Q1 2025 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

April 17, 2025

Okay.

Good afternoon everyone, I am Su Zhikai from TSMC's Investor Relations Department.

No Joe one what's the time, she didn't fire and Glenn sheets Fujitsu to the time line.

Welcome to TSMC's 2025 Q1 Investor Conference

I mean, San Jos Hijack also auditing O N D. G. Just five years old me awake.

Since this presentation will be broadcasted live to global investors simultaneously, we will be using English throughout. Thank you for your understanding.

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Speaker Change: Good afternoon everyone and welcome to TSMC's first quarter 2025 earnings conference call.

Speaker Change: Good afternoon, everyone and welcome to Tsmc's first quarter 2025 earnings conference call.

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

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

Speaker Change: TSMC is holding our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials.

Speaker Change: TSMC is holding our earnings conference call via live audio webcast through the company's website at Triple W. Dot T. S. M C Dot com, where you can also download the earnings release materials.

Speaker Change: If you're joining us through the conference call, your dialed in lines are in listen only both.

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

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

Speaker Change: The format for today's event will be as follows first Tsmc's senior Vice President and CFO, Mr. Wendell Huang will summarize our operations in the first quarter of 2025, followed by our guidance for the second quarter of 2025.

Speaker Change: First, TSMC Senior Vice President and CFO , Mr. Wendell Huang, will summarize our operations in the first quarter 2025, followed by our guidance for the second quarter 2025.

Speaker Change: Afterwards, Mr. Huang and TSMC's Chairman and CEO , Dr. CC Wei, will join me provide the company's

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 the line for questions and answers.

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, which could cause actual results to differ materially from those contained in the forward looking statements.

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

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

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

Speaker Change: And now I would like to turn the call over to Tsmc's CFO, Mr. Wendell Huang for the summary of operations and 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 first quarter 2025. After that, I will provide the guidance for the second quarter of 2020.

Wendell Huang: Thank you Jeff Good afternoon, everyone. Thank you for joining us today.

Wendell Huang: My presentation will start with financial highlights for the first quarter 'twenty 25, after that I will provide the guidance for the second quarter up 2025.

Wendell Huang: First quarter revenue decreased 3.4% sequentially in NT$ or 5.1% in US$, as our business was impacted

Wendell Huang: First quarter revenue decreased three 4% sequentially in NT dollar or five point and 1% in U S dollars as our business was impacted by smartphone seasonality, partially offset by continued growth in a I relate it in that.

Wendell Huang: partially offset by continual growth in AI related. [inaudible]

Wendell Huang: In spite of the January 21st earthquake and several aftershocks,

Wendell Huang: In spite of the January 21st earthquake and several aftershocks, we work diligently to recover much of the lost production.

Wendell Huang: We work diligently to recover much of the loss, but-

Wendell Huang: Thus, our revenue in the first quarter was slightly above the midpoint of our guys

Wendell Huang: Yes.

Wendell Huang: Revenue in the first quarter was slightly above the midpoint of our guidance.

Wendell Huang: Gross margin decrease 0.2% percentage point sequentially to 58.8%.

Wendell Huang: Gross margin decreased 0.2 percentage points sequentially to 58, 8%, primarily due to the earthquake impact as well as the start of overseas dilution.

Wendell Huang: primarily due to the earthquake impact as well as the start of overseas dilution.

Wendell Huang: Partially offset by the cost improvement.

Wendell Huang: Partially offset by the cost improvement efforts.

Wendell Huang: Total operating expenses accounted for 10.2% of net rep

Wendell Huang: Total operating expenses accounted for 10.2% of net revenue.

Wendell Huang: Operating margin decrease 0.5 percentage points sequentially to 48.5 [inaudible]

Wendell Huang: Operating margin decreased 0.5 percentage points sequentially to 48, 5%.

Wendell Huang: Overall, our first quarter EPS

Wendell Huang: Overall, our first quarter EPS was $13 94 N T and I O E was 32, 7%.

Wendell Huang: 13.94 NT, and ROE was 32.75.

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

Wendell Huang: 3 nanometer process technology contributed 22% of wafer revenue in the first quarter, while 5 nanometer and 7 nanometer accounted for 36% and 15% respect.

Wendell Huang: Nanometer process technology contributed 22% of wafer revenue in the first quarter, while five nanometer and seven nanometer accounted for 36% and 15% respectively.

Wendell Huang: Advanced Technologies, defined as 7nm and below, accounted for 73% of wafer

Wendell Huang: Advanced technologies defined as seven nanometer and below accounted for 73% of wafer revenue.

Wendell Huang: Moving on to Revenue Contribution by PLUG

Wendell Huang: Moving onto revenue contribution by platform H.

Wendell Huang: HPC increased 7% quarter-over-quarter to account for 59% of our first quarter-relevant.

Wendell Huang: <unk> increased 7% quarter over quarter to account for 59% of our first quarter revenue.

Wendell Huang: Smartphone decreased 22% to a Comfort 28%

Wendell Huang: Smartphone decreased 22% to account for 28% I O T decreased 9% to account for 5%.

Wendell Huang: IOT decrease 9% to account for 5%

Wendell Huang: Automotive increased 14% in accounted for 5%.

Wendell Huang: Automotive increased 14% and accounted for 5% and D. C E increased 8% to account for 1%.

Wendell Huang: and DCE increased 8% to account for 1%

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

Wendell Huang: Moving onto the balance sheet, we ended the first quarter with cash and marketable securities of $2 seven trillion of N T or 81 billion U S dollars.

Wendell Huang: On the liability side, current liabilities increased by 135 billion NT, quarter over quarter, mainly due to the increase of 111 billion in accrual liabilities and others.

Wendell Huang: On the liability side current liabilities increased by 135 billion of N T quarter over quarter, mainly due to the increase of 111 billion in accrued liabilities and others.

Wendell Huang: The increase in the cruel liabilities and others was mainly due to the cruel of income tax payup.

Wendell Huang: The increase in accrued liabilities and others was mainly due to the accrual of income tax payables.

Wendell Huang: On financial ratios, accounts receivable turnover days increase one day to 28 days.

Wendell Huang: On financial ratios accounts receivable turnover days increased one day to 28 days.

Wendell Huang: Days of inventory increased three days to 83 days, primarily due to the ramping of new overseas

Wendell Huang: Days of inventory increased three days to 83 days, primarily due to the ramping of new overseas Fabs.

Wendell Huang: Regarding cash flow and KPACs, during the first quarter, we generated about 626 billion NT in cash from operation.

Regarding cash flow NK packs during the first quarter, we generated about 626 billion NT and cash from operations spent 331 billion NK packs and distributed $104 billion for second quarter 2020 for cash dividend.

Wendell Huang: spent $331 billion in K-Pax, and distributed $104 billion for 2nd quarter 2024 cash divot.

Wendell Huang: In addition, we raised 16 billion NT in cash from bond issuance.

Wendell Huang: In addition, we raised 16 billion NT and cash from bond issuances.

Wendell Huang: Overall, our cash balance increased 267 billion NT to 2.4 trillion at the end of the court.

Wendell Huang: Overall, our cash balance increased to 167 billion NT to a 2.4 trillion at the end of the quarter.

Wendell Huang: In US Dollar Terms, our first quarter capital expenditure is total 10.06 billion

Wendell Huang: In U S dollar terms, our first quarter capital expenditures totaled 10.06 billion.

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

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

Wendell Huang: Based on the current business outlook, we expect our second quarter revenue to be between 28.4 and 29.2 billion U.S dollars.

Wendell Huang: Based on the current business outlook, we expect our second quarter revenue to be between 28.4, and 29.2 billion U S dollars, which represents a 13% sequential increase or 38% year over year increase at the midpoint.

Wendell Huang: which represents a 13% sequential increase or a 38% year-over-year increase at the midpoint.

Wendell Huang: based on the exchange rate assumption of $1 USD to $32.5 NT.

Wendell Huang: Based on the exchange rate assumption of one U S dollars to 32.5 N T.

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

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

Wendell Huang: Operating margin between 47 and 49-

Wendell Huang: Operating margin between 47 and 49%.

Wendell Huang: Also, in the second quarter, we will need to accrue the tax on the undistributed earnings retained earnings.

Wendell Huang: Also in the second quarter, we will need to accrue the tax on the undistributed earnings retained earnings as a result, our second quarter tax rate will be around 20%.

Wendell Huang: As a result, our second quarter tax rate will be around 20%.

Wendell Huang: The tax rate will then fall back to 14-15% level in the third and fourth quarter, and the full-year tax rate will be between 16% and 17%.

The tax rate will then fall back to 14% to 15% level in the third and fourth quarter and the full year tax rate will be between 16% and 17%.

Wendell Huang: This concludes my financial presentation.

Wendell Huang: Now, let me turn to our keymaster.

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

Wendell Huang: I will start by talking about our first quarter twenty-five and second quarter of twenty-five

Wendell Huang: I will start by talking about our first quarter 'twenty five in second quarter of twenty-five profitability.

Wendell Huang: Compared to fourth quarter, our first quarter gross margin slightly decreased by 20 basis

Wendell Huang: Compared to fourth quarter, our first quarter gross margin slightly decreased by 20 basis points sequentially to 58, 8%.

Wendell Huang: This was primarily due to 60 basis points impact from the January 21st earthquake and its

Wendell Huang: This was primarily due to 60 basis points impact from the January 21st earthquake and its aftershocks.

Wendell Huang: as well as the start of dilution from a Kumamoto FAP partially offset by cause improvement F.

Wendell Huang: As well as the start of dilution from our Kumamoto SAP, partially offset by cost improvement efforts.

Wendell Huang: We have just guided our second quarter gross margin to decrease by 80 basis points to 58% at the midpoint.

We have just guided our second quarter gross margin to decrease by 80 basis points to 58% at the midpoint.

Wendell Huang: Primarily as the margin dilution impact from our Arizona FAF starts to kick in.

Wendell Huang: Primarily as the margin dilution impact from our Arizona fab starts to kick in.

Wendell Huang: We expect the impact from Overseas FAP to grow more pronounced throughout the year as we ramp up further in Kumamoto and Arizona and forecast 2-3% margin dilution impact for the full year

We expect the impact from overseas fab to grow more pronounced throughout the year as we ramp up further in Kumamoto, and Arizona and forecast, 2% to 3% margin dilution impact for the full year 2025.

Wendell Huang: As we have said before, under today's fragmented globalization environment, overseas facts cost are higher for everyone, including TSMC and all other Semiconductor Manufacturing

Wendell Huang: As we have said before under today's fragmented globalization environment.

Wendell Huang: Overseas Fabs costs are higher for everyone, including T. S N C and all other semiconductor manufacturers.

Wendell Huang: With our additional $100 billion investment plan in Arizona, we forecast the gross margin dilution from the ramp up of our overseas fats in the next five years.

Wendell Huang: With our additional $100 billion investment plan in Arizona, we forecast the gross margin dilution from the ramp up of our overseas shots in the next five years to start from 2% to 3% every year in the early stages and wide into 3% to 4% in the latter.

Wendell Huang: to start from 2% to 3% every year in the early stages and widen to 3% to 4% in the latter state.

Wendell Huang: Stages.

Wendell Huang: We will leverage our increasing size in Arizona and work on our operations to improve the cost structure.

Wendell Huang: We will also continue to work closely with our customers and suppliers to manage the imp-

Wendell Huang: We will also continue to work closely with our customers and suppliers to manage the impact.

Wendell Huang: Overall, with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base.

Overall with our fundamental competitive advantages of manufacturing technology leadership and large scale production base we.

Wendell Huang: We expect ESNC to be the most efficient and cost-effective manufacturer in the region that we are

Wendell Huang: We expect TSMC to be the most efficient and cost effective manufacture in the region that we operate.

Wendell Huang: Thus, even considering our global manufacturing expansion plans, we believe a long-term growth

Thus, even considering our global manufacturing expansion plans, we believe a long term gross margin of 53% and higher is achievable.

Wendell Huang: Okay.

Wendell Huang: Next, let me talk about our 2025 capital budget.

Wendell Huang: Next let me talk about our 2025 capital budget.

Wendell Huang: A TSNC higher level of capital expenditures is always correlated with higher growth opportunities in the following years.

Wendell Huang: At T. S N C a higher level of capital expenditures, it's always correlated with higher growth opportunities in the following years.

Wendell Huang: We reiterate our 2025 capital budget is expected to be between $38.42 billion US dollars as we continue to invest to support customer growth.

Wendell Huang: We reiterate our 2025 capital budget is expected to be between 38, and 42 billion U S dollars as we continue to invest to support customers growth.

Wendell Huang: About 70% of the capital budget will be allocated for events process technology.

Wendell Huang: About 70% of the capital budget will be allocated for advanced process technologies.

Wendell Huang: 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.

Wendell Huang: About 10% to 20% will be spent for specialty technologies and about 10% to 20% will be spent for advanced packaging testing matchmaking and others.

Wendell Huang: Our 2025 K-PACS also includes a small amount related to our recently announced additional $100 billion investment plan to expand our capacity in Arizona.

Wendell Huang: Our 2025 Capex also includes a small amount related to our recently announced additional $100 billion investment plan to expand our capacity in Arizona.

Wendell Huang: Even as we invest for the future growth with this level of KPAC spending in 2025.

Even as we invest for the future growth with this level of Capex spending in 2025, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both an <unk>.

Wendell Huang: We remain committed to delivering profitable growth to our shareholders.

Wendell Huang: We also remain committed to a sustainable and steadily increasing cash dividend brochure on both

Wendell Huang: Annual and quarterly basis.

Wendell Huang: Now let me turn the microphone over to C.C.

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

Speaker Change: Thank you window, good afternoon everyone, first let me start with our near-term demand outlook.

Wendell Huang: Thank you window.

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

Speaker Change: But before that, I would like to mention the earthquake during Lunar New-

Before that I would like to mention the earthquake Doj lunar new year.

Speaker Change: I'm January 21st.

On January 21st.

Speaker Change: I want to experience a 6.4 magnitude earthquake on the Richter scale, followed by several significant

Speaker Change: Wanted to experience a 6.4 magnitude earthquake on the Richter scale, followed by several significant after shocks.

Speaker Change: Although a certain number of wafer in process were impacted and had to be scrapped, we worked tirelessly and were able to recover much of the lost production, demonstrating the resilience of our operation in Taiwan.

Speaker Change: Or a certain number of wafers in porch as war impacted and have to be script, we work tirelessly and were able to recover much of their doorstep production demonstrating the resilience of our operation in Taiwan.

Speaker Change: I want to recognize in deeply sense [inaudible]

Speaker Change: I want to recognize and deeply shows.

Speaker Change: All of our employees and our suppliers for their dedication and hard effort over the new year holiday.

Speaker Change: All of our employees and our suppliers for their dedication and hard effort over the lunar new year holidays.

Speaker Change: I would also like to extend our great appreciation to our customers for their understanding and support during this time. Now,

I would also like to extend our great appreciation to our customers for their understanding and support during this time.

Now let.

Speaker Change: Let me talk about the first quarter as a result. We conclude our first quarter with revenue of US 25.5 billion.

Speaker Change: Let me talk about the fourth quarter as a result, we conclude our fourth quarter with revenue of U S $25 5 billion.

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

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

Speaker Change: Pastry Offset by Continual Growth in AI Related Demand Moving into 2nd quarter of 2025, we expect our business to be supported by strong growth of our sweet nanometer and 5 nanometer

Speaker Change: Partially offset by continued growth in AI related demand moving into second quarter 'twenty to 'twenty five we expand our business to be supported by strong Caruso, our three nanometer and five nanometer technologies.

Speaker Change: Looking at the four-year of 2025, we expect Foundry 2.0 industry goals to be supported by robust AI-related demand and admire the recovery.

Speaker Change: Looking at the full year of 2025, we are spared foundry to all industry cores to be supported by robust AI related demand and a mild recovery in.

Speaker Change: and other areas of the market stock market

Speaker Change: The other years market segment.

Speaker Change: In January , we have forecast a 1002.0 industry to core 10 points.

Speaker Change: In January we had a forecast of foundry to thorough industry to call Kevin points.

Speaker Change: Year over year in 2025

Speaker Change: Year over year in 2025.

Speaker Change: which is consistent with the IDC's forecast of 11% year-over-year course for 2022.

Speaker Change: Which is consistent with the IDC forecast of 11% year over year of course for country to Darryl.

Speaker Change: Now, let me talk about the recent terry.

Speaker Change: Now, let me talk about the rate the recent tariff.

Speaker Change: We understand there are uncertainties and risks from the potential impact of Terrick Paras.

Speaker Change: We understand there are uncertainties and risks from the potential impact of tariff policies. However, we.

Speaker Change: However, we have not seen any change in our customers' behavior so far.

Speaker Change: We have not seen any change in our customers have be heavier so far Joe.

Speaker Change: Therefore, we continue to expect our four-year 2025 revenue to increase by close to mid-20s percent in U.S.

Speaker Change: Therefore, we continue to expand our four year 'twenty 25 revenue to increase by close to mid twenties PGN in U S dollar term.

Speaker Change: We might get a better picture in the next few months, and we will continue to close the monitor the potential impact to the market demand and manage our business prudent.

Speaker Change: We might get a better picture in the next few months.

Speaker Change: We will continue to closely monitor the potential impact to the end market demand and manage our business prudently.

Speaker Change: Unmeasured uncertainties, we continue to focus on fundamentals of our business.

Speaker Change: And Mr. Uncertainties, we continue to focus on fundamentals of our business, which our technology leadership.

Speaker Change: Krish Sankar, Technology Leadership, Manufacturing Excellence, and Customer?

Speaker Change: Manufacturing excellence and customer trust.

Speaker Change: To further strengthen our competitive position.

Speaker Change: As such, we are confident TSMC can continue outperform the fundraisers 2.0 industry goals in 2025.

Speaker Change: As such we are confident TSMC can continue outperform the foundry to Dara all industry of course in 2025.

Speaker Change: Now I will talk about our AI demand outlook. We continue to observe robust AI-related demands from our customers throughout 2025.

Speaker Change: Now I will talk about our AI demand outlook, we continue to observe robust the AI related demand from our customers throughout 2025.

Speaker Change: We reaffirm our revenue from AI accelerators to double in 2025.

Speaker Change: The AI accelerators we define as AI GPU, AIHIC, and the HPM controllers for AI training and inferrency in the data chain.

Speaker Change: The AI accelerators, we define.

Speaker Change: Ai's GPU AI ASIC and the H P M controllers for AI training and inferencing in the data center.

Speaker Change: Based on our customer's strong demand, we are also working hard to double our cold worst capacity in 2025 to support their needs.

Speaker Change: Based on our customers' strong demand. We are also working hard to double our coal was capacity in 2025 to support of journeys <unk>.

Speaker Change: Recent developments are also positive to AI's long-term demand outlook.

Speaker Change: Recent developments are also posture to AI as a long term demand outlook.

Speaker Change: In all, the settlement

Speaker Change: In our assessment.

Speaker Change: The improved AI-reasoning models, including deep-six, will drive greater efficiency and help lower the barrier to future AI developments.

Speaker Change: The impaired form AI recently mode.

Speaker Change: Orders included gift Zig, while driving greater efficiencies and help lower the barrier to full two future development.

Speaker Change: This was due to wider usage and greater adoption of AI models which all require use of leading

Speaker Change: This would lead to wider usage and greater adoption of AI models, which all require use of leading edge silicon.

Speaker Change: These developments are reserved to strengthen our conviction in the long-term course activities from the Industry Maker Trend of 5G, AI and HP.

Speaker Change: These developments only served to strengthen our conviction in the long term course opportunities from the industry Mega trend of five G and.

Speaker Change: And HPE.

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

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

Speaker Change: DSMC employs a disciplined and robust capacity planning system.

Speaker Change: <unk> employed a disciplined annual Roth capacity plenty system.

Speaker Change: This is especially important when we have such high-focused state demand for air-related

Speaker Change: This is especially important when we have such high forecasted demand from AI related business.

Speaker Change: Certainly, we work closely with our customers and our customers, our customers to pay our

Speaker Change: Externally, we work closely with our customers and our customers our customer two panel capacity.

Speaker Change: Internally, our planning system involves multiple teams across several functions to assess and evaluate the market demand, from both a top-down and bottom-up approach to determine the appropriate capacity bill.

Speaker Change: Internally, our pending system in both Marty for teams across several functions to assess and evaluate the market demand from both a top down and bottom up approach to determining the appropriate capacity build.

Speaker Change: Based on our planning framework, we are confident that our revenue growth from AI accelerators will approach a minimum of 40% in the next 5 years period starting from 2020.

Speaker Change: Based on our planning framework.

Speaker Change: We are confident that our revenue growth from AI accelerators, while approach.

Speaker Change: Mid forties percentage CAGR for the next five years period, starting from 'twenty 'twenty four.

Speaker Change: Next, let me talk about the TSMC's additional US 100 billion investment plan to expand in

Speaker Change: Next let me talk about Tsmc's.

Speaker Change: As you know U S 100 billion investment plan to expand in Arizona.

Speaker Change: All our overseas decisions are based on our customers' need. They value some geographic flexibility and necessary level of...

Speaker Change: Oh, our overseas decisions are based on our customers or need do you where do you some.

Speaker Change: Geographic flexibility and necessary Debra.

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

Speaker Change: Government support this is also to maximize the value for our shareholders.

Speaker Change: with the strong collaboration and support from our leading U.S. customers.

Speaker Change: With a strong collaboration and support from our leading U S customers in the U S Federal State and city government.

Speaker Change: and the U.S. Federal, State and City Government who recently announced our intention to invest an additional U.S. 100 billion dollars in advanced semiconductor manufacturing in the United

Speaker Change: Recently announced our intention to invest an additional USD 100 billion Dara in the revised semiconductor manufacturing in the United States.

Speaker Change: This expansion includes plans for three additional wafer manufacturing files.

Speaker Change: This expansion in cruise planes for three additional wafer manufacturing fast too.

Speaker Change: Two advice packaging facts and a major rendition.

Speaker Change: <unk> advises packaging Fabs and our major R&D Center.

Speaker Change: Combined with our previous announced plan to build a three-advised semiconductor manufacturing plant in Arizona, this brings our total investment in the US to US 165 billion to support the strong multi-years demand from our customers.

Speaker Change: Combined with our previously announced plan to build a suite of advanced semiconductor manufacturing fab in Arizona. Each brings our total investment in the U S to U S 165 billion to support the strong multi years demand from our customers.

Speaker Change: Our first web in Arizona has already successfully entered high-volume production in 4Q24, utilizing info process technology with a yield comparable to our 5 in Taiwan.

Speaker Change: Our first for having a reload.

Speaker Change: As already successfully into high volume production for Q2 for utilizing info process technology with a yield comparable to our fab in Taiwan.

Speaker Change: the construction of our second fire, which will utilize the three nanometer process technology.

Speaker Change: The construction of our second fire, which why utilizes three nanometer process technology.

Speaker Change: is already complete and we are working on speeding up the voting production schedule based on the strong air-related demand from our customers.

Speaker Change: Is already complete and we are working on speeding up the volume production schedule based on the strong AI related demand from our customers.

Speaker Change: Our third and fourth web were utilized into an H-16 process technology.

Speaker Change: Our third and fourth fab wide utilized into an ASIC team process technologies.

Speaker Change: Then with the expectation of receiving all the necessary permits

Speaker Change: And with the expectation of receiving all the necessary permits.

Speaker Change: Askejo to begin construction later this...

Speaker Change: Our scheduled to begin construction data this year.

Speaker Change: Our fits in 6.5 YUs even more advanced technology.

Speaker Change: Our fifth and sixth fab wide use even more a revised technologies.

Speaker Change: The construction and REM schedule for this February will be based on our customers' sentiments.

Speaker Change: The construction and ramp schedule for this fab, what we based on our customers' demand.

Speaker Change: We also plan to build two new advanced packaging facilities and establish an R&D Center in Arizona to complete.

Speaker Change: We also plan to build two new a revised packaging facilities and as average.

Speaker Change: R&D center in Arizona to compete.

Speaker Change: The E.I. Suppression

Speaker Change: The AI suppression.

Speaker Change: Our expansion plan why a Naval TSM-Situ scale-up

Speaker Change: Our expansion plan why enable TSMC to scale.

Speaker Change: Two of Giga Giga fab cluster to support the lease of our leading edge customers you smartphone.

Speaker Change: to support the needs of our leading-age customers in smartphone, AI, and HPC applications.

Speaker Change: <unk> and SPG applications.

Speaker Change: with this additional U.S. want to build an investment plan to expand our leading edge capacity in Arizona.

Speaker Change: With this additional U S. One 2 billion investment plan to expand our leading edge capacity in Arizona.

Speaker Change: I would also like to mention that TSMC is not engaged in any discussion with other companies regarding any joint venture, technology licensing or technology transfer industry.

Speaker Change: I would also like to mention that TSMC is not engaged in any discussions with other companies regarding any joint venture technology licensing or technology transfer and the sharing.

Speaker Change: After completion, around 30% of our two nanometers and more advanced capacity were being located in Arizona, creating an independent leading-edge semiconductor manufacturing cluster in the U.S.

After completion of around 30% of our two nanometer and more advanced capacity will be located in Arizona, creating an independent leading edge semiconductor manufacturing cluster in the U S.

Speaker Change: He will also create great economies of scale, and he will foster a more complex semiconductor supply chain ecosystem in the US.

Speaker Change: It will also create a greater economies of scale.

Speaker Change: He will foster a more completion conductor supply chain ecosystem in the U S.

Speaker Change: The TSMCW are continuing to play a critical and integral role in enabling our customers success.

Speaker Change: TSMC will continue to play a critical.

Speaker Change: <unk> integral role in a number in our customer's success.

Speaker Change: while remaining a key partner in Annabelle, or the strength and leadership of the US Semiconductor

Speaker Change: While remaining a key partner in every order strength and leadership of the U S semiconductor industry.

Speaker Change: Next, in Japan, Shenzhu, the strong support from the Japan Central, Prefecture and local government, our first specialty technology fab in Kumamoto has already started voting production.

Speaker Change: Next in Japan.

Speaker Change: Thanks to the strong support from the Japan Central Prefecture, and local government. Our first specialty technology fab in Kumamoto has already started volume production in late 'twenty, 'twenty, four which we're equally U.

Speaker Change: Everything has been going very smoothly since 2024.

Speaker Change: The construction of our second spatial debate is scheduled to start a day to this year, subject to the readiness of the local infrastructure.

The construction of our second specialty fab is scheduled to start later this year subject to the readiness of the local infrastructure.

Speaker Change: In Europe , we have received strong commitment from the European Commission and the German Federal State and the City Government. We are on track with our pen to build a specialty technology

Speaker Change: In Europe, we have received strong commitment from the European Commission and the German Federal State and city government. We are on track with our plan to build a specialty technology fab in Dresden, Germany.

Speaker Change: In Taiwan, we support from the Taiwan government, we plan to build 11 Weaver Manufacturing Fabs, and four advanced packaging facilities over the next several years.

Speaker Change: In Taiwan, we support of of the Taiwan government, we plan to build 11 waiver manufactured in fab.

Speaker Change: For advanced packaging facility over the next several years.

Speaker Change: What the production of N2 is expected to start in 2nd half, 2035, and we are preparing for multiple phases of two nanometer vests in both Xin Zhu and Kaohsiung Science Park.

Speaker Change: More importantly into is expect to starting in second half 'twenty to 'twenty four I and we are preparing for multiple phases of two nanometer fabs impulse into it.

Speaker Change: The Gaussian science parks to support the strong structural demand from our customers.

Speaker Change: to support the strong structuring demand from our customers.

Speaker Change: By expanding our global footprint while continuing investment in Taiwan, TSMC can continue to be the trusted technology and capacity provider of the global IT industry for years to come, while delivering profitable goods for our shareholders

By expanding our global footprint, we're continually investment in Taiwan, TSMC can continue to be the trusted technology and.

Speaker Change: Capacity provider of that out of the global logic IC industry for years to come well.

Speaker Change: While delivering profitable growth for our shareholder.

Speaker Change: Finally, I'll talk about our N2 status and A16 introduction.

Speaker Change: Finally, our Taco bar are into stages and a 16 introduction.

Speaker Change: Two nanometry and A16 technology leads the industry in alteration the insensible, needful energy efficient computing, and almost the innovators.

Speaker Change: Two nano reentry and a 16 technology leads the industry inauguration, the insatiable need for energy efficient computing and almost the innovators.

Speaker Change: Almost all the innovators are working with

Speaker Change: Almost all the innovators are walking with us.

Speaker Change: We expect a number of new tables for two nanometer technology in the first two years to be higher than both three nanometers, five nanometers in the first two years, fueled by both smartphone

Speaker Change: We expect a number of new tape out for two nanometer technology first two years to be hired imposed three nanometer.

Speaker Change: It'll be five nanometer in Gale force two years fueled by both smartphone and <unk> applications.

Speaker Change: End to what deliver four known performance and power benefits, which 10-15% speed improvement at the same power, or 20-30% power improvement at the same speed, and more than 15% speed density increase as compared with N3E.

Speaker Change: Into what deliver for known performance and power benefits, which tend to 15% speed improvement.

Speaker Change: Power or 20 to 30 presume power improvement at the same speed and more than 15% keep density increase as compared with <unk>.

Speaker Change: N2 is a well-armed track for voting production in 2nd half of 2025, scheduled with a rainfall of a similar 2N3. Without strategy of continuous enhancement, we also introduce N2P.

Speaker Change: <unk> is a we're on track for volume production in the second half of 2025 are scheduled with a ramp profile similar to years three with.

Speaker Change: With our strategy of continuous enhancement, we also introduced two P.

Speaker Change: as an extension of N2 family, N2P features further performance and power benefits on top of N2 and volume production in schedule for 2nd, 2020.

Speaker Change: As an extension of into family and two P features further performance and power benefits on top of into volume production is scheduled for second half 2020 ships.

Speaker Change: We also introduce a 16 feature in Super Power Rail or SBR as a separate offer.

We also introduced <unk>, featuring superpower rail or SPR as a separate offering.

Speaker Change: Compile with N2P, A16 provides a further 8-10% speed improvement at the same power, or 15-20% power improvement at the same speed, and additional 7-10% chip density gain.

Speaker Change: Compared with the end to P. H <unk> heme provides a further 8% to 10% speed improvement at the same power a 15% to 20% power improvement at the same speed and the addition of 7% to 10% chip density gain.

Speaker Change: A section is best suited for specific HPC products with complex signal routes and dance power delivery network, more in production schedule for second half 2020.

Speaker Change: <unk> 16 is best suited for specific HPE, she pulled out with company signaled route and tails power delivery and work more in production schedule for second half 2020 shares.

Speaker Change: We believe N2, N2P, N16, and its derivatives will afford to extend our technology leadership position and over TSMC to capture the course of opportunities

Speaker Change: We believe into into P 816, and he.

Speaker Change: Is derivatives will further extend our technology leadership position.

Speaker Change: <unk> TSMC to capture the growth opportunities well into the future.

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

Speaker Change: This concludes our key measure and 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 it at a time, to allow all the participants an opportunity to ask their questions.

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

Speaker Change: For those of you on the call, if you would like to ask a question.

Speaker Change: For those those of you on the call if you'd like to ask a question.

Speaker Change: Please press the start and one on your telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star two.

Speaker Change: Please press the Star then one on your telephone keypad now if at any time you'd like to remove yourself from the questioning queue. Please press star two.

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

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

Speaker Change: Yeah.

Speaker Change: The first one to ask questions, Gokul Hariharan, from Jackie Morgan.

Speaker Change: The first one to ask a question. So how do you how long from J P. Morgan.

Speaker Change: Yeah.

Speaker Change: Thank you very much. Good afternoon. And first of all, thanks for clearing the air on all those JV-related news reports. I think a lot of people needed that. Thank you. My first question is on AI demand. So CC, there has been a lot of talks about COVOS, order adjustments and some concerns about AI demand. You did about COVOS capacity doubling. Could you talk a little bit about how you see demand versus supply? I think last time we talked about this, you did indicate COVOS demand is still well about supply. Could you talk a little bit about how the situation is looking for COVOS demand versus supply this year? And maybe a little bit of early color or 2020 takes also a few plans for the for the capacity.

Speaker Change: Thank you very much good afternoon, and first of all thanks for clearing the add on all this JV related.

Speaker Change: New supports I think a lot of people need at that thank you.

Speaker Change: My first question is on AI demand.

Speaker Change: There has been lot of.

Speaker Change: Talks about cobalt or that have just been some concerns about demand.

Speaker Change: Yeah.

Speaker Change: <unk>.

Speaker Change: Gold was capacity doubling could you talk a little bit about how you see demand, but the supply I think last time, we talk about this you.

Speaker Change: You did indicate that demand is still available supply could you talk a little bit about how the situation is looking.

Speaker Change: Demand, but the supply.

Speaker Change: And maybe a little bit of early colored arent going to Olympics also as you plan for the capacity.

Speaker Change: All right. Thank you, Gokul. For everyone's benefit, let me try to summarize your first question. So again, Gokul's first question is on the AI-related demand. He notes, there's been a lot of noise around Kowas and order cuts and such. So he would like to ask CC, you know, what is the thinking or strategy for TSMC Kowas still doubling this year? Is the demand still exceeding the supply and how is the Kowas capacity and supply or supply and demand? I should say look like going into 26 sets is able to provide any color.

Speaker Change: Alright. Thank you go call for everyone's benefit let me try to summarize your first question. So again Cocos first question is on the AI related demand. He notes, there's been a lot of noise around co Los and orbit order cuts and such so he would like to RCC. You know what is the thinking or strategy for TSMC Cobalts steel.

Speaker Change: Doubling this year is the demand is still exceeding the supply.

Speaker Change: And how is the cost capacity and supply or supply and demand and I should say look like going into 'twenty six axis is able to provide any color.

Speaker Change: Okay, Gokul, I know there's another rumors about the cohorts, the last time when we talked about the cohorts [inaudible]

Speaker Change: Okay Goku.

Speaker Change: I know, there's a lot of rumors about of course.

Speaker Change: The last time, we talked to about the cohort.

Speaker Change: The demand is almost insane and much higher than we can prepare.

Speaker Change: The demand is almost insane and much much higher than we can prepare.

Speaker Change: and now it's a little bit better. I think still we need to build a lot of capacity to meet the demand. As I said, we have to double our course capacity, still fully loaded and

Speaker Change: And now he said it'll be better I think steel.

Speaker Change: We need to build a lot of capacity to meet the demand as I said, we'll have to double our <unk> capacity.

Speaker Change: Skill a fully loaded and.

Speaker Change: For 20-20 years, I cannot say the number but still a hearsay momentum or we continue.

Speaker Change: For 2026, I cannot say the number of bodies still are here see momentum won't be continued.

Speaker Change: Okay, did that answer your question?

Speaker Change: Okay.

Speaker Change: For your question.

Speaker Change: Do you still think 2026 is going to be applied limited still but demand is still going to be much more than supply even in 2026 is that your current expectations we see?

Speaker Change: And do you still think you need 26 is going to be.

Speaker Change: <unk> limited still the demand is still going to be much more than supply even in 'twenty is that.

Speaker Change: Our current expectation BC sows Cocos, asking then do we still see demand exceeding supply for <unk> in 2026.

Speaker Change: Well, I work very hard to make sure that we don't have this kind of demand. It's much, much higher than the capacity. We're working very hard, and I believe that it will be more balanced next year.

Speaker Change: Well.

Speaker Change: Ooh all work very hard to make sure that we don't have this kind of.

Speaker Change: The mine is a much much higher than the capacity, we're working very hard and I believe that you won't be more balanced.

Speaker Change: Next year.

Speaker Change: My second question is about investment in the United States and these ongoing rumors about the sacrifices of your competitors, etc. You have interacted with the U.S. government. The U.S. government also made a big announcement at the White House in recent months. From the perspective of American customers, I think Wendell also pointed out that we are in the process of further development. So can you talk about the value of your supply chain to customers in this growth? Can it be improved? Thank you. Okay, Goku's second question is a bit involved, but he is asking about a lot of talk regarding our recent announcement of a $10 billion increase in the U.S. Again, this involves competitors. CC is talking to the U.S. government, and there is a potential semiconductor supply chain. So his question is, from TSMC's perspective, do we think the U.S. needs more supply chain? Can we share from the U.S. government's perspective, or more directly, what our customers are asking us to do? That's the first part. The second part, maybe Wendell can explain.

Speaker Change: Thank you my second question is.

Speaker Change: On the U S investment and all this.

Speaker Change: Persistent.

Speaker Change: A little more about the environment and your competitor operations et cetera.

Speaker Change: You have interacted with the U S government the new administrations for the last several months and big.

Speaker Change: Big announcement.

Speaker Change: And that might help us out just wanted to understand.

Speaker Change: What.

Speaker Change: Well, what if the S&P that kind of.

Speaker Change: Jim.

Speaker Change: Impression in terms of what is required.

Speaker Change: There is also the semiconductor.

Speaker Change: Got it.

Speaker Change: What is equally impression of what is required over the next two or three years in terms of ensuring of capacity.

Speaker Change: Awesome.

Speaker Change: U S administration perspective also from <unk>.

Speaker Change: Your U S customers perspective, and I also think middle also.

Speaker Change: To get into the margin dilution, maybe slightly bigger.

Speaker Change: As we go along.

So could you talk a little bit about how much of the <unk> pass onto the customers as the expansion a little bit.

Speaker Change: More acute right.

Speaker Change: Okay. So <unk> second question.

Speaker Change: It's a bit involved but he is asking about.

Speaker Change: Again, a lot of talk about our.

Speaker Change: Our recent announcement for an additional 100 billion expansion in the U S. A.

Speaker Change: Then talk about this involved we and our competitors see.

It has been speaking to the U S government.

Speaker Change: There is still potential semiconductor tariff. So his question is really from Tsmc's point of view, what do we think is required for more onshoring in the U S.

Speaker Change: Can we share the perspective from the U S government or more directly what our customers are asking us to do in terms of reassuring. That's the first part and the second part will maybe Wendell can address on the margin.

Speaker Change: Okay.

Speaker Change: Really.

Speaker Change: Okay, I thought that's a very long, long question. Let me answer that.

Speaker Change: Okay. I saw there is that's a very long long question.

Let me answer that yes, we did we have talked with our U S government officials.

Speaker Change: Yes, indeed we have talked with US government officials.

Speaker Change: Subtitles provided by the Amara.org community

Speaker Change: And.

Speaker Change: The reason we are spending in Arizona, actually, let me say again, it's all because of our customers' request.

Speaker Change: The reason we are spending a result actually let me say it again.

Speaker Change: It's all because of our customers.

Speaker Change: Request.

Speaker Change: and that because of their very high, high demands.

Speaker Change: Is that because of their very high high demands.

Speaker Change:

Speaker Change: I announced it to in other occasions that a very strong AI demand from U.S. customers such as Apple,

Speaker Change: I announced that it too in other locations.

Speaker Change: Very strongly at demand.

Speaker Change: U S customers, such as our April <unk>, Qualcomm and Broadcom.

Speaker Change: and so that we need to expand our capacity in the U.S. and to support it.

Speaker Change: And so then we need to expand our capacity in the U S and to support them.

Speaker Change: We talked with the U.S. government to ask for their help in getting the necessary permits so we can start the fair.

Speaker Change: We talked with our U S government and to ask for your help.

Speaker Change: And getting the necessary permit so we can start off air.

Speaker Change: And as a result, I would expect...

Speaker Change: And.

Speaker Change: As a result, I would expect.

Speaker Change: Out 2 nanometers of capacity, around 30% want to be in Arizona.

Speaker Change: Our two nanometers capacity.

Speaker Change: Around 30% <unk> got Resona.

Speaker Change: and that will be also a independent-

Speaker Change: And that what we also are independent.

Speaker Change: leading at Semiconductor Manufacturing Co Ltd. Okay.

Speaker Change: Leading edge semiconductor manufacturing cluster.

Speaker Change: Okay.

Speaker Change: And then, Gokul, the second part of your question is related to then, sorry, Wendell had mentioned that the margin may widen, so Gokul's second part of the question, I think, was related to pricing.

Speaker Change: And then go through the second part of your question is related to then when sorry window had mentioned that the margin.

Speaker Change: Margin may widen so scope or second part of the question I think was related.

Speaker Change: Two pricing.

Speaker Change: and what is our strategy or approach here as we expand.

Speaker Change: And what is our strategy our approach here as we expand overseas.

Speaker Change: Is that correct?

Speaker Change: Is that correct.

Speaker Change: Yeah, that's right. Yeah.

Speaker Change: Yes, that's right yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Hey Gokul Um

Speaker Change: Goku.

Speaker Change: You're asking about the pricing. As we always said, reflecting our value is a continuous and ongoing process for TSMC, as we're in a very capital intensive business. So we need to have a very high gross margin to earn the sustainable and healthy return. And that is why we set up our pricing strategy.

Speaker Change: Youre asking about the pricing as we always said, reflecting our value is a continuous and ongoing process for TSMC.

Speaker Change: We're in a very capital intensive business. So we need to have a very high gross margin to earn the sustainable and healthy return and that is why we set up our pricing strategy do.

Speaker Change: Geographic Manufacturing Flexibility is an important part of our value proposition to the cost.

Speaker Change: Geographic manufacturing flexibility is an important part of our value proposition to the customers. We are already discussing this with our major customers.

Speaker Change: We are already discussing this with our major customers and the progress is so far so good.

Speaker Change: And the progress is so far so good.

Speaker Change: Okay, Gokul

Speaker Change: Okay cocoa.

Speaker Change: Okay, understood. Thank you. All right. Thank you. Operator, can we move on to the next participant.

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

Speaker Change: The next question, Bruce Liu from Goldman Sachs. Please ask a question. Thank you for taking my question. I think the geopolitical risk, microconference, is one of the major uncertainties. You know, the last two days we have, like, you know, H-20 being banned in China, blah, blah. So, how does that impact to TSMC focus and production planning? Do we have enough other customers and demand to keep our advanced node capacity fully utilized? Or how does that change our long-term production planning moving forward?

Speaker Change: The next to ask question Bruce Lu from Goldman Sachs. Please ask your question.

Speaker Change: Okay.

Speaker Change: For taking my question I think the geopolitical risks micro conference.

Speaker Change: One of the major uncertainty nowadays last two days, we have like H 'twenty being banned in China.

Speaker Change: So how does that impact to TSMC forecasts and production planning right do we have enough other customer and demand to keep our advanced node capacity fully utilize or how does that change our long term.

Speaker Change: Production planning moving forward.

Speaker Change: Okay, Bruce. Thank you. Your first question is related. He's talking about due to political risk or I guess some of the recent rules and announcements because specifically the ban on each 20. So his question is how does this impact PSNC's business, how does this impact our capacity planning and our strategy?

Speaker Change: Bruce. Thank you. Your first question is related he's talking about geopolitical risk or I guess some of the recent rules and announcements specifically the ban on each 20.

Speaker Change: Question is how does this impact here since each business how does this impact.

Speaker Change: You know our capacity planning and.

Speaker Change: Our strategies.

Speaker Change: Bruce, let me answer this question. Of course, we do not come in a specific customer's product, but let me assure you that we have taken this into consideration when providing our four years of course outlook.

Speaker Change: Bruce Let me answer this question.

What we will do not.

Speaker Change: Come in on specific customers or product, but let me assure you that we have taken this into consideration when providing our four years quarter outlook.

Speaker Change: Yeah.

Speaker Change: Did I.

Speaker Change: Enter the question.

Speaker Change: In terms of the question.

Speaker Change: Yes, but I want a little bit more about like, you know, I'm sure you guys did a lot of sensitive analysis like what kind of impact it's gonna be, or can you show us like how much, you know, baffle we got, like you assume, like, you know, how comfortable we have to maintain our current composite training, moving forward, or current utilization right now

Speaker Change: [laughter], yes, but I want a little bit more volatile like you know.

Speaker Change: You know I'm sure you guys did a lot of sensitivity analysis, what kind of impacts copy or.

Speaker Change: Can you show us like how much buffer we got that you've assumed we'd like how comfortable you have to maintain our current composite planning a morning.

Bruce Lu: For our current U K right now okay. So Bruce is asking.

Bruce Lu: So Bruce is asking for some more color in terms of what type of buffer or what type of room we have in making our decisions for the long-term capacity planning

Bruce Lu: For some more color in terms of you know what type of buffer or what type of a room, we have in making our decisions for the long term capacity planning.

Bruce Lu: Well, actually, we know a lot of people right now speculate a lot of things, but again, we certainly we are mindful of the potential impact from all the recent tariffs announcement, especially the potential impact to the end market demand. Well, continue to watch your careful.

Bruce Lu: Well actually we know a lot of people right now.

Bruce Lu: You read a lot of things, but again, we certainly we are mindful of the potential impact.

Bruce Lu: Or the recent tariff announcements at <unk>.

Bruce Lu: Specialty is a potential impact to the end market demand will continue to watch it carefully.

Bruce Lu:

Bruce Lu: Haven't said that we have not seen any change in our customers' behavior so far.

Bruce Lu: Having said that we have not seen any change in our customers' behavior. So far.

Bruce Lu: and so we seek an hour for caution.

Bruce Lu: And so we stick on our forecast.

Bruce Lu: Yeah.

Bruce Lu: I see. Thank you. Let me switch here to a little bit for the non-US capacity extension. I think, yes, as we understand that the current capacity you've had children from mature and old is underutilized, right? Do we consider to slow down the capacity extension in Japan or Europe or just relocate the current equipment from Taiwan to, you know, Japan or Europe instead of building the new one? You know, we don't want... Why do we want to explain? We've expanded the capacity for the material, which, you know, management will mention as a oversupply industry, though, you know, if we relocate them, we can squeeze more space, clean room in Taiwan for more events, note.

Bruce Lu: I see thank you.

Bruce Lu: Let me switch gear to the allotted for a non.

Bruce Lu: Non U S capacity expansion I think yes.

Bruce Lu: As we as we understand that the current capacity are you guys trying to have a mature node is underutilized right two.

Bruce Lu: Two we consider to slow down the capacity expansion in Japan, or Europe, or just relocate the current equipment from Taiwan to Japan, or Europe, instead of building that mirror what we.

Bruce Lu: We don't want to why do we want to expand the capacity for the mature now, which you know manage have already mentioned is the oversupply industry. Though you know we don't care that we can squeeze more space clean room in Taiwan for more advanced.

Bruce Lu: Nope.

Speaker Change: Okay, so Bruce's second question is around mature node and our expansion into Europe and Japan. His question really is given that the capacity of mature node and 7 nanometer underutilized, number one, are we concerning to slow down our expansions in these places? And then number two, would we consider using current, relocate equipment from Taiwan to overseas, rather than just the pure new expansion or greenfield expansion?

Speaker Change: Okay. So Bruce as a second question is around mature node and our expansion into Europe and Japan.

Speaker Change: His question really is given that the capacity of mature node seven nanometer under utilized.

Speaker Change: Number one always concerning to slow down our expansion in these places and then number two would we consider using our current.

Speaker Change: Relocate equipment from Taiwan to overseas, rather than just the pure new expansion or a greenfield expansion.

Bruce.

Speaker Change: Let me answer the first part of the question. Are we considering throwing down the answers? No. We are executing our plan as scheduled. The reason is very simple because of this kind of material node. It's a specialty technology that demand which might compete at the end.

Speaker Change: Let me answer the first part of your question are we considering slowing down the answer is no. We are execute our plan as scheduled the reason is very simple because of.

Speaker Change: These kind of.

Speaker Change: Mature node is a specialty care.

Speaker Change: Technologies that demand, which my competitor did not.

Speaker Change: have a capacity award.

Speaker Change: Have a capacity or.

Speaker Change: Capability to Support

Speaker Change: Capability to support.

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

Speaker Change: So it is.

Speaker Change: Cutting off a free format, you are mentioning the underloging of the mature now.

Speaker Change: Kind of a free for mud.

Speaker Change: You have mentioned the under loading of the mature node.

Speaker Change: And so, again, I would emphasize, no, we are not going to slow down our-

Speaker Change: So again I would emphasize no we are not going to slow down our.

Speaker Change: Pin.

Speaker Change: In <unk>.

Speaker Change: Japan was in Germany.

Speaker Change: Japan, one in Germany.

Speaker Change: Germany.

Speaker Change: Uh huh.

Speaker Change: The second question is, how to do it? You have a good idea about the TSMC's confidential information,

Speaker Change: Second question is how to do it do you have a good good idea about is TSMC is the comprehensive information I'll, let you know data.

Speaker Change: Okay, thank you. Alright, thanks, Bruce. Operator, can we move on to the next participant?

Speaker Change: Okay. Thank you.

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

Charlie Chan: Now the line is open to Charlie Chan, Morgan Family.

Charlie Chan: Now the line is open to Charlie Chan Morgan Stanley.

Charlie Chan: Hi, ladies and gentlemen, thank you for accepting my interview. The first question I want to ask is about the semiconductor trade agreement between Taiwan and TSMC. I want to ask first, is TSMC involved in the trade agreement between the Taiwanese government and the U.S. government? Additionally, can TSMC's $16.5 billion trade agreement be reimbursed in the semiconductor trade agreement? Because in your previous comments, you only focused on the impact of the trade agreement, but I think global investors are also concerned about the semiconductor trade agreement. Please give us some insight, thank you. Let me summarize your first question, Charlie. Charlie's first question is about the semiconductor trade agreement. He wants to know our views on Taiwan's semiconductor trade agreement or the semiconductor trade agreement. His question is whether TSMC is involved in the trade agreement between the Taiwanese government and the U.S. government.

Charlie Chan: Hi, good afternoon, gentlemen, thanks for taking my question so.

Charlie Chan: My first question is really a very specific on the.

Charlie Chan: Semiconductor tariff either.

Charlie Chan: Taiwan TSMC is leading edge so.

Charlie Chan: I'm wondering first of all.

Charlie Chan: So TSMC getting involved in the tariff negotiation between.

Charlie Chan: Taiwan government and the U S government and secondly, do you believe that your come even if 165.

Charlie Chan: Obviously investments can get a spare and leased a semiconductor tariff because in your previous comment you said it was too.

Speaker Change: The only concern about the Caribbean Paydown caution protecting man, but I think.

Speaker Change: Global investors are also very confident about additional tariffs Andy says semiconductor category can you give us some color. Thank you. Okay. Let me summarize your question first question Charlie Surcharges first question is on semiconductor tariffs. He wants to know what is our comment.

Speaker Change: Our view on potential terrorists on Taiwan, reciprocal terrorists or semiconductor specific terrorists. His question specifically is TSMC get involved in negotiations between the Taiwan government and the U S government.

Speaker Change: Charlie, this kind of a terrible discussion is between countries.

Speaker Change: Charlie.

Speaker Change: This kind of a tariff discussion is between countries.

Speaker Change: We are a private company [inaudible]

Speaker Change: We are a private company certainly not we are not getting involved.

Speaker Change: Certainly, no, we are not getting more [inaudible]

Speaker Change: Okay.

Speaker Change: Yeah, so actually, do you have any visibility that Semiconductor's specific tariffs can be exempt?

Speaker Change: Well, yes, it's actually do you have any visibility that.

Speaker Change: So any kind of specific tariff can be exempt.

Speaker Change:

Speaker Change: So, Charlie, that's it.

Speaker Change: So Charles.

Speaker Change: That's it.

Charlie Chan: Sorry, Charlie. I think your question was with our total investment of 165 billion US dollars in Arizona. Do we believe the CSMC believe Semiconductors will be exempt from these tariffs? Yes.

Charlie Chan: Sorry, Charlie I think your question was with our a total investment of 165 billion U S dollars in Arizona due we believe does TSMC believes semiconductors will be exempt from these tariffs yes.

Speaker Change: It's Charlie.

Speaker Change: Sorry.

Speaker Change: Uh, all policy

Speaker Change: All policy, especially these tariff decision our governments have responsibility to decide.

Speaker Change: especially this terrible decision, governments have responsibility to decide and

Speaker Change: And.

Speaker Change: As a private company, we are fully respectful of the...

Speaker Change: As a private company we are fully respect of all of these.

Speaker Change: But we are not getting there.

Speaker Change: But we are not getting bored.

Speaker Change: Okay, I think your answer is reasonable, but let's address the second question. According to your second-quarter guidance, there is a 13% drop in stock price, which I can't imagine would be the reason for the stock price drop, or the market demand. Also, according to your fourth-quarter guidance, a 20% drop in stock price, the recovery in the second quarter seems to be very mild. So I wonder if you have already considered the impact of market demand. If the stock price drops, for example, some large smartphone brands, would you have the opportunity to revise your stock price guidance? Thank you. Okay, so Charlie's second question is about the stock price, and the first part is about the second quarter. He noticed that the 13% drop in stock price in the middle of the dollar range in the second quarter is very strong, so he wonders if we have already seen some impact of the stock price drop, or if this part of the guidance. I'll pause here.

Okay got you I think you are to moderate vector.

Speaker Change: Let's move on to.

Speaker Change: My second question so based on your second.

Speaker Change: Second quarter.

Speaker Change: Guidance I was just very strong up 13%.

Current quarter I can't help to think of where there are customers, who even given a tariff or is there kind of real demand and also based on your full year guidance, so called the mid 20%.

Speaker Change: It's like a second half recovery will be very very gradual or flattish.

Speaker Change: So I'm wondering if you're already baking cause there.

Speaker Change: Consumer demand impact.

And if a tariff is some kind of turnaround right.

Speaker Change: Semi temperature and.

Speaker Change: For example, a major smartphone brands.

Speaker Change: There's a chance for you to revise up your full year revenue guidance. Thank you.

Speaker Change: Okay. So Charlie second question is on the revenue outlook is first part is on the second quarter. He notes second quarter, 13% at the midpoint of U S. Dollar terms Q on Q is very strong. So he wonders is this are we seen already some terrorists Pauline impact or just part of that guidance I'll stop here.

Speaker Change: Charlie, as we said in the prepared remarks, we haven't seen any changes in customer's behavior so far. Our second quarter growth is driven mainly by strong demand for the three nanometer and five nanometer technologies, underpinned by the growth in our HPC practice.

Speaker Change: Yeah Charlie.

Speaker Change: As a as we said in the prepared remarks, we haven't seen any changes in customers' behavior. So far our second quarter growth is driven mainly by strong demand for the three nanometer and five nanometer technologies underpinned by the growth in our H P C platform.

Speaker Change: Hi.

Speaker Change: Uh huh.

Speaker Change: As I said, we haven't seen any observe, any changes in customer behavior in terms of pooling or due to tariffs, you probably better do ask them.

Speaker Change: As I said, we haven't seen any observe any changes in customer behavior.

Speaker Change: In terms of pulling oil due to carriers terrorists.

Speaker Change: Probably better to ask them directly.

Charlie Chan: And the second part, then Charlie is asking about with the second quarter guidance implies a limited half on half growth. So is that also because we are assuming something from a tariff impact to consumer demand

Charlie Chan: And the second part then Charlie was asking about with the second quarter guidance implies US you know limited half on half growth. So is that also because we are assuming something from a tariff impact to consumer demand or why is that.

Charles: Charlie, as we also said in the PREPARE remarks, there are uncertainties and potential risks from terrorists exist. So far, that's what we are able to share with you is we stick to the mid-20 or close to mid-20% year-over-year growth.

Charles: Hey, Charles.

Charles: As we also said in the prepared remarks, there are uncertainties and potential risks from terrorists exist.

Charles: So so.

Charles: So far that's why we are able to share with you is we stick to the mid 20 or close to mid 20% year over year growth.

Charles: No different from the previous quarter.

Charles: Yeah.

Charles: I see. So yeah, so I think that's really what we want, but I think your answer to Gokul's previous question on long-term margin dilution was a little bit unclear because we thought that the 2-3% margin dilution from overseas staff should remain to be the case but it seems like is widening. So I'm not sure if it is because you are further accelerating your staff expansion or some cost item or pricing item or not in your stations versus maybe one or two months ago. Okay, I think so Charlie is asking basically how come the dilution in the latter period widened 2-3-4%.

Charles: I see so so yeah, so I think.

Charles: Or do I, but I think your answer to both of those.

Charles: A previous question on the.

Charles: <unk> margin dilution was a little bit unclear, because we thought that that 2% to 3% margin.

Speaker Change: Lucia and for overseas theft should remain to be the case, but it seems like.

Speaker Change: Why do I need so I'm not sure if it is because oh.

Charlie Chan: There are separate in your U S fab expansion or some cost items on replacing the item or not in your irritation, especially as maybe a one or two months ago. Okay. I think so Charlie is asking basically how come the dilution in the later period widens to 3% to 4%.

Speaker Change: What are the drivers or reasons?

Speaker Change: What are the drivers or the reasons behind it yeah Charley.

Charlie Chan: Charlie

Charlie Chan: The.

Charlie Chan: The widening of dilution on the gross margin in the later part of the five-year period is mainly from inflation in cost and also potential tariffs related costs increases. Those are the reasons.

Charlie Chan: Widening of dilution on the gross margin in the later part of the five year period is mainly from.

Charlie Chan: Inflation in cost and also potential terrorists related.

Charlie Chan: Cost increases those are the reasons.

Charlie: Oh, I see. Okay, thank you. Okay, thank you, Charlie. Okay, operator, let's move on to the next participant.

Charlie: Okay, Oh I see okay. Thank you okay. Thank you Charlie Okay operator.

Charlie Chan: Let's move on to the next participant please.

Charlie Chan: Yeah.

Ken: Next one, Chao Chi from Nikan. Go ahead, please.

Ken: That's one chart chart shaved from me Ken go ahead. Please.

Speaker Change: Taking my questions, maybe I'll ask a relatively higher level question. It's a two-part question. Both are regarding your expansion plan in the United States.

Speaker Change: Thanks for taking my questions.

Speaker Change: I'll ask a relatively a higher level question. It's a two part question. Both are regarding your expansion plan in the United States.

Speaker Change: I think one of the things management wants the most is fairness. No finance, no decoupling, just fairness. Can management explain what fairness is and give us some specific information? But another question is about the expansion in the United States, regarding the R&D Team Center you have announced. We understand, yes, TSMC's R&D in the United States has to start somewhere. You just mentioned it's about manufacturing advancements in R&D at the core. However, this seems to be a major concern for the United States in the field. Are there any long-term plans for the U.S. R&D center to participate, for example, in original R&D, such as entirely new processes and major core developments? These are my two-part questions. Thank you. Okay, thank you, Charles. So to summarize again, the two questions are about the expansion in the United States. So the first part of the question is, you know, CC said we just want fair treatment. So what do we mean by fairness?

Speaker Change: I think managed now.

Speaker Change: Another occasion Seth.

Speaker Change: Yes, I'm still wants the most.

Speaker Change: It's really parallels.

Speaker Change: Nothing voluntary bathroom about terrorists fairness can management elaborate a little bit better what variables would give us a little bit more specifics.

Speaker Change: But the other part of the question regarding the U S expansion.

Sanjay: It's about the R&D team Sanjay.

Sanjay: So we we understand yes.

Sanjay: R&D.

Sanjay: In the U S.

Sanjay: Need to start somewhere right.

Sanjay: You said it.

Sanjay: It's more about the Bachelor proof Madam Sui.

Sanjay: Like with the R&D until we're able to take notes.

Sanjay: But I think there seems to be something in the U S really cares about that that the R&D capability on the U S soil on the on the leading edge is there any longer term plan.

Sanjay: Do you have the U S R&D center.

Sanjay: Be involved let's say in a primary R&D that's.

Sanjay: That's a brand new processes that that's a major notes I'll keep asking about that but that's my two part question.

Charlie Chan: Alright, Thank you Charles so again to summarize it.

Charlie Chan: Both questions are related to the expansion in the U S. So first part of the question is we see as mentioned all we want is fair treatment. So what do we mean by fair.

Charlie Chan: Fairness well, let me answer this question what do we mean the fair treatment.

Charlie Chan: We are going to answer this question. What we mean the failed treatment?

Charlie Chan: It's very simple. If anybody get the subsidy or get incentive,

Charlie Chan: It's very simple.

Charlie Chan: If anybody get the subsidy or get it incentive.

Charlie Chan: She'll be everybody she'll get the share.

Charlie Chan: It should be everybody should get this year.

Charlie Chan: Either we got it all, or we got it all [inaudible]

Charlie Chan: Either we got at all well, we got zero alright, So that's water recorded fail.

Charlie Chan: So that's what we call a fair.

Charlie Chan:

Charlie Chan: So again, I would like to assure you that we are we are

Charlie Chan: So again I would like to assure you that we are we are.

Charlie Chan: will be very competitive in either country.

Charlie Chan: What be break competitive either you need those conditions.

Speaker Change: And then the second part of the question is regarding the R&D, Charles Sasing, Han DeSense, R&D needs to start from somewhere but you know with our major R&D Center in Arizona, what will be the purpose or the focus and will it be involved at some point in ramping new tips. [inaudible]

Speaker Change: Okay and then the second part of the question is regarding the R&D Charles is saying he understands the R&D needs to start from somewhere but you know with our major R&D Center in Arizona are what will be the purpose or the focus.

Speaker Change: And will it be involved at some point in ramping new technologies.

Speaker Change: Oh, as I said before, TSM, she's a fat, you know, never be uh...

Speaker Change: As I said it before.

Speaker Change: TSMC as a fab you know never be.

Speaker Change:

Speaker Change: State Steckland will always continue to improve.

Speaker Change: Stefan and we always continue to improve it.

Speaker Change: and we need to establish a major anti-centering Arizona with about 1,000 engineers. That's a big amount. But the focus will be support our manufacturing cluster, improve its technology and allow it to operate independent.

Speaker Change: And we need to establish a major R&D center in Arizona.

Speaker Change: We saw about 1000 engineers, that's a big amount, but the focus will it be support of our manufacturing cost or improve is technology allowed you to operate independently.

Speaker Change: Okay, can I answer the question?

Speaker Change: Okay.

Speaker Change: Did I answer the question.

Speaker Change: Let me just really follow up because there has been good amount of chapters about the US R&D Center more supporting manufacturing rather than doing a major R&D, the brand new nettles. But it looks like that's not the plan, but that's over the longer term. Is there any assets of a management? Maybe they were getting involved in branding those development one way or the other. I think that's the question people have been discussed about over the last quarter. Okay, so Charles is asking, will the R&D Center over the mid to long term can it also focus on things like new node development or path-finding opportunities for these long-term research needs?

Speaker Change: Maybe let me just follow up because there has been good amount of chatter about.

Speaker Change: The U S R&D center more support and manufacture a lot of that.

Speaker Change:

Speaker Change: Brent a major R&D I'm just brand new nodes.

Speaker Change: It looks like that's not the plan.

Speaker Change: Over the longer term is there any thoughts of a managed by May go up.

Speaker Change: Paul.

Speaker Change: Brandon No development, one way or the other I think that that's the question.

And discussed about over the last quarter. Okay. So Charles so very so Charles was asking will the R&D center over the mid to long term.

Speaker Change: We're also focused on things like new no development or pathfinding opportunities long term research these type of things.

Speaker Change: Okay, actually, the first purposes to lead Arizona's affairs can operate independently, but of course, we have done, and we are doing it right now, to some kind of pest funding, exploratory work, and the cooperate with university, you know, it actually a lot of activities.

Speaker Change: Okay actually.

Speaker Change: First the first purpose is to that.

Speaker Change: Arizona is a fab can operate impede independently, but of course, we have done and.

Speaker Change: And we are doing it right now to some kind of passed funding.

Speaker Change: Exploratory work and the cooperated with a university.

Speaker Change: A proper product you know it is actually a lot of activities one when southern engineer is a small amount of course is not comparable to TLC Rbcs right. Now is at 10000 R&D people, but is appealing.

Speaker Change: 1,000 engineers is not a small amount. Of course, it's not comparable to TSMCs right now. It's a 10,000 R&D people. But it's a beginning.

Speaker Change: Okay, so we do a lot more.

Speaker Change:

Speaker Change: Okay. So we do are optimal.

Speaker Change: OK, Charles, do you have a second question?

Speaker Change: Okay. Charles do you have a second question Justin Yep.

Speaker Change: No, I don't. Thank you. Okay, great. Thank you. Operator, the next participant.

Speaker Change: Yes.

Speaker Change: Okay, great. Thank you operator, the next participant please.

Speaker Change: Let's want to ask questions, Sunny Lin, from UBS.

Speaker Change: That's one to ask question finally from UBS.

Speaker Change: Good afternoon. Thank you very much for taking my questions. So my first question is to follow up on the Arizona expansions. The first part is on the timeline or the pace of your expansions. Now given the strawberry demand for your US capacities. To my extent, could you pool in the rep of the original second and third phase? And for your fourth phase, you earlier mentioned that you would be constructing the special bear list. So that would be possible that you start to wrap the fourth phase at the same time at the third phase.

Speaker Change: Good afternoon. Thank you very much for taking my questions. So my first question to follow up on the I mean, so nice Sanchez. So first part is on the timeline or the pace of expenses now given the sounds like and therefore, you are you have capacities.

Speaker Change: Twice, Dan could you pull in the realm of theory that.

Speaker Change: I can answer face.

Speaker Change: For your for phosphate you early announcer.

Speaker Change: It will be constructing the fascia. They alicia so would that be possible that you start to lap the fourth phase at the same time.

Speaker Change: Thanks.

Speaker Change: Okay, so Sunny's first question is regarding our digafab cluster in Arizona. She wants to understand the timeline of expansion, particularly given the strong AI related demand. Can we pull in the timing for both the second fab and the third fab?

Speaker Change: Okay. So first question is regarding our Giga fab cluster in Arizona.

Speaker Change: She wants to understand the timeline of expansion, particularly given the strong AI related demand can we pull in the timing for both the second fab and third fab and.

Speaker Change: And also, can we, at the same time, start the production of the third and fourth fab cymbal thing?

Speaker Change: And also can we at the same time start to production of the third and fourth but simultaneously.

Speaker Change: We have Sunny

Speaker Change: We are funny.

Speaker Change: We are working very hard to speed it up over our production in the second wave and construction on the third wave.

Speaker Change: We are working very hard to our speed at all of our production in the second fab and construction younger certifier.

Speaker Change: All I can say is wrong.

Speaker Change: Customers at the manager's trunk, we have to really do speed it up.

Speaker Change: Customers at the manager shrunk.

Speaker Change: We have to really to speed it up.

Speaker Change: and the following all the five definitely will depend on our customers' demand, of course.

Speaker Change: And the following all the fab are definitely what depend on our customers' demand of course.

Sonny: Okay, Sunny Lin,

Sonny: Okay Sonny.

Sonny: So, sorry, just to clarify. So, the second phase originally is planning for production in 2028. So, now should we assume it to be from maybe me 2027 or even first of a 2027. And for the third phase, things you are building the special this year. So, will the production thought maybe one year ahead versus the original timeline of 2030?

Sonny: Well, so sorry, just to clarify so on the second phase originally planning for production in 2028. So now should we assume it to be funded in 2027 or even the first half of 2027.

Sonny: And for the survey. Thank you are beating the first show.

Speaker Change: So all the production stop maybe one yeah.

Sonny: It's just the original time line of 2030.

Sonny: Okay, so Sunny specifically, so the second one, we say we're speeding up, can we give some context of a timeframe? And then for the third fab, will we also speed it up? Could that also be moved?

Sonny: Okay. So the plan is specifically so the second one we said we are speeding up can we give some context of a timeframe and then for the third fab, where we also speeded up could that also be moved forward.

Sonny: Okay, yes, we are speeding up. How fast? The second fact, as you said, is should be pouring, and this one, we are working hard to pouring, edit the cup of quarters. That's edit.

Sonny: Okay, Yes, we are speeding up our how fast the second five as you said you should be poor in and this one we are working hard to pour in at least a couple of quarters.

Sonny:

Speaker Change: At East on the certified virtually I did not speak as a whole thing is also being constrained by the de Boer.

Speaker Change: On the 35th, actually, I did not speak the whole thing. It's also been constrained by the labor shortage of Arizona, and we need to get all the permits.

Speaker Change: Jody Joe are resolved and we need to get.

Speaker Change: Or the Permian.

Speaker Change: Everything, etc. So, I cannot give you a very definite date yet, but we are going to update you probably in the next quarter or one quarter up.

Speaker Change: Everything et cetera.

Speaker Change: So I cannot give you a very definitely to the data yet, but we are going to update you probably in the next quarter or one quarter after that.

Speaker Change: Got it. No problem. My second question is on the pricing and margin of the overseas expansions. And so now with the especially stronger demand for the U.S. capacities, would you be able to sell more value, given the stronger ensuring requirements? And then for margin earlier, you mentioned this two to three percent margin dilutions for the coming two to three years and then expanding to three to four percent maybe into 2020. In 2030, I just wondered what the underlying weather price assumption for that growth margin dilution estimates if you are able to raise the azy pricing a bit with the growth margin dilution could be less.

Speaker Change: Got it no problem, but my second question Sandy pricing and margin of the overseas expansions.

Speaker Change: So now with the especially strong demand for the U S capacity would you be able to sell more value.

Speaker Change: Given that you're still the onshoring requirements.

Speaker Change: And then for margin earlier, you mentioned that 2% to 3% margin dilution for the Tommy Hilfiger, yet and then expanding to 32, 4% maybe into 2020 1920 study I just wonder what the underlying whether price assumption for that gross margin dilution estimate if you are able to.

Speaker Change: The AZ pricing of that Oh, the corresponding dilution could be less.

Speaker Change: Okay, so some of these questions is on the overseas expansion in both pricing and margin given the strong demand in terms of pricing. Can we reflect even greater value to our customers? And therefore, and also her question is given that the dilution from overseas will widen to three to four percent in the latter stages of the five year period. She wants to know what is our underlying wafer price assumption behind the five year period of the five year period of the five year period.

Speaker Change: Okay. So <unk> question is on the overseas expansion in both pricing and margin given the strong demand.

Speaker Change: In terms of pricing can we reflect even greater value to our customers and therefore and also her question is given that the dilution from overseas.

Speaker Change: Why it into 3% to 4% in the later stages of the five year period. She wants to know what is our underlying wafer price assumption behind us.

Speaker Change: Sunny, let me answer that. These two things are actually-

Speaker Change: Sonny Let me, let me answer that.

Speaker Change: These two things actually.

Speaker Change: to go together. As we said, reflecting our value is a continuous and ongoing process. And because of our business nature, we need very high growth margin to earn a sustainable

Speaker Change: Go together as we said.

Speaker Change: Reflecting our value is a continuous and ongoing process.

Speaker Change: And we because of our business nature, we need very high gross margin to earn a sustainable healthy return.

Speaker Change: Now, geographing manufacturing flexibility is an important part of our value proposition to the customers. Therefore, we are already discussing this with our major customers and the progress is so far so good.

Speaker Change: Geographic manufacturing flexibility is a is an important part of our value proposition to the customers. Therefore, we are.

Speaker Change: Already discussing this with our major customers and the progress is so far so good.

Speaker Change: Now, at the same time, the margin dilution from the overseas shafts, the additional dilutions come from the cost inflation, as well as potential cost increases from the tariff policy.

Speaker Change: Okay.

Speaker Change: At the same time.

Speaker Change: The margin dilution from the overseas Fabs.

Speaker Change: The additional dilutions come from the cost inflation as well as potential cost increases from.

Speaker Change: The tariff policies of course with that we also want to reflect the value and therefore, the discussion with the customers.

Speaker Change: Of course, with that, we also want to reflect the value and therefore the discussion with the customers are in continuous.

Speaker Change: Continuous.

Okay.

Speaker Change: Okay, Sunny? All right. All right, very clear. Thank you very much. Thank you. Operator can move on to the next participant.

Speaker Change: Okay Sonny.

Speaker Change: Got it alright, alright, very clear. Thank you very much. Thank you operator can we move on to the next participant please.

Speaker Change: Next one to ask questions, Brett Simpson, everything.

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

Brett Simpson: Thank you, I have a two-part question regarding this year's CC guidance. First, CC, you mentioned that AI is still expected to grow this year despite the U.S. banning AI chips to China. I assume that China's shipping growth rate is significant, with an output of over 10%. Therefore, does this mean that your AI chip business is still growing this year, indicating that China's AI chip demand has significantly improved in the past three months? Should we understand your comment as you still expect this business to grow? Second, we are in mid-June, during which there was a 90-day halt on tariffs. To what extent does your mid-June guidance reflect customer investments?

Brett Simpson: Yes, thanks, very much I have a two part question on this year's guidance for C C.

Brett Simpson: C C you mentioned AI.

Brett Simpson: I still expect it to double this year. Despite the U S is behind on AI.

Brett Simpson: AI Gpus into China.

Brett Simpson: And I guess, China with a meaningful portion of accelerated shipments are well over 10% of volumes. So factoring this in it would imply your AI outlook this year still.

Speaker Change: Doubling would mean that the AI orders have improved meaningfully outside of China and the loss of the three months is that how we should interpret your comment about you still expect the business to double and then second where in the June quarter, where tariffs have been paused for 90 days, so to what extent does Europe.

Speaker Change: Above seasonal June quarter guidance reflect customer pull ins ahead of potential tariffs being applied in the September quarter. Thank you.

Brett Simpson: Okay, so Brett, this question is on, again, the one part is on the AI demand that although there's a ban in China on certain AI chips or products that we reiterated our AI accelerated growth will double this year. So here's a something that implies a strong non-China AI-related demand and wondering what is the mechanics or can we comment beyond that beyond that.

Brett Simpson: Okay. So Brett.

Brett Simpson: His question is on again, the one part is on the AI demand that although there's a ban in China uncertain, AI chips or products that we reiterated our AI accelerator growth will double this year. So here's our assumption is that employers are strong.

Brett Simpson: On a non China related demand and wondering what is the mechanics or can only comment beyond that behind us.

Brett Simpson: then

Brett Simpson: Brett.

Brett Simpson: <unk>.

Brett Simpson: It's three months ago. Now I can tell you that three months ago we are barely, we just cannot supply enough wafer to our customers.

Brett Simpson: Three months ago.

Now I can tell you that three months ago, we are PRD, we just cannot supply enough.

Brett Simpson: Wafer to our customer.

Brett Simpson: and now it's a little bit balanced but still the demand is very strong and you are right. Other than China, the demand is still very strong especially in the US and so we are confident that we are going to double our EIS rubber.

Brett Simpson: And now you said you'd be balanced by steel are the demand is very strong and you are right other than China. The demand is steel.

Brett Simpson: Still very strong.

Brett Simpson: Especially in.

Brett Simpson: In U S.

Brett Simpson: So we are confident that we're going to double our revenue. This year, Yeah, and then very quickly he was asking about the second quarter revenue guidance and do we see any tariff related pull in I think a window answered. This earlier, yeah I think the.

Brett Simpson: Yeah, and then very quickly he was asking about the second quarter revenue guidance. And do we see any term related point? I think when I answered this earlier. Yeah, I think that we have as CG said in the prepare remarks, we haven't seen any changes in customer behavior. The growth in second quarter was primarily due to the demand from our three nanometer and five nanometer technologies, underpinned by the demand from the HVC platform. So we're going to move on to the third quarter. We're going to move on to the third quarter. We're going to move on to the third quarter.

Brett Simpson: We have as <unk> said in the prepared remarks, we haven't seen any changes in customer behavior. The growth in second quarter was primarily due to the demand from our three nanometer and five nanometer technologies underpinned by the demand from the H P C platform.

Brett Simpson: Do you have a second question, Brad? Yes, thank you Jeff, my second question is about Wendell. Thank you for explaining Wendell's issue. Regarding investor returns, TSMC has always supported the main policy of increasing investment. However, many investors believe that the returns on investment have not had much impact. TSMC's investors are different from those of major U.S. tech companies. My question is, why doesn't TSMC's management adopt a buyback approach, especially given the current strength of your financial position? Thank you. Okay, thank you Brad, so Brad's second question is about investor returns. He notes that TSMC's policy has always remained stable, continuously increasing capital returns, focusing on capital return returns. His question is whether we would consider, why we don't consider adopting more of a buyback policy.

Brett Simpson: Okay do you have a second question, but sorry.

Speaker Change: Yeah, Yeah. Thanks, Jeff.

Speaker Change: Second question was for was for Wendell and thanks for clarifying for qualifying that window.

Speaker Change: Yes, the follow up is on shareholder returns.

Speaker Change: And TSMC traditionally has always favored growing the dividends as the main policy, but many shareholders would argue that the dividend payouts are not having that much of an impact on the discounted multiple that TSMC trades that versus some of your U S Big Tech peers.

Speaker Change: My question is why does TSMC management, not adopt buyback buyback framework.

Speaker Change: Particularly with the strength of our cash position on your on your balance sheet at the moment. Thank you. Okay. Thank you Brett. So the second question is circulated on shareholder return. He noticed here since he's policy has always been a stable and steadily increasing cash dividend and focus on cash dividend payout his question.

Speaker Change: <unk> is why to do we would we consider why do we not consider are adopting more of a buyback policy share buyback policy.

Speaker Change: Okay, Brett. We've done studies a long time ago, and we continue to revisit that. We also talk to investors. Our conclusion states the same. The sustainable and...

Speaker Change: But we've.

Speaker Change: We've done studies.

Speaker Change: Long time ago, and we continue to revisit that.

Speaker Change: We also talked to investors our conclusion stays the same the sustainable.

