Good afternoon everyone and welcome to TSMC's second quarter 2026 Earnings Conference and Conference Call. This is Jeff Hsu, 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. If you're 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's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the second quarter of 2026, followed by our guidance for the third quarter of 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then 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. 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 guidance.
Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2026. After that, I will provide the guidance for the third quarter of 2026. Now let's move on to revenue by technology. 2nm process technology contributed 3% of wafer revenue in the second quarter. 3nm, 5nm and 7nm accounted for 30%, 33% and 11% respectively. Advanced technology, defined as 7nm 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 second quarter 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, we ended the second quarter with cash and marketable securities of 3.5 trillion NT, or $110 billion U.S. dollars. On the liability side, current liabilities increased by $144 billion NT, quarter over quarter, mainly due to the increase of $58 billion in accounts payable and the increase of $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 the second quarter, we generated about 783 billion NT in cash from operations, spent $496 billion in CAPEX and distributed $156 billion for a third quarter 2025 cash dividend. Overall, our cash balance increased $99 billion NT to $3.1 trillion at the end of the quarter. In U.S. dollar terms, our second quarter capital expenditures totaled $15.7 billion. I finished my financial summary. Now let's 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 U.S. dollars, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint. Based on the exchange rate assumption of one U.S. dollar to 32 NT, gross margin is expected to be between 65 and 67 percent. Operating margin between 56 and 58 percent. This concludes by financial presentation. Now, let me turn to our key messages. I will start by talking about our second quarter 26 and third quarter 26 profitability. Compared to the first quarter, our second quarter gross margin increased by 150 basis points, sequentially to 67.7%, slightly ahead of our guidance, primarily due to cost improvement efforts and the slightly higher overall capacity utilization rate, partially offset by dilution from our overseas fabs. We have just guided our third quarter 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-no-capacity optimization. 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. First, we expect the steep ramp up of our 2 nanometers to dilute our gross margin by above 3 to 4 percentage points in the second half of the year. 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 2-3% in the early stages and widen to 3-4% 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. 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, we have decided to raise our full year 2026 capital budget to be between 60 and 64 billion U.S. dollars as we continue to invest heavily to support our customers' growth. We always collaborate closely with the two suppliers well in advance to prepare the capacity, whether it is a strong up cycle or down cycle, 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 percent of the 2026 capital budget will be allocated for advanced process technologies. About 10 percent will be spent for specialty technologies and about 10 to 20 percent will be spent for advanced packaging, testing, mask making, and others. Even as we invest for the future growth with this level of CAPAC 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 $467 billion NT in cash dividends, up 28.6% year-over-year, as TSMC shareholders receive a total of 18 NT cash dividend per share. In 2026, they will receive 24 NT per share, up another 33% year-over-year, and we expect a continual and increasing cash dividends per share in 2027 as well. Now let me turn the microphone over to C.C.
Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of U.S. $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. Moving into third quarter, we expect our business to be supported by continuous strong demand for our leading edge process technologies, including the steep ramp of our two 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 macroeconomics 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. 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 of customers who are mainly in the cloud service provider 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 broad customer base, we now expect our four-year 2026 revenue growth to be slightly above 40 percent year-over-year in U.S. dollar terms. Now let me talk about the acceleration of authentic AI. The AI market continues to be very dynamic. The emergence of authentic 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. 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 TSMCs are 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 authentic 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 collaborated closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies technologies, and the design in and lead time involved. We also have a very good idea of their multi-year product romance and production plans. 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. 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. Now, with a strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city government, we would like to announce an additional $100 billion U.S. dollar investment in Arizona. This is to build several more semiconductor logical wafer fab for 2nm and below technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading U.S. customers. We believe this investment will help to 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. 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. Therefore, the SMC's semiconductor technology and manufacturing work continue to play a pivotal role in supporting the global semiconductor industry while unleashing our customers' innovations. Now let me talk about the current N3 capacity expansion. We are We are executing well on our global plan to add three additional three-nanometer files, one in Taiwan, one in Arizona, and one in Japan, to support the robust multi-year pipeline of demand for three-nanometer technologies. In addition to all the new files, we continue to convert five-nanometer tools to support three-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fab in all locations to generate more waver output. We are also focusing on capacity optimization across nodes, which include 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. and now we continue to increase not decrease our mature node capacity in the high higher value added segment for example we are increasing our mature node capacity through jasm web one in japan for simos me sensor application and esmc in germany for automotive and the 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 by 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 continues 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. Our A14 technology representing the second generation of narrow-sheet transistors and deliver another four-node stride from N2 with performance and power benefit to address the insensible need for high-performance and energy-efficient computing. Compared with our N2, A14 will provide 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 light vehicle demonstrates close to 90% device performance and close to 90% 256 megabits S-RAMU. We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications, and customer now tap-out activity is ongoing and ahead of schedule. Reproduction was started in 2027, and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduced the A13 and A12 as an extension of the A14 family. A13 represents a further advancement of 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 efficiency improvement. A13 design rules are backward compatible with A14 to ensure smooth IP migration. We also introduced A12, which will bring our innovative superpower rail technology to the A14 platform for superior performance, power, and area benefit. 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.
