Q2 2026 Taiwan Semiconductor Manufacturing Co Ltd Earnings Call

July 16, 2026

Jeff Su: 界及媒体的朋友们，大家午安。我是台积电法人关系处的苏智凯，欢迎您参加台积公司 2026 年第二季的法人说明会。由于本法说会是向全球投资人同时连线转播，所以我们会全程使用英文，请您见谅。 Good afternoon, everyone, and welcome to TSMC's second quarter 2026 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials.

Jeff Su: [Fl] Good afternoon, everyone, and Welcome to TSMC's Q2 2026 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials.

Speaker #1: Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials if you're joining us through the conference call.

Jeff Su: If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows: First, TSMC Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in Q2 2026, followed by our guidance for Q3 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. We will open both the floor and the line for the question and answer session. As usual, I'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor notice that appears in our press release.

Speaker #1: Your dial-in lines are on listen-only mode. 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 second quarter 2026.

Speaker #1: Followed by our guidance for the third quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. Cici Wei, will jointly provide the company's key messages.

Speaker #1: We will now open both the floor and the line for the question-and-answer session. As usual, I'd like to remind everyone 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 #1: Please refer to the Safe Harbor Notice that appears in our press release. And now, I would like to turn the microphone over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter's guidance.

Jeff Su: Now, I would like to turn the microphone over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.

Speaker #2: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with the financial highlights for the second quarter of 2026.

Wendell Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for Q2 2026. After that, I will provide the guidance for Q3 2026. Now let's move on to revenue by technology. N2 process technology contributed 3% of wafer revenue in Q2. N3, N5, and N7 accounted for 30%, 33%, and 11% respectively. Advanced technology, defined as N7 and below, accounted for 77% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 20% quarter over quarter to account for 66% of our Q2 revenue. Smartphone decreased 4% to account for 22%. IoT increased 4% to account for 5%. Automotive increased 15% to account for 4%. DCE increased 5% to account for 1%. Moving on to the balance sheet.

Speaker #2: After that, I will provide the guidance for the third quarter of 2026. Now, let's move on to revenue by technology. Two-nanometer process technology contributed 3% of wafer revenue in the second quarter.

Speaker #2: Three-nanometer, five-nanometer, and seven-nanometer accounted for 30%, 33%, and 11%, respectively. Advanced technology, defined as seven-nanometer and below, accounted for 77% of wafer revenue.

Speaker #2: Moving on to revenue contribution by platform, HPC increased 20% quarter over quarter to account for 66% of our second quarter revenue. Smartphone decreased 4% to account for 22%.

Speaker #2: IoT increased 4% to account for 5%. Automotive increased 15% to account for 4%. DCE increased 5% to account for 1%. Moving on to the balance sheet.

Speaker #2: We ended the second quarter with cash and marketable securities of NT$3.5 trillion, or US$110 billion. On the liability side, current liabilities increased by NT$144 billion, quarter over quarter, mainly due to the increase of NT$58 billion in accounts payable and the increase of NT$48 billion in accrued liabilities and others.

Wendell Huang: We ended Q2 with cash and marketable securities of TWD 3.5 trillion, or $110 billion. On the liability side, current liabilities increased by TWD 144 billion quarter over quarter, mainly due to the increase of TWD 58 billion in accounts payable and the increase of TWD 48 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable days increased by 3 days to 29 days. Inventory days increased 7 days to 87 days, primarily due to the ramp of N2 technology. Regarding cash flow and CapEx, during Q2, we generated about TWD 783 billion in cash from operations, spent TWD 496 billion in CapEx, and distributed TWD 156 billion for Q3 2025 cash dividend. Overall, our cash balance increased TWD 99 billion to TWD 3.1 trillion at the end of the quarter. In US dollar terms, our Q2 capital expenditures total $15.7 billion.

Speaker #2: In terms of financial ratios, accounts receivable days increased by 3 days to 29 days. Inventory days increased by 7 days to 87 days, primarily due to the ramp of N2 technology.

Speaker #2: Regarding cash flow and capex, during the second quarter, we generated about NT$783 billion in cash from operations, spent NT$496 billion in capex, and distributed NT$156 billion for the third quarter 2025 cash dividend.

Speaker #2: Overall, our cash balance increased NT$99 billion to NT$3.1 trillion at the end of the quarter. In U.S. dollar terms, our second quarter capital expenditures totaled $15.7 billion.

Speaker #2: I've finished my financial summary. Now, let me turn to the current quarter guidance. Based on the current business outlook, we expect our third-quarter revenue to be between $44.6 billion and $45.8 billion USD, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint.

Wendell Huang: I finished my financial summary. Now, let's turn to the current quarter guidance. Based on the current business outlook, we expect our Q3 revenue to be between $44.6 billion and $45.8 billion, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint. Based on the exchange rate assumption of 1 US dollar to TWD 32, gross margin is expected to be between 65% and 67%. Operating margin between 56% and 58%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our Q2 2026 and Q3 2026 profitability. Compared to Q1, our Q2 gross margin increased by 150 basis points sequentially to 67.7%, slightly ahead of our guidance, primarily due to cost improvement efforts and a slightly higher overall capacity utilization rate, partially offset by dilution from our overseas fabs.

Speaker #2: Based on the exchange rate assumption of $1 USD to NT$32, gross margin is expected to be between 65% and 67%, and operating margin between 56% and 58%.

Speaker #2: This concludes my financial presentation. Now, let me turn to our key messages. I will start by talking about our second quarter 2026 and third quarter 2026 profitability.

Speaker #2: Compared to the first quarter, our second quarter gross margin increased by 150 basis points sequentially, to 67.7%, slightly ahead of our guidance. This was primarily due to cost improvement efforts and a slightly higher overall capacity utilization rate, partially offset by dilution from our overseas fabs.

Speaker #2: We have just guided our third-quarter gross margin to decrease by 1.7 percentage points to 66% at the midpoint, primarily as we expect the steep ramp-up of our two-nanometer technology to dilute our gross margin by about 3 to 4 percentage points.

Wendell Huang: We have just guided our Q3 gross margin to decrease by 1.7 percentage point to 66% at the midpoint, primarily as we expect the steep ramp-up of our 2 nanometer technology to dilute our gross margin by about 3 to 4 percentage points. This dilution is expected to be partially offset by very strong demand for our leading-edge technologies and continued cost improvement efforts, including productivity gains and across node capacity optimization. Looking at the H2 of the year, given the six factors that determine our profitability, there are a few puts and takes that I would like to share. First, we expect the steep ramp-up of our 2 nanometer to dilute our gross margin by about 3 to 4 percentage points in the H2 of the year.

Speaker #2: This dilution is expected to be partially offset by very strong demand for our leading-edge technologies and continued cost improvement efforts, including productivity gains and cross-node capacity optimization.

Speaker #2: Looking at the second half of the year, given the six factors that determine our profitability, there are a few puts and takes that I would like to share.

Speaker #2: First, we expect a steep ramp-up of our two-nanometer to dilute our gross margin by about 3 to 4 percentage points in the second half of the year.

Speaker #2: Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages, and widen to 3% to 4% in the latter stages.

Wendell Huang: Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. On the other hand, demand for our leading-edge technologies is very strong. In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater across node capacity optimization in our fab operations to support our profitability. Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about our 2026 capital budget. At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years.

Speaker #2: On the other hand, demand for our leading-edge technologies is very strong. In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater cross-node capacity optimization in our fab operations to support our profitability.

Speaker #2: Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about our 2026 capital budget.

Speaker #2: At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years. With our strong technology leadership and differentiation, we are well-positioned to capture the multi-year structural demand from the industry megatrends of 5G, AI, and HPC, given the continued strong structural demand from our customers, including the newly emerging agentic AI market.

Wendell Huang: With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI, and HPC. Given the continued strong structural demand from our customers, including the newly emerging agentic AI market, we have decided to raise our full year 2026 capital budget to be between $60 billion and $64 billion US dollars, as we continue to invest heavily to support our customers' growth. We always collaborate closely with the tool suppliers well in advance to prepare the capacity, whether it is a strong upcycle or downcycle. Just like our customers collaborate with us well in advance to plan our capacity. Thus, we do not foresee any bottlenecks to our capacity expansion plans. About 70% to 80% of the 2026 capital budget will be allocated for advanced process technologies.

Speaker #2: We have decided to raise our full-year 2026 capital budget to be between $60 and $64 billion, as we continue to invest heavily to support our customers' growth.

Speaker #2: We always collaborate closely with the two suppliers well in advance to prepare for capacity, whether it is a strong upcycle or downcycle. Just like our customers collaborate with us well in advance to plan our capacity.

Speaker #2: Thus, we do not foresee any bottlenecks to our capacity expansion plans. About 70% to 80% of the 2026 capital budget will be allocated for advanced process technologies, about 10% will be spent for specialty technologies, and about 10% to 20% will be spent for advanced packaging, testing, masks, and others.

Wendell Huang: About 10% will be spent for specialty technologies, and about 10% to 20% will be spent for advanced packaging, testing, mask making, and others. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. In 2025, we paid TWD 467 billion in cash dividends, up 28.6% year over year, as TSMC shareholders receive a total of TWD 18 cash dividend per share. In 2026, they will receive TWD 24 per share, up another 33% year over year, and we expect a continued and increasing cash dividends per share in 2027 as well. Now let me turn the microphone over to C.C.

Speaker #2: Even as we invest for future growth with this level of capital expenditure spending in 2026, we remain committed to delivering profitable growth to our shareholders.

Speaker #2: We also remain committed to a sustainable and steadily increased cash dividend per share, on both an annual and quarterly basis. In 2025, we paid NT$467 billion in cash dividends, up 28.6% year over year, as TSMC shareholders received a total cash dividend of NT$18 per share.

Speaker #2: In 2026, they will receive 24 NT per share, up another 33% year over year, and we expect a continued and increasing cash dividends per share in 2027 as well.

Speaker #2: Now, let me turn the microphone over to C.C.

Speaker #3: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of $40.2 billion, at the high end of our guidance in U.S. dollar terms, driven by strong demand for our leading-edge process technologies.

C.C. Wei: Thank you, Window. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our Q2 with revenue of $40.2 billion at the high end of our guidance in US dollar terms, driven by strong demand for our leading-edge process technologies. Moving into Q3, we expect our business to be supported by continuous strong demand for our leading-edge process technologies, including the steep ramp of our 2 nanometer technology. Looking ahead, we observe consumer and the price-sensitive end market segment are being challenged due to the impact of rising component prices and macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on our fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust.

Speaker #3: Moving into the third quarter, we expect our business to be supported by continued strong demand for our leading-edge process technologies, including the steep ramp-up of our two-nanometer technology.

Speaker #3: Looking ahead, we observe that consumer and price-sensitive end market segments are being challenged due to the impact of rising component prices and microeconomics uncertainties.

Speaker #3: As such, we are being prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust.

Speaker #3: The AI megatrend continues to drive the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers and our customers' customers, who are mainly in the cloud service provider segment, continue to provide us with very strong signals and a positive outlook.

C.C. Wei: The AI megatrend continues to drive the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers and customers' customers, who are mainly in the cloud service providers, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multi-year AI megatrend remains very high. Supported by our robust technology differentiation and the broad customer base, we now expect our full year 2026 revenue growth to be slightly above 40% year-over-year in US dollar terms. Let me talk about the acceleration of agentic AI. The AI market continues to be very dynamic. The emergence of agentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drive more silicon demand in addition to AI accelerators.

Speaker #3: Thus, our conviction in the multi-year AI megatrend remains very high. Supported by our robust technology differentiation and broad customer base, we now expect our full-year 2026 revenue growth to be slightly above 40% year over year, in US dollar terms.

Speaker #3: Now, let me talk about the acceleration of agentic AI. The AI market continues to be very dynamic. The emergence of agentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drives more silicon demand in addition to AI accelerators.

Speaker #3: We believe this is positive for TSMC, as no matter what CPU approach is taken, whether it's x86, ARM-based, or RISC-V architecture, they are almost all TSMC's customers.

C.C. Wei: We believe this is positive for TSMC, as no matter what CPU approach is taken, whether it is a x86, Arm-based, or RISC-V architecture, they are almost all TSMC's customers. We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity, so they can capture the agentic AI market opportunities. Next, let me talk about TSMC's capacity expansion strategies. To address the structural increase in overall long-term semiconductor market demand profile, TSMC collaborates closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies and the design-in and lead time involved, we also have a very good idea of their multi-year product roadmap and production plans.

Speaker #3: We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity, so they can capture the agentic AI market opportunities.

Speaker #3: Next, let me talk about TSMC's capacity expansion strategies. To address the structural increase in the overall long-term semiconductor market demand profile, TSMC collaborates closely with our customers and our customers' customers to plan our capacity.

Speaker #3: Given the fundamental complexity of leading-edge technologies, and the design-in and lead time involved, we also have a very good idea of their multi-year product roadmap and production plans.

Speaker #3: This is important because it takes more than five years to develop the technology and product, prepare the capacity, and ramp it up to high-volume production.

C.C. Wei: This is important because it takes more than 5 years to develop the technology and product, prepare the capacity, and ramp it up to high-volume production. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach. This is a continuous and ongoing process. Based on our assessment, we are stepping up our CapEx investment to increase our capacity to support our customers' future growth. With the strong collaboration and support from our leading US customers and the US federal, state, and city government, we would like to announce an additional $100 billion investment in Arizona. This is to put several more semiconductor logic wafer fabs for 2 nanometer and below technologies, as well as advanced packaging fabs to support a strong multi-year demand from our leading US customers.

Speaker #3: Internally, TSMC employs a disciplined capacity planning system to assess market demand from both top-down and bottom-up approaches. This is a continuous and ongoing process.

Speaker #3: Based on our assessment, we are stepping up our CapEx investment to increase our capacity to support our customers' future growth. Now, with strong collaboration and support from our leading U.S. customers, and the U.S. federal, state, and city governments, we would like to announce an additional $100 billion investment in Arizona.

Speaker #3: This is to build several more semiconductor logic wafer fabs for 2-nanometer and below technologies, as well as advanced packaging fabs to support the strong, multi-year demand from our leading U.S. customers.

Speaker #3: We believe this investment will help further foster the development of the U.S. semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States.

C.C. Wei: We believe this investment will help to further foster the development of the US semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States. At the same time, we are building 13 leading-edge and advanced packaging fab in Taiwan over the next several years, and we will continue to further invest in Taiwan. Therefore, TSMC's semiconductor technology and manufacturing will continue to play a pivotal role in supporting the global semiconductor industry while unleashing our customers' innovation. Now let me talk about the current N3 capacity expansion. We are executing well on our global plan to add 3 additional 3-nanometer fabs, one in Taiwan, one in Arizona, and one in Japan, to support the robust multi-year pipeline of demand for 3-nanometer technologies.

Speaker #3: At the same time, we are building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years, and we will continue to further invest in Taiwan.

Speaker #3: Therefore, TSMC's semiconductor technology and manufacturing will continue to play a pivotal role in supporting the global semiconductor industry while unleashing our customers' innovation. Now, let me talk about the current N3 capacity expansion.

Speaker #3: We are executing well, and our global plan is to add three additional three-nanometer fabs: one in Taiwan, one in Arizona, and one in Japan, to support the robust, multi-year pipeline of demand for three-nanometer technologies.

Speaker #3: In addition to all the new fabs, we continue to convert 5-nanometer tools to support 3-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fabs in all locations, to generate more wafer output.

C.C. Wei: In addition to all the new fabs, we continue to convert 5-nanometer tools to support 3-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fab in all locations to generate more wafer output. We are also focusing on capacity optimization across node, which including flexible capacity support among N7, N5, and N3 nodes. In summary, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers. Now let me talk about our mature node strategies. TSMC's strategy at mature node has not changed. Our first priority is to fully support our customer, Now we continue to increase, not decrease, our mature node capacity in the higher value-added segment.

Speaker #3: We are also focusing on capacity optimization across nodes, which includes flexible capacity support among N7, N5, and N3 nodes. In summary, we are using multiple levels to do everything we can, wherever we can, however we can, to maximize support for all our customers.

Speaker #3: Now, let me talk about our mature node strategies. TSMC's strategy at mature nodes has not changed. Our first priority is to fully support our customers, and we continue to increase, not decrease, our mature node capacity in the higher value-added segment.

Speaker #3: For example, we are increasing our mature node capacity through JASM Fab 1 in Japan for CMOS mini sensor applications, and ESMC in Germany for automotive and industrial applications.

C.C. Wei: For example, we are increasing our mature node capacity through JASM Fab1 in Japan for CMOS image sensor application and ESMC in Germany for automotive and industrial applications. In today's market, outside of specific areas such as power management IC and CMOS image sensor, the mature node demand in other commodity areas is not that strong. Thus, TSMC will continue to focus on the higher value-added and strategic segment while ensuring we have a necessary capacity to support our customers' growth. Finally, let me talk about our A14 status. As I mentioned a few minutes ago, the complexity of leading-edge technology continue to increase. The lead time to develop a new technology such as A14, building the capacity, and then ramping it up now takes five to seven years. There are no shortcuts.

Speaker #3: In today's market, outside of specific areas such as power management IC and CMOS image sensors, the mature node demand in other commodity areas is not that strong.

Speaker #3: Thus, TSMC will continue to focus on the higher value-added and strategic segments, while ensuring we have the necessary capacity to support our customers' growth.

Speaker #3: Finally, let me talk about our A14 status. As I mentioned a few minutes ago, the complexity of leading-edge increases the lead time to develop a new technology, such as A14. Building the capacity and then ramping it up now takes five to seven years—there are no shortcuts.

Speaker #3: Our A14 technology represents the second generation of nanosheet transistors and delivers another four-node stride from N2, with performance and power benefits to address the insatiable need for high-performance and energy-efficient computing.

C.C. Wei: Our A14 technology representing the second generation of nanosheet transistors and deliver another full node stride from N2 with performance and power benefit to address the incessant need for high performance and energy-efficient computing. Compared with N2, A14 will provide a 10 to 15 speed improvement at the same power, or 25 to 30 power improvement at the same speed, and close to 20% chip density gain. A14 technology development is on track and progressing well. Internal product life cycle demonstrate close to 90% device performance and close to 90% 256 megabits SRAM yield. We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications. Customer now tapeout activity is ongoing and ahead of schedule. Pre-production will start in 2027, and volume production is scheduled for 2028.

Speaker #3: Compared with N2, A14 will provide a 10% to 15% speed improvement at the same power, or a 25% to 30% power improvement at the same speed.

Speaker #3: And close to 20% chip density gain. A14 technology development is on track and progressing well. Internal product light vehicle demonstrated close to 90% device performance and close to 90% 256 megabit SRAM yield.

Speaker #3: We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications, and customer N3 tap-out activity is ongoing and ahead of schedule.

Speaker #3: Reproduction was started in 2027, and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduce A13 and A12 as extensions of the A14 family.

C.C. Wei: With our strategy of continuous enhancement, we also introduce the A13 and A12 as extensions of the A14 family. A13 represents a further advancement over A14, achieving an over 6% die area saving through an innovative 97% optical shrink. Through continuous design technology co-optimization, A13 also drives further performance and power-efficient improvement. A13 design rules are backward compatible with the A14 to ensure smooth IP migration. We also introduce A12, which will bring our innovative Super Power Rail technology to the A14 platform for superior performance, power, and area benefits. Both A13 and A12 are scheduled for volume production in 2029. We believe A14 and its derivative technologies will prepare our A14 family to be an even larger and long-lasting node for TSMC than N2.

Speaker #3: A13 represents a further advancement over A14, achieving over a 6% die area saving through an innovative 93–97% optical shrink. Through continuous design technology co-optimization, A13 also drives further performance and power efficiency improvement.

Speaker #3: A13 design rules are backward compatible with A14 to ensure smooth IP migration. We also introduce A12, which will bring our innovative SuperPower Rail technology to the A14 platform for superior performance, power, and area benefits.

Speaker #3: Both A13 and A12 are scheduled for volume production in 2029. We believe A14's derivative technologies will prepare our A14 family to be an even larger and longer-lasting node for TSMC than N2.

Speaker #3: Just like a two-nanometer technology is a larger and longer-lasting node than three-nanometer. And here, further extending our technology leadership position well into the future.

C.C. Wei: Just like a 2-nanometer technology is a larger and longer lasting node than 3-nanometer, here further extend our technology leadership position well into the future. This concludes our key messages, and thank you for your attention.

Speaker #3: This concludes our key messages, and thank you for your attention.

Speaker #1: Thank you, CC. This concludes our prepared statements. Before we begin the Q&A session, I would like to remind everyone to please limit your questions to two at a time so all participants have an opportunity to ask their questions.

Jeff Su: Thank you, C.C. This does conclude our prepared statements. Before we begin the Q&A session, again, 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. Questions will be taken both from the floor and from the call online. Should you wish to raise your question in Chinese, I will translate it to English before our management answers the question. For those of you on the call, if you'd like to ask the question, please press star 1 on your telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star 2. Please note that we will try to conclude today's meeting at around 3:10 or so. We will try to get in as many participants your questions as possible.

Speaker #1: Questions will be taken both from the floor and from the call online. Should you raise to should you wish to raise your question in Chinese, I will translate it to English before I mention my answer to the question.

Speaker #1: For those of you on the call, if you'd like to ask a question, please press star then one on your telephone keypad now.

Speaker #1: If at any time you'd like to remove yourself from the questioning queue, please press star two. Please note that we will try to conclude today's meeting at around 3:10 or so.

Speaker #1: So we will try to get in as many participant questions as possible. But if we're not able to, we do apologize in advance, and thank you everyone for your patience.

Jeff Su: If we're not able to, we do apologize in advance and thank you everyone for your patience. Operator, well, let's begin the Q&A session. We'll take the first few questions from the floor, and then we'll go online, maybe again, left, center, right. Maybe we'll take the first question. Sunny Lin from UBS, please.

Speaker #1: So, operator, let's begin the Q&A session. We'll take the first few questions from the floor, and then we'll go online. Maybe, again, left, center, right.

Speaker #1: Maybe we'll take the first question. Sunny Lynn from UBS, please.

Speaker #2: Thank you very much. Congrats on the very strong performance and outlook. So, number one, I'd like to do a double click on the capex. It's a very encouraging capex outlook.

Sunny Lin: Thank you very much. Congrats on the very strong performance and outlook. Number one, I'll do a double click on the CapEx. Very encouraging CapEx outlook, and I do think it's essential that TSMC showcase a stronger determination in capacity expansion, given the stronger demand and the very tight supply. Beyond 2026, I think every large client also wonder how aggressive TSMC is planning for CapEx. Back in the COVID super cycle, TSMC did provide a three-year CapEx outlook by then. I wonder at this point, will it be possible for you to share any color, maybe for the coming three-year CapEx? Thank you.

Speaker #2: And I do think it's essential that TSMC showcase a stronger determination in capacity expansion, given the stronger demand and the very tight supply. And so beyond 2026, I think every large client also wonders how aggressive TSMC is planning for CapEx.

Speaker #2: And so back in the COVID super cycle, TSMC did provide a three-year CapEx outlook back then. And so I wonder, at this point, would it be possible for you to share any color, maybe for the coming three years' CapEx?

Speaker #2: Thank you.

Speaker #1: Okay. So Sunny's first question is regarding KPAX. She does believe it's important and essential to show our determination to support our customers with these large KPAX investments.

Jeff Su: Okay. Sunny's first question is regarding CapEx. She does believe it's important, essential, to show our determination to support our customers with these large CapEx investments. She wants to know, do we have a three-year CapEx guidance, 2026, 2027, and 2028, similar to what we did back in 2021?

Speaker #1: So she wants to know, do we have a three-year KPEX guidance—2026, 2027, 2028—similar to what we did back in 2021?

Speaker #3: Okay, Sunny. We do not have a number to share with you, but as you know, we invest CapEx this year for the future business opportunity.

C.C. Wei: Okay. Sunny, we do not have a number to share with you, but as you know, we invest CapEx this year for the future business opportunity. As long as there are business opportunities, we are not hesitate to invest. As you can hear from our prepared remarks, that our conviction in the megatrend, AI megatrend, multi-year, is very strong, we're stepping up the CapEx, including increasing this year's CapEx. Last time we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years. Now, the CapEx in the next three years will be even more significantly higher than the past three years. Okay.

Speaker #3: And as long as there are business opportunities, we are not hesitant to invest. As you can hear from our prepared remarks, we have conviction in the AI megatrend; the multi-year trend is very strong, and we are stepping up the CapEx, including increasing this year's CapEx.

Speaker #3: Last time, we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years. Now, the CapEx in the next three years will be even more significantly higher than in the past three years.

Speaker #3: Okay.

Speaker #2: Yeah. Well, sorry, maybe let me follow up on CapEx from another—oh, yeah, sure. So you just announced an additional $100 billion CapEx in the US, and I think that's pretty important for you to secure the business in the US as well.

Sunny Lin: Yeah. Well, sorry, maybe let me follow up on CapEx.

Jeff Su: Second question.

Sunny Lin: Oh, yeah, sure. You just announced additional TWD 100 billion CapEx in the US, and I think that's pretty important for you to secure the business in the US as well. Now with total TWD 265 billion CapEx in Arizona, what's your current plan to bring on the capacities in Arizona in the coming 3 years?

Speaker #2: And so now, with a total of $265 billion CAPEX in Arizona, what's your current plan to bring on the capacities in Arizona in the coming few years?

Speaker #1: Okay, so Sunny's second question is about, you know, C.C. said investing an additional $100 billion in Arizona based on the strong demand from our customers.

Jeff Su: Okay. Sunny's second question is on to, CC said, investing additional TWD 100 billion in Arizona based on the strong demand from our customers. The total investment now is TWD 265 billion. What is the schedule, time frame, or the plan for this investment? Is that correct, Sunny? Yeah. Okay.

Speaker #1: So the total investment now is $265 billion. What is the scheduled time frame or the plan for these investments? Is that correct, Sunny? Yeah.

Speaker #1: Okay.

Speaker #3: Sunny, the schedule will depend on the market situation. You know that. So in today’s situation, the mega trend is so strong that we announce an additional $100 billion investment in Arizona.

C.C. Wei: Sunny, the schedule will depend on the market situation. You know that. Today's situation, the macro trend is so strong, so that we announce additional TWD 100 billion investment in Arizona. How many fabs? Many. Actually, let me say that, it probably additional 4 more fabs will be built.

Speaker #3: How many fabs? Many. So actually, let me say that we probably will build an additional four or more fabs.

Speaker #2: And that's combining front and back end.

Sunny Lin: That's combining front and back-end?

Speaker #3: Yes.

C.C. Wei: Yes.

Speaker #1: Okay, thank you. Let's go to the middle. We have Charlie Chan from Morgan Stanley. We'll go left, middle, right from where I sit. Thank you.

Jeff Su: Okay. Thank you. Let's go to the middle. We have Charlie Chan from Morgan Stanley. We'll go left, middle, right from where I sit. Thank you.

Speaker #4: Thanks for taking my question. Good afternoon. First of all, congrats on a very strong outlook. My first question is really about the foundry competition.

Charlie Chan: Thanks for taking my question. Good afternoon. First of all, congrats for a very strong outlook. My first question is really about the foundry competition. I understand that there's no shortcut for a newcomer like Rapidus, but how about Samsung Foundry, right? They got a huge profit from memory business. Intel got a US policy support. I'm not sure how TSMC is going to address those competition because apparently, several US customers are engaging with those industry peers. Recently, actually yesterday, ASML just announced to expand the EUV capacity for 2028. Would TSMC worry that your competitors to take more slots and build a large capacity in the future to compete with you in a leading-edge business? Thank you.

Speaker #4: I understand that there's no shortcut for a newcomer like TerraFET, but how about Samsung Foundry, right? They got a huge profit from their memory business, and Intel got U.S. policy support.

Speaker #4: So I'm not sure how TSMC is going to address this competition, because apparently several US companies are engaging with those industry peers. And recently—actually yesterday—ASML just announced an expansion of EUV capacity for 2028 with TSMC. Are you worried that your competitors will take more slots and build a larger capacity in the future to compete with you in the leading-edge business?

Speaker #4: Thank you.

Speaker #1: Okay. So Charlie's question is about competition from two angles. One, you know, he does note C. C. said foundry competition, no shortcuts, but he says according to the news, many of our customers are engaging with our foundry competitors.

Jeff Su: Okay. Charlie's question is competition from two angles. One, he does note C. C. said foundry competition, no shortcuts, but he says according to the news, many of our customers are engaging with our foundry competitors. One of them in Korea is making huge amounts of money these days. Another one may have the US government policy support. The first part of his question, how do we see the competition and threat of customers moving to our competitors, number one?

Speaker #1: One of them in Korea is making huge amounts of money these days. Another one may have the U.S. government policy support. So the first part of his question: how do we see the competition and threat of customers moving to our competitors, number one?

Speaker #3: Well, let me say that, yes. One of my competitors in South Korea is making a huge amount of money, and I'm jealous about it.

C.C. Wei: Well, let me say that. Yes. One of my competitor in South Korea, they make a huge amount of money, and I'm jealousy about it. The other one in the US, they got the very strong US government support. We also got the government support, by the way, although we don't announce it. However, let me share with you, as we said, there is no shortcut. What does that mean? Meaning that in this semiconductor industry, you have to go back to fundamental. Government's help is welcome. Really, we also appreciate that. A lot of money, of course, that's nice to have. The most important thing, as we continue to say, is the technology, manufacturing, and customer trust. These three fundamental never change. For my 30 some, 40 years of career, it always the most important thing.

Speaker #3: And then the other one in the US, they got very strong US government support. We also got government support, by the way.

Speaker #3: Although we don't announce it, however, let me share with you—as we said, there's no shortcut. But does that mean, meaning that in this semiconductor industry, you have to go back to the fundamentals. You know, governments are—here is welcome, really—we also appreciate that. A lot of money, of course, that's nice to have, but the most important thing, as we continue to say, is technology, manufacturing, and customer trust.

Speaker #3: These three fundamentals never change. For my 37, 40 years career, it's always the most important thing, and that's always TSMC's secret recipe to win the business.

C.C. Wei: That always the TSMC's secret recipe to win the business. From the competition point of view, choosing a technology, ramping it up, is not buying a milk from 7-Eleven. Well, I'm quoting the sentence from my customer, anyway. It says that you choosing a kind of technology partner, it's no shortcut. You need to understand the technology. You need to really utilize it using the test chip and then something, and work together, and then prepare the capacity and ramp it up. That's what I say, it takes about five years. It's not that today you think this milk is better, you go to the next store. It's a 7-Eleven. You don't like it, you go to another store. No. That's my answer. Charlie, agree?

Speaker #3: So, from the competition point of view, choosing a technology and ramping it up is not like buying milk from 7-Eleven. Well, I'm using that—I'm quoting the sentence for my customer, anyway.

