Q4 2024 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

Good afternoon to all friends from the investment community and the media.

Good way towards the judge he may teed up on Ya Man Dodge all one.

Heikki: I am Su Zhikai from the Corporate Relations Department of TSMC.

Heikki: Well. This is Heikki, then I'm glad she's food as food to the kite.

Heikki: Welcome to TSMC's 2024 Q4 Corporate Briefing

Heikki: Finding fungi paycheck answer auditing, our sounion D. C. G. That's five years all of them anyway.

Heikki: Due to the fact that this event is being broadcasted live to global investors simultaneously, we will be using English throughout. We appreciate your understanding.

Heikki: Youll you been possible ways. This young chinchilla torture and tone Sudan change on board say, one way Tianjin Shield in England Choong Chen young.

Speaker Change: Good afternoon everyone and welcome to TSMC's fourth quarter, 2024, Ernie's conference and conference call.

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

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: Today's event is being broadcast live through TSMC's website at www.tsmc.com where you can also

Speaker Change: Today's event is being webcast live through Tsmc's website at Triple W. Dot TSMC Dot Com, where you can also download the earnings release materials.

Speaker Change: If you're joining us through the conference call, your dial-in lines are in this and only mode.

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

Speaker Change: The format for today's event will be as follows. First, he is MC Senior Vice President and CFO , Mr. Wendell Huang, will summarize our operations in the fourth quarter of 2024 followed by our guidance for the first quarter of 2025.

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

Speaker Change: First Tsmc's senior Vice President and CFO, Mr. Wendell Huang will summarize our operations in the fourth quarter 2024, followed by our guidance for the first quarter 2025.

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

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

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

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

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

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 refer to the Safe Harbor notice that appears in our press release.

Please refer to the safe Harbor notice that appears in our press release.

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

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

Wendell Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter of 2024. After that, I will provide the guidance for the first quarter of 2025.

Wendell Huang: Thank you Jeff Good afternoon, everyone. Thank you for joining US today my presentation will start with financial highlights for the fourth quarter of 2024.

Wendell Huang: After that I will provide the guidance for the first quarter of 2025.

Wendell Huang: Both quarter revenue increased 14.3% sequentially in NT, supported by strong demand for our industry

Wendell Huang: Fourth quarter revenue increased 14.3% sequentially in N T.

Wendell Huang: Supported by strong demand for our industry, leading three nanometer and five nanometer technologies.

Wendell Huang: Gross margin increased by 1.2 percentage points sequentially to 59%, mainly reflecting a higher capacity utilization rate and productivity gains partially offset by the dilution of 3 nanometer

Wendell Huang: Gross margin increased by 1.2 percentage points sequentially to 59%, mainly reflecting a higher capacity utilization rate and productivity gains partially offset by the dilution of three nanometer ramp up.

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

Wendell Huang: With operating leverage total operating expenses accounted for 10% of net revenue.

Wendell Huang: Thus, operating margin increased by 1.5 percentage points sequentially to 49%.

Wendell Huang: Thus operating margin increased by one five percentage points sequentially to 49%.

Wendell Huang: Overall, our fourth quarter EPS was 14.45 NT, and ROE was 36.2%.

Wendell Huang: Overall, our fourth quarter EPS was $14 four or five empty and Roy was 36, 2%.

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 26% of waver revenue in the fourth quarter.

Wendell Huang: They'll meet our process technology contributed 26% of wafer revenue in the fourth quarter.

Wendell Huang: 5 nanometer and 7 nanometer accounted for 34% and 14% respect

Wendell Huang: Five nanometer and seven nanometer accounted for 34% and 14% respectively.

Wendell Huang: Advanced Technologies, defined as 7nm and below, accounted for 74% of wafer rep

Wendell Huang: Advanced technologies defined as seven nanometer and below accounted for 74% of wafer revenue.

Wendell Huang: On a four-year basis, three nanometer revenue accounted for 18% of 2024 wafer revenue.

Wendell Huang: On a full year basis, three three nanometer revenue accounted for 18% of 'twenty 'twenty four wafer revenue five nanometer, 34% seven nanometer is 17%.

Wendell Huang: 5 nanometer, 34 percent, 7 nanometer, 17 percent

Wendell Huang: Advanced Technologies accounted for 69% of total wafer revenue, up from 58% in 2023.

Wendell Huang: Advanced technologies accounted for 69% of total wafer revenue up from 58% in 2023.

Wendell Huang: Moving on to Revenue Contribution by Platform

Wendell Huang: Moving onto revenue contribution by platform.

Wendell Huang: HVC increased 19% quarter-over-quarter to account for 53% of our fourth quarter-revenge

Wendell Huang: HBC increased 19% quarter over quarter to account for 53% of our fourth quarter revenue.

Wendell Huang: Smartphone increased 17% to account for 35%

Wendell Huang: Smartphone increased 17% to account for 35%.

Wendell Huang: IOT decreased 15% to a count for 5%

Wendell Huang: Iot decreased 15% to account for 5%.

Wendell Huang: Automotive increased 6% to a cum for 4%, DCE decreased 6% to a cum for 1%.

Wendell Huang: Automotive increased 6% to account for 4% DCE decreased 6% to account for 1%.

Wendell Huang: On a four year basis, HPC increased 58% year-on-year [inaudible]

Wendell Huang: On a full year basis, <unk> increased 58% year on year smell.

Wendell Huang: Smartphone, IoT, Automotive, DCE, Increase, 23%, 2%, 4% and 2% respectively in 2024.

Wendell Huang: Smartphone Iot automotive TCE increased 23%, 2%, 4% and 2% respectively in 2024.

Wendell Huang: Overall, HPC accounted for 51% of our 2024 revenue.

Wendell Huang: Overall H P C accounted for 51% of our 2020 for revenue.

Wendell Huang: Smartphone Accounting for 35%, IoT Accounting for 6%, and Automotive Accounting for Fibres

Smartphone accounted for 35% Iot accounted for 6%.

Wendell Huang: And automotive accounted for 5%.

Wendell Huang: Moving on to the balance sheet, we ended the fourth quarter with cash and marketable securities

Wendell Huang: Moving on to the balance sheet, we ended the fourth quarter with cash and marketable securities of $2 four trillion empty or 74 billion U S dollars.

Wendell Huang: on the Liability Site. Current Liabilities increased by 184 billion NT.

Wendell Huang: On the liability side current liabilities increased by 184 billion N T.

Wendell Huang: Mainly due to the increase of $71 billion in accounts payable, an increase of $99 billion in the cruel liabilities and doubts.

Wendell Huang: Mainly due to the increase of 71 billion and accounts payable and increase of 99 billion in the accrued liabilities and others.

Wendell Huang: in terms of financial racial.

Wendell Huang: In terms of financial ratios accounts receivable turnover days declined by one day to 27 days, while inventory days decreased by seven days to 80 days, primarily due to a shipment of <unk> three and five wafers.

Wendell Huang: accounts receivable turnover days declined by one day to 27 days, while inventory days decreased by seven days to 80 days primarily due to shipment of M3 and M5 waif

Wendell Huang: Regarding cash flow and KPACs, during the fourth quarter, we generated about 620 billion NT in cash from operations.

Wendell Huang: Regarding cash flow and Capex during the fourth quarter, we generated about 620 billion NT in cash from operations spent 362 billion NK packs and distributed 104 billion for the first quarter 2000 and for cash dividend.

Wendell Huang: spent 362 billion in K-packs, and distributed $100.4 billion for the first quarter 24 cash

Wendell Huang: Overall, our cash balance increased 241 billion NT to 2.1 trillion at the end of the court.

Wendell Huang: Overall, our cash balance increased 241 billion NT to a 2.1 trillion at the end of the quarter.

Wendell Huang: In US dollar terms, our fourth quarter capital expenditure is total 11.2 billion [inaudible]

Wendell Huang: In U S dollar terms, our fourth quarter capital expenditures totaled $11 2 billion.

Wendell Huang: Now, let me recap our performance in 2024.

Wendell Huang: Now, let me recap our performance in 2024.

Wendell Huang: Due to the strong demand for our 3 nanometer and 5 nanometer process technologies, we continue to outperform the Foundry Industry in 2024. Our revenue increased 30% in US dollar terms

Wendell Huang: Due to the strong demand for our three nanometer and five nanometer process technologies, we continue to outperform the foundry industry in 2024.

Wendell Huang: Our revenue increased 30% in U S dollar terms to $90 billion U S or increased 33, 9% in N T to 289 trillion N T.

Wendell Huang: Gross Margin increased 1.7% to 56.1%, mainly reflecting improvements in overall capacity utilization, partially offset by 3 nanometer dilution and higher electricity.

Wendell Huang: Gross margin increased one seven percentage points to 56, 1%, mainly reflecting improvements in overall capacity utilization, partially offset by three nanometer dilution and higher electricity costs.

Wendell Huang: With operating leverage, our operating margin increased 3.1% to 45.7%.

Wendell Huang: With operating leverage our operating margin increased three one percentage points to 45, 7%.

Wendell Huang: Overall, the annual EPS increased by 39.9% to 45.25 NT, and the ROE increased by 4.1 percentage points to 30.3%.

Wendell Huang: Overall full year EPS increased 39, 9% to 45.25, NT and ROA increased four one percentage point to 33%.

Wendell Huang: On Cashroll, we spent $29.8 billion US dollars, or $956 billion NT in K-Path.

Wendell Huang: On cash flow, we spent $29 8 billion U S dollars or 956 billion and T K packs.

Wendell Huang: Generated $1.8 trillion NT in operating cashflow and $870 billion in free cashflow.

Wendell Huang: Generated one eight trillion and tea in operating cash flow and 870 billion in free cash flow.

Wendell Huang: We pay 363 billion NT in cash dividends in 2024, up 24.5% year-over-year.

Wendell Huang: We pay 363 billion NT cash dividends in 2024 up 24, 5% year over year.

Wendell Huang: I've finished my financial summary. Now, let's turn to our current quarter-guided

Wendell Huang: I have finished my financial summary, now, let's turn to our current quarter guidance, we expect our business in the first quarter to be impacted by smartphone seasonality, partially offset by continued growth in AI related demand.

Wendell Huang: We expect our business in the first quarter to be impacted by smart phone seasonality, partially offset by continued growth in AI related demands.

Wendell Huang: Based on the current business outlook, we expect our first quarter revenue to be between 25 billion and 25.8 billion U.S.

Wendell Huang: Based on the current business outlook, we expect our first quarter revenue to be between 25 billion and $25 8 billion U S.

Wendell Huang: which represents a 5.5% sequential decline or a 34.7% year-over-year increase at the midpoint.

Wendell Huang: Which represents a five 5% sequential decline or a 34, 7% year over year increase at the midpoint.

Wendell Huang: based on the exchange rate assumption of $1 USD to $32.8 NT. Gross margin is expected to be between 57% and 59%.

Wendell Huang: Based on the exchange rate assumption of one U S dollar to 32.8 and T.

Wendell Huang: Gross margin is expected to be between 57% and 59% operating margin between 46, 5% and 48, 5%.

Wendell Huang: Operating Margin Between 46.5% and 48.5%

Wendell Huang: Regarding tax rate, our effective tax rate was 16.7% in 2024.

Wendell Huang: Regarding tax rate, our effective tax rate was 16, 7% in 2024.

Wendell Huang: For 2025, we expect our effective tax rate to be between 16 and 17 percent.

Wendell Huang: For 2025, we expect our effective tax rate to be between 16% and 17%.

Wendell Huang: This concludes my financial presentation.

Wendell Huang: This concludes my financial presentation.

Wendell Huang: Now let me turn to our key mesh.

Wendell Huang: Now, let me turn to our key messages.

Wendell Huang: I will start by talking about our 4th quarter 24th and 1st quarter 25th profitability.

Wendell Huang: I will start by talking about our fourth quarter 24 in first quarter 'twenty five profitability.

Wendell Huang: Compared to third quarter, our fourth quarter growth margin increased by 120 basis points sequentially to 59%. Primarily due to a higher capacity utilization rate and productivity gains, partially offset by delusion from the continued ramp up of our 3 nanometer technology.

Wendell Huang: Compared to third quarter or fourth quarter gross margin increased by 120 basis points sequentially to 59%, primarily due to a higher capacity utilization rate and productivity gains partially offset by dilution from the continued ramp up of our three nanometer.

Wendell Huang: <unk> technology.

Wendell Huang: We have just guided our first quarter-grows margin to decrease by 100 basis point to 58% at the midpoint.

Wendell Huang: We have just guided our first quarter gross margin to decrease by 100 basis point to 58% at the midpoint.

Wendell Huang: This is primarily due to REM COS associated with N2 and COWAS expansion and the start of dilution from our overseas fast.

Wendell Huang: This is primarily due to ramp costs associated within two and cobalt expansion and the start of dilution from our OLED overseas Fabs.

Speaker Change: As a reminder, six factors determine TSMC's profitability, leadership technology development and ramp up, pricing, cost reduction, technology mix, capacity utilization, and forward exchange

Speaker Change: As a reminder, six factors determining tsmc's profitability.

<unk> technology development and ramp up pricing cost reduction technology mix capacity utilization and foreign exchange rate.

Speaker Change: Looking at full year 2025, given the six factors, there are a few puts and takes I would like to share

Speaker Change: Looking at full year 2025, given the six factors there are a few puts and takes I would like to share.

Speaker Change: On the one hand, we are working hard to increase our value. The dilution impact from our N3 rent is expected to gradually reduce.

Speaker Change: On the one hand, we are working hard to increase our value.

Speaker Change: The dilution impact from our N. Three rent is expected to gradually reduce.

Speaker Change: and we expect our overall utilization rate to moderately increase in 2025.

Speaker Change: And we expect our overall utilization rate to moderately increase in 'twenty or 'twenty five.

Speaker Change: On the other hand, as we have said before, we forecast two to three percent margin delusion impact from the ramp up of our overseas shaft.

Speaker Change: On the other hand, as we have said before we forecast, 2% to 3% margin dilution impact from the ramp up of our overseas Fabs.

Speaker Change: The impact is less than 100 basis points in the first quarter of 25, but we expected to grow more pronounced throughout the year as our faps in Kumamoto and Arizona ramp up.

Speaker Change: The impact is less than 100 basis points in the first quarter of 'twenty, five, but where you expect it to grow more pronounced throughout the year as our fabs in Kumamoto and Arizona ramp up.

Speaker Change: We also expect inflationary costs, including higher electricity prices in Taiwan, to impact our growth margin by at least 1% in 2020.

Speaker Change: We also expect inflationary cost, including higher electricity prices in Taiwan to impact our gross margin by at least 1% in 2025.

Speaker Change: In addition, there are some ramp up costs associated with N2 and further conversion of N5 to N3 capacity, which together we expect to impact our growth margin by about one percent

Speaker Change: In addition, there are some ramp up cost associated with end to end further conversion of N. Five two and three are capacity, which together, we expect to impact our gross margin by about 1%.

Speaker Change: Finally, we have no control over the foreign exchange rate but that may be another factor in 2025.

Speaker Change: Finally, we have no control over the foreign exchange rate, but that maybe another factor in 2025.

Speaker Change: Longer term, excluding the impact of foreign exchange rates and considering our global manufacturing and footprint expansion plans, we continue to forecast a long-term growth margin of 53%

Speaker Change: Longer term.

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

Speaker Change: Next, let me talk about our 2025 capital budget and depreciation.

Speaker Change: Next let me talk about our 2025 capital budget and depreciation.

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

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

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

Speaker Change: At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years.

Speaker Change: At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years.

Speaker Change: In 2024, we spent 29.8 billion US dollars as we continue to invest to support our customers' growth.

Speaker Change: 'twenty 'twenty four we spent $29 8 billion U S dollars as we continue to invest to support our customers' growth.

Speaker Change: With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structural demand from the industry mega-trends of 5G AI and HVS.

With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry Megatrends of five G. A I N H P C.

Speaker Change: In 2025, we expect our capital budget to be between 38 and 42 billion US dollars, as we invest to capture the future.

Speaker Change: In 2025, we expect our capital budget to be between 38, and 42 billion U S dollars as we invest to capture the future growth.

Speaker Change: Out of the 38-42 billion K-packs for 2025, about 70% of the capital budget will be allocated for the event's process technology.

Speaker Change: Out of the 38 to 42 billion Capex for 2025 about 70% of the capital budget will be allocated for advanced process technologies.

Speaker Change: About 10 to 20% will be spent for special detectives

Speaker Change: About 10% to 20% will be spent for specialty technologies and about 10% to 20% will be spent for advanced packaging testing mask, making and others.

Speaker Change: and about 10-20% will be spent for advanced packaging, testing, mask making, and others.

Speaker Change: Our depreciation expense is expected to increase by a high single-digit percentage year-over-year in 2025.

Speaker Change: Depreciation expense is expected to increase by high single digit percentage year over year in 2025.

Speaker Change: As newly incurred depreciation will be partially offset by other notes growing off depreciation.

Speaker Change: As newly incurred depreciation will be partially offset by other notes rolling off depreciation.

Speaker Change: Even as we invest for the future growth with this level of KPAC spending in 2025, we remain committed to delivering profitable growth to our shareholders.

Speaker Change: Even as we invest for the future growth with this level of Capex spending in 2025.

Speaker Change: We remain committed to delivering profitable growth to our shareholders.

Speaker Change: We also remain committed to a sustainable and steadily increased cash dividend pressure, on both an annual and quarterly basis.

Speaker Change: We also remain committed to a sustainable steadily increased cash dividend per share on both an annual and quarterly basis.

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

Now, let me turn the microphone over to C. J.

C. J.: Thank you, window.

C. J.: Your window.

C. J.: Good afternoon, everyone. First, let me start with the conclusion of 2024 and our 2025 outlook.

Good afternoon, everyone.

C. J.: First let me start of with a conclusion over 'twenty 'twenty four.

Our 2025 outlook.

C. J.: 2024 was a mixed year of recovery for the Global Semiconductor Intense.

C. J.: 'twenty 'twenty four was a mix a year of a recovery for the global semiconductor industry.

C. J.: AI-related demand was strong

C. J.: AI related demand was strong.

Speaker Change: for your other application.

Speaker Change: There are other applications, so only a very minor recovery.

Speaker Change: So only a very mild recovery.

Speaker Change: As Bakery Economics Tradition, We Are Consumers Sentiment and Head Market Demons

Speaker Change: As bakeware economics condition, we are consumer sentiment and the end market demand.

Speaker Change: Concluding 2024

Speaker Change: And crude in 2024.

Speaker Change: The Fundry 2.0 Industry, which we define as all logical way from manufacturing.

Speaker Change: The foundry to all industry, which we define as a or logical wafer manufacturing.

Speaker Change: Hekichin, Testib, Mass-Making, and others, increased 6% year-over.

Speaker Change: Packaging testing matchmaking and others.

<unk>, 6% year over year.

Speaker Change: Slightly below our previous forecast

Speaker Change: Slightly lower than our previous forecast.

Speaker Change: supported by Schwank Demand for leading-age process technology.

Speaker Change: Supported by strong demand for our leading edge process technologies.

Speaker Change: TSMC's revenue increased 30% year-over-year

Speaker Change: Uhm sees a revenue increase 30% year over year U S. Dollar term outperform the foundry industry growth.

Speaker Change: You will start a term outperform the factory industry girl.

Speaker Change: Entering 2025, we expect Fabless Semiconductor Inventory to have returned to a hair-seal level exceeding 2024.

Entering 2025, we expect Fabless semiconductor industry semiconductor inventory to have returned to a healthier level exiting 2024.

Speaker Change: We forecast a $12.0 industry to grow 10% year-over-year in 2025, supported by robust AR-related demand and mild recovery.

Speaker Change: We forecast a 102 taro industry to grow 10% year over year in 2025.

Speaker Change: Supported by robust AI related demand in <unk>.

Speaker Change: Meyer recovery.

Speaker Change: Department store

Speaker Change: Other market segment.

Speaker Change: Supported by our technology leadership and broad customer base.

Speaker Change: Supported by our technology leadership broad customer base. We are confident we can continue to outperform the industry growth.

Speaker Change: We are confident we can continue to outperform the industry growth.

Speaker Change: We expect 2025 to be another strong course year.

Speaker Change: We expect 2025 to be another strong growth year.

Speaker Change: TSMC

Speaker Change: For TSMC.

Speaker Change: and forecast our four-year revenue to increase by close to mid-20% in the U.S.

Speaker Change: And forecast our full year revenue to increase by close to 20% in U S dollar term.

Speaker Change: Now I will talk about the AI demand and TSMC's long-term growth outlook.

Speaker Change: Now I will talk about the AI ban and Tsmc's long term growth outlook.

Speaker Change: We observe robust AI-related demand from our customers throughout the 2024.

Speaker Change: We all Joe robustly AI related demand from our customers throughout 2024.

Speaker Change: Revenue from AI Accelerators, which we now define as AIGPU.

Revenue from AI accelerators, which we now define as AIG Bu.

Speaker Change: AI-A6 and HBM controller for AI-20 and inference in the data center.

Speaker Change: <unk> and HBM Contura for AI training and inference in the data center.

Speaker Change: accounted for close to mid-teens per cent of our total revenue in 2024.

Speaker Change: Accounted for close to mid teens percent of our total revenue in 2024.

Speaker Change: Even after more than tripling in 2024, we forecast our revenue from AI accelerator to double in 2025.

Speaker Change: Even after more than tripling in 2024, we forecast our revenue from AI accelerator to bubble in 2025.

Speaker Change: as a strong surging air-related demand continued.

Speaker Change: Just shrunk surging AI related demand continues.

Speaker Change: As a key enabler of AI applications, the value of our technology platform is increasing as customers are ready on TSMC to provide the most advanced process and packaging technologies at scale.

Speaker Change: As a key enabler of AI applications the value our technology platform you see ingredient as.

As customers a readout on TSMC to provide the most otherwise process and packaging technologies at scale.

Speaker Change: In the most efficient and cost-effective way,

Speaker Change: In the most efficient and cost effective way.

Speaker Change: To address the structural increase in the long-term market demand profile, TSMC is working closely with our customers to plan our capacity and investing in leading-edge specialty.

Speaker Change: To address the structural increase in the long term market demand profile.

Speaker Change: She is working closely with our customer to pay in our capacity.

Investing in leading edge specialty.

Speaker Change: and advanced packaging technologies to support the young girl.

Speaker Change: Advanced packaging technologies to support a joke worlds.

Speaker Change: As we have said before,

Speaker Change: As we have said before.

Speaker Change: DSMC EMPLOYEES DISCIPLINE

Speaker Change: <unk> employs a disciplined Enzo raw capacity planning system to your body weight.

Speaker Change: in the Rolf Capacity Planning System.

Speaker Change: to bodyweight and judge the market demand to determine the appropriated capacity.

Speaker Change: Judge the market demand to determine the appropriate capacity build.

Speaker Change: This is a special import [inaudible]

Speaker Change: This is especially important.

Speaker Change: When we have such high-focussed demand from air-related fish,

Speaker Change: When we have such high forecasted demand from AI related business.

Speaker Change: At the same time, we are committed to earn-

Speaker Change: As a gen times, we are committed to earn it.

Speaker Change: A successful and hearsay return that it never is to continue to invest to support our customers of course, while delivering profitable goods for our shareholders.

Speaker Change: Sustainable and here as you return that enable us to continue to invest to support our customers of course.

Speaker Change: While delivering profitable growth for our shareholders.

Speaker Change: underpinned by our technology leadership and former customer base.

Underpinned by our technology leadership and broad customer base.

Speaker Change: We now forecast the revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period, starting off the already higher phase of 2021.

Speaker Change: We now forecast our revenue grows.

AI accelerators to approach.

Speaker Change: 40% CAGR over the five year period, starting of the already higher base of 'twenty 'twenty four.

Speaker Change: We expect the AI accelerated to be the strongest driver of our HPC-Playform course, that the large is contributed in terms of our overall incremental revenue course in the next several years.

We expect the AI accelerators to be the strongest driver of our HPE pray for growth at <unk>.

Largest contributor in terms of our overall <unk>.

Speaker Change: Mental revenue cores in the next several years.

Speaker Change: HOOK IN THE HEAD

Speaker Change: Looking ahead.

Speaker Change: as a world's most reliable and effective capacity for rights.

Speaker Change: As of wars, most reliable and effective capacity provider.

Speaker Change: DSMC is playing a critical and integral role in the global semiconductor.

Speaker Change: <unk> is playing a critical.

Speaker Change: An integral role in the global semiconductor industry.

Speaker Change: We saw technology leadership manufacturing excellence and customer trust.

Speaker Change: With our technology leadership manufacturing excellence and customers' choice.

Speaker Change: We are position to address the course from the industry, makeup trend, or 5G, AI, etc.

Speaker Change: We are well positioned to a choice of course form the industry makeup dwindle quite G E.

Speaker Change: HPE with our differentiated technologies.

Speaker Change: We saw what differentiated technologists

Speaker Change: For the 5-year period starting from 2024, we expect our long-term revenue growth to approach

Speaker Change: For the five year period, starting from 'twenty to 'twenty four we expect our long term revenue growth to approach.

Speaker Change: 20% Compound Annual Growth Rate

20% CAGR in U S. Dollar term fueled by all four of our core spray foam, which our smartphone HPE Iot and automotive.

Speaker Change: Chris Sartre term, fueled by all four of our course platforms, which are smartphone HPC, IoT, and automotive.

Speaker Change: Next, let me talk about our global manufacturing footprint up.

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

Speaker Change: All our overseas decisions are based on our customers and needs.

Speaker Change: Or or overheat decision based on our customers' need.

Speaker Change: As they value some key of graphic flexibilities and the necessary level of government.

Speaker Change: Steve Brady with some geographic flexibility and the necessary level of government support.

Speaker Change: This is also to maximize the value for our shareholders

Speaker Change: This is also to maximize the value for our shareholder.

Speaker Change: In the U.S., we have a long-standing good relationship with the U.S. government, dating back to even before our Arizona Fair Project announcement in May 2020.

Speaker Change: In the U S. We have a long standing good relationship with the U S government aid.

Speaker Change: Dating back to even before our Arizona, where project with announcement in May 2020.

Speaker Change: We have received a strong commitment and support from the U.S. customers, and the U.S. federal, state, and city government, and are making substantial progress.

Speaker Change: We have received a strong commitment and support from the U S customers and the U S Federal state and city government and are making substantial progress.

Speaker Change: Judging on the successful result of our earlier engineering waiver production,

Speaker Change: Building on the successful result of our earlier engineering wafer production.

Speaker Change: were able to pull ahead the production schedule of our first web in our results.

Speaker Change: Able to pull ahead the production schedule.

Speaker Change: Our fourth fab in Arizona.

Speaker Change: Our first grab has already entered the high-volume production.

Speaker Change: First scrap has already entered the high volume production.

Speaker Change: 4Q24, utilizing N4 process technology with a yield comparable to our fabs in Taiwan.

For Q 'twenty, four utilizing info process technology with a yield comparable to our fabs in Taiwan.

Speaker Change: We expect a smooth, ram-off process.

Speaker Change: We expect a smooth ramp up process.

Speaker Change: And with our strong manufacturing capability and execution, we are confident to deliver the same level of manufacturing quality and reliability from our fabbing Arizona as from our fabbing Taiwan.

Speaker Change: And with our strong manufacturing capability.

Speaker Change: <unk>, we are confident to deliver the same level of manufacturing quality and reliability from our fab being Arizona as form our fab in Taiwan.

Speaker Change: Our plans for second-fifth and third-fifth in Arizona are also untrue.

Speaker Change: Our plans for a second fab and surviving a resona are also on track.

Speaker Change: This way I will use the reins that you will have more advanced technologies such as I.N.S

These weibo user rising even more advanced technologies, such as our entry into an <unk> based on our customers' need.

Speaker Change: into an A16 based on our customers.

Speaker Change: There's TSMCWC continue to play a critical and integral role in neighboring our customers' success.

Speaker Change: TSMC will continue to play a critical and integral role.

Speaker Change: We're in our customers' success.

Speaker Change: while remaining a key partner in the revering of the US Semiconductor Interest.

Speaker Change: While remaining a key partner.

Speaker Change: Aberdeen of the U S semiconductor industry.

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

Speaker Change: Next in Japan change to the strong support of wellness, Japan's Central Prepacked Europe and local government. Our progress is also very good.

Speaker Change: Our first specialty technology fair in Kumamoto has started volume production at the end of 2020.

Our first specialty technology fab in Kumamoto has started volume production at the end of 'twenty 'twenty four.

Speaker Change: It's very good yield, construction of our second fire, special defects.

Speaker Change: With very good yield construction of our second via special defer.

Speaker Change: Skateboard to begin the scene.

Speaker Change: Is scheduled to begin this year.

Speaker Change: In Europe , we have received strong commitment from the European Commission.

Speaker Change: In Europe, we have received strong commitment from the European Commission.

Speaker Change: and German Federal State and city government.

Speaker Change: And the German federal State and city government, we are progressing smoothly with our plans to build a specialty technology fab in Dresden, Germany, focusing on automotive.

Speaker Change: We are progressing smoothly with our plans to build a specialty technology firm in Dresden, Germany, focusing on automotive and industrial

Speaker Change: Industrial application.

Speaker Change: In Taiwan, we continue to receive support from Taiwan government.

Speaker Change: In Taiwan, we continued to receive support from Taiwan government.

Speaker Change: and we are investing in and expanding our advanced technology and packaging capital.

Speaker Change: And we are investing and expanding our advanced technology and packaging capacities.

Speaker Change: Given the robust matter-year demand for our three nanometer technology, we continue to expand our three nanometer capacity in Thailand's fine spot.

Speaker Change: The robust multiyear demand for our three nanometer technology, we continue to expand our <unk> nanometer capacity in Tainan Science Park.

Speaker Change: We are also preparing for multiple face

Speaker Change: We are also preparing for multiple phases.

Speaker Change: to Nanomintofeth in Bo Xin Zhu and Gao Xiong Sainspan to support the strong structuring demand from our customers.

Two nanometer fabs in both <unk>, two and Gulf showing signs power to support the shrunk structural demand from our customers.

Speaker Change: They are also expanding our advanced packaging facilities across several locations in Taiwan.

Speaker Change: We're also expanding our device packaging facilities across several of our own location in Taiwan.

Speaker Change: As we have said before, under today's recommended globalization in the environment, our chief

Speaker Change: As we have said before under today's Howff recommended globalization environment.

Speaker Change: Our <unk> costs are higher for everyone.

Speaker Change: Gooding TSM and all other Semiconductor Manufacturing

Speaker Change: Including TSMC and all others have been conductor manufacturers.

Speaker Change: are the development of competitive advantages of manufacturing technology leadership and not scale manufacturing base to be the most efficient and cost-effective manufacturer

Speaker Change: Never has your fundamental competitive advantages of manufacturing technology leadership, and large scale manufacturing base to be the most efficient and cost effective manufacturer in the regions that we operate.

Speaker Change: for supporting our customers and girls. [inaudible]

Speaker Change: Supporting our customers' growth.

Speaker Change: Finally, I will talk about N2 and A16 Introduction

Speaker Change: Finally, our Taco about <unk> and the <unk> introduction.

Speaker Change: Our two nanometer and S-16 technologies did the industry in alteration, the insatiable need for energy efficient computing.

Speaker Change: Two nanometre initiating technologies leads the industry.

Speaker Change: Aging the insatiable need for energy efficient computing and.

Speaker Change: And almost all the innovators are working with CSM.

Speaker Change: And almost all the innovators are walking wish TSMC, we expect a number of the new tape out of or two nanometer technology.

Speaker Change: We expect a number of the new tap out for two nanometer technology.

Speaker Change: for two years.

Speaker Change: Of course two years.

Speaker Change: To be higher than both three nanometers and five nanometers in jail for two years.

Speaker Change: To be higher again, both three nanometer and five nanometer in GL for two years.

Speaker Change: We will revive both smartphone and HPC application.

Speaker Change: If you were to buy both smartphone and <unk> applications and.

Speaker Change: and do what delivers full-known performance and power benefit, with 10 to 15 speed improvement

Speaker Change: And two what delivered four known performance and power benefits with 10 to 15 speed improvement at the same power.

Or 20% to 30%.

Speaker Change: Power Improvement at the center

Speaker Change: Power improvement at the same speed.

Speaker Change: and a more than 15% chip density increase as compared with an N3E.

Speaker Change: And the more than 15% chip density increase as compared with <unk>.

Speaker Change: N2 is a wear and track for volume production in second half

And two is our we're on track for volume production in second half.

Speaker Change: of 2025. As scheduled, with a Rem Profile Simulator N3,

Speaker Change: Of 2020 Fi as scheduled with our ramp profile similar to industry.

Speaker Change: With our strategy of continuous enhancement, we also introduce N2P as an extension of N2 family, N2P features for the performance and power benefit on top of N2. N2P was a portable smartphone in its PC applications, and volume production is scheduled for 2nd half 2020.

Speaker Change: With our strategy of continuously and husband, we also introduced into P. As an extension over into February and to be featured further performance and power benefits on top of into <unk>.

Speaker Change: <unk> was supported both smartphone and SPG applications.

Speaker Change: Volume production is scheduled for second half 'twenty 'twenty shifts.

Speaker Change: We will also introduce a 16-featured Super Power Rail or SPR Separator Operator

Speaker Change: We will also introduce a 16 feature rich superpower rail or SPR a separate offering.

Speaker Change: KSMC's SPR is innovative, best in cross-backside power delivery solution that is forcing the

Speaker Change: <unk> is our innovative testing cross OPEC side power delivery solution that is the first in the industry.

Speaker Change: to incorporate a novel of exciting metal scheme that preserves a gate density and divides with flexibility to maximize the product benefit.

Speaker Change: To incorporate a novel Opex side of NATO scheme that preserves a gate density and device with flexibility to maximize the product benefit.

Speaker Change: Compared with the N2P, L16 provided a further 8-10% speed improvement at the same power of 15-20% speed and additional 7-10% speed density.

Speaker Change: Some people will say into P. <unk> hundred 60, and provide a further 8% to 10% speed improvement.

Speaker Change: As a ship power or 15% to 20% improvement at the same speed and additional 7% to 10% chip density gain.

Speaker Change: HXN is the best suitable for specific HPC products.

Speaker Change: <unk> is the best shoe developed for specific HPE product.

Speaker Change: With a complex signal route and dense power delivery in the world, both the production schedule for 2nd half 2020.

Speaker Change: Without <unk>.

Speaker Change: Complex is signal route and dense power delivery network volume production is scheduled for second half 'twenty 'twenty shifts.

Speaker Change: We believe N2, N2P, S16, and its derivative will further extend our technology leadership position and enable TSMC to capture the core of the opportunity to go into the future.

Speaker Change: <unk> into <unk> and is derivative will further extend our technology leadership position.

Speaker Change: Enable TSMC to capture the growth opportunity well into the future.

Speaker Change: The above statements do not represent the position of this station.

Speaker Change: This concludes our key measures.

Speaker Change: Thank you for your attention.

