TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD — Call Transcript 2025

Good afternoon, everyone, and welcome to TSMC's Third Quarter 2025 Earnings Conference call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the third quarter 2025, followed by our guidance for the fourth quarter 2025. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. We will open the line for Q&A. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. I would like to turn the call 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 third quarter 2025. After that, I will provide the guidance for the fourth quarter 2025. Third quarter revenue increased 6% sequentially in NT, as our business was supported by a strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 10.1% sequentially to $33.1 billion, slightly ahead of our third quarter guidance. Gross margin increased 0.9% percentage point sequentially to 59.5%, primarily due to cost improvement efforts and a higher capacity utilization rate, partially offset by an unfavorable foreign exchange rate and dilution from our overseas fabs. Accordingly, operating margin increased 1.0 percentage point sequentially to 50.6%. Overall, our third quarter EPS was TWD 17.44, up 39% year-over-year, and ROE was 37.8%. Now, let's move on to revenue by technology. 3 nm process technology contributed 23% of wafer revenue in the third quarter, while 5 nm and 7 nm accounted for 37% and 14% respectively. Advanced Technologies defined as 7 nm and below accounted for 74% of wafer revenue. Moving on to revenue contribution by platform, HPC remained flat quarter-over-quarter to account for 57% of our third quarter revenue. Smartphone increased 19% to account for 30%. IoT increased 20% to account for 5%. Automotive increased 18% to account for 5%. DCE decreased 20% to account for 1%. Moving on to the balance sheet, we ended the third quarter with cash and marketable securities of TWD 2.8 trillion, or $90 billion. On the liability side, current liability decreased by TWD 101 billion, quarter-over-quarter, mainly due to the decrease of TWD 112 billion in accrued liabilities and others, as we paid out 2025 provisional tax of TWD 136 billion. In terms of financial ratios, accounts receivable turnover days increased two days to 25 days. Days of inventory decreased two days to 74 days due to strong shipment in N3 and N5. Regarding cash flow and CapEx, during the third quarter, we generated about TWD 427 billion in cash from operations, spent TWD 287 billion in CapEx, and distributed TWD 117 billion for Q2 2024 cash dividend. Overall, our cash balance increased TWD 106 billion to TWD 2.5 trillion at the end of the quarter. In U.S. dollar terms, our third quarter capital expenditures totaled $9.7 billion. I have finished my financial summary. Now, let's turn to our current quarter guidance. Based on the current business outlook, we expect our fourth quarter revenue to be between $32.2 billion and $33.4 billion, which represents a 1% sequential decrease or a 22% year-over-year increase at the midpoint. Based on the exchange rate assumption of $1 to TWD 30.6, gross margin is expected to be between 59% and 61%. Operating margin between 49% and 51%. This concludes my financial presentation. Now, let me turn to our key messages. I will start by talking about our third quarter 2025 and fourth quarter 2025 profitability. Compared to the second quarter, our third quarter gross margin increased by 90 basis points sequentially to 59.5%, primarily due to cost improvement efforts and a higher overall capacity utilization rate, partially offset by margin dilution from our overseas fabs and an unfavorable foreign exchange rate. Compared to our third quarter guidance, our actual gross margin exceeded the high end of the range provided three months ago by 200 basis points, mainly as the actual third quarter exchange rate was $1 to TWD 29.91, compared to our guidance of $1 to TWD 29. In addition, we also delivered better than expected cost improvement efforts. We have just guided our fourth quarter gross margin to increase by 50 basis points to 60% at the midpoint, primarily driven by a more favorable foreign exchange rate, partially offset by continued dilution from our overseas fabs. While the cost of overseas fabs remains higher, thanks to the company's overall larger scale, we now expect the gross margin dilution from the ramp-up of our overseas fabs to be closer to 2% in the second half of 2025. For the full year 2025, we now expect it to be between 1%-2% as compared to 2%-3% previously. Looking ahead, we continue to forecast the gross margin dilution from the ramp-up of our overseas fabs in the next several years to be 2%-3% in the early stages and widen to 3%-4% in the latter stages. We will leverage our increasing size in Arizona and work on our operations to improve the cost structure. We will also continue to work closely with our customers and suppliers to manage the impact. Overall, with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base, we expect TSMC to be the most efficient and cost-effective manufacturer in every region that we operate. Now, let me make some comments on our 2025 CapEx. As the structured AI-related demand continues to be very strong, we continue to invest to support our customers' growth. We are narrowing the range of our 2025 CapEx to be between $40 billion and $42 billion, as compared to $38 billion-$42 billion previously. About 70% of the capital budget will be allocated for advanced process technologies. About 10%-20% will be spent for specialty technologies. About 10%-20% will be spent for advanced packaging, testing, mask making, and others. At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. Even as we invest for the future growth with this higher level of CapEx spending in 2025, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis. 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 third quarter with revenue of $33.1 billion, slightly above our guidance in U.S. dollar terms, mainly due to the strong demand for our leading-edge process technologies. Moving into the fourth quarter 2025, we expect our business to be supported by continued strong demand for our leading-edge process technologies. We continue to observe robust AI-related demand throughout 2025, while the non-AI end market segment has patterned out and is seeing a mild recovery. Supported by our strong technology differentiation and broad customer base, we now expect our full-year 2025 revenue to increase by close to mid-30% year-over-year in U.S. dollar terms. While we have not observed any change in our customers' behavior so far, we understand there are uncertainties and risks from the potential impact of tariff policies, especially in the consumer-related and price-sensitive end market segments. As such, we will remain mindful of the potential impact and be prudent in our business planning going into 2026 while continuing to invest for the future megatrend. Amidst the uncertainty, we will also continue to focus on the fundamentals of our business, that is technology leadership, manufacturing excellence, and customer trust, to further strengