You know, yes, we are building benefits in Taiwan and that require electricity, water, and the land. We continue to work with the government. Actually, we have a very close communication with government and to tell them that our requirement, our plan, and we got assurance of all the government say that they will support TSMP's growth, and we believe that. And so, whether how they prepare for the electricity from the nuclear power plant, or from just some kind of, you know, other sources like go up.

Speaker Change: You know, yes, we are building many fabs in Taiwan and that require.

Speaker Change: Tricia T water and the land we continues to work with our government actually we have a very close communication with government and took care of the items out of our requirement arpin.

And we got assurance from the government and say that there was support TSM piece of Coral and we are we believe that and so what is the how.

C.C. Wei: And so, where the, how they prepare for the electricity from the nuclear power plan or from just some kind of, you know, other sources like green energy, something, we are, we are not ready to share with you yet, but we got assurance that we're going to get enough electricity support, including the water and the land. That's clear.

Speaker Change: How do you prepare for the electricity from the nuclear power brand or form.

Speaker Change: Just some kind of a you know other associates did I go.

Speaker Change: Green Energy Sunshine, we are not ready to share with you yet, but we got assurance that we are going to get enough electricity, support, including the water and the van.

Speaker Change:

Speaker Change: Green Energy sub machine. We are we are not ready to share with you yet, but we got the assurance that we're going to get in now Tricia T support.

Speaker Change: In the water and the band.

Speaker Change: That's clear. Thank you very much.

Operator: Thank you very much. Okay, thank you, Brett.

Speaker Change: That's clear thank you very much.

Speaker Change: Okay, thank you, Brett. Can we move on to the next participant, please?

Operator: Can we move on to the next participant, please?

Speaker Change: Great. Thank you Bret can we move on to the next participant please.

Speaker Change: Next one to ask questions, Krish Sankar from T. Owen

Krish Sankar: Let's want to ask a question, Chris Sankara from Tinoen.

Speaker Change: Next one to ask question, Chris a sand car from T O N E.

Krish Sankar: Yeah, hi, thanks for taking my question. The first one I had was, I'm kind of curious on the non-AI demand. How do you look at your wafer demand for PC and mobile into calendar 25, and have you seen any meaningful revisions upwards or downwards from that?

Speaker Change: Yeah, hi. Thanks for taking my question. The first one I had was, I'm kind of curious on the non AI demand. How do you look at your wafer demand for PC and mobile into calendar 25? And have you seen any meaningful revision upwards or downwards on that? I'm going to add a follow up.

Speaker Change: Yeah, Hi, Thanks for taking my question. The first one I had was I'm kind of curious on the non AI demand. How do you look at your wafer demand for PC and mobile into calendar 'twenty Friday and have you seen any meaningful revision upwards or downwards on that and then I had a follow up.

C.C. Wei: I'm going to add a Okay, so Krish's first question is really focused on PCM mobile demand. How do we see this demand going into 2025? Have we seen it improve or revision up or downwards, and how would we look at it going into next year? Okay, Krish, the only growth of PCM smartphone is still growing in a low single digit, but the more important is the content. The content now we put more AI into that their chip, and so the silicon area increased faster than the unit growth. So again, I would like to say that for this PC and smartphone business, not only is gradually increased, and we expected to be here see in the next few years because of our AI related applications.

Speaker Change: Okay, so Krish's first question is really focused on PC and mobile demand. How do we see this demand going into 2025? Have we seen it improve or revision up or downwards? And how would we look at it going into next?

Speaker Change: Okay. So Chris just first question is really focus on PC and mobile demand how do we see this.

Speaker Change: Demand going into 2025, how we've seen it improve or revision up or downwards, and how would we look at it going into next year.

Speaker Change: OK, Krish

Speaker Change: The unique growth of PC and smartphone is still in a low single digit, but the more important is the content. The content now we put more AI into that

Speaker Change: Okay Chris.

Speaker Change: The unit growth of PC and smartphone is still in a low single digit but the more important is our content. The content now we put a more AI into that.

Speaker Change: They are cheap and so...

Speaker Change: They are cheap and so.

Speaker Change: The Silicon Area increased faster than the unicorns.

Speaker Change: The silicon area increased.

Speaker Change: Faster than the unit growth.

Speaker Change: So, again, I would like to say that for this PC and smartphone business, not only is it is gradually increased and we expected to be here see in the next few years because of our AI related

Speaker Change: So again I would like to say that for this a P C and <unk>.

Speaker Change: Smartphone business.

Speaker Change: Not all.

Speaker Change: Is gradually increase and we expect it to be here in the next few years because of Hawaii is related.

Speaker Change: The cases.

Krish Sankar: Got it, got it, very helpful.

Speaker Change: God, it's very helpful. And then my quick follow-up is, I'm quite a curious, you know, on the, on your packaging side, advanced packaging, today it's part of the non-way for revenues, obviously it's investing in cohorts and other technologies, how to think about that advanced packaging revenue growth over the next few years, and do you think at some point in the next couple of years, advanced packaging can reach corporate level growth margins, or would it always be below that? Thank you very much.

Wendell Huang: I'm going to quick follow up on the packaging side, advanced packaging. Today's part of the non-wave for revenues, obviously we're investing in co-war and other technologies. How to think about that advanced packaging revenue growth over the next few years, and do you think at some point in the next couple of years, advanced packaging can reach corporate level growth margins, or would it always be below that? Thank you very much. Okay, thank you, Krish.

Got it got it very helpful. And then my quick follow up if I'm kind of curious you know on the on your packaging side advanced packaging to refer to the non wafer revenues, obviously were in lithium cobalt and other technologies. How do you think about that advanced packaging revenue growth over the next few years.

Speaker Change: And do you think at some point in the next couple of years.

Speaker Change: Vance packaging can reach corporate level gross margins or will it always be below that thank you very much.

Speaker Change: Okay, thank you, Krish. So Krish's second question is on advanced packaging. So we have been putting a lot of effort. So his question is, what is the revenue growth outlook for advanced packaging in the next few years? And also when or do we think it can reach the corporate average growth margin as well? So maybe Wendell can address. Yeah, Krish, advanced packaging in the next few years.

Wendell Huang: So Krish's second question is on advanced packaging, so we have been putting a lot of effort. So his question is what is the revenue growth outlook for advanced packaging in the next few years, and also when, or do we think it can reach the corporate average growth margin as well, so maybe when they'll can address. Yeah, Krish, advanced packaging in the next several years, let's say five years, will be growing faster than the corporate average. This year it accounts for about high single digit of our revenue. In terms of margins, yes, it is also improving.

Speaker Change: Okay. Thank you Krish. So Christmas second question is.

Speaker Change: It is an advanced packaging, so we have been putting a lot of effort.

Speaker Change: His question is what is the revenue growth outlook for advanced packaging in the next few years and also a win or do we think it can reach the corporate average gross margin as well so maybe wendell can I address yeah, Chris advanced packaging in the next several years, let's say five years will be growing faster than the corporate average.

Speaker Change: Several years, let's say five years, will be growing faster than the corporate average. This year it accounts for about a high single digit of our revenue.

Speaker Change: This year it accounts for about high single digit of our revenue.

Speaker Change: In terms of margins, yes, it is also improving. However, it's still approaching corporate, but that there is.

Speaker Change: In terms of margins, yes. It is also improving however is still.

Wendell Huang: However, it's still approaching corporate, but not there yet.

Speaker Change: Is approaching corporate but out there yet.

Wendell Huang: Thank you very much. Okay, Krish.

Speaker Change #101: Thank you very much.

Speaker Change #100: Thank you very much.

Speaker Change #101: Okay, Krish, Operator in the interest of time we'll take questions from the last two participants.

Laura Chen: Operator, in the interest of time, we'll take questions from the last two participants, please. Yes, now the line is open to Laura Chen from City.

Speaker Change #101: Okay Krish operator in the interest of time, we'll take questions from the last two participants please.

Speaker Change #101: Yes, now the line is open to your Lourashan from city.

Yes now the line is open until Laura Chen from Citi.

Laura Chen: Hi, thank you for taking my question, and also congratulations from the strong performance. I'm just wondering that with the decent free cash flow increase in the recent quarter, and I believe that next year we'll be a decent year for TSE to grow. So is there any opportunity for TSE to consider increased the cash dividend in the near future, and how do you view the balance of the capital allocation between shareholder returns, and also the continued investment in the advanced technology like a two and a three nine. That's my first question.

Speaker Change #101: Hi. Hi. Thank you for taking my question, gentlemen, and also a presentation from the strong performance. I'm just wondering that with the decent free cash flow in

Speaker Change #101: Hi.

That's all my questions.

Speaker Change #101: Okay.

Speaker Change #102: I'm just wondering that.

Speaker Change #102: At this time.

Speaker Change #103: Free cash flow.

Speaker Change #103: Sankar, and I believe that next year will be a decent year for tears and tears to grow. So, is there any opportunity for tears and tears to consider increased the cash dividends in the near future? And how do you view the balance of the capital and the patience between shareholder returns and also the continuous investment in the advanced technology like a two and a three nine? That's my first question.

Speaker Change #103: Okay.

Speaker Change #103: Yeah.

Speaker Change #103: Okay.

Speaker Change #103: Well so.

Speaker Change #103: The China team for future proceeding okay a.

Speaker Change #103: The cash dividend.

Okay all housing here.

Capital allocation.

Speaker Change #103: And I'll start with that.

Speaker Change #103: That's not all that long.

Speaker Change #103: Yeah.

That's my first question.

Wendell Huang: Okay, thank you, Laura. So Laura's first question is related around her question. Really, it is looking at our free cash flow generation, noting that it has continued to increase, and then with next year being a healthy good year, you should continue to grow. So her question is, is there a room or how do we see the cash dividend as related to free cash flow? And also I think Laura really her question was also a balance sheet ramification. How do we balance the shareholder return interest set against what CZ said, capital intensive industry and CAPEX. So two parts to it first on the cash dividend, and then sort of on the balance sheet right, Laura.

Speaker Change #104: Okay, thank you, Laura. So, Laura's first question is related around her question really is looking at our free cash flow generation, noting that it has continued to increase, and then with next year being a healthy, good year, you should continue to grow. So, her question is, is there a room or how do we see the cash dividend as related to free cash flow? And also, I think Laura really, her question was also a balance sheet ramification. How do we balance the shareholder return interest set against what he said, capital intensive industry and capex. So, two parts to it, first on the cash dividend and then sort of on the balance sheet venture.

Speaker Change #104: Okay. Thank you Laura so lowest first question is related around.

Speaker Change #105: The question really is looking at our free cash flow generation, noting that it is continues to increase and then with next year opinion healthy. Good year, you should continue to grow. So her question is is there room or how do we see the cash dividend.

Speaker Change #105: As related to free cash flow and also I think Laura really her question was also a balance sheet ramification of how do we balance.

Speaker Change #105: The shareholder return interests set against what he said a capital intensive industry and Capex. So two parts to it first on the cash dividend and then sort of on the balance sheet management right, Laura certainly our dividend our dividend policy as we said before.

Speaker Change #105: Right, Laura, certainly our dividend policy, as we said before, is sustainable and steadily increasing. It's steadily increasing when we are harvesting the investment that is made in the past. And as the free-casual increase, that means we are harvesting the investment in the past. So it's going to be steadily.

Wendell Huang: Certainly, our dividend policy, as we said before, is sustainable and steadily increasing. It's steadily increasing when we are harvesting the investment that is made in the past. And as the free cash will increase, that means we are harvesting the investment in the past. So it's going to be steadily increasing.

Speaker Change #105: Sustainable and steadily increasing steadily increasing when we are harvesting.

Speaker Change #105: The investment.

Speaker Change #105: Made in the past and as the free cash flow increase that means we are harvesting the investment in the past so it's gonna be steadily increasing.