Speaker Change: Thank you for your attention.

Speaker Change: Thank you, CC. This concludes 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: Thank you see this concludes our prepared statements.

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 the participants an opportunity to ask their questions.

Speaker Change: Questions will be taken from both the floor and from the call. Should you wish to raise your question in Chinese, I will translate it to English before management answers your question.

Speaker Change: Jens will be taken from both the floor and from the call should you wish to raise your question in Chinese I will translate it to English before our management answers your question.

Speaker Change: For those of you on the call, if you would like to ask a question, please press the star then one on your telephone keypad now.

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

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

If at any time, you would like to remove yourself from the questioning queue. Please press star two.

Speaker Change: Now, we will begin the Q&A session. We'll take the first few questions here from the floor and then go to online. I think maybe left, middle, right. So why don't we start? I think first question, Gokul Hariharan from JP Morgan.

Speaker Change: Now we will begin the Q&A session I will take the first few questions here from the floor and then go to online.

Speaker Change: I think maybe left middle right. So.

Speaker Change: Why don't we start I think first question cocoa, Harry Harris from J P. Morgan.

Harry Harris: Thanks, Jeff. Happy New Year, management team. My first question is on the QSNC's US future strategy. There has been a lot of changes recently. The one relaxed N-1 restriction. There was a news about that a week back. In light of all these, I just want to understand the longer term strategy. Would you consider investing in latest node in the US? Because so far it has been N-1. Now you don't have the restriction from the Taiwan government to go and invest in the latest node. What has been your feedback in whatever discussions you have had with the incoming President Trump administration? Because they have talked a lot about the chips act and everything, but they are also supportive. Your original investment was during President Trump's first term. And lastly, I think when the last time you had mentioned, you are not very keen on ticking over any IDM facts.

Harry Harris: Thanks, Jeff happened here management team.

Speaker Change: My first question is on the <unk>.

Speaker Change: <unk> U S. <unk> future strategy that has been a lot of changes recently that one relaxed the N minus one restriction there was a news about that or a week back.

Speaker Change: <unk> you met Elon Musk Tesla recently, so you said that a lot of development that you've discussed.

Speaker Change: Your key IDM competitor seems to be struggling as well, while your Arizona fab seems to be ramping up quite well.

Speaker Change: In light of all these I just wanted to understand.

Speaker Change: The longer term strategy.

Speaker Change: Would you start would you consider investing in latest Nord in the U S. Because so far it has been and minus one now you don't have the restriction from the Taiwan government to go and invest in the latest node what has been your feedback in whatever discussions you've had with the incoming.

Speaker Change: President Trump administration, because they've talked a lot about chip fact, and everything but they're also supportive.

Speaker Change: <unk> investment was during President Trump's first and lastly, I think Wendell I think last time you had mentioned you are not very keen on taking over any IDM fabs.

Speaker Change: Has that thinking changed, especially given the agency has potential to become even more stronger partners for the US in terms of bringing up US local benefits?

Speaker Change: Has that thinking changed, especially given TSMC has the potential to become even more stronger partner for the U S. In terms of bringing up U S local manufacturing.

Speaker Change: Sorry, long-waited

Speaker Change: Long question.

Speaker Change: Yes, okay, thank you, Gokul indeed, a very long question. I think Gokul's question is looking at TSMC and our strategies in terms of global expansion, particularly in the US. He notes that Taiwan is recently relaxed or said they're relaxed, the N-1 rule and CCS met several many of our large customers in the US and our Arizona fab is ramping quite well. So his question really is on the longer-term strategy, I believe three parts. Number one, what is the feedback or sort of discussions ongoing with the next administration in the US? Secondly, would we consider taking over IDM's fabs? Has that been changed? And last on the new note, maybe we'll go one by one?

Speaker Change: Yes, okay. Thank you cocoa indeed, a very long question I think <unk> question is looking at TSMC and our strategies in terms of global expansion, particularly in the U S.

He notes that Taiwan has recently relaxed or said they relax the N minus one rule in Ccs met so many of our large customers in the U S.

Speaker Change: In our Arizona Fab is ramping quite well. So his question really is on the longer term strategy I believe three parts number one what is the feedback or sort of discussions ongoing with the next administration in the U S. Secondly.

Speaker Change: Secondly would we consider taking over Ibm's fabs has that thinking changed and last on that new node.

Speaker Change: Maybe we'll go one by one.

Speaker Change: I almost forgot your question already

I almost forgot your question already.

Speaker Change: Okay, first one, the technology-known [inaudible]

Okay first one the technology node.

Speaker Change:

Speaker Change: Actually, it's not that we don't want to...

Speaker Change: Actually is not a we don't want to.

Speaker Change: Grandpa of the same technology as in Taiwan, but if you look at the one we ramped up introduced a new technology into manufacturing.

Speaker Change: Ramp off the shelf technology as in Taiwan.

Speaker Change: If you look at it when we ramp it up.

Introduce a new technology into manufacturing.

Speaker Change: The FAB, the process is so complicated, so it has to be very close to the R&D people So the initial phase of the ramping up always come from the FAB close to R&D

Speaker Change: The fab is a process. So complicated so you have to be very close to the R&D people.

Speaker Change: The initial phase of the ramping up always come from the fab close to R&D.

Speaker Change: So, in that sense, we want to remember the Semiconductor Technology in US, but that practically is a little bit difficult.

Speaker Change: So in that sense.

Speaker Change: We want to ramp up as Jim kind of what technology in U S.

Speaker Change: That politically its IDP ZIP code, so Taiwan, while always be force.

Speaker Change: So Taiwan will always be forced

Speaker Change: Data, Enter Your Question

Speaker Change: Does that answer your question.

Speaker Change: It's not because of an N or M minus one sedimentation. No. It's predatory. We just have to ramp up a new node in Taiwan.

Speaker Change: It's not because of by N y N minus one site limitation now is politically we just have to ramp up a new node in Taiwan.

Speaker Change: Okay.

Speaker Change: And the second, do we change our strategy?

Speaker Change: And second do we change our strategy.

Speaker Change: Global Chief Technology Researcher

Speaker Change: Sure.

Speaker Change: Expand.

Speaker Change: Faster or something? Again, this is a, we always say that we are...

Speaker Change: Faster or something.

Speaker Change: Again this is a we always say that we are.

Speaker Change: All the capacity overseas is due to customers' needs.

Speaker Change: Your the capacity.

Speaker Change: Oversee is due to customers that need.

Speaker Change: If my customer has a very high demand, what should I do? I build a more fair, right? We are necessary governments as support by the...

Speaker Change: In my customer has a very high demand.

Speaker Change: I do at Bureau, more fast right.

Speaker Change: With a necessary government support by the way.

Speaker Change: Okay, talking about the government.

Speaker Change: Okay talking about the government.

Speaker Change: Let me assure you that we have a very frank and open communication with the current government and with the future one also.

Speaker Change: Let me assure you that we have a very Frank and open communication with the current government and with the future one also.

Speaker Change: Cannot Say Anything More Than That [inaudible]

Speaker Change: I cannot say anything more than that okay.

Uh huh.

Speaker Change: What is it? What is it? IDM, IDM Fab, that's my cut.

What is a what ADM ADM fab, that's my customer.

Speaker Change: And again, our strategy is not based on-

Speaker Change: And the <unk>.

Speaker Change: We.

Again, our strategy is not based on.

Speaker Change: My Ideum Competitor, Stated.

Speaker Change: My IDM competitors.

Speaker Change: Status.

Speaker Change: They are our very good customers. I love them. And they are very important to test them. She's a business also. That's all I-

Speaker Change: They are our very good customers.

Speaker Change: Jim and they are very important to Tsmc's business also that all I can say.

Speaker Change: Thank you.

Speaker Change: Okay, thanks, C.C. Maybe my next question going to Cross margins. So, Vendels, we are almost approaching 60% cross margin. Last cycle, we peak at about 60% towards the peak of the cycle. You are expecting the cycle to even strengthen based on guidance that C.C. provided for both AI as well as some improvement in non-AI.

Okay. Thanks.

Speaker Change: Thanks City, maybe my next question.

Speaker Change: Going to our gross margins. So vendors, we are almost approaching 60% gross margin last cycle, we peaked at about 60% towards the peak of the cycle.

Speaker Change: We're expecting the cycles do even strengthened based on guidance. It is he provided for both AI as well as some improvement in non AI.

Speaker Change: So how should we think about Ross margins in this cycle? Is it realistic that we can get to more than 60% Ross margin in this cycle? And related to that, could you help us understand the US, especially the US fab overseas fabs, but especially US fabs dilution, what are the key factors there? Because as you mentioned, yield is already approaching or almost close to Taiwan yield. So is it basically cycle time is longer or is it that some other cause? Ross are much higher in the US fab because new fab depreciation is probably fairly similar compared to the Taiwan fabs.

So how should we think about gross margins in the cycle is it realistic that we can get to more than 60% gross margin in this up cycle.

Speaker Change: And related to that could you help us understand the U S, especially the U S fab over these fabs, but especially U S. Fab dilution what are the key factors there because.

Speaker Change: As you mentioned yield is already approaching are almost close to Taiwan yield. So is it basically cycle time is longer or is it that.

Speaker Change: Some other costs that much higher in the U S fab, because new fab depreciation is probably fairly.

Speaker Change: Similar compared to the Taiwan fab.

Speaker Change: The text is already in English.

Speaker Change: Okay. So <unk> second question is on gross margin again, two parts. He noticed gross margins almost approaching 60% in 2020 two the last cycle. It was also around this type of level. We have said that this year is another very strong growth year for TSMC. So this question is how shall we think about gross margins in this current cycle can we approach.

Speaker Change: <unk> or get to 60 or low <unk> type of again and then the second part is more specific to the U S. In terms of the cost gap.

Speaker Change: What are the U S.

Speaker Change: That cost factors, leading to the dilution impact.

Speaker Change: Gokul, first question on the gross margin. As we said, there are six factors affecting the profitability. Every year, different factors play different.

Speaker Change: Okay. Goku first question on the gross margin.

Speaker Change: As we said six factors affecting the profitability every year different factors play different roles, but.

Speaker Change: But for example, if the evangelization is extremely high, like...

Speaker Change: For example, if the utilization.

Speaker Change: Utilization is extremely high like.

Speaker Change: That cycle, it is not impossible for us to reach what...

Speaker Change: That cycle it is not impossible for us to reach what you just said.

Speaker Change: and secondly, the U.S. Fed.

Speaker Change: And secondly, the U S fab cost.

Speaker Change: It is more expensive in the US, mainly because of several-

Speaker Change: It is a more expensive in the U S mainly because of several reasons number one the smaller scale.

Speaker Change: No. 1, The Smaller

Speaker Change: Now, number two, the higher price in this supply.

Speaker Change: Number two the higher price.

In the supply chain.

Speaker Change: and number three, the very early stage of the eco.

Speaker Change: And number three the very early stage of the ecosystem. So if you add all these up.

Speaker Change: So if you add all these up, [inaudible]

Speaker Change: As we said, 2 to 3% delusion from our overseas facts every year.

As we said, 2% to 3% dilution from our overseas fats every year.

Speaker Change: in the next.

In the next five years.

Speaker Change: If I use the 2-3% and do some math, it feels like the Overseas FAB is starting at, I don't know, 10% gross margin or 5% gross margin. Just adding a factor, obviously it's not how it works, but I'm just doing outside in. Is that right? Is that the right kind of ballpark in terms of thinking about margin?

Speaker Change: If I use the 2% to 3% and do some math it feels like the overseas fab that starting at I don't know, 10% gross margin of 5% gross margin just adding a factors obviously, it's not how it works for them just doing outside in is that right.

Speaker Change: Is that the right kind of ballpark in terms of thinking about margin.

Speaker Change: All we can share is the 2-3%

All we can share is that 2% to 3%.

Speaker Change: I don't think TSMC has ever started a fab at 10% growth margin. Thank you.

Speaker Change: So I don't think the assembly has ever started a fab at 10% gross margin.

Speaker Change: Thank you.

Speaker Change: Who are working hard to improve it?

Speaker Change: Oh gosh.

Speaker Change: We are working hard to improve it.

Laura Chen: Okay, thank you, Gokul. We'll go to the middle, Laura Chen from a city group, city bank.

Laura Chen: Okay. Thank you we'll go we'll go to the Middle Laura Chen from Citi Group Citibank.

Laura Chen: Thank you. Congratulations for the good result. I just want to have more details about your view. I mean, I think people are kind of looking for your updated long-term catered world. So I believe that 20% starting from a very already very high base in 2024 is a really good long-term objective. But just wondering that aside from the strong AI demand, what your view on the traditional knows, applications like a PC and the smartphone grows in a bit of a for these.

Laura Chen: Thank you and congratulations vertical resolved I guess once you have them why they tell us about your view I mean, I think people are kind of looking for and you are updating.

Speaker Change: Updating that loan can kick in as well. So I believe that 20% is starting from a very already very high pay for 'twenty 'twenty. Four is a really good they don't have objectives, but just wondering that aside from the strong AI can now and what's your view on the traditional applications like a P. C in there.

Speaker Change: Smartphone grows and particularly for this year.

Speaker Change: Okay, so Laura's first question is looking, she notes that we have updated our long-term cager to the approaching 20% revenue growth in US dollars starting off even the high base of 24. So her question is, you know, of course, AI demand is part of that, but what about smartphone and PC?

Speaker Change: Okay. So lowest first question is looking she notes that we have updated our long term CAGR to be approaching 20%.

Speaker Change: Revenue growth in U S dollar starting off even the high base of 24. So her question as you know of course AI demand is part of that but what about smartphone and PC and I think your question is specific to this year 2025.

Speaker Change: This year is still a mild growth for PCN.

Speaker Change: This year is still.

Mild growth for.

Speaker Change: <unk> and <unk>.

Speaker Change: Wonderful.

Speaker Change: But everything is AI-

Speaker Change: But everything is that AI.

Speaker Change: For the train

Speaker Change: Related alright, so you can start to see.

Speaker Change: So you can start to see why we have confidence to give you a close to 20% cargo in the next five years.

Speaker Change: While we have comparable to give you.

Speaker Change: Cross the 20% CAGR in the next five years.

Speaker Change: AI. You look at its smartphone. They will output the AI functionality inside.

Speaker Change: AI.

Speaker Change: You look at it smartphone they are up for the AI functionality inside.

Speaker Change: and not only is also the silicon content what we use.

Speaker Change: And that not only is also the silicon content increase.

Speaker Change: In addition to that, actually the replacement cycle will be short

Speaker Change: In addition to that actually the replacement cycle will be shortened.

Speaker Change: and also they need to go into the very advanced technology.

Speaker Change: And also the need to go into the very advanced that technology because of you know if you.

Speaker Change: So if you want to put a lot of functionality inside a small chip, you need a much more advanced technology to put those consume. If you put all together that even smartphone, the Unicro system almost...

Speaker Change: You want to put a lot of functionality inside a small chip you need the much more advice the technology to put those kind of cheap put all together that even smartphone unit growth is.

Speaker Change: <unk>.

Speaker Change: Doh Shingo Tijet

Speaker Change: Low single digit.

Speaker Change: But jen silicon.

Speaker Change: and the replacement cycle and the technology migration that gave us more growth than the budget just at U.S.

Speaker Change: And the replacement cycle and the technology migration that give us more growth than just that unit cost.

Speaker Change: Chibinah, Rylian Ford

Speaker Change: <unk> reason for PC.

Speaker Change: So, we can kind of expect those AI capabilities, each devices, they were all based on two-neurometer

So we can kind of expect those that AI kept the lowest H devices. They were all based on two nanometer next year.

Speaker Change: of Second Half, E-D-H Technology. That's why I say. Okay, thank you. And also my next question is about AI. I noted that this time you include that the HBN controller into your AI business revenues definition. So, can you provide us more update about what the HBI-based-type business opportunities could be? And previous DTSMC kind of announced cooperation with the key memories of suppliers globally. Can you give us more details or updates on what the progress of this business engage?

Second half eating etch technology, Okay. That's all I see okay. Thank you and now also my next question is about AI I noted that I get this times you include I E.

Speaker Change: He HPN controller into your AI business revenues definition, so and can you provide us more update about how what's the H b I Bayside business opportunity could be.

Speaker Change: And PV is D TSMC.

Speaker Change: Announced a collaboration with our key memory suppliers globally can you give us a little more.

Helen Zhang: I think Helen Zhang.

Speaker Change: Progress at South deep.

Speaker Change: Thank you, Laura. Laura's second question is on HVM controllers. She notes that our definition of AI accelerators includes memory controllers or HVM controllers. Her question is, how do we see this opportunity or what is the opportunity for TSMC and what is the progress of this working with our memory partners?

Speaker Change: Okay. Thank you Laura So lower second question is on HCM controllers. She notes that our definition of AI accelerators includes memory controllers or HBM controllers. So her question is well how do we see this opportunity or what is the opportunity for TSMC and what is the progress of this working.

Speaker Change: With our memory partners.

Speaker Change: We are working with all the memory suppliers, all of-

Speaker Change: We are working with or that memory suppliers all.

Speaker Change: All of you.

Speaker Change: And that is because of our TSMCs, our logic chip, our logic technology, more advanced and that means that our customers are required.

Speaker Change: And that is because of TSMC is our logic achieved or logic technology more advice.

And that means our customers requirement.

Speaker Change: So all of them are working with KSMC. Now we start to see some of the products coming out, but the high volume probably you need to wait for another half of one year.

Speaker Change: So of Jemaah walking with TSMC now we start to see some of the product coming out, but the high volume probably you need to wait for another half or one year to see the high volume and big contribution to <unk> revenue.

Speaker Change: with the high volume and big contribution to TSMC's rub. [inaudible]

Speaker Change: Okay, thank you. We'll move to this side of the room. I guess we have Charlie Chan from Morgan Sanny.

Speaker Change: Okay. Thank you.

Speaker Change: We'll move to this side of the room I guess, we have.

Charlie Chan: Charlie Chan from Morgan Stanley.

Speaker Change: I see it window, and Jeff, first of all, happy new year. I think it's going to be very exciting, you're giving your foolish outlook and also lots of news going on, right? So let me start with the overnight, the US seems to put the new framework on researching China's AI business, right? So I'm wondering whether that will create some business impact to your China business and are we going to manage it? And also, for some chips in the middle, high performers like crypto mining, a time-driving chip, do you think there's a count as a cloud AI? And would the TSNC be able to continue to service your China customers?

Speaker Change: I see a window and Jeff first of all happy new year.

Speaker Change: It's going to be a very exciting year, given your bullish outlook and also lots of news going on so let me start.

Speaker Change: With the overnights.

Speaker Change: U S seems to put a new.

Speaker Change: Framework and researching China's AI based.

Speaker Change: Right so.

Speaker Change: I'm wondering whether that will create some pieces in pack to your China business and how are we going to manage this and also for some.

Speaker Change: <unk> chips in the Mito high performers I crypto mining.

Speaker Change: It's driving chip.

Speaker Change: Do you think there's a count as a cloud AI and with TSMC be able to continue to service your China customers. Thank you. Okay. Thank you charges or charges first question, if I may sort of extrapolate or summarizes about the announcements of different types of U S export restrictions.

Speaker Change: Okay, thank you, Charlie. So, Charlie's first question, if I may sort of extrapolate or summarize, is about the announcements of different types of US export restrictions this week pertaining to China and AI-related chips. So, his question is, what is the impact to TSMC? How does it impact our business?

Speaker Change: This week.

Speaker Change: Pertaining to China, and AI related chips. So his question is what is the impact to TSMC, how does it impact our business.

Speaker Change: So far we do get, we don't we have all uh, analysis.

Speaker Change: So far we look at we don't have all our.

Speaker Change: Analysis yet.

Speaker Change: But the first look is the

Speaker Change: The first look.

Speaker Change: E.

Speaker Change: Nasi Jef is Man Nasi Jef is Man

Speaker Change:

Speaker Change: That's a good part of it is manageable.

Speaker Change: So, not meaning that my customers who are being restricted or something, we are applying for the special permit for them and we believe that we have a confidence that they will get some permission. So long as they are not in the EIA area.

So not a meaning that.

Speaker Change: By customers.

Speaker Change: Who are being restricted or something.

Speaker Change: We are applying for the special Permira for them and we believe that we have a confidence that you will get some permission so long as they are not in the EIA area.

Speaker Change: especially automotive industry or even new talk about the growth of mines.

Speaker Change: Okay.

Speaker Change: Especially automotive industry or even you talk about the crypto mining.

Speaker Change: Thank you.

Speaker Change: Super helpful. And my second question is actually a very hot topic recently as well, the CPO. I think your remain counter-dense in country Taiwan.

Speaker Change: Super helpful.

Speaker Change: My second question is actually a very hot topic recently as well the CPO.

Speaker Change: I think.

Speaker Change: Your main powder chasing come to Taiwan.

Speaker Change: This time probably decided meeting you, right? Probably also want to enable this supply chain. So, based on your recent technology symposium, right? You already get ready for your group or could pay optical engine. But do you think the talent supply chain can really facilitate this CPO? Because without these key components, the next generation Rubin schedule could have some some issues. So I think this is part of the first part of question about how you're going to facilitate this CPO supply chain. And secondly, to test and see your foundry service, right? Do you see a significant upside with an up to no networking migrated CPO? Because I asked you because there's some conventional product like optical transceiver DSP could be replaced. Thank you.

Speaker Change: These times, probably besides the meeting you probably also want to add.

Speaker Change: These are supply chain so based on your recent.

Speaker Change: Technology Symposium, you already get ready for you or Cooper Copay optical engine, but do you think.

Speaker Change: The talent supply chain can really fit facilitate this S. CPO because with all these are key components. The next generation roofing.

Speaker Change: Schedule could have some issue. So I think this is part of the first part of question about how youre going to facilitate ease of CPO supply chain.

Speaker Change: Turning to cash.

Speaker Change: TSMC your foundry services do you see a significant I'll say.

Speaker Change: They're up to no networking migrated CPO because I ask this because his son.

Speaker Change: Conventional product like optical transceiver DSP could be replaced thank you.

Speaker Change: Well, Charlie's second question is a very specific topic. He wants to know, well, if I can generalize because we certainly don't comment on customers or their products, but in terms of our progress on Silicon Photonics and CPO, how are we working with customers, how are we preparing as part of our advanced packaging solutions, and what are the opportunities for TSMC as optical moves

Speaker Change: Well Charlie second question is a very specific topic. He wants to know Oh, well, if I can generalize because we certainly don't comment on customers with their products, but in terms of our progress on silicon Photonics and CPO, how we're working with customers. How we're preparing as part of our advanced packaging solutions and what.

Speaker Change: Are the opportunities for TSMC as optical.

Speaker Change: We'll still silicon photonics, another type of solutions on a general basis.

Charlie Chan: Charlie is that a very technical question, you know?

Charlie Chan: Charlie is that a very technical question.

Speaker Change:

Speaker Change: Silicon for Tonys, we are working on it as you said, and we got a good result also. However, a big volume I don't think it will be in this year or probably wait for one or one and a half year to

Speaker Change: Silicon Photonics we.

Speaker Change: We are working now.

Speaker Change: She was safe and.

And we've got a good result, also however, a big body milestone she'll give you won't be in this year or probably with a way to for one or what is the half year.

Speaker Change: Sure.

Speaker Change: You can see that contribution or the boiling product.

Speaker Change: You can see that the contribution or the volume production.

Speaker Change: The initial results are quite good, not out about it, so my customers are quite happy.

Speaker Change: The initial readout are quite good no doubt about it and so my customer are quite happy.

Speaker Change: Thank you, CC. Operator, we'll now move to the questions online. We'll take the first call from the online participant, please.

Speaker Change: Thank you C. C. Operator, we'll now move to the questions online will take the first call from the online participant please.

Brett Simpson: Yes, first question, Brett Simpson, Robert T. Research

Speaker Change: Yes.

Brett Simpson: Brett Simpson Arete research.

Speaker Change: Yeah, thanks very much. And can I just say congratulations on reaching $100 billion in annual sales in Q4. It's quite a milestone. So my first question is on Arizona. I think when do you mention that we need to see some higher scale? So can you update us on the state of sort of phase two? It looks like the construction of this shell is nearly complete, but would be great to understand more about how you see T2 developing over the course of 2025. And in terms of pricing U.S. waifers, how are you planning to do this? Will you have a U.S. price and a Taiwan price? Or are you more likely to have a global price, regardless of where you make the waifers? Thank you.

Speaker Change: Yes, thanks, very much and can I just say congratulations on.

Speaker Change: Reaching 100 billion in annual sales in Q4, it's quite quite a milestone.

Speaker Change: So my first question is.

Speaker Change: Arizona.

Speaker Change: I think Wendell you mentioned that we need to see some higher.

Speaker Change: Higher scale. So can you update us on the status of phase III.

Speaker Change: It looks like the construction of the shell is nearly complete but that would be great.

Speaker Change: Understand more about how.

Speaker Change: You see <unk> developing over the course of 2025 and in terms of pricing.

U S. Wafers, how are you planning to do this will you about U S pricing of Taiwan price or are you more likely to have a global price.

Speaker Change: Carlos and where you make the waitrose. Thank you.

Speaker Change: Okay, so Brett's question, first question is on Arizona, maybe split into two parts. First is on terms of, you know, we have already started the volume production of the first fab, so Brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shelves, etc. And then the second part would be on the pricing of overseas, as we say, there's value to our customers. He wants to know do we charge a separate price or is it part of the overall pricing, etc. etc.

Speaker Change: Okay. So brad's question first question is on the Arizona may be split into two parts.

Speaker Change: First is on in terms of you know we have already started the volume production of the first fab. So Brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shelves et cetera, and then the second part would be on the pricing of overseas as we say there is a value to our customers. He wants to know do we charged.

Speaker Change: A separate price or as a part of the overall pricing etcetera etcetera.

Speaker Change: Let me answer the second question first. Do we charge a little bit higher? Yes, we do. It's because of we have a value of geographics of flexibility, right? And you guys know Mehdi, USA is a premium product.

Speaker Change: Let me answer the second question first.

Speaker Change: Do we charge a little bit higher yes, we did because of.

Speaker Change: We have a value of our.

Speaker Change: Geographics or flexibility right.

Speaker Change: And are you Guy knows are buried in the USA as a premium for.

Speaker Change: Act.

Speaker Change: Yes, we discussed with our customer and they are all agree and happy to work with TSMC so that we can

Speaker Change: Ah, Yes, we discuss with our customer and they are all agree and and happy to work with TSMC. So that we can.

Speaker Change: because of the cause, structure over there, so it's a little bit higher price over there.

Speaker Change: Is it because of the cost structure over there. So he started with higher price over there.

Speaker Change: The progress of the first five is right now in volume production. Second fact, we almost finished all the building and start to put the facility.

Speaker Change: The progress of the forest fires is at right now in volume production second Fab, we are almost fully sold the building and start to.

Speaker Change: Put the facility.

Speaker Change: Chetra etc., and we expect that we move the tools at the COs.

Speaker Change: Chatterer et cetera, and we expect that we moved the tours are this year also.

Speaker Change: And we have a plan that our third bias.

Speaker Change: And we have a plan that our certified.

Speaker Change: Probably we will start a very soon and we will announce it in the later days.

Probably we will have started way soon and we will announce it in the later days.

Speaker Change: Hey.

Speaker Change: Okay, thank you, C.C. Brett, does that answer your first question and do have a second one?

Speaker Change: Okay. Thank you C C. Bret does that answer your first question and do you have a second one.

Speaker Change: Yeah, very clear. And the second question, I wanted to get your perspective. Brokone CEO recently laid out a large sound for AI hyperscaler building out custom silicon. I think he was talking about millions, accelerators, clusters from each of the customers he has in the next two or three years. What's TSMC's perspective on all this? I'm sure you've spent a lot of time verifying what hyperscalers are applying over the years to come. And how comfortable are you with a scale of what's being implied here?

Speaker Change: Yes, very clear and the second question I wanted to get your perspective Broadcom CEO.

Speaker Change: Recently laid out a large sum for AI Hyperscale is building out custom silicon.

Speaker Change: I think I think you just talking about accelerated clusters from each of the customers. He has in the next two or three years.

Speaker Change: TSMC is perspective on all of this I'm.

Speaker Change: I'm sure you've spent a lot of time verifying what hyperscale is applying over the years to come and how comfortable are you with the scale of what's being implied here. Thanks.

Speaker Change: Okay, so Brett's second question is looking at AI. I guess, you know, it's specifically AI custom chips or A6. He notes that one of our customers recently laid out a very strong or large, addressable SAM market for AI hyperskitters using custom silicon. Lots of them talking about clusters of 1 million chips. So he wants to know what is TSMC's view, how we see this trend in terms of AI A6 as part of the AI demand mega trends.

Speaker Change: Okay. So <unk> second question is looking at AI I guess.

Speaker Change: Specifically AI custom chips or Asics, he notes that one of our customers recently laid out a very.

Speaker Change: Strong or large addressable Sam market for AI hyperscale deals using custom silicon.

Lots of them talking about clusters of 1 million chips.

Speaker Change: Chips. So he wants to know what is Tsmc's view, how do we see this trend in terms of AI Asics as part of the AIA demand.

Speaker Change: Mega trend.

Speaker Change: Brett, I'm not going to answer the question of the specific number, but let me assure you that whether it's ASIC or graphic, they all need a very deep edge technology, and they are working with TSM.

Speaker Change: Brett I'm not going to be is the question of the specific number but let me assure you that whether it's <unk> or it's a graphic they all need a very leading edge technology and they're all walking with TSMC.

Speaker Change: So

Speaker Change: Okay. So.

Speaker Change: And the second one is the demand real was, it's a number that my customers say it.

Speaker Change: And the second one is is the demand Rio was.

Speaker Change: As a number that my customer seed.

Speaker Change: I will say that the demand is a very strong.

Speaker Change: Ah I will say that the demand is a very strunk.

Speaker Change: that enough to answer your question. Great.

Speaker Change: That is now too and so your question.

Speaker Change: Right.

Speaker Change: Yeah, that's great. Thank you. Okay, thank you, Brett. Operator, do we have anyone else on the line?

Speaker Change: Yeah.

Yeah, that's great. Thank you okay. Thank you Brett our operator do.

Speaker Change: Do we have anyone else on the line.

Speaker Change: It seems not, then let's go back to the floor. I think on the left side, Bruce Liu from Goldman Sachs.

Speaker Change: It seems not.

Speaker Change: Okay. We don't then let's go back to the floor I think in on the left side Bruce Lu from Goldman Sachs.

Speaker Change: Hi, thank you for taking my question. To be honest, I'm really surprised that Long-term growth margin target doesn't really change.

Speaker Change: Alright.

For taking my question.

Speaker Change: To be honest I would be surprised that the long term gross margin target doesn't really change it.

Speaker Change: I believe TSMC's value is definitely more than selling the pass on the cost. I believe that TSMC need to invest a lot more in R&D to maintain the leadership.

Speaker Change: I believe tsmc's, there is definitely more than selling.

Speaker Change: Pass on the calls I believe that TSMC need to invest a lot more in R&D to maintain our leadership.

Speaker Change: You know TSMC.

Speaker Change: Suggested a Raise the Gross Money and Target in 2022

Adjusted or raise the gross margin target in 2022.

Speaker Change: with higher R&D requirement with higher profitable target. So I asked the same question two quarters ago, which is in the process of price negotiation, which is understandable. But I think the price negotiation is pretty much done.

Speaker Change: With higher R&D requirement with hiring.

Speaker Change: Profitable pocket right. So I asked the same question two quarters ago, which is in the process of pricing negotiation, which is understandable, but I think the price negotiated some pretty much done.

Speaker Change: You know, what's the, what's the discrepancy here, you know, why GSMC cannot raise the, you know, profit really tight?

Speaker Change: You know what what's the what's the.

Speaker Change: Discrepancy here why didn't he cannot raise the profit.

Speaker Change: Profitability target.

Speaker Change: Okay, so Bruce's first question, he wants to know, again, our long-term growth margin, why are we not changing the target of 53 and higher? Okay, he correctly notes that certain ETSNC's value is increasing and certain ETSNC we need to invest a lot of money in R&D and capacity to support our customer's growth, so we have always had a focus on earning the right return. He also notes that in 2022, while our growth margin used to be about 50, then we raised it to 53 and higher, so his question is why is it not and higher?

Speaker Change: Okay. So Bruce as first question. He wants to know again, our long term gross margin why are we not changing the target of 53 and higher okay. He correctly notes that certainly tsmc's value is increasing and certainly TSMC, we need to invest a lot of money in R&D and capacity to support our COO.

Speaker Change: Customers growth. So we have always had a focus on earning the right return. He also notes in 2022, well why gross margin used to be about 50, then we raised it to 53 and higher. So his question is why is it not and higher I guess.

Speaker Change: Hey Bruce, as we said, six factors affecting the profitability. Every year, different factors have different ways.

Speaker Change: Hi, Bruce.

Speaker Change: Yeah.

As we said six factors affecting the profitability every year different factors have different weight.

Speaker Change: Now, two things to note, number one, starting from this year, overseas fab expansion, two to three percentage point impact every year for the next five.

Now two things to note number one starting from this year overseas fab expansion two to three percentage point impact every year for the next five years the other things to note.

Speaker Change: The other things to know.

Speaker Change: Macroenvironment Uncertainty

Speaker Change: Macro environment uncertainty, which may lead to.

Speaker Change: which may lead to-

Speaker Change: Impacting the global economy, which may lead to end marks.

Speaker Change: Impacting the global economy, which may lead to end market demand now.

Speaker Change: Now, having said that, we are in the Capitol Intense.

Speaker Change: Now having said that.

Speaker Change: We are in a capital intensive industry. So we will need to have to earn a healthy return to continue to invest to support our customer.

Speaker Change: So we will need to have to earn a healthy return to continue to invest to support our customers.

Speaker Change: to support their growth and also deliver a profitable growth to our share.

Speaker Change: Support their growth and also deliver a profitable growth.

Speaker Change: To our shareholders and you mentioned about the raising of.

Speaker Change: And you mentioned about the raising of long-term growth margins back in 2022 to 53% and higher and we have been able to deliver that in higher parts since then. So given all the above, we continue to think that 53% and higher growth margins is achievable and we work very hard to achieve only higher parts.

Speaker Change: Long term gross margins back in 2022% to 53% and higher and we have been able to deliver that and higher parts. Since then.

Speaker Change: Given all the above we continue to think that 53% and higher gross margin is achievable and we work very hard to achieve on the higher part.

Speaker Change: Okay, I'll try next two for this. For the co-work capacity, TSMG has been very aggressive in expanding the capacity. However, the application is highly concentrated in AI at the current stage, which there are certain noise around it.

Speaker Change: Okay.

Speaker Change: Try next quarter next two quarters.

Speaker Change: For the Cola capacity TSMC has been very aggressive in expanding our coke capacity. However, the application is highly concentrated in AI at the current stage.

Speaker Change: Which there are certain noise around it.

Speaker Change: When can we see non-AI application, such as server, smartphone or anything else, can start to adapt co-wars capacity in case there is any fluctuation in the AI.

Speaker Change: When can we see non AI.

Vacation, such as server smartphone or anything else can be you know.

Penn started to adapt co was capacity in case, there is any fluctuation in the AI domain.

Speaker Change: Okay, thank you, Bruce. So, Bruce's second question is on co-offs capacity. In his words, we have been very aggressive to expand the capacity, but his concern is highly concentrated with AI-related demand. So, his question is, when do we expect or to see a more non-AI application adoption of co-offs solutions?

Speaker Change: Okay. Thank you Bruce So Bruce second question is on cost capacity.

Speaker Change: In his words, we have been very aggressive to expand the capacity, but his concern is highly concentrated with AI related demand. So his question is when do we expect or to see more non AI application adoption of <unk> solutions.

Speaker Change: Well, yes, today is all AI-focused, and we have a very tight capacity and cannot even meet customers' need.

Speaker Change: Well, yes, today's all or AI focused.

Speaker Change: And we have a very tight capacity and cannot even meet customers need.

Speaker Change: But.

Speaker Change: Where the other proton were adopted, these kind of cohorts are approaching, they will.

Speaker Change: The other proteins adapter. These kind of of course are approaching their will is coming.

Speaker Change: It's coming, and we know that it's coming, so that's all I can't say. When it's coming?

Speaker Change: And we know that each company. So that's all I can win.

Speaker Change: It's coming.

Speaker Change: Okay, I'll try next quarter. On the CPU and on the servo chip, let me give you a hint.

Speaker Change: [laughter], Okay I'll try next quarter.

Speaker Change: On the CPU and Angus over to you, but let me give you a hint.

Speaker Change: Thank you.

Speaker Change: Okay, thank you, Bruce. We'll go to the middle, Arthur Lai from Macquarie.

Speaker Change: Okay. Thank you Bruce will go to the Middle Arthur Lai from Macquarie.

Speaker Change: Hi, CG, Window, and Jeff. I am from Macquarie. First of all, congratulations on your strong growth. Quickly following up on the developments in the US and JP, this is very important. My clients have been tracking me. What action strategies do you have to avoid the price gap between foreign currencies and Taiwanese currency? Yes, I believe CG mentioned that you will continue to further increase the currency price gap, but during the New Year, I read an article by Maurice Chang. He mentioned a strategy to completely replicate the price gap of Taiwanese currency. So I want to understand how we can maintain high currency prices and reduce the price gap. Thank you.

Hi, C D and window and Jeff.

Speaker Change: Macquarie.

Speaker Change: Arthur Lai from Macquarie. So first of all congrats on the strong gross margin and just have a very quick follow up on the U S. N. J P expansion. So this is important.

Speaker Change: Try and keep chasing me so.

Speaker Change: So too.

Speaker Change: Do you have the operational strategy to mitigate the cost gap between you know the oversea fed and talent that yeah. I think you hinted that you are walking eating the cost margin, but during the Chinese new year I read a Morris Chang's autopart coffee and he mentioned that.

Speaker Change: This strategy has a copy exactly.

Speaker Change: The tower another fair, Brian So I want to understand how we.

Speaker Change: Maintain the high yield and also chartered a course that thank you.

Speaker Change: Okay, so Arthur's question is about our overseas expansion. His question is related to the cost gap and what is our operational strategies to mitigate the cost gap? How are we doing this internally in our fab operations and strategies to do?

Speaker Change: Okay. So Arthur's question is about our overseas expansion. His question is related to the cost gap and what is our operational strategies to mitigate the cost gap.

Speaker Change: How are we doing this internally in our fab operations and strategies to do so.

Speaker Change: What is Lianxin buying newspaper

Speaker Change: Well Miss you my bosses of book Okay.

Speaker Change: Meaning that you really read it

Speaker Change: In that you really read it.

Speaker Change: What he says is a copy, exactly is a whatever Taiwan's improvement, the US was copied over there. That means that this year, next year and the following year will be the same. We continue to improve. That's improved the cost structure, both in Taiwan and in the US. And we also try very hard to find out a new methodology or whatever that I cannot share with you right now, but it will give Arizona some benefit.

Speaker Change: What he says a copy exact Lisa whatever tier ones that improvement that U S walk coffee over the year doesn't mean that this year next year and the following year wont be the same we continue to improve that improve the cost structure, both in Taiwan and.

Speaker Change: In the U S and we will also try very hard to find out a new methodology or whatever that I cannot share with you right now, but you'll walk you are a result of that some benefit.

Speaker Change: and so that we will improve, we will minimise the gap between the...

Speaker Change: And so that will improve.

Speaker Change: Well minimize the gap between the.

Speaker Change: Co-Structure between US and Taiwan. We are working on that, but no matter what I say, it will not be the best affair over there.

Speaker Change: Cost structure between U S and Taiwan, and we are working on that but no matter, what I say it won't be the pester fab Andrea.

Speaker Change: Okay.

Speaker Change: The second thought of question topics on the window, you just mentioned that there are 200 beeps or 300 beeps of margin dilutions, right? So can you give us one level down like, you know, the variable course and the fifth course, maybe heaven or maybe which one is high?

Speaker Change: Second follow up question and publish long window, you just mentioned that there's 200 people sell 300 bps.

Speaker Change: Margin dilution right. So can you give us a one level down that the variable costs and fixed costs.

Speaker Change: Maybe half of them or maybe which way is higher.

Speaker Change: So, our second question is on the overseas dilution of 2-3%. He is asking if we can provide a further breakdown in terms of how much of that is composed from variable cost, how much of that is from the fixed cost, etc.

Speaker Change: Okay. So are there a second question is on the overseas dilution of 2% to 3%. He is asking if we can provide it provide a further breakdown in terms of how much of that is composed from variable cost how much of that is from the fixed costs et cetera.

Speaker Change: Other, we really don't give breakdown on these numbers, but both of them are.

Speaker Change: Although we really don't give breakdown these numbers, but both of them are higher.

Speaker Change: That's all I can show you.

Speaker Change: All I can share with you.

Speaker Change: Okay, thank you. We'll move to the right side of the room. I think Rick Hsu from Dower Security.

Speaker Change: Okay. Thank you, we'll move to the right side of the room I think Rick shoe from Daiwa Securities.

Speaker Change: Yeah, hi, Happy New Year, and thank you for taking my question. So, the first one, Xu Chiu can share with us your view on this year's Global Semiconductor Revenue Focus as Memory.

Yeah, Hi, happy new year and thank you for taking my question. So the first one is huge a can you share with US your view on this year's global semiconductor revenue forecast as memory.

Speaker Change: for the tribal by application in priority across the main application.

Speaker Change: Or any.

Speaker Change: The teuber by application in priority across the main application. Thank you.

Speaker Change: Okay, so Rick's first question, he's asking for our forecast of the Semiconductor Industry, what we used to provide as semi-XMEM, but of course we have already given foundry 2.0, then he would like, uh,

Speaker Change: Okay. So Rick's first question. He is asking for a forecast of the semiconductor industry. What we used to provide a semi X men, but of course, we have already given foundry to dot O than he would like.

Speaker Change:

Speaker Change: The Outlook by end-market application in terms of ranking, maybe just a comment on the overall in-market as a whole, but...

Speaker Change: The outlook by end market application in terms of ranking.

Speaker Change: Maybe just a comment on the overall end markets as a whole.

Speaker Change: Rick, I've seen the memory visions of our goal this year.

Speaker Change: Rick I think the memory business will grow this year also.

Speaker Change: But all I can say is that HBF was a great fight.

Speaker Change: But all I can say is that hbf walk on breakfast.

Speaker Change: and I don't come in on other memories because of, you know, it's been a lot.

Speaker Change: And I don't come in on other memories because of you know.

Speaker Change: Non logic.

Speaker Change: And we have already provided Foundry 2.0 to grow 10% year-over-year. That's our industry forecast for 2020.

Speaker Change: And we have already provided foundry to Dod or to grow 10% year over year, that's our industry forecast for 2025.

Speaker Change: Just a quick follow-up, can I use your Foundry 2.0 market growth as a property of the global

Speaker Change: Just a quick follow up can I used your foundry to that market growth is a property of the global ischemia is memory.

Speaker Change: So his question is, can we use foundry 2.0 as a proxy for semiconductor X memory? Yes. Thank you.

Speaker Change: So his question is can we use foundry to Dod always a proxy for semiconductor ex memory, yes.

Speaker Change: Thank you, Okay and the second one is very quick about your cohort in Soi is the capacity ramp can you give us some more color. This year because recently there seem to be a lot of market noises. Some at order some cut orders so I would like to.

Speaker Change: On the second one, very quick, about your co-auth and SOIC capacity ramp. Can you give us more color this year? Because recently, there seemed to be a lot of mocking noises. Some add orders, some cut orders, so I would like-

Speaker Change: to see your view on the co-op

Speaker Change: To see your view on the course room.

Speaker Change: Okay, so Rick's second question is lots of market rumors here, so he would like to know any comment we can provide on Khoa's ramp in 2024.

Speaker Change: Okay. So Rick second question is lots of market rumors he said that he would like to know any comment we can provide on cost ramp in 2025.

Speaker Change: Rick, as you said, there's a lot of rumors, that's a rumor, I assure you.

Speaker Change: Rick.

Speaker Change: As you said Ah, yes, a lot of rumor, that's a rumor I assure you.

Speaker Change: We are working very hard to meet the requirement of my customers at the man.

Speaker Change: We are working very hard to meet the requirement of my customers are demand so cut the older.

Speaker Change: So, cut the older...

Speaker Change: That won't happen.

That won't happen.

Speaker Change: Yeah.

Speaker Change: Actually continue to increase, so we are, again I will say that we are working very hard to increase the cap.

Speaker Change: Actually continue to increase so we are again our share that we are working very hard to increase our capacity.

Speaker Change: Okay, go, thank you. Okay, let's move back to operators. Is there anyone online?

Speaker Change: Okay. Thank you.

Speaker Change: Okay, let's move back to our operators there anyone online.

Speaker Change: Yes, we have Nick Swan, Robert Sanders, Doug Peng, Gohib, [inaudible]

Speaker Change: Yes, we have next one Robert Sanders Deutsche Bank go ahead. Please.

Robert Sanders: Hello, I have a question about AI demand. Is there a situation where HBM has more limitations on demand rather than on the enterprise? This seems to be the biggest limitation at the moment. Thank you.

Robert Sanders: Yeah, Hi, there I just have.

Speaker Change: A question on AI demand is there a scenario where H b M is more of a constraint.

Robert Sanders: Demand.

Robert Sanders: There seems to be the biggest constraint that amendment.

Robert Sanders: And I had a follow up thanks.

Robert Sanders: Okay, so Rob is asking us to come in on AI, demand, and HBM status constraint, or what is the...

Robert Sanders: Okay. So Rob is asking us to come in on a demand an H P M status constrained or what is the.

Robert Sanders: Bigger constraint.

Robert Sanders: AIA demand.

Robert Sanders: I don't come in on other suppliers, but I know that we have a very tight capacity to support the AI demand. I don't want to say I am in the bottleneck, TSMC always working very hard with customer to meet the requirements.

Robert Sanders: I don't come in on other supplier no.

Speaker Change: No doubt, we have a very tight capacity to support the AIP pilot.

Speaker Change: I don't want to say I haven't the bottleneck TSMC always working very hard with customer to meet their requirement.

Speaker Change: That's what I could do.

Speaker Change: That's all I can say.

Speaker Change: You have a second question.

Speaker Change: Do you have a second question.

Speaker Change: Yeah, just on SOIC, there's been more discussion in the market around your smartphone customers adopting SOIC. Can you just discuss if there's any kind of inflection points here, whether it's in the PC domain or a smartphone domain, or it's still more of a data center story?