Speaker #3: It says that choosing a kind of technology partner is no shortcut. You need to understand the technology, you need to really utilize it using the test chip, and then something—and work together, and then prepare the capacity and ramp it up.

Speaker #3: That's why I say it takes about five years. It's not like today you think this milk is better, you go to the next door 7-Eleven, you don't like it, and you go to another store.

Speaker #3: No, so that's my answer. Charlie also agrees.

Speaker #4: Yeah. So, hope you can buy more milk so other people cannot get it. Thank you. Yeah, so let me switch gears to a more exciting side.

Charlie Chan: Yeah. Hope you can buy more milk so other people cannot get it. Thank you. Yeah. Let me switch gear to a more exciting side. C.C. just said you see a very strong signal from customer's customers. You also revised up the full year revenue guide. Are you ready to revise up the five-year revenue CAGR, especially the AI semi CAGR? I remember it was like high 50%. Here comes the question, right? That generative AI demand is so strong. CPU is a great opportunity for TSMC, but how about those kind of memory cost increase, right? It's kind of big chunk of this kind of AI CapEx. What's the update of the AI semi CAGR, and how should we look at the contents of this AI semi related to TSMC's growth? Thank you.

Speaker #4: CC just said you see a very strong signal from customers. You also revised up the full year revenue guide. Are you ready to revise up the five-year revenue CAGR, especially the AI semi CAGR?

Speaker #4: I remember it was, like, high 50%. But here comes the question, right? Generally, AI demand is so strong, and CPU is a great opportunity for TSMC.

Speaker #4: But how about the memory cost increase, right? It's kind of a big chunk of this kind of AI capex. So what's the update on the AI semi cycle, and how should we look at the contents of this AI semi related to TSMC's growth?

Speaker #4: Thank you.

Speaker #1: Okay. So Charlie, the second question is regarding AI-related demand. We do continue to see very strong and positive signals from our customers. Customers have revised up our full-year guidance.

Jeff Su: Okay, Charlie's second question is regarding the AI related demand. We do continue to see very strong and positive signals from our customer's customer's customers. We've revised up our full year. His question is around our AI CAGR guidance that we gave in January on a five-year period, mid to high 50s CAGR growth. He's wondering if there's any update to that. agentic AI, a new opportunity. What is our definition of AI accelerator? Do we include that? What is the CAGR?

Speaker #1: So his question is around our AI CAGR guidance that we gave in January on a five-year period, mid- to high-50s CAGR growth.

Speaker #1: He's wondering if there's any update to that. Agentic AI, a new opportunity. What is our definition of AI accelerator? Do we include that, and what is the kicker?

Speaker #3: Charlie, if you read our message, we continue to invest more; we increase the capex with good reason. So if you're asking about the AI's CAGR, let me give you—not a number, but it's stronger and stronger and stronger.

C.C. Wei: Charlie, if you read our message that we continue to invest more, we increase the CapEx with a good reason. If you're asking about the AI's CAGR, let me give you, not a number, but it's stronger and stronger and stronger. We don't give you the number today because it continues to increase, we don't know how to answer this question. Stronger than what we said it before.

Speaker #3: So we don't give you the number today because we continue to increase, so we don't know how to answer this question. But it's stronger than what we said before.

Speaker #3: Okay. Great.

Charlie Chan: Okay.

Speaker #4: Yeah. Thank you.

C.C. Wei: Okay.

Charlie Chan: Great.

Speaker #1: Thank you, Charlie. All right, let's move to this side. Maybe we'll take the question from Arthur from Macquarie.

C.C. Wei: Yeah.

Charlie Chan: Thank you.

Jeff Su: Thank you, Charlie. All right, let's move to this side. Maybe we'll take the question from Arthur from Macquarie.

Speaker #4: Hi. First, congrats on the strong execution and performance. My question is regarding the technology. We noticed that especially the EMIB technology is gaining traction. So, how will TSMC react to this request?

[Company Representative] (Macquarie): Hi. First, congrats on the strong execution and performance. My question is regarding the new advanced packaging technology. We noticed that especially the EMIB-T is gaining traction. How would TSMC react to this request?

[Analyst] (Macquarie): Hi. First, congrats on the strong execution and performance. My question is regarding the new advanced packaging technology. We noticed that especially the EMIB-T is gaining traction. How would TSMC react to this request?

Speaker #1: Okay, sorry. So Arthur's first question is on advanced packaging and competition. I guess, very simply put, EMIB, in his view, is gaining traction. So how do we see the competitive threat from this?

Jeff Su: Okay, sorry. Arthur's first question is on advanced packaging and competition. I guess very simply put, EMIB-T, in his view, is gaining traction. How do we see the competitive threat from this?

Speaker #3: Well, let me say that our packaging capacity is so tight that now it's limited my customer's growth. So we welcome that additional flexibility in the market, and so that will help TSMC's, you know, Guangyan wafer business growth, which is a majority part of TSMC's business.

C.C. Wei: Well, let me say that our packaging capacity is so tight that now it's limiting my customers' growth. We welcome that additional flexibility in the market, that will help TSMC's growing and wafer business growth, which is a majority part of TSMC's business. The technology looks good, according to the newspaper. We hope they will be successful that share some of the loading from TSMC. Today, we're working very hard to shorten the gap between the demand and the capacity. As I said, we welcome have these additional alternatives the flexibility for my customer.

Speaker #3: The technology looks good according to the newspaper, and we hope there will be success, so that it can share some of the loading from TSMC. Today, we are working very hard to shorten the gap between the demand and the capacity.

Speaker #3: And so, as I said, we welcome having these additional alternatives and the flexibility for my customer.

Speaker #1: Thank you. That makes a lot of sense. So a follow-up: as this is a new technology, right? If your clients ask you for support—and our value is to support our customer success, right?

[Company Representative] (Macquarie): Thank you. That makes a lot of sense. A follow-up. As this is a new technology, right? If your clients, they ask you support and our value is support our customer success, right? How TSMC will handle this special request?

[Analyst] (Macquarie): Thank you. That makes a lot of sense. A follow-up. As this is a new technology, right? If your clients, they ask you support and our value is support our customer success, right? How TSMC will handle this special request?

Speaker #1: How will TSMC handle this special request? Sorry, your question is—so, if this technology has some small problem, and then asks our company to support.

Jeff Su: Sorry, your question is-

[Company Representative] (Macquarie): If these technologies have some small problem and then ask our company to support, how the our company accommodate it?

[Analyst] (Macquarie): If these technologies have some small problem and then ask our company to support, how the our company accommodate it?

Speaker #1: So, how has our company, you know, accommodated?

Speaker #3: So Arthur's question is, if there are some issues with this technology, do we have a—are we—well, I don't know how to say it.

Jeff Su: Arthur's question is, if there is some issues with this technology, do we have a Well, I don't know how to say it. Is there an alternative plan?

Speaker #3: Is there an alternative plan? Let me answer the question. Our number one priority is to support our customers' success. So whatever we can hear about customer business, we will do it.

C.C. Wei: Let me answer the question. Our number one is to support our customers' success. Whatever that we can help our customers' business, we want to win. Does that answer your question? Okay.

Speaker #3: Does that answer your question? Okay.

Speaker #1: Let's come back. We'll take one more here, and then we'll go online and then back to the room. Go ahead, yeah, cool.

Jeff Su: Let's come back. We'll take one more here, and then we'll go online and then back to the room. Go. Yeah. Gokul.

Speaker #4: Yeah. Hi. Thanks, CC and Jeff. First question—maybe since you're not wanting to give longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity?

[Company Representative] (J.P. Morgan): Hi. Thanks, C.C., and Wendell and Jeff. First question on, maybe since you're not wanting to give a longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity? Obviously, customer feedback, customers' customers' feedback is important. Do you also consider competitive pressure? Because as an outright market leader, having under supply for a very long period of time is not really desirable for TSMC, right? You probably want a market which is more balanced. When you think about your capacity expansion, how long do you think it takes to fulfill the demand as you see right now? That's one. Second, chips obviously is the current shortage, but there is also a lot of discussion about data center delay, power capacity being available. Could you also share some thoughts on how you are layering in that kind of concerns?

[Analyst] (JPMorgan): Hi. Thanks, C.C., and Wendell and Jeff. First question on, maybe since you're not wanting to give a longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity? Obviously, customer feedback, customers' customers' feedback is important. Do you also consider competitive pressure? Because as an outright market leader, having under supply for a very long period of time is not really desirable for TSMC, right? You probably want a market which is more balanced. When you think about your capacity expansion, how long do you think it takes to fulfill the demand as you see right now? That's one. Second, chips obviously is the current shortage, but there is also a lot of discussion about data center delay, power capacity being available. Could you also share some thoughts on how you are layering in that kind of concerns?

Speaker #4: Obviously, customer feedback—customers' feedback—is important. Do you also consider competitive pressure? Because as an outright market leader, having an undersupply for a very long period of time is not really desirable for TSMC, right?

Speaker #4: You probably want a market which is more balanced. So, when you think about your capacity expansion, how long do you think it takes to fulfill the demand as you see right now?

Speaker #4: That's one. And second, chips obviously is the current shortage. But there is also a lot of discussion about data center delayed power capacity being available.

Speaker #4: Could you also share some thoughts on how you are layering in those kinds of concerns? Because you don't want your chips to be available, but then have to wait for that data center deployment to happen.

[Company Representative] (J.P. Morgan): You don't want your chips to be available, but having to wait for the data center deployment to happen. Just to understand how that goes into your planning framework as well.

[Analyst] (JPMorgan): You don't want your chips to be available, but having to wait for the data center deployment to happen. Just to understand how that goes into your planning framework as well.

Speaker #4: So, just to understand how that goes into your planning framework as well.

Speaker #1: Yeah, thank you. So, Coco's first question is: again, how do we plan our capacity and determine the capacity expansion plan? Certainly, we take into consideration the multi-year demand from our customers and customers' customers, but do we also consider the competitive pressures from competitors building capacity?

Jeff Su: Thank you. Gokul's first question is, again, how do we plan our capacity and determine the capacity expansion plan? Certainly, we take into consideration the demand, multi-year demand from our customers and customers' customers. Do we also consider the competitive pressures from competitors building capacity? Is that part of our calculus to expand the capacity? One. Then also, what about things outside of chips, like data center delays or power, these type of deals?

Speaker #1: Is that part of our calculus to expand the capacity? And then also, what about things outside of chips, like data center delays or power—these types of deals?

Speaker #3: Coco, that's a good question. Definitely, every time we think about the business, we consider the competition—that's number one. And then we look at where we are, and then we decide to partner up, and then do a top-down assessment of those demands.