Laura Chen: That's for the dividends. Balance sheet, the primary objective of our using our balance sheet or our cash resources is organic growth. So that will bring our shareholders the biggest return. And then whatever the free cash show is left, then we will return part of those to our shareholders. That's always our policy. Okay, yeah, that's very consistent. But I think that given our like a rich cash flows, generating capability, and also, yeah, I mean, we can probably be able to harvest. So I think it invests in kind of expecting the dividends increase gradually.

Speaker Change #105: That's for the duv-

Speaker Change #105: balance sheet, where are-

Speaker Change #105: As for the dividend.

Speaker Change #105: Our balance sheet.

Speaker Change #106: The primary objective of our using our balance sheet or our cash resources is organic growth. So that will bring out shareholders the biggest return. And then whatever the free cash show is left, then we will return part of those to our shareholders. That's always our policy.

Speaker Change #106: Uh huh.

Speaker Change #106: The primary objective of our using our balance sheet or our cash resources is organic growth. So that will bring our shareholders. The biggest return and then.

Speaker Change #106: Whatever the free cash flow is left that we will return part of those to our shareholders. That's always our policy.

Speaker Change #106: Okay, yeah, that's very consistent. But I think that given our, like, a rich cash flows, generating capability, and also, yeah, I mean, we can probably be able to harvest. So I think it invests in kind of expecting the dividends increase gradually. Yeah. And also, my second question is about our Foundry 2.0 model. That has been discussed since last time. But could you share more details on how the Foundry 0.2 is being implemented and found different spec like the traditional logic foundry business and advanced packaging. And also, maybe the IDN customers, can you give us kind of an idea what will be the, like, a growth outlook for a different kind of segmentation in that new definition.

Okay, Yeah that that's fairly consistent but I think given our lack of reach cash flow generating capability and how so yeah. I mean, we can probably be able to harvest. So I can get and that's that kind of are expecting the.

Laura Chen: Yeah, and also my second question is about our Foundry 2.0 model. That has been discussed since last time. But could you share more details on how the Foundry 0.2 is being implemented and found different spec like the traditional logic foundry business and advanced packaging, and also maybe the IDN customers. Can you give us kind of an idea what will be the growth outlook for different kind of segmentation in that new definition? Okay, so Laura, your second question is on Foundry 2.0. So I think her question is looking at the different components of this. She's asking if we can provide a growth outlook for the different components, such as the logic, we for manufacturing, advanced packaging segment, IDN segment, et cetera, et cetera, the growth outlooks for each specific one.

Speaker Change #107: The dividend increase gradually yeah and also my second question is about I'll ask Sanjay a 2.0 model that has been discussed since last time, but.

Speaker Change #107: But could you share more details on how the foundry zero point T is being implemented and found different spec like out of the traditional logic foundry business and advanced packaging and also maybe the idea and our customers can you give us kind of idea of what will be the like.

Speaker Change #107: Gloves outlook.

Speaker Change #107: For a different kind of segmentation nuts and definitely.

Speaker Change #108: Okay. So, Laura, your second question is on Foundry2.0. So, I think her question is looking at the different components of this. She's asking if we can provide a growth outlook for the different components, such as the logic, we for manufacturing, event packaging segment, IDM segment, etc., etc., the growth outlooks for each specific one.

Speaker Change #108: Okay. So Laura your second question is on foundry to that also I think her question is looking at the different components of this she is asking if we can provide our growth outlook for the different components such as the logic wafer manufacturing advanced packaging segment, ITM segment et cetera, et cetera, the growth outlooks.

Speaker Change #108: For each specific one.

Wendell Huang: Right, appreciate.

Speaker Change #108: Right, I appreciate it. Thank you. What?

Wendell Huang: Thank you. Well, Laura, I think, you know, again, in this Foundry 2.0, among the content inside the leading process nodes, advanced packaging, why has much stronger growth? And on those of mature nodes and convention of packaging, that is not so rosy as advanced packaging and leading process node. Did that answer your question?

Speaker Change #108: Alright I appreciate it thank you.

Speaker Change #108: Yeah.

Speaker Change #108: Laura, I think I'm-

Speaker Change #108: Well.

Laura I think.

Speaker Change #108: You know, again, in this Funtry 2.0. [inaudible]

Speaker Change #108: You know again in this.

Speaker Change #108: Foundry to Darryl.

Speaker Change #108: Among the content inside, the leading process knows advanced packaging why has much stronger

Speaker Change #108: Among the content inside the <unk> process nodes.

Speaker Change #108: <unk> packaging why had much stronger growth.

Speaker Change #108: and those are materials and conventions of packaging.

Speaker Change #108: And on.

Speaker Change #108: And those are mature nodes and conventional packaging.

Speaker Change #108: That is not so rosy as one package in the leading process node, did that answer your question?

Speaker Change #108: That.

Speaker Change #108: Is <unk>.

Speaker Change #108: So rosy us advanced packaging, a leading process node.

And so your question.

Speaker Change #109: Okay, got it. Thank you.

Laura Chen: Okay, got it.

Laura Chen: Thank you.

Speaker Change #109: Okay got it thank you.

Operator: Okay, thank you, Laura.

Speaker Change #110: Okay, thank you, Laura. Upward, it can move on to the last part, last part.

Rick: Operator can move on to the last participant, please. Yes, the last one to ask a question, received from Taiwan.

Speaker Change #110: Okay. Thank you Laura operator, I can move on to the last the last participant please.

Speaker Change #110: Yes, the last one to ask questions received from Taiwan.

Speaker Change #110: Yes, the last one to ask question Rick from Daiwa.

Rick: Yeah, hi. Thank you for taking my question. So my very quick one from me, the first one. Can you update your forecast for this year's global semiconductor revenue as memory? I remember you were talking about 10, around 10% growth. So can you keep us a new update and also share with us a preliminary elimination? here.

Rick: Yeah, hi, thank you for taking my question. So my very quick one from me, the first one, can you update your forecast for this year's global semiconductor revenue as memory? I remember you were talking about around 10% growth, so can you keep us a new update and also share with us a preliminary outlook for nation.

Rick: Yeah, Hi.

Rick: Thank you for taking my questions. So my very quick one from me. The first one can you update your forecast for this year's global semiconductor revenue S. Memory I remember you were talking about around 10% growth. So can you give us a new update and also show share with us.

Rick: <unk> outlook for next year.

Speaker Change #113: Okay, so Rick's question is really, can we, you know, provide an update to our forecast for STEM, whether it's Semiconductor, Excluding Memory, Industry Growth, or End Foundry 2.0 for 2024, first.

Wendell Huang: Okay, so Rick's question is really, can we, you know, provide an update to our forecast for some, whether some of my conduct are excluding memory, industry growth, or end foundry2.0 for 2024, first, yeah. Well, our forecast stays the same, very similar to what we said the last time. Of course, TSMC's course is a little bit better than the last time we estimate, but overall the whole industry is over the same as we said in last quarter.

Speaker Change #113: Okay. So rick's question is really.

Rick: Can we.

Speaker Change #114: An update to our forecast for semi whether semiconductor excluding memory industry growth.

Speaker Change #114: Or and foundry to Dot O for 2024 first yeah.

Speaker Change #115: Well, our forecast stays the same, very similar to what we say the last time. Of course, TSMC is of course a little bit better than the last time we estimate. But overall the whole industry is over the same as we said in last quarter.

Speaker Change #115: Well our forecast stays the same very similar to what we said that last time of course Tsmc's of course, it's a deep it better than the last time, we estimate but overall the whole industry is always the same answer we Saturday.

Wendell Huang: Yeah, and then the second part of Rick's question: and what about next year? Well, we are continuing to say that it's too early to make a comment on 2025's course outlook, but we are going to share with you in the next quarter's early release. Okay.

Speaker Change #115: In that quarter and then the second part of <unk> question, and then what about next year.

Speaker Change #115: Bye-bye

Speaker Change #115: come over

Speaker Change #115: Hi.

Speaker Change #115: We are continuing to say that it's too early to make a comment on 2025's growth outlook, but we are going to share with you in the next quarter's early release, okay?