Speaker Change: Yeah, just on as to why I see there's been more discussion in the market around your smartphone customers are adopting extra y C can.

Speaker Change: Can you just discuss if there's any kind of inflection point Ah.

Speaker Change: Here, whether it's in the PC domain or the smartphone domain or it's still more of a data center story. Thanks.

Speaker Change: Okay, well Rob, second question is on SOIC adoption. His question basically in the nutshell is, when do we see an inflection point for smartphone application to adopt SOIC? Today, SOIC is still focused on AI application.

Speaker Change: Okay, well, Rob second question is on Soi see adoption are his question basically in a nutshell is due when do we see an inflection point for smartphone application to adopt soi see.

Speaker Change: Today, there is a demand still.

Speaker Change: Focus on.

Speaker Change: AI applications okay.

Speaker Change: Hey.

Speaker Change:

Speaker Change: for PC or for other areas is coming, but not right now.

Speaker Change: Four P he or for other area.

Speaker Change: Is coming but not right now.

Speaker Change: Thank you, Rob. Thank you, CC. I think in the interest of the time, we'll take the last two questions, please.

Speaker Change: Okay. Thank you Rob. Thank you C. C. I think in the interest of the time, we'll take the last two questions. Please.

Speaker Change: Okay, I guess we'll go to Sunny Lin from UBS.

Speaker Change: Okay, I guess, we'll go to Sunny Lin from UBS.

Sunny Lin: Good afternoon. Thank you for taking my questions. And so my first question is to try to get a bit more clarity on the cloud growth for 2025. I think a longer term, without a doubt, the technology definitely has lots of potential for demand opportunities. But I think if we look at 2025 and 2026, I think there could be increasing uncertainties coming from maybe CSP spending, macro, or even some of the supply chain challenges. And so I understand the management just provided a pretty good guidance for this year for itself to double. And so if you look at that number, do you think there is still more upside and downside as we go through 2025? Or how should we think about the demand profile of this year next year?

Sunny Lin: Good afternoon, and thank you for taking my questions.

Sunny Lin: So my first question is to try to get a bit more clarity on the cloud growth for 2025, I think longer time without a doubt the technology definitely has lots of potential for the map.

Sunny Lin: I think if we look at 2021 'twenty six I think there could be increasing uncertainties coming from ABC, I think spending a macro or even some of the supply chain challenges and so I understand there may have been just provided a pretty.

Sunny Lin: The guidance for the shelf when it sells a typo.

Sunny Lin: If you look at that number.

Sunny Lin: Do you think there's still more upside than downside as we go through 2025, well how should we think about demand profile for this year next year.

Speaker Change: Okay, well, Sunny's question is about the AI-related demand. We have said that even after tripling, more than tripling last year, it will double again in 2025. She wants to know, is there upside or downside to this? And also for us to provide an outlook on the 2026 AI growth.

Speaker Change: Okay, well Sonny's question is about the AI related demand.

Speaker Change: We have said that even after tripling more than tripling last year. It will double again in 2025. She wants to know is there upside or downside to this and also for us to provide an outlook on the 2026.

Speaker Change: Our growth.

Speaker Change: Annie, I certainly hope there's an upside, but I hope I get a...

Speaker Change: Any I, certainly hope that that upside, but I hope by Canada.

Speaker Change: My team can supply enough capacity to support it.

Speaker Change: My team can supply enough capacity to support it.

Speaker Change: He said, give you enough hint. [inaudible]

Does that give you enough hint.

Speaker Change: We also forecast, based on the 2024 high number, we also forecast mid-40s is a cake for the five years, that give you a Sankan.

Okay, and we also forecast based on the 'twenty 'twenty four saw a high number. We also forecast of mid Forty's is a kickoff for the five years that gives you a certain kind of.

Speaker Change: Estimates that you can kill.

Estimate that you can calculate.

Speaker Change: Also, me 40% is the long-term expectation in terms of growth by next few years, but how should you think about the trajectory of the growth? For sure this year is still pretty strong growth, but do you think at some point maybe we see a moderation of growth temporarily as I follow by another

Speaker Change: Yeah.

Speaker Change: I mean, 5% is a longtime expectation in terms of the carve out by next T. H.

Speaker Change: How should we think about the trajectory of the growth.

Sherri: Sure Sherri.

Speaker Change: Still pretty strong growth.

At some point, maybe we see a moderation of growth temporarily.

All about another rep.

Speaker Change: Well, I think Sunny's question again is asking us to comment on 2026 outlook, which is a little bit early, or that, you know, how do we see the trajectory?

Well I think Sonny's question again is asking us to comment on 2026 outlook, which is a little bit early or that you know how do we see the trajectory of the growth.

Speaker Change: I have already said it's a little bit too early.

They've already say he's VP too early.

Speaker Change: Sure, no problem, so I'll follow up maybe next quarter as well. And so my second question is on HDI, and so last year management digs by maybe 2025 to be the inflection point forward to see more content related to HDI. So based on your kind of visibility, are you seeing clients ramping for the share for the HDI products, maybe into second half? And before you also mention HDI could potentially drive 5% to 10% die size increase. Would that be a one-time increase? Or do you think beyond the 5% to 10% increase for the maybe first-gen product, there should be a sustainable increase going forward?

Sure no problem, so I'll follow up maybe next quarter as well.

My second question is on <unk>.

Yes.

So last.

Speaker Change: Flash It management dates by maybe 2025 to be the inflection 0.0, let's just see more content related to <unk>. So based on your kind of visibility are you seeing clients ramping up but the shelf for the at GAA product maybe into the second half and before you also measure it Jakob Hitachi drive 5% to 10%.

Speaker Change: ASP increase.

Speaker Change: Would that be a one time increase or do you think beyond the what but temper say increase well that may be a first gen products, there should be sustainable increase going forward.

Speaker Change: Okay, so Sunny's second question is related to edge AI. She would like some more detail or color. Do we see customers ramping edge or what we call on-device AI products in second half of this year? And the second part in terms of the content increase, 5 to 10 percent increase, is this a one-time thing? Is this an ongoing thing? How do we estimate the content benefit from on-device AI?

Okay. So <unk> second question is related to Ajay I actually would like some more detail or color or do we see customers ramping edge or what we call on device AI products in second half of this year and the second part in terms of the content increased 5% to 10% increases as a one time thing is this an ongoing thing how do we estimate.

The content benefit from antivirus AI.

Speaker Change: Okay, um, I'm the H AI

Speaker Change: Okay.

Oh, the edge AI.

Speaker Change: Our observation, we found out that our customers start to put more neural processor inside.

Speaker Change: Our observation we found out is that our customers start to put.

More new ROE processes inside.

Speaker Change: And so, we estimate it's a 5 to 10% of the most silicon being used.

Speaker Change: And so we estimate is a five to 10 per share in the most silicon being used.

Speaker Change: Can you bear every year 5 to 10% the definition now?

Speaker Change: Every year, 5% to 10% definitely teaching know right. So oh, so do our move to next node the technology migration.

Speaker Change: So they will move to the next node, the technology migration.

Speaker Change: That's also to TSMC's advantage. Not only that, I also say that the replacement cycle.

That's also to what TSMC said advantage not only Zara I also say that.

Speaker Change: The replacement cycle are.

Speaker Change: I think it will be shortened because when you have a new toy that is with AI functionality inside

Speaker Change: A single what be shortened because of where when you have a view.

New toy that we say AI functionality inside of everybody was replacing replaced that yes Marvel repressor.

Speaker Change: PV.

Speaker Change: PC, and I count as one much more gender.

Speaker Change: <unk> and I comes out we're much more than that.

Speaker Change: Meal 5%

Speaker Change: Me, a 5% increase.

Speaker Change: Alright.

Speaker Change: Can I answer your question? Yeah, thank you very much. Okay, thank you. Operator, I think there's one more participant online so we'll take the last question from online participant please.

Did I answer your question, yes. Thank you very much okay. Thank you operator, I think there's one more part to spin online. So we'll take the last question from online participant please.

Speaker Change: I think the last color just dropped the line, thank you. Okay, then we'll take the last question from Brad Lin from Bank of America.

But I think the other loves color just dropped the line. Thank you. Okay. Then we will take the last.

Speaker Change: Question from Brandon from Bank of America.

Brandon: Thank you for squeezing me into a happy new year and taking my question. So I would like to answer two questions. First question will be on the co-was as well. So we have observed an increasing margin of advanced packaging. Could you remind us the co-was contribution of last year? And do you expect the margin to kind of approach the corporate average or even exceed it after the so-called the value resection this year? That would be my first question.

Brandon: Thank you for squeezing me in so happy new year and taking my question. So I would like to ask two questions first question would be on the call wise as well. So we have observed an increasing margin.

Advanced packaging could you remind us the <unk> contribution of last year and do you expect that margin to kind of approach there copper average or even exceeded after their so called the value of resection. This year that would be my first question. Thank you. Okay. So bags first question is very specific.

Brandon: Okay, so Brad's first question is very specific to COAS, basically, he wants to know what is the revenue contribution from COAS last year and what is the margin profile. Maybe we can talk about events pack.

Speaker Change: Two kilowatts, especially he wants to know what is the revenue contribution from cost last year and what is the margin profile, maybe we can talk about advanced packaging.

Speaker Change: Brett, we don't break it down in different segments of the advance packaging, but overall speaking advance packaging accounted for over 8% of revenue last year and it will account for over 10% this

Speaker Change: But we don't break it down in different segments of the advanced packaging, but overall speaking advanced packaging accounted for over 8% of revenue last year and it will account for over 10% this year.

Speaker Change: In terms of growth margins, it is better than before, but still below the corporate.

In terms of gross margins. It is better it is better than before are still below the corporate average.

Speaker Change: Thank you. Thank you, Wendy. That's very helpful. And then my second question will be on the IDN. So we have seen IDNs increasingly rely on DSNC and then do we still expect the IDN to support our long term?

Thank you Wendell that's very helpful. And then my second question would be on the IDM. So we have seen idms are increasingly rely on TSMC and then do we still expect the IDM to support our long term growth.

Speaker Change: Okay, so Brad's second question I think is on IDM and IDM outsourcing. He does note that we do see more IDM outsourcing business, so is this part of our long-term growth?

Speaker Change: Okay. So <unk> second question I think is an IBM and IBM outsourcing.

Speaker Change: He does note that we do see more IDM outsourcing business. So is this part of our long term growth.

Speaker Change: The outlook CAGR.

Speaker Change: Get Nebri.

Speaker Change: Again, maybe REIT.

Speaker Change: We repeat again, they are our very good couple.

Repeat again.

Speaker Change: Our very good customers.

Speaker Change: and we work together. I don't say that we rely on TSMC. We are partners.

Speaker Change: And we work together I'd always say that readout in TSMC, we are partners.

Speaker Change: And I really hope that a long-term relationship will be there for sure.

Speaker Change: And I really hope that you.

Speaker Change: You know our long term relationship what P J.

Speaker Change: Sure.

Speaker Change: Thank you, C.C. Thank you, Brad. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and certainly both will be available through TSMC's website at www.tsmc.com. So thank you, everyone, for joining us today online and in person. We'd like to wish everyone a happy new year, and hope everyone continues to stay well, and hope you'll join us again next quarter. Goodbye, and thank you. Have a good day.

Thank you C C. Thank you Brad. Thank you everyone. This concludes our Q&A session before we conclude today's conference. Please be advised that the replay of the conference will be accessible within 30 minutes from now the transcript will become available 24 hours from now and certainly both will be available through Tsmc's website.

Speaker Change: At Triple W. Dot TSMC dot com. So thank you everyone for joining us today online and in person, we'd like to wish everyone. A happy new year and hope everyone continues to stay well and hope you'll join US again next quarter.

Speaker Change: Goodbye and thank you have a good day.

Speaker Change: Yeah.