C.C. Wei: Gokul, that's a good question. Definitely, every time when we think about the business, we consider the competition. That's number one. Then we look at where we are, then we decide a bottom-up and then top-down assessment of those demands. Those are the typical things, I mean, in our daily life. We make a lot of judgment, then we'll be more careful. We talk to customer, and customers are customer. Those are the CSPs. Then we get all their input for the demand, then we make a judgment. Now, remember that I believe every customer tell me the truth. Everyone. You put all the truths together, it's not a truth. We have to make some of the judgment. You know what I mean.

Speaker #3: Those are the typical things. I mean, in our daily life, we make a lot of judgments and then we are more careful when we talk to customers, and customers are customers.

Speaker #3: Those are the CSPs. And then we get all their input for the demand, and then we make a judgment. Now, remember that I believe every customer tells me the truth.

Speaker #3: Everyone, you put all the truths together—it's not just the truths. So we have to make some judgments. You know what I mean.

Speaker #3: You know things—you are lying. Because all the customers are very aggressive, right? That's a CEO's job. A CEO has got to be aggressive. So they give me the number of their demand and I believe they try their best to tell me the truth.

[Company Representative] (J.P. Morgan): Right.

[Analyst] (JPMorgan): Right.

C.C. Wei: Since you are laughing. All the customer are very aggressive, right? That's a CEO's job. CEO got to be aggressive. They give me the number of their demand, and I believe they try their best to tell me the truth. I put all together. All the truths together is not a truth. Mark down that word. Yes, we do a very careful judgment. Might not be correct. We did carefully, and because this is a big money, right? This year, we say we increase the CapEx from $52 to $56, now $60 to $64. You bet that will continue to increase. It's a big money, we do it carefully. We did all the assessment, and that lead to your second question. Are we sure that we deliver the chips to our customer, and they will not put into inventory?

Speaker #3: So, I put all the truths together, but together they are not the truth. Mark down that word. So, yes, we do a very careful judgment.

Speaker #3: It might not be correct, but we did this carefully, and because this is big money, right? This year, we said we would increase the KPIs from 52 to 56, and now from 60 to 64. And you bet, that will continue to increase.

Speaker #3: It's a big amount of money, so we do it carefully. We did all the assessment, and that leads to your second question: Are we sure that when we deliver the chips to our customer, they will not put them into inventory?

Speaker #3: So, actually, we are checking the AI data centers' progress—the building, the location, the demand, the racks. We're checking all that to make sure that TSMC's chips will not be put in inventory.

C.C. Wei: Actually, we are checking the AI data centers progress. The building, the location, the demand, the rest, we checking all that to make sure that TSMC's chips will not be put in inventory. That answer your question?

Speaker #3: That answer your question?

Speaker #4: Yeah, that's clear. So, CC, do you still believe that even at the end of next year we are still going to be running short of supply, even with these elevated capacity buildout plans?

[Company Representative] (J.P. Morgan): Yeah, that's clear. C.C., do you still believe even end of next year, we are still going to be running short of supply, even with this elevated capacity build-out plans?

[Analyst] (JPMorgan): Yeah, that's clear. C.C., do you still believe even end of next year, we are still going to be running short of supply, even with this elevated capacity build-out plans?

Speaker #3: You want me to give you a guarantee, right? Let me say this: I believe from this day on, all the way to probably 2029 or 2030, the demand is very strong.

C.C. Wei: You want me to give you a guarantee, right? Let me say that. I believe from this day on, all the way to probably 2029, 2030, the demand is very strong. Whether in between, there's a dip or not, I'm not very sure. The trend is so robust that I believe we are witnessing a kind of a new industry. I would like to say the new industry called AI industry, which is so common in our daily life because it's going to affect our automotive, affect the humanoids, robot, and also impact to all the industry. By the amount of money we put in, including all the CSPs, this alone is a very important new industry to the world. The demand will be there. The fundamental thing is semiconductor chips, and most of them in TSMC.

Speaker #3: Whether in between there's a dip or not, I'm not very sure. But the trend is so robust that I believe we are witnessing a kind of new industry—I would like to say the new industry called the AI industry.

Speaker #3: Which is so common in our daily life because it's going to affect our automotive, affect the human, noise robot, and also impact all the industry.

Speaker #3: So, by the amount of money we put in, I mean including all the CSPs, this alone is a very important new industry to the world.

Speaker #3: And so the demand will be there. And the fundamental thing is semiconductor chips, with most of them produced by TSMC.

Speaker #1: Thanks CC. My second question

[Company Representative] (J.P. Morgan): Thanks, C.C. My second question is on your profitability. C.C., you joke that you are definitely jealous of your memory competitor on their margins, but it definitely feels like profitability-wise, longer term foundry, especially leading-edge foundry, should be higher than memory, looking at number of competitors out there. As you are investing for a lot of your customers, how is that discussion going? Because you are no longer the most profitable semiconductor manufacturing company at this point in time. You probably have less pressure in terms of passing on your value and capturing your value right now compared to maybe one year back.

[Analyst] (JPMorgan): Thanks, C.C. My second question is on your profitability. C.C., you joke that you are definitely jealous of your memory competitor on their margins, but it definitely feels like profitability-wise, longer term foundry, especially leading-edge foundry, should be higher than memory, looking at number of competitors out there. As you are investing for a lot of your customers, how is that discussion going? Because you are no longer the most profitable semiconductor manufacturing company at this point in time. You probably have less pressure in terms of passing on your value and capturing your value right now compared to maybe one year back.

Speaker #4: ...is on your profitability. So, C.C., you joke that you are definitely jealous of your memory competitor on their margins. But it definitely feels like, profitability-wise, longer-term foundry—especially leading-edge foundry—should be higher than memory, looking at the number of competitors out there.

Speaker #4: So, as you are investing for a lot of your customers, how is that discussion going? Because you are no longer the most profitable semiconductor manufacturing company at this point in time.

Speaker #4: So you probably have less pressure in terms of passing on your value and capturing your value right now, compared to maybe one year back.

Speaker #1: Okay. So, Coco's second question is on profitability and pricing to a certain extent. Of course, some of the memory makers are making very good profitability and margins today.

Jeff Su: Okay. Gokul's second question is on profitability and pricing to a certain extent. Of course, some of the memory makers are making very good profitability and margins today, he notes the role of foundry could be even more value, and TSMC's role as well. What should be the right way to think about the long-term profitability for a foundry? Should it be better? I guess really pricing into this. What type of pricing approach do we want to take?

Speaker #1: But he notes the role of foundry could be even more valuable, and TSMC's role as well. So, what should be the right way to think about the long-term profitability for a foundry? Should it be better?

Speaker #1: And then, I guess, really pricing into this—what type of pricing approach do we want to take?

Speaker #2: Yeah. Coco your question actually

C.C. Wei: Yeah, Gokul, your question actually is simple. What is the way for pricing strategy for TSMC, and what kind of gross margin we should have? The higher the better, of course. We are a partner. A partner, meaning that I said many times, our customer got to be successful. I don't want to squeeze them out from the market. Besides, we are very trustable company with our customers. We don't suddenly increase our price by, which I like to have, 4x or 5x. You cannot survive, for your customer to survive with that kind of a price increase. We earn our value, and we make sure that our profit, our gross margin, is enough for our long-term sustaining expansion that's to the benefit of my customer and TSMC also. That's our philosophy. Yes, I'm really jealous about the memory companies, 86% gross margin. 86.

Speaker #3: Simple. You know, what is the way for pricing strategy for TSMC, and what kind of gross margin we should have? The higher the better, of course, but we are a partner—a partner meaning that, as I say many times, our customer has got to be successful.

Speaker #3: I don't want to squeeze them out from the market. And besides we are very trustable company with our customers. So we don't suddenly increase our price by which I like to have 4x or 5x you know it's a you cannot survive for that kind of for your customer to survive for that kind of a price increase.

Speaker #3: So we earn our value, and we make sure that our profit—our gross margin—is enough for our long-term, sustaining expansion. That's to the benefit of my customer and TSMC also.

Speaker #3: That's our philosophy. So yes, I am really jealous of memory companies—an 86% gross margin! If I had 86%, 68%, I would be happy, but all right, anyway. So, to answer the question: we are very trustworthy.

C.C. Wei: About 68, I will be happy about that. All right. Anyway, I answered the question. We are very trustable.

Speaker #4: Thank you.

Speaker #1: Okay, thank you. Operator, can we take the next two questions from participants on the line, please?

[Company Representative] (J.P. Morgan): Thank you.

[Analyst] (JPMorgan): Thank you.

Jeff Su: Okay. Thank you. Operator, can we take the next two questions from participants on the line, please?

Speaker #2: Yes. Now it's Jen Fontanelli from Erite.

Operator: Yes. Now it is Jim Fontanelli from Arete.

Speaker #5: Yeah. Thank you. Thank you. So, could I ask about the risk that you see around customer concentration as AI demand continues to significantly outgrow other end markets?

Jim Fontanelli: Yeah. Thank you. Could I ask about the risk that you see around customer concentration? As AI demand continues to significantly outgrow other end markets, I think your exposure to your top five customers is becoming meaningfully larger than at any point in your history. I would just like to understand how you see that risk.

Speaker #5: You know, I think your exposure to your top five customers is becoming meaningfully larger than at any point in your history. So I'd just like to understand how you see that risk.

Speaker #1: Okay. So Jim's first question is regarding risk around customer concentration. We have large customers that are getting larger. Are we worried that we have too many big customers, or about customer concentration?

Jeff Su: Okay. Jim's first question is risk around customer concentration. We have large customers that are getting larger. Are we worried that we have too many big customers or the customer concentration?

Speaker #3: No, that's not our concern. Besides, as you said, the customers are growing bigger and bigger. We are very happy about it. And some of the customers are also growing very fast.

C.C. Wei: No, that's not our concern. Besides what you say, the customers are growing bigger and bigger, we are very happy about it. Some of the customers are also growing very fast. Jim, it's not what you said, that the bigger customer is growing bigger and bigger. No. There's a lot of new players in the AI industry.

Speaker #3: So it's not, Jim, it's not what you said—that the bigger customer is going bigger and bigger. No. I mean, there's a lot of new players in the AI industry.

Speaker #1: Do you have a second question?

Jeff Su: Do you have a second question?

Speaker #5: Yes. So, you were saying your direct customers put capital into both financing and investing in AI demand. Is that something that TSMC is considering?

Jim Fontanelli: Yes. We're seeing your direct customers put capital into both financing, investing, and investing in AI demand. Is that something that TSMC is considering?

Speaker #1: So Jim, second question. He knows some of our customers are, you know, helping to invest in their customers. Jim, if I understand you correctly, you're asking if TSMC, if this is an approach we would take to invest in our customers.

Jeff Su: Jim's second question, he knows some of our customers are helping to invest in their customers. Jim, if I understand you correctly, you're asking if TSMC, if this is an approach we would take to invest in our customers. Is that correct? Or financing and investing.

Speaker #1: Is that correct? Or financing?

Speaker #5: In investing. Yeah. In your in in in the end end customers not your direct customers.

Jim Fontanelli: Yeah. In the end customers, not your direct customers.

Speaker #1: Right. So, in customers as well.

Jeff Su: Right. In customer's customers as well.

Speaker #3: To answer Jim, to answer your question directly, every company has a different consideration and every company has a different strategy. So far, no, TSMC doesn't do these kinds of financial arrangements because we think we are working with our current customers with the current model smoothly and also successfully.

C.C. Wei: To answer-

Jim Fontanelli: Yes

C.C. Wei: Jim, to answer your question directly, every company has a different consideration, and every company has a different strategy. So far, no, TSMC don't do this kind of financial arrangement because we think we are working with current customer with the current model smoothly and also successfully.

Speaker #1: Okay. Thank you, operator. Can we move on to the next participant on the line? Then we'll come back to the floor.

Jeff Su: Okay. Thank you. Operator, can we move on to the next participant on the line, and then we'll come back to the floor.

Speaker #2: Next one to ask a question: Matti Husaini from SIG.

Operator: Next one to ask question, Mehdi Hosseini from SIG.

Speaker #6: Yes, thanks for taking my question. I have two from my end. I want to go back to the $100 million investment in the US. Is there any way you can give us some timeline?

Mehdi Hosseini: Yes, sir. Thanks for taking my question. Two from my end. I want to go back to the TWD 100 million investment in US. Is there any way you can give us some timeline? Is it over the next three years, five years? How should we think about the progression of this TWD 100 billion investment in US? I have a follow-up.

Speaker #6: Is it over the next three years, five years? How should we think about the progression of this $100 billion investment in the U.S.? I don't have a follow-up.

Speaker #1: So Matti's first question is around the announcement today of an additional $100 billion investment in the US. In terms of the CapEx time frame, is it in the next three years or in five years?

Jeff Su: Mehdi's first question is around the announcement today, additional 100 billion investment in the US. In terms of the CapEx timeframe, is it in the next three years, in the five years? Do we have any schedule or timeframe to share about this additional 100 billion?

Speaker #1: Do we have any schedule or time frame to share about this additional $100 billion?

Speaker #3: We do have a plan, but let me share with you: actually, the progress or the schedule most of the time depends on the market situation and our customers' demand.

C.C. Wei: We do have a plan, let me share with you actually the progress or the schedule. Most of the time, it depends on the market situation and our customers' demand. If you ask me to give you a firm schedule, no, we don't have it today, but we do have a plan. We speed it up. We try to speed it up as fast as possible.

Speaker #3: So if you ask me to give you a firm schedule, no, we don't have it today. But we do have a plan, and we've sped it up.

Speaker #3: We try to speed it up as much as possible.

Speaker #6: Okay. So the message is you're flexible, but also you're expediting the investment in the US. Is that correct?

Mehdi Hosseini: Okay. The message is, you're flexible, but also you're expediting the investment in US. Is that correct?

Speaker #3: So his well.

Speaker #1: I think C. C. said we're trying to move as fast as we can, but everything is based on our customer needs.

Jeff Su: Well, I think C.C. said we're trying to move as fast as we can, but everything is based on our customer needs.

Speaker #3: Yeah. We are also moving the new fabs and the facilities in Taiwan as fast as possible. And we are trying to bring up a new fab in Japan as fast as possible.

C.C. Wei: Yeah.

Mehdi Hosseini: Okay.

C.C. Wei: We're also moving the new fabs and the facilities in Taiwan as fast as possible.

Mehdi Hosseini: Okay

C.C. Wei: We try to bring up a new fab in Japan as fast as possible. Because of the situation today is the demand and the supply, the gap is so big. We are working very hard to narrow the gap.

Speaker #3: Because of the situation today, the demand and the supply, the gap is so big, so we are working very hard to narrow the gap.

Speaker #6: Okay. Thank you. And I want to and I have a a a follow up. Actually I want to dive into the compute part of HPC.

Mehdi Hosseini: Okay. Thank you.

Jeff Su: Do you have?

Mehdi Hosseini: I have a follow-up. Actually, I want to dive into the compute part of HPC. I want to ask you about the networking switches. In that context, when should we expect the COUPE platform to have a material contribution to your top line?

Speaker #6: And I want to ask you about the networking switches, and in that context, when should we expect the COOP platform to have a material contribution to your top line?

Speaker #1: Okay. So Matti's second question is very specific. He wants to know, for our CoOP platform, when will it have a very meaningful contribution to the business?

Jeff Su: Okay. Mehdi's second question, very specific. He wants to know for our COUPE platform, when will it have a very meaningful contribution to the business?

Speaker #3: We start the production right now, and it will be ramped up. As time goes by, I think the AI data centers need to lower their power consumption.

C.C. Wei: We start the production right now, and it will be ramped up. As time goes by, I think the AI data center need to lower down the power consumption and increase the bandwidth of the communication channel. I believe the COUPE will continue to increase the demand and then will become a very important technology in the next few years.

Speaker #3: And that increases the bandwidth of the communication channel. So I believe the co-op will continue to increase the demand and then will become a fairly important technology in the next few years.

Speaker #1: Okay, thank you. Let's come back to the floor. We'll take the next question from Citibank. Laura Chen.

Jeff Su: Okay. Thank you. Let's come back to the floor. We'll take the next question from Citi, Laura Chen.

Speaker #4: Thank you. Thank you very much for taking my questions. My first question is also about the very promising outlook, as TSMC raised the CapEx and also the growth outlook for this year.

Laura Chen: Thank you. Thank you very much for taking my questions. My first question is also about very promising outlook as TSMC raised the CapEx and also the growth outlook for this year. Particularly, I think, C.C., you mentioned about the agentic AI and the CPU growth potential, can you give us more update among that AI, different kind of chips between GPU, accelerators, or CPU? What you see the growth potential and your visibility? Thank you.

Speaker #4: In particular, I think, CC, you mentioned about agentic AI and the CPU growth potential. But can you give us more of an update among the different kinds of AI achievements between GPU accelerators or CPUs?

Speaker #4: What do you see as the growth potential and your visibility? Thank you.

Speaker #1: So Laura's first question is around sort of the outlook we obviously raised the Capex and growth outlook for this year. She wants to know within the AI the outlook for you know agentic AI and CPUs versus AI accelerators GPUs etc.

Jeff Su: Laura's first question is around sort of the outlook. We obviously raised the CapEx and growth outlook for this year. She wants to know, within the AI, the outlook for agentic AI and CPUs versus AI accelerators, GPUs, et cetera. How do we see these segments?

Speaker #1: How do we see these segments?

C.C. Wei: Laura, I don't think I can give you a very specific number, let me share with you. All of them are in TSMC, they're also using the same kind of leading-edge technologies. We working with our customer to allocate the wafer, the supply, to balance the CPU, GPU, XPU's ratio. Okay.

Speaker #3: Laura, I don't think I can give you a very specific number. But let me share with you: all of them are in TSMC.

Speaker #3: And they're also using the same kind of leading-edge technologies. We're working with our customer to allocate the wafer supply to balance the CPU, GPU, XPU ratios.

Speaker #3: Okay.

Speaker #4: Okay, thank you. That—that's, yeah, that makes sense. And then my second question is also about the advanced packaging. We know that during the symposium, TSMC previously already announced a 14x radical cost roadmap to enable larger AI packaging.

Laura Chen: Okay. Thank you. That makes sense. My second question is also about the advanced packaging. We know that during the symposium, TSMC previous already announced a 14X reticle CoWoS roadmap to enable larger AI packaging. At the same time, we also noted that TSMC, maybe last month, in Japan, you showed the substrate developments for CoWoS to enable some of the glass technology. I'm just wondering if you can give us more technologies progress update on the different kind of technology for glass core or glass substrate or glass carrier. What's the progress at TSMC right now? Thank you.

Speaker #4: But at the same time, we also noted that TSMC maybe last month in Japan, you showed the substrate developments for cost, to enable some of the glass technology. So I’m just kind of wondering if you can give us more like a technology progress update on the different kinds of technology for glass core, or glass substrates, or glass carrier.

Speaker #4: What's the progress at TSMC right now? Thank you.

Speaker #1: So Laura's second question is on advanced packaging. She notes, as we said, we roadmap to even larger than 14x reticle size with CoWoS.

Jeff Su: Laura's second question is on advanced packaging. She notes, as we said, we roadmap to even larger than 14X reticle size with CoWoS. She also wants to know the technology process in newer areas like glass substrates, glass cores. What is the progress and status?

Speaker #1: But she also wants to know the technology process in newer areas, like glass substrates and glass cores. What is the progress and status?

Speaker #3: Let me say that today, the maturity is still cost, right? And we are developing that alternative to try to lower down the cost.

C.C. Wei: Let me say that today, the majority is still CoWoS, right? We are developing that alternative, try to lower down the cost. We also work with substrate vendor so that our customer can have their product be in the market. The progress, we're building a pilot line that I announced a few quarters ago. It will takes about another one year to be mature so we can put into the production with our customer. Okay.

Speaker #3: And we also work with substrate vendors so that our customers can have their products be in the market. The progress—we are building a pipeline that I announced a few quarters ago, and it will take about another one year to be mature so we can put it into production with our customers.

Speaker #3: Okay.

Speaker #4: Thank you.

Speaker #1: Thank you. Let's move to this side of the Bank of America. Haslu, sorry.

Laura Chen: Thank you.

Jeff Su: Thank you. Let's move to this side of the room. Bank of America, Haas Liu. Sorry.

Speaker #5: Yes. Thanks, CC, Wendell, and Jeff, for taking my questions, and congrats on the great results. My first question is regarding your CapEx and DELS. You gave a pretty solid CapEx outlook for this year and also said the CapEx outlook for the next couple of years will continue to be pretty significant.