Just like a 2nm technology is a larger and longer-lasting node than three nanometer and here further extend our technology leadership position work into the future this concludes our our key messages and thank you for your attention thank you cc so this does conclude our prepared statements uh before we begin the q a session again i would like to remind everybody to please limit your questions to two at a time uh 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 raise to should you wish to raise your question in chinese i will translate it to english before our management answers the question so for those of you on the call if you'd like to ask the question please press star then one on your telephone keypad now if at any time you'd like to remove yourself from the questioning queue please press star 2. please note that we will try to conclude today's meeting at around 3 10 or so so we will try to get in as many participants your questions as possible but if we're not able to we do apologize in advance and thank you everyone for your patience so 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 Lim from UBS, please.
Sunny Lim Thank you very much. Congrats on the very strong performance and outlook. So number one, I'll do a double click on the CAPEX. So very encouraging CAPEX outlook. And I do think it's essential that here Sunny showcase stronger determination in capacity expansion, given the stronger demand and the very tight supply. And so beyond 2026, I think every large client also wonder how aggressive TSMC is planning for CAPEX. And so back in the COVID super cycle, TSMC did provide a three-year CAPEX outlook by then. And so I wonder at this point, will it be possible for you to share any color, maybe for the coming three years CAPEX? Thank you.
Okay, so Sunny's first question is regarding Capex. She does believe it's important, essential to show our determination to support our customers with, you know, these large Capex investments. So she wants to know, do we have a three-year Capex guidance, 26, 27, 28, similar to what we did back in 2021?
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, and as long as there are business opportunities, we are not able to hesitate to invest. As you can hear from our prepared remarks, that we are conviction in the megatrend, AI megatrend, multi-year is very strong, and 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.
Yeah, sorry, maybe let me follow up on CAPEX. Second question. Oh, yeah, sure. So you just announced additional 100 billion CAPEX in the U.S. And I think that's pretty important for you to secure the business in the U.S. as well. And so now with total 265 billion CAPEX in Arizona, what's your current plan to bring on the capacities in Arizona in the coming few years?
Okay, so Sunny's second question is on to, you know, cc said uh investing an additional 100 billion in arizona based on the strong demand from our customers so the total investment now is 265 billion uh what is the schedule time frame or the plan for these investment is that correct sunny yeah okay sunny the schedule will depend on the market situation you know that so uh today's the situation uh the makeup trend is so strong so that we announce additional 100 billion investment in Arizona how many fast many so actually let me say that it probably additional for more facts
will be built and that's combining from him back in yes okay thank you let's go to the middle we have a Charlie Chan from Morgan Stanley we'll go left middle right from where i said thank you uh thanks for taking my question good afternoon uh so first of all so congrats for a very strong outlook uh my first question is really about the foundry competition uh i understand that there's no shortcut for a newcomer like terrafe but how about uh like samsung foundry right they got a huge profit from memory business intel got a u.s policy support. So I'm not sure how this is going to address those accommodations because apparently several US companies are engaging with those industry peers. And recently, actually yesterday, ASM just announced to expand the EUV capacity for 2028 with TSMC worried 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.
Okay, so Charity's question is competition from two angles. One, you know, he does note, as he 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 u.s government policies 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 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
and then the other one in the u.s they got a very strong u.s government's 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 shortcuts what does that mean meaning that in these semiconductor industry you had to go back to fundamental 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 a technology manufacturing and customer trust These three fundamentals never changed for my 30-some, 40-year career. It's always the most important thing. And that's always the TSMC's secret recipe to win the business. So from the competition point of view, uh choosing a technology ramping it up is not buying a milk from 7-eleven well i'm using that i'm quoting the sentence for my customer anyway i say that you're 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 today you think this milk is better you go to the next door it's a 7-eleven you don't like it you go to another store no so uh that's my answer charlie it's it's uh agree uh yeah so hope you can uh buy more milk so other people cannot get it um uh thank you yeah so let me switch gear to a more exciting side uh uh since you just said you see a very strong signal from customers customers you also revise up the full year review guide are you ready to revise up the five-year especially the ai semi-kager i remember it was like high 50 percent um but here comes the question right that uh agenda ai demands so strong uh cpu uh is a great opportunity for tsmc but how about there's a kind of memory cost increase right it's kind of big chunk of uh of the this kind of ai capex so uh what's the update of the ai semi kager and how should you look at the contents of this ai semi related to tsmc's growth thank you okay so charlie's second question is regarding the ai uh related demand uh we do continue to see very strong and positive signals
from our customers customers customers we've revised up our full year 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. He's wondering if there's any update to that. Agentec AI, a new opportunity. What is our definition of AI accelerator? Do we include that? And what is the CAGR?
Charlie, if you read our message that we continue to invest more, we increase the KPEX. which is a good reason so if you're asking about the ai's uh caker uh let me give you an not a number but it's stronger and stronger and stronger so uh we don't give you the number today because of it continue to increase so we don't know that how to answer this question but stronger than what we said before okay okay great thank you thank you charlie all right let's move to this side uh maybe we'll take the question from uh uh arthur from macquarie hi uh first congrats on the
strong execution and performance uh my question is regarding the new advanced packaging technology We noticed that especially the EMIBT is gaining traction, so how will TSMC react this request?
Okay, sorry. So Arthur's first question is on advanced packaging and competition. I guess very simply put, EMIBT, in his view, is gaining traction. So how do we see the competitive threat from this?
Well, let me say that our packaging capacity is so tight that now it's limited by customers' growth. So we work on that additional flexibility in the market. And so that will help TSMC's, you know, front-end way for business growth, which is a majority part of TSMC's business. The technology looks good, according to the newspaper, and we hope they will be successful and so that they share some of the loading from TSMC.
Today we're working very hard to shorten the gap between the demand and the capacity. and so as i said we welcome have at least additional uh alternatives and so the flexibility for my customer thank you uh that make a lot of sense so a follow-up so as this is a new technology right so if your clients uh they ask your support and our value is support our customer success right how tsmc will handle this uh special request sorry your question is so if uh this technology
is uh have some small problem and then uh ask our company to support so how the uh our company um you know accommodated uh so our author's question is uh if there is some issues uh with this technology do we have a are we I don't know how to say it it's an alternative let me answer the question our number one is to support our customers a success so whatever that we can hear about customers of business we want to win is that answer your question okay let's come back we'll take one more here
and then we'll go online and then back to the room go yeah uh thanks you see in the land chef uh first question on um maybe since you're not uh 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 um do you also consider competitive pressure because as a outright market leader having like 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 so when you think about your capacity expansion like how long do you think it takes to fulfill the demand as you see right now that's one and second um chips obviously is the current shortage but there is also a lot of discussion about data center delay power capacity being available so could you also share some thoughts on how you are layering in that kind of concerns because you don't want your chips to be available but having to wait for the data center deployment to happen so just to understand how that goes into your planning framework as well yeah thank
you so Google'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 but do we also consider the competitive pressures from competitors building capacity is that part of our calculus to expand the capacity one and then also what about things outside of chips like data center delays or power these type of deals that's a good question definitely every time when we think about the business we consider the competition
that's the number one and then we look at where we are and then we decide a bottom up and then top-down assessment of those are demand those are the typical thing i mean in our daily life so we make a lot of judgment and then we be more careful we talk to customer and customers are customer those are the uh csps and then we get all the input for the demand and then we make a judgment now remember that i believe every customer tell me the truth everyone you put all the truth together it's not a truth so we have to make some of the judgment you know what i mean you know things you are loving um because all the customers are very aggressive right that's a ceo's job she got to be aggressive so they give me the number of their demand and i believe they they try their best to tell me the truth so i put all together all the truth together is not a truth mark down that word um so uh yes we do a very careful judgment might not be correct might not be correct but we did the carefully and because this is a big money right this year we say we increase the capels from 60 from 52 to 56 now 60 to 64 and you bet that's what continue to increase it's a big money so we do it carefully so 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 were not put into inventory so we actually we are checking the ai data centers of progress the building the location the demand the racks we checking all that to make sure that tsmc's chips will not be put in inventory that answer your question yeah that's clear so cc um so do you 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 you want me to give you a guarantee right let me say that i believe from this day on all the way to probably 20 29 2030 the demand is very strong 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 a new industry i would like to say the new industry called the AI industry, which is so common in our daily life because you're going to affect our automotive, affect the human noise, robot, and also impact to all the industry.
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 and so the demand will be there and the fundamental thing is semiconductor chips and most of them in tsmc thanks easy uh my second question is on your profitability so cc you joke that you are definitely jealous of your uh 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 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 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.
Okay so 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 but he notes the role of foundry could be even more value 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? And then I guess really pricing into this. What type of pricing approach do we want to take?
Yeah, Goku, your question actually is simple. You know, what is the paper pricing strategy for TSMC and what kind of grass margin we should have? The higher the better of course but 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 and besides we are very trustable company with our customers so we don't suddenly increase our price by uh which i like to have but 4x or 5x you know it's you cannot survive for that kind of for your customer to survive for that kind of a price increase 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 that's our philosophy so uh yes i'm really jealous about the memory companies 86 percent gross margin 86 68 i'll be happy about that all right anyway so i answered the question we are very trustable thank you okay thank you uh operator can we take the next two questions from uh participants on
the line please yes now is jim fontanelli from everything yeah thank you uh thank you so um could i ask um the risk that you see around customer concentration um as ai demand continues to significantly outgrow other end markets um you know i think your exposure to your top five customers is becoming meaningfully larger than at any point in your history so i just like to understand how you see that risk okay so jim's first question is uh 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 no that's not our concern um besides what you say the customers are growing bigger and bigger we are very happy about it and some of the customer also growing very fast. So it's not the gym, it's not what you say that the bigger customer is going bigger and bigger. No, I mean, that's a there's a lot of new player in the industry.
Do you have a second question? thank you and yes um so we we've seen your direct customers um put capital into both financing investing and investing in in ai uh demand is that something that tsmc is considering so jim's second question he knows some of our customers are you know helping to invest uh in their customers uh jim if i understand you right correctly you're asking if tsmc if this an approach we would take to invest in our customers is that correct or financing and investing in you yeah in your end in in the end end customers not your direct customers right so in customers customers as well uh to answer jim to answer your question directly
uh every company has a different consideration and every company has a different strategy uh so far no tsmc don't do this kind of uh financial arrangement because of uh we think we're working with current customer with the current model uh smoothly and also successfully okay thank you operator can we move on to the next participant uh on the line then we'll come back to the floor next one to ask question what do you want to go back to the 100 million investment
in us is there any way you can give us some time over the next three years five years how should we think about the progression of these 100 billion investment in us i don't have a follow-up So Medhi's first question is around the announcement today, additional $100 billion investment in the U.S.
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?
We do have a plan, but let me share with you actually the progress or the schedule. Most of the time it depends on the market situation and our customers are demand. so uh 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 speed it up we try to speed it up as fast as possible so the message is you're flexible but also you're expediting the investment to us so his well i think the cc said we're trying to move as fast as we can but everything is based on our customer needs. Yeah, we also moving the new fabs and the facilities in Taiwan as fast as possible. And the same thing we try to bring up a new fab in the Japan as fast as possible. Because of the situation today is the demand and the supply, the gap is so big. So we are working very hard to narrow the the gap do you have a follow actually i want to compute part of the htc and i want to ask you about networking switches and in that context when should we attract a group platform um to have a material contribution to your top your top line So the second question, very specific.
He wants to know for our platform, when will it have a very meaningful contribution to the business?
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 they increase the bandwidth of the communication channel so I believe the coop will continue to increase the demand and then what become a fairly important technology in the next few years okay thank you let's come back to the floor we'll take the next question from a Citibank Laura Chen thank you thank you very much for taking my questions uh and my first question is also about a very promising
outlook as tsmc raised the capex and also the growth outlook for this year and particularly i think cc you mentioned about the agentic ai and the cpu growth potential but 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.
So Laura's first question is around sort of the outlook. We obviously raised a 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. How do we see these segments?
Laura, I don't think I can give you a very specific number. But let me show with you, all of them are in TSMC. And they're also using the same kind of leading edge technologies. We're working with our customer to allocate the wafer, the supply to balance the CPU-GPU-XPU ratio. Okay.
Okay, thank you. That's, yeah, that makes sense. And then my second question is also about advanced packaging. We know that during the symposium, TSMC previously already announced a 14 times radical COAS roadmap to enable larger AI packaging. But at the same time, we also noted that TSMC, maybe last month in Japan, it showed the substrate developments for COAS to enable some of the glass technology. So I'm just wondering if you can give us more like technologies, progress, update on the different kind of technology for glass core or glass subtrace or glass carrier. What's the progress at TSMC right now?
So Laura's second question is on Vance Packaging.
She notes, as we said, we roadmap to even larger than 14X reticle size with COWAS. but she also wants to know the technology process in newer areas like glass substrates glass cores what is the progress and status we are let me say that today the majority is still calls right and we are developing that alternative try to lower down the cost and we also work with substrate the vendor so that our customer can have their product be in the market uh the progress we're building a pattern line that i announced a few quarters ago and it will take about another one year to be mature so we can put into the production with our customer okay thank you thank you um Let's move to this side of the room.
Bank of America, Haslu, sorry.
Speaker 7
Yes, thanks, CC, Wendell, and Jeff, for taking my questions, and congrats on the great results. My first question is regarding your CAPEX and sales. You gave a 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. 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 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 key packs and also for this year's demand.
Is it still mostly driven by cloud computing or it is proliferating to edge computing? or to some extent is it also related to your equipment supply chain is raising their price as well thank you okay that's uh several questions uh in one so i'm gonna take that as one and a half questions at least but basically has is asking uh with the capex increase uh 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 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 KPEX next few years is going to be a very good business for TSMC that what i can say and then the other part so what's the key driver is it cloud ai is it edge ai is it because tool vendors are increasing the price it's all ai related everything okay yeah you have a quick follow-up yes um 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 but i would actually
Speaker 7
Please say that if on the backhand competition is rising, especially coming from Intel MMT, are you worried that your value add for your overall foundry business across front-end manufacturing to the backhand packaging business, the value add could actually be cannibalized with growing competition?
Thank you. So Haas's second question is around the competition in advanced packaging.
If our competitors are able to gain traction or business with things like EMT, would that be the gateway or an entryway into more competitive threat on the front-end logic wafer side so does advanced packaging lead to front-end pass let me answer that the front-end waiver business and the back-end of business are two different things right if they are the same then you can expect ase become the front-end competitor also uh 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 offers some of the flexibility to my customer so that they are funding waiver can be uh put into the package and that here tsmc's of rungian wafer business that's our attitude okay thank you thank you uh operator let's take one more from the uh online and then we'll wrap up with back in person next one to ask question robert sanders from deutsche bank yeah thanks for
taking my question um you recently stated that ina tools are too expensive but could you please discuss how your customers are considering the impact of dye 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? And I have a follow-up. Thanks.
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?
You've got a very detailed understanding of the high NA. Today, the fuel size is only one half. And we put that one into our consideration of the manufacturing cost and something. Again, let me answer this question quickly. we uh 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 high performance but then tsmc make it clear that we work with uh asmr and try to make it more suitable for manufacturing in terms of the cost and in terms of the maturity so we always consider that technology maturity and the cost and whether we use it or not okay okay thank you cc do you have a second question rob
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 below is sort of 30 to 50 above the your ability to supply is it is it in fact much larger than 30 to 50 percent above this you feel like it might be based on what you're saying because i think all of us are assuming it sort of solvable over the next three four years it sounds like the number could be much larger i think well those are your numbers but robert is asking the you know the uh uh demand in excess of supply is it 30 to 50 percent is it something even larger do we have a number to share no we don't have a number to
share because of let me say that the gap is very big bigger than sorry i don't want to make a comment on the memory but uh a very big gap okay uh we have about nine minutes left we'll come back to the floor uh with any question let's take one from here uh evelyn you from goldman thank you for taking my question.
Evelyn
Analyst — Goldman Sachs
Because we mentioned a lot on that we're going to step up our capacity growth. But I just tried to quantify here because I noticed that during your symposium that you actually mentioned about two nilometer family capacity growth will be growing at around 70% KGR from 26 to 28 and N3 plus N5 to grow by 25 KGR from 22 to 27.
So I was just wondering are those numbers still right assumptions today are we seeing actually any changes over the past quarter and how should we compare with the non-supporting demand out there 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 two nanometer around 70% CAGR and then three nanometer around I guess I can't remember the exact but 25% so are those numbers still the same or has it changed now that our capex and stuff did we say that in technology symposium oh we show the chart okay now is a bigger that's all I say
Evelyn
Analyst — Goldman Sachs
you have a second question okay thank you very good direction all right um my another questions touched based on the advanced packaging side because you always bundle the advanced packaging capex together with test testing mass making and others that's around 10 to 20% of total capex and so one thing I'm trying to figure out here is that how much of that actually goes to advanced packaging alone and because given that a bank packaging is capital-intensive a less capital intensive versus front end so how should we think I would think about a gap between its price and revenue share and its capex share over the next few
years and well 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 okay so Evelyn's question is around advanced packaging she wants to know when we guide for the capex of course we guided in a bucket of packaging testing mass making and others together 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 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, so we put more money to buy the bottleneck tools. And sometimes it's in the front end, sometimes it's in the back end. But in the ballpark, the percentage is just like a window share with everybody for long term i mean that's a big end is about 10 10 to 20 oh that's a big range anyway uh so that's we uh all i can say is that still 10 to 20 uh because of uh as i said actually i'm very honest to to tell you that as time goes by some of the uh CAPEX in the tester or in the packaging or in other areas. So that's why we we cannot very specifically see which area we put how much of the CAPEX. That's too specific.
Yeah. Okay. Will the last participant KGI Felix Pan. Thank you for being patient.
Hello. Good afternoon. Thank you taking my question uh so my first question is regarding to the capex revision so from uh year today so uh tsmc raised the capex guidance by almost 10 bit uh yeah 10 billion us dollars so um can you give me some color where is the upside from how you guys see the different from six months ago is that from like cpu accelerator or memory companionship or back-end code was expansion just the upside how how how we see things differently from six months ago okay so felix is noting uh in january we guided for 52 to 56 billion in april we said closer to 56 now 60
to 64 so we have increased the capex guidance what is uh driving this is it agendic ai only Is it packaging? Is it AI accelerator?
Well, simply put, the most important reason is because of a demand continue to increase and we fail 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 uh with the inflation price okay you you understand what i say okay thank you so my second question is about the uh the mature note so um people always focus on ai leading notes but uh it seems like mature notes also seeing the very strong demand recovery and also uh some supply issue as well so how you guys see the demand supply dynamic and pricing and for the mature note because apparently uh there's some impact from the ai crowning out
effect but um um mature note still largely uh you know depends on the the consumer demand so consumer is still weak so how how you guys see uh the demand supply dynamic for the material those things thank you so Felix the 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 so mature node pricing is very favorable or strong so he wants to know how do we see the mature node supply demand situation actually the mature node cover a lot of different segment only the one
related to AI is in shortage, which is the most important one. Number one is power management IC. Because of all the AI data centers need a lot of power management. And those are the mature known technology like 0.18 microns, 19 nanometers, or something like that. Those are in shortage, definitely. and also the sensor portion because of you need a lot of sensor to detect the environmental information and put it 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 and so other segment it's not so strong demand and as i pointed out in my statement other area no it's not so much of say in a lot of shortage not at all okay thank you thank you cc uh 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, and 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. So 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. Thank you, and have a good day.