Speaker Change #115: Well.

Speaker Change #115: We continue to say that it's too early to make a comment on the 20 to 25, so growth outlook, but we are going to share with you in the next quarters.

Uh huh.

Speaker Change #115: Our new release Okay.

Rick: All right, thank you so much.

Speaker Change #115: All right, thank you so much. A little question as I follow up, the second one. Can you share with us your co-authentic capacity build up for this year and this year? I know you guys.

Speaker Change #115: Okay.

Rick: It's a little, little question as a follow-up, the second one. Can you share with us your core capacity buildup for this year and this year? I know you guys seem to have revised the dub several times. So can you share the latest one? Okay.

Speaker Change #115: Alright. Thank you so much it's a little a little question as a follow up the second one.

Speaker Change #115: Can you share with.

Speaker Change #115: Sure Cole of capacity buildup for this year and this year I know you guys.

Speaker Change #115: to have revised the dub several times, so can you share the latest one? Okay.

Speaker Change #115: Seem to have revised it up several times. So can you show us the latest one.

Wendell Huang: Yeah, so Rick's second question then is to an update on our co-host capacity plan for both 2024 and 2025, to the extent that we can share. Okay, Rick. In fact, we are putting a lot of effort to increase the capacity of the course. Roughly, let me share with you, today's situation is our customers' demand for exceed our ability to supply. So even work very hard and increase the capacity by about the more than twice, more than two times as this year compared with last year and probably a double again, but still not even now. And anyway, we are working very hard to meet the customers that we comment.

Speaker Change #116: Yeah, so Rick's second question then is to update on our co-wash capacity plan for both 2024 and 2025 to the extent that we can share.

Okay, Yes.

Speaker Change #116: So Rick second question than it is to a update on our coal ash capacity planned for both 2024 and 2025 to the extent we can.

Speaker Change #115: Okay, Rick, in fact, we...

Speaker Change #115: Sure.

Speaker Change #115: Okay.

Speaker Change #115: In fact, we are.

Speaker Change #115: Putting a lot of effort to increase the capacity of the cohorts Roughly, let me share with you today's situation is our customers demand for exceed our ability to supply

Speaker Change #115: Putting a lot of effort to increase the capacity of the course.

Speaker Change #115: Roughly than me show with you.

Speaker Change #115: Today's situation is our customers that demand far exceed our PDT to supply.

Speaker Change #115: So even work very hard.

So even local very hard.

Speaker Change #115: and increased the capacity by about the more than twice, more than two times as this year compared with last year and probably double again, but still not enough. But anyway, we are working very hard to meet the customer's requirements.

Speaker Change #115: And increase the capacity by about more than twice more than two times as of this year compared with last year improperly double again by steel.

Speaker Change #115: 90, now and but anyway, we are working very hard to meet the customer set.

Speaker Change #115: Requirement.

Wendell Huang: All right, thank you so much.

Speaker Change #117: All right, thank you so much.

Speaker Change #115: Yes.

Speaker Change #117: Alright, thank you so much.

Operator: Okay, thank you, Rick. Thank you, everyone.

Speaker Change #117: Okay, thank you, Rick. 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 you can find in our available through TSMC's website at www.tsmc.com So thank you everyone for joining us today. We hope everyone continues to be well, and we hope to see you again and you will join us again next quarter. Good bye, and have a good day. Thank you.

Okay. Thank you Rick. Thank you everyone. This concludes our Q&A session.

Operator: This concludes our Q&A session.

Operator: 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 you can find in our available through TSMC's website at www.tsmc.com. So thank you, everyone, for joining us today. We hope everyone continues to be well, and we hope to see you again, and you will join us again next quarter. Goodbye, and have a good day.

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 you can find in our available through Tsmc's website at Triple W. Dot TSMC dot com. So thank you everyone for joining US today, we hope everyone continues.

Speaker Change #117: To be well and we hope to see you again in you will join US again next quarter Goodbye and have a good day.

Q3 2024 Taiwan Semiconductor Manufacturing Co Limited Earnings Call

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