Haas Liu: Yes. Thanks, C.C., Wendell, and Jeff for taking my questions and congrats on great results. My first question is regarding your CapEx and sales. You gave pretty solid CapEx outlook for this year and also said the CapEx outlook in the next couple of years will continue to be pretty significant. You also raised this year at 40% plus. Would you be able to provide your next couple of years sales growth outlook, try to quantify it? Relatedly, I think also on that topic is whether you can just try to break down which part of the demand you are seeing as the key driver for you to raise your CapEx and also for this year's demand. Is it still mostly driven by cloud computing, or it is proliferating to edge computing?

Speaker #5: And you also raised this year at 40% plus. So, would you be able to provide your next couple of years' sales growth outlook, try to quantify it, and relatedly, I think also that topic is whether you can just try to break down which part of the demand you are seeing as the key driver for you to raise your CapEx, and also for this year's demand?

Speaker #5: Is it still mostly driven by cloud computing, or is it proliferating to edge computing? Or, to some extent, is it also related to your equipment supply chain raising their prices as well?

Haas Liu: To some extent, is it also related to your equipment supply chain is raising their price as well? Thank you.

Speaker #5: Thank you.

Speaker #1: Okay. That's several questions in one, so I'm going to take that as one and a half questions at least. But basically, Haas is asking—with the CapEx increase and the revenue increase this year, I think he's trying to look at intensity, but he wants to know: what about the revenue guidance for the next several years?

Jeff Su: Okay, that's several questions in one. I'm going to take that as one and a half questions at least. Basically, Haas is asking, with the CapEx increase and the revenue increase this year, I think he's trying to look at intensity, but he wants to know, what about the revenue guidance for the next several years? Yeah, I'll stop there.

Speaker #1: Yeah. I'll stop there.

Speaker #3: Oh. Okay. Let me answer that question. Because of the revenue corresponding to our investment, right? Because we know—we forecast our demand, and then we make an assessment, and then we do the Capex.

C.C. Wei: Okay, let me answer that question. Because of the revenue corresponding to our investment, right? Because we know, we forecast our demand, and then we make a assessment, and then we do the CapEx. Next few years is going to be a very good business for TSMC. That's all I can say.

Speaker #3: The next few years are going to be a very good business for TSMC. That’s all I can say.

Speaker #1: And then the other part—so what's the key driver? Is it cloud AI? Is it edge AI? Is it because pool vendors are increasing the price?

Jeff Su: The other part, what's the key driver? Is it cloud AI? Is it edge AI? Is it because tool vendors are increasing the price?

Speaker #3: It's all AI related. Everything.

C.C. Wei: It's all AI related. Everything.

Speaker #5: Okay. Yeah.

Speaker #1: You have a quick follow-up.

Haas Liu: Okay, yeah.

Jeff Su: You have a quick follow-up?

Speaker #5: Yes, I think it is more about your long-term strategy, because a lot of people have actually been asking about your CapEx and also competition on the front end.

Haas Liu: Yes. I think it is more on your long-term strategy, because a lot of people have actually been asking about your CapEx and also competition on the front end. I would actually say that if on the back end, competition is rising, especially coming from Intel, AMD, are you worried that your value add for your overall foundry business across front-end manufacturing to the back-end packaging business, the value add could actually be cannibalized? With growing competition. Thank you.

Speaker #5: But I would actually say that if, on the back end, competition is rising, especially coming from Intel, MFT, are you worried that your value add for your overall foundry business, across front-end manufacturing to the back-end packaging business, the value add could actually be cannibalized with growing competition?

Speaker #5: Thank you.

Speaker #1: Okay, thank you. So, Haas, the second question is around the competition in advanced packaging. If our competitors are able to gain traction or business with things like MFT, would that be the gateway or an entryway into more competitive threat on the front-end logic wafer side?

Jeff Su: Okay. Thank you. Haas' second question is around the competition in advanced packaging. If our competitors are able to gain traction or business with things like EMIB-T, would that be the gateway or an entryway into more competitive threat on the front-end logic wafer side? Does advanced packaging lead to front-end wafer?

Speaker #1: So, does advanced packaging lead to front-end wafer?

Speaker #5: Haas.

Speaker #3: Let me answer that. The front-end wafer business and the back-end business are two different things, right? If they were the same, then you could expect ASE to become a front-end competitor also.

C.C. Wei: Haas, let me answer that. The front-end's wafer business and the back-end's business are two different things. Right? If they are the same, then you can expect ASE become the front-end competitor also. It's two different things. I also say that since our capacity in the back end is still in shortage mode, the gap is bigger. I welcome that the competitor offer some of the flexibility to my customer so that their front-end wafer can be put into the package and that helps TSMC's front-end wafer business. That's our attitude.

Speaker #3: It's two different two different thing. And I also say that since our capacity in the back end is so in shortage mode the gap is bigger and so I welcome that the competitor offer some of the flexibility to my customer so that their front end wafer can be put into the package and that help TSMC's front end wafer business.

Speaker #3: That's our attitude.

Speaker #5: Okay. Thank you.

Haas Liu: Okay. Thank you.

Speaker #1: Thank you. Operator, let's take one more from online, and then we'll wrap up with questions back in person.

Jeff Su: Thank you. Operator, let's take one more from the online, then we'll wrap up with back in person.

Speaker #6: Next one to ask a question: Robert Sanders from Deutsche Bank.

Operator: Next one to ask question, Robert Sanders from Deutsche Bank.

Speaker #7: Yeah, thanks for taking my question. You recently stated that high-NA tools are too expensive. But could you please discuss how your customers are considering the impact of die stitching challenges from a smaller field size with high-NA?

Robert Sanders: Yeah, thanks for taking my question. You recently stated that High NA tools are too expensive, could you please discuss how your customers are considering the impact of die stitching challenges from a smaller field size with High NA? Could that actually slow the adoption of High NA even if the tech improves or the tech gets more productive? I have a follow-up. Thanks.

Speaker #7: Could that actually slow the adoption of high-NA, even if the tech improves or the technology gets more productive? And I have a follow-up.

Speaker #7: Thanks.

Speaker #1: Well, Rob’s first question is on a very specific technology. On around high NA adoption, he wants to know the customer’s feedback on the challenges with die stitching.

Jeff Su: Well, Rob's first question is a very specific technology around High NA adoption. He wants to know the customer's feedback on the challenges with die stitching. Is this an impediment or barrier to High NA adoption in our view?

Speaker #1: Is this an impediment or a barrier to high NA adoption in our view?

C.C. Wei: You got a very detailed understanding of the High NA. Today, the field size is only one half. We put that one into our consideration of the manufacturing cost and something. Again, let me answer this question quickly. Whether we use a High NA or not, actually, one, High NA is a very good tool. Let's assume that, all right? We understand it's a very high performance. TSMC make it clear that we work with ASML and try to make it more suitable for manufacturing in terms of the cost and in terms of the maturity. We always consider that technology maturity and the cost, and whether we use it or not. Okay.

Speaker #3: You've got to worry. Detailed understanding of the high NA, today the field size is only one half. And we put that into our consideration of the manufacturing cost and something.

Speaker #3: Again, let me answer this question quickly. Whether we use a high NA or not—actually, one high NA is a very good tool.

Speaker #3: Let's assume that. Right. We understand it's a very high, high performance. But then TSMC makes it clear that we work with ASML and try to make it more suitable for manufacturing in terms of the cost and in terms of the maturity.

Speaker #3: So, we always consider the maturity of the technology and the cost, and whether we use it or not. Okay.

Speaker #1: Okay. Thank you, CC. Do you have a second question, Robert?

Jeff Su: Okay. Thank you, C.C. Do you have a second question, Robert, first?

Speaker #7: Yeah. Just just a quick just a quick follow up. I think all of us on this call are assuming that the unconstrained demand for three nanometer and below is is sort of 30 to 50% above the your ability to supply.

Robert Sanders: Yeah, just a quick follow-up. I think all of us on this call are assuming that the unconstrained demand for 3 nanometer and below is sort of 30% to 50% above your ability to supply. Is it in fact much larger than 30% to 50% above? Because it feels like it might be based on what you're saying, because I think all of us are assuming it's sort of solvable over the next three, four years, but it sounds like the number could be much larger. Thanks.

Speaker #7: Is it, in fact, much larger than 30% to 50% above? Because it feels like it might be, based on what you're saying.

Speaker #7: Because I think all of us are assuming it's sort of solvable over the next three to four years. But it sounds like the number could be much larger.

Speaker #7: Thanks.

Speaker #1: Well, those are your numbers, but Robert is asking, you know, about the demand in excess of supply. Is it 30 to 50%, or is it something even larger?

Jeff Su: Well, those are your numbers, Robert is asking the demand in excess of supply, is it 30% to 50%? Is it something even larger? Do we have a number to share?

Speaker #1: Do we have a number to share?

Speaker #3: No, we don't have a number to share, because—let me say that the gap is very big. Bigger than… sorry, I don't want to make a comment on the memory.

C.C. Wei: No, we do not have a number to share because the gap is very big. Sorry, I do not want to make a comment on the memory, but a very big gap.

Speaker #3: But a very big gap.

Speaker #7: Thanks a lot.

Speaker #1: Okay, we have about nine minutes left. We'll come back to the floor for any questions. Let's take one from here. Evelyn, you from Goldman.

Robert Sanders: Thank you.

Jeff Su: We have about nine minutes left. We will come back to the floor with any question. Let us take one from here. Evelyn Yu from Goldman Sachs.

Speaker #8: Thank you for taking the question. Because we mentioned a lot that we're going to step up our capacity growth, I'm just trying to quantify here. I noticed that during your symposium, you actually mentioned that the two-nanometer family capacity growth will be growing at around 70% CAGR from '26 to '28.

Evelyn Yu: Thank you for taking the question. We mentioned a lot on that we are going to step up our capacity growth. I am just trying to quantify here because I noticed that during our symposium that you actually mentioned about 2-nanometer family capacity growth will be growing at around 70% CAGR from 2026 to 2028. N3 plus and N5 to grow by 25% CAGR from 2022 to 2027. I was just wondering, are those numbers still right assumptions today? Are we seeing actually any changes over the past quarter? How should we compare with the non-supporting demand out there?

Speaker #8: And N3 Plus and fiber grow by 25, cater from 22 to 27. So I was just wondering, are those numbers still the right assumptions today? Are we actually seeing any changes over the past quarter, and how should we compare with the non-supporting demand out there?

Speaker #1: Okay. So Evelyn's first question is around capacity growth. She knows during the symposium we did share some, you know, five-year CAGR growth numbers—for 2-nanometer, around 70% CAGR, and then 3-nanometer, around, I guess, I can't remember the exact, but 25%.

Jeff Su: Okay, Evelyn's first question is around capacity growth. She knows during the symposium, we did share some 5-year CAGR growth numbers for 2-nanometer, around 70% CAGR, then 3-nanometer around, I guess I can't remember the exact, but 25%. Are those numbers still the same, or has it changed now that our CapEx and stuff?

Speaker #1: So, are those numbers still the same, or have they changed now that our capex and stuff?

Speaker #3: Did we say that in the Technology Symposium? We showed the chart. Okay. Now it is bigger. That's all I said.

C.C. Wei: Did we say that in technology symposium? Oh, we show the chart. Okay, now is bigger. That's all I say.

Speaker #1: Do you have a second question?

Jeff Su: You have a second question.

Speaker #8: Okay, thank you. Very good direction. All right. My other question is about the advanced packaging side, because you always wonder about the advanced packaging capex together with testing, mask making, and others. That's around 10 to 20% of total capex.

Evelyn Yu: Okay. Thank you. Very good direction. All right. My another question touch based on the advanced packaging side, because you always bundle the advanced packaging CapEx together with testing, mask making, and others, that's around 10% to 20% of total CapEx. One thing I'm trying to figure out here is that how much of that actually goes through advanced packaging alone? Because given that advanced packaging is capital intensive, less capital intensive versus front-end, how should we think about a gap between its price and revenue share and its CapEx share over the next few years? What I think finally is that as it becomes more important, how should we think of, maybe you should consider breaking it out as a separate CapEx item going forward.

Speaker #8: And so one thing I'm trying to figure out here is that how much of that actually goes through the advanced packaging alone. And because given that advanced packaging is capital intensive a less capital intensive versus front end.

Speaker #8: So how should we think about a gap between its price and revenue share, and its capex share over the next few years?

Speaker #8: And well, I think finally, as it becomes more important, how should we think of—maybe you should consider bringing it out as a separate capex item going forward.

Speaker #1: Okay, so Evelyn's question is around advanced packaging. She wants to know, when we guide for the CapEx, of course, we guide in a bucket of packaging, testing, mass making, and others together.

Jeff Su: Okay. Evelyn's question is around advanced packaging. She wants to know, when we guide for the CapEx, of course, we guide it in a bucket of packaging, testing, mask-making, and others together. Why do we not separate out just into packaging specifically? Her suggestion is we should. That is part of it, number one, the CapEx breakdown.

Speaker #1: Why do we not separate out "just" into packaging specifically? Her suggestion is we should, but I think, more so, that's part of it. Number one, the CapEx breakdown.

Speaker #3: Evelyn, let me say that. We try very hard to make sure that our capex number is correct, but with flexibility between the front end and the back end.

C.C. Wei: Evelyn, let me say that we try very hard to make sure that our CapEx number is correct, but with the flexibility between the front end and the back end. Sometimes we have a bottleneck, we put more money to buy the bottleneck tools. Sometimes it's in the front end, sometimes it's in the back end. In the ballpark, the percentage is just like Window share with everybody. For long term, that's a back end, is about at-

Speaker #3: Sometimes we have a bottleneck, so we put more money to buy the bottleneck tools. And sometimes it's in the front end, sometimes it's in the back.

Speaker #3: But in the ballpark, the percentage is just like a window shared with everybody. For long term, I mean the back end is about 10 to 20.

Jeff Su: 10% to 20%.

Speaker #3: Oh, that's a big range. Anyway, all I can say is that it's still 10 to 20. As I said, actually, I'm being very honest to tell you that as time goes by, some of the customers for the product need more testers.

C.C. Wei: 10% to 20%. Oh, that's a big range. Anyway, all I can say is that's still 10% to 20%. As I said, actually, I'm very honest to tell you that as time goes by, some of the customers' product need more tester. You cannot believe that. The tester in shortage, we had to put more CapEx in the tester or in the packaging or in other areas. That's why we cannot very specifically say which area we put how much of the CapEx.

Speaker #3: You cannot believe that. I mean, so the tester is in shortage, so we had to put more capex in the tester, or in the packaging, or in other areas.

Speaker #3: So that's why we cannot very specifically say which area we put how much of the capex.

Speaker #1: That's too specific. Yeah. Okay, we'll move to the last participant, KGI's Felix Penn. Thank you for being patient.

Jeff Su: That's too specific. Yeah. Okay. The last participant, KGI, Felix Pan. Thank you for being patient.

Speaker #5: Hello good afternoon. Thanks for taking my question. So my first question is regarding to the capex revision. So from year to date ate so TSMC raised the capex guidance by almost 10 yeah 10 billion US dollars.

Felix Pan: Hello, good afternoon. Thanks for taking my question. My first question is regarding to the CapEx revision. From year to date, TSMC raised the CapEx guidance by almost $10 billion. Can you give me some color where is the upside from how you guys see the difference from six months ago? Is that from CPU accelerator or memory components or back-end CoWoS expansion? Just the upside, how we see things differently from six months ago.

Speaker #5: So, can you give me some color? Where's the upside from, how do you guys see things differently from six months ago? Is that from, like, CPU, accelerator, or memory companies, or back-end, core, or expansion? Just the upside—how do we see things differently from six months ago?

Speaker #1: Okay. So Felix is noting that in January, we guided for $52 to $56 billion. In April, we said closer to $56 billion. Now, $60 to $64 billion.

Jeff Su: Okay. Felix is noting, in January, we guided for $52 to $56 billion. In April, we said closer to $56 billion, now $60 to 64 billion. We have increased the CapEx guidance. What is driving this? Is it agentic AI only? Is it packaging? Is it AI accelerator?

Speaker #1: So we have increased the CapEx guidance. What is driving this? Is it agentic AI only? Is it packaging? Is it AI accelerators?

Speaker #5: Well simply put the most.

C.C. Wei: Well, simply put, the most important reason is because of demand continue to increase, and we feel the pressure from the customer to drive TSMC, not drive, actually, to cooperate with TSMC for the capacity increase. That's one of the major reasons. The second reason is inflation. Now we buy the tools with inflation price. Okay. You understand what I say?

Speaker #3: The important reason is because demand continues to increase, and we felt the pressure from the customer to drive TSMC—well, not drive, actually—to cooperate with TSMC for the capacity increase.

Speaker #3: That's one of the major reasons. The second reason is inflation. Now, we buy the tools at inflated prices. Okay? You understand what I say.

Speaker #3: Okay.

Speaker #5: Thank you. So my second question is about the mature node. People always focus on AI leading node, but it seems like the mature node is also seeing very strong demand recovery and some supply issues as well.

Operator: Okay. Thank you. My second question is about the mature node. People always focus on AI leading nodes, but it seems like mature nodes also seeing a very strong demand recovery and some supply issue as well. How you guys see the demand supply dynamic and pricing for the mature node? Apparently, there is some impact from the AI crowding out effect, but mature nodes still largely depends on the consumer demand. Consumer demand is still weak, how you guys see the demand supply dynamic for mature nodes? Thanks.

Felix Pan: Okay. Thank you. My second question is about the mature node. People always focus on AI leading nodes, but it seems like mature nodes also seeing a very strong demand recovery and some supply issue as well. How you guys see the demand supply dynamic and pricing for the mature node? Apparently, there is some impact from the AI crowding out effect, but mature nodes still largely depends on the consumer demand. Consumer demand is still weak, how you guys see the demand supply dynamic for mature nodes? Thanks.

Speaker #5: So how do you guys see the demand-supply dynamic and pricing for the mature node? Because apparently there's some impact from the AI crowding-out effect.

Speaker #5: But mature node still largely, you know, depends on the consumer demand. So consumer demand is still weak. So, how do you guys see the demand-supply dynamic for mature node?

Speaker #5: Thanks.

Speaker #1: Okay, thank you. So Felix's second question is on mature node. He notes there's lots of talk that mature nodes are seeing a strong demand recovery and the supply is very tight.

Jeff Su: Okay. Thank you. Felix's second question is on mature node. He notes there is lots of talk that mature nodes are seeing a strong demand recovery, and the supply is very tight. Mature node pricing is very favorable or strong. He wants to know how do we see the mature node supply demand situation.

Speaker #1: So mature node pricing is very favorable or strong. So he wants to know how we see the mature node supply-demand situation.

Speaker #3: Actually, the mature node covers a lot of different segments. Only the ones related to AI are in shortage. The most important one, the number one, is power management IC.

C.C. Wei: Actually, the mature node covers a lot of different segments. Only the one which is related to AI is in shortage, which is the most important one, is the number 1, is power management IC, because all the AI data center needs a lot of power management. Those are the mature node technology, like 0.18 micron, 90 nanometer, or something like that. Those are in shortage, definitely. Also, the sensor portion, because you need a lot of sensor to detect the environmental information and put into the AI data center to analyze it. Other than that, other area, just like you pointed out, the consumer product is not in a high demand, so other segment is not so strong demand. As I pointed out in my statement, other area, no, it is not so much of say, in a lot of shortage. Not at all.

Speaker #3: Because of all the AI, data centers need a lot of power management. And those use the mature node technology, like 0.18 micron, 90 nanometer, or something like that.

Speaker #3: Those are in shortage, definitely. And also the sensor portion, because you need a lot of sensors to detect the environmental information and put it into the AI data center to analyze it.

Speaker #3: Other than that, just like you pointed out, the consumer product is not in high demand. And so, the other segment is not such strong demand.

Speaker #3: And as I pointed out in my statement, other areas—no, it's not so much of an issue. There is not a lot of shortage. Not at all.

Speaker #1: Okay. Thank you. Thank you, CC. Thank you, Wendell. Thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference call will be accessible within 30 minutes from now.

Jeff Su: Okay. Thank you. Thank you, CC. Thank you, Wendell. Thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, both are going to be available through our website, again, at www.tsmc.com. If some of you were not able to ask your question, please feel free to reach out to TSMC IR, and we will follow up with you. Thank you everyone for joining us today. We hope everyone continues to stay well. Have a good summer, we hope you will join us again next quarter. Thank you, have a good day.

Speaker #1: The transcript will become available 24 hours from now and will be accessible through our website at www.tsmc.com. If some of you are not able to ask your question, please feel free to reach out to TSMC IR and we will follow up with you.

Speaker #1: Thank you, everyone, for joining us today. We hope everyone continues to stay well. Have a good summer, and we hope you'll join us again next quarter.

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