Speaker Change: Steadily Increasing Dividends is a better way of returning cash to the shareholders.

Speaker Change: Steadily increasing dividend is a better way of returning cash to the shareholders. So we're maintaining that policy.

Speaker Change: So we're maintaining the policy.

Speaker Change: Okay, thank you. All right. Operator in the interest of time, can we take the questions from the last two participants?

Speaker Change: Okay. Thank you alright, operator in the interest of time can we take our the questions from the last two participants please.

Speaker Change: Yes, now the line is open to Laura Chan City.

Speaker Change: Yes, no. The line is open to Laura Chen City.

Laura Chen: Hello. Hi. Thank you very much for taking my question. Can I hear me, Curry? Yes.

Laura Chen: Hello, Hi, Thank you very much for taking my question can you hear me Okay. Yes.

Laura Chen: My question is about the development of AI and the United States. You just mentioned that the supply and demand for COVAX will be better balanced by 2026. Do you think there will be any structural changes in AI chip design in the future, such as the design of N3 chips? Because you just mentioned that you will also start establishing front-end chip design in Asia. This is my first question. This is a very broad question, but basically, if I try to describe it, she wants to know if we will see any changes in chip design, especially in the chip transition on N3 chips. Will we see more changes, and what kind of roles, such as dual-board chips and screen-level chips? I think the root of this question is whether we will continue to use front-end chip technologies such as COWAS or SOIC in Taiwan, or if this is also an extension plan for Asia. This is a very long question.

Laura Chen: Yeah. Thank you. My question is also about the the AI and also the U S expansion I think you just mentioned that the cobalt supply demand will be more balanced into 2026.

Speaker Change: You see any structural change in the future AI chip design, when moving to anniversary such as such as like a chip like that kind of a design and so on and that are in that kind of a new channel or what.

Speaker Change: And his view on the new technologies, such as C. P. L. R. A T L P panel base.

Speaker Change: Well ill start with Taiwan first or you would also consider T for that is that the other thing I got back in technology.

Speaker Change: The only other thing I'll say to you.

Speaker Change: You just mentioned that you would also started to build up that fast in advanced packaging in Arizona.

Speaker Change: Okay.

Speaker Change: First question is a very broad question, but basically if I just try to distill.

Speaker Change: She wants to know do we see any changes in the chip design, particularly moving to chip lifts within three do we see this more and more what about the role of things like co package optics and panel level packaging and I think the essence of your question will we continue to use our leading sorry advanced packaging technologies like.

Speaker Change:

Speaker Change: You know a co author S. RAC in Taiwan first or is this also part of the plan for the expansion in Arizona.

Speaker Change: That's a long question, but.

Speaker Change:

Speaker Change: Nora Yech,

Speaker Change: Nora yes.

Speaker Change: All a customer.

Speaker Change: Our customer are they continuing to Eugene that TSMC as a leading edge technology and you also.

Speaker Change: They continue to use the TSMC's leading-age technology and they also adopt the advanced packaging technologies more and more and also more advanced.

Speaker Change: Adapt.

Speaker Change: The advanced packaging technologies.

Speaker Change: More and more and also a more advanced right P series.

Speaker Change: This year is probably most of COWASS and then next year COWASS, Europe , etc. And we can see that

Speaker Change: Probably most of course asked and then next year of course, Europe, and et cetera, and we can see that.

Speaker Change: customer start to picking up the SOIC and the more advanced packaging techniques.

Speaker Change: Customers start to picking up there so I see.

Speaker Change: And the more otherwise our packaging technologies.

Speaker Change: As for the-

Speaker Change: As for the.

Speaker Change: What we call is panel levels packaging. We are aggressively developing it and

Speaker Change: What do we call is a panel level packaging, we are aggressively developing unit.

Speaker Change: And.

Speaker Change: Today's still is a feasibility study station.

Speaker Change: Today, you still use a feasibility study stage.

Speaker Change: too early to say

Speaker Change: Too early to say.

Speaker Change: It will be in Taiwan or in US, but most likely it will be in Taiwan first, we ramp it up and

Speaker Change: You'd want be in Taiwan or in U S. But most likely you are being Taiwan forest, we ramp it up yet again.

Speaker Change: We need to U.S.

Speaker Change: Bring it to U S.

Speaker Change: Okay, thank you very much. That's very clear. And also, my second question is also about the capacity allocation between Taiwan and also Arizona. Siti, you just shared with us that for about like a 30% of the end-to-capacity will be in Arizona. But we know it will be starting from when or what kind of a time-friend you are looking for. Can we also assume that the same scale like a 30% of your Arizona fab for the advanced node in the longer term?

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

Speaker Change: And also my second question is also about the capacity allocation between Taiwan and now also Arizona C. Can you just share with us that therefore about like a 30% of annual capacity will be in Arizona, I don't know even know.

Speaker Change: It will be starting to sort of win or what kind of a timeframe you are looking for can.

Speaker Change: Can we also assume that the sand scale like a 30% of Gila original announced that for the advanced nodes and in the longer term.

Laura Chen: Okay, so lower second question is about the capacity allocation between how do we allocate between Taiwan and the U.S. maybe, you know, is it duplicative or extra capacity? And then very specific CC had mentioned that N2 and more advanced capacity, 30%, around 30% will be in Arizona once we scale up to the cluster. Will that be kind of the percentage for the leading node in the...

Laura Chen: Okay. So lora second question is about the capacity allocation between how do we allocate between Taiwan and the U S. Maybe you know what is it duplicative or extra capacity and then very specific C. C. You had mentioned that end to end more advanced capacity, 30% around 30%.

Laura Chen: We'll be in Arizona, once we scale up to the cluster will that be kind of the percentage for the leading node in the future.

Laura Chen: Why

Laura Chen: Well.

Laura Chen: You know, we have, right now, we've planned a six-fad in Arizona, and in that six-fad, the two-nanometer will be a major known, and that's what I say is 30% will be jail. As time goes by, after the two-nanometer will be 1.4 and 1.0, that had not been, you know,

Laura Chen: You know we have a right now with 10 or six fab in Arizona.

And in that shift where the two nanometer won't be a major node and that's what I say, 30% what BJ as time goes by after the two nanometer will be a $1 four and 1.0 that had not being you know discuss that yet.

Laura Chen: Okay, thank you. Thank you very much. That's very clear. All right. Thanks, Laura. Operator, can we take the last questions from the last participant?

Laura Chen: Okay. Thank you. Thank you very much that's very clear alright. Thank for operator can we take the last question is from the last participant please.

Speaker Change: The last one to ask questions, Krish Sankar, Cohen, go ahead please.

Speaker Change: The last one to ask questions, Chris a sand car Cowen go ahead. Please.

Chris Cowen: Hi, thanks for taking my question. My first one is, you know, it's very impressive, given uncertainty, you're still maintaining fully your revenue guidance and also your end-to-capacity plan for this year, the next year. Kind of cute is, what is your visibility on second half revenues and also end-to-demand for wait for the next year. I'm going out to follow up. Okay, so Krish's first question is sort of

Chris Cowen: Hi, Thanks for taking my question. My first one is a very interesting given unfortunately, you're still maintaining full year revenue guidance and I'll tell you end to capacity planned for this year and next year kind of curious what is your visibility on second half revenue.

Chris Cowen: Also into demand for wafer into next year, and then I had a follow up okay. So Christmas first question is sort of.

Chris Cowen: In the near term, what is our visibility into the second half business outlook? And then also how do we see the demand for N2 progressing this year and also N2?

Chris Cowen: In the near term, our what is our visibility into the second half business outlook and then also how do we see the demand for end to progressing this year and also next year.

Chris Cowen: OK, let me talk about the first one.

Chris Cowen: Okay.

Chris Cowen: They talked about the first one.

Chris Cowen: We're only at the second quarter.

Chris Cowen: We're only at second quarters. So I think it's too early to talk about the second half are we did mention that the uncertainties and risks from terrorists exist and we might get a better picture in the next few months.

Chris Cowen: So I think it's too early to talk about the second half. We did mention that the uncertainties and risks from tariffs exist. And we might get a better picture in the next few minutes.

Chris Cowen: So we can probably update you in the next session.

Chris Cowen: So we can probably update you in the next earnings call.

Chris Cowen: And then the second part of it is on the demand visibility of our tune-in

Chris Cowen: And then the second part of it is on the demand and visibility of our two nanometer.

Chris Cowen: So far, actually, [inaudible]

Chris Cowen: So far actually.

Chris Cowen: So far, it's very strong, as we said, all the new tap outs.

Chris Cowen: So far it's a very strong as we said all the new tape out customers. So the number of the technologies are exceeding what we expected and as we said is.

Chris Cowen: Customers, the number of the tailpiles is exceeding what we expect.

Chris Cowen: and as we said, the number of the new tape house is much higher than the

Speaker Change: The number of the new technology is much higher than Uh huh.

Speaker Change: 3 nanometer in 5 nanometer in the same period.

Speaker Change: Three nanometer and five nanometer in the same period of time.

Speaker Change: Okay, and did you have a second question, Krish? Very helpful. Yes, Jeff, yes. Just one quick follow-up. You spoke about the Japan tab. I'm curious what is the capacity installed in Japan today? How do you think about the revenue contribution you feel from Japan? Okay, very. Krish's second question is related to our first specialty technology tab in Japan. He wants to know what is the capacity installment for this specialty technology tab and also the revenue contribution from JAS.

Speaker Change: Okay and did you have a second question Krish got it very helpful.

Speaker Change: Yeah, just one quick follow up you spoke of the Japan Fab I'm curious what is the capacity installed in Japan today.

Speaker Change: Think about the revenue contribution from Japan.

Speaker Change: Okay.

Speaker Change: Christian second question is related to our first specialty technology fab in Japan. He wants to know what is the capacity installment for the specialty technology Fab and also the revenue contribution from J a S M.

Speaker Change: Yeah, the capacity for the FAF will be 40k when it's ramp up. The revenue for this year compared to the whole company is really not significant.

Speaker Change: Yeah.

Speaker Change: The capacity for the fab will be.

Speaker Change: <unk> 40 K.

Speaker Change: When this ramp up the revenue for this year compared to the whole company is really not significant.

Speaker Change: At this moment.

Speaker Change: Yeah.

Speaker Change: Okay, Krish?

Speaker Change: Okay Krish.

Speaker Change: Thank you very much. Thank you very much. No problem. Okay. Thank you everyone. This concludes our question and answer session

Speaker Change: Got it thanks, even though David Thank you very much no problem. Okay. Thank you everyone. This concludes our question and answer session.

Speaker Change: Before we conclude today's conference, please be advised that the replay of the conference call will be accessible within 30 minutes from now. The transcript will become available 24 hours from now and both will be available through TSMT's website at www.tsmt.com So thank you again for joining us today. We hope everyone continues to stay well and hope you will join us again next quarter. Goodbye and have a good day. Take care. Thank you.

Speaker Change: Before we conclude Oh, sorry, before we conclude today's conference. Please be advised that the replay of the conference call will be accessible within 30 minutes from now the transcript will become available 24 hours from now and both will be available through Tsmc's website at Triple W. Dot Hill City Dot com. So thank you again for joining us today.

Speaker Change: We hope everyone continues to stay well and hope to join you will join US again next quarter Goodbye and have a good day take care. Thank you.

Q1 2025 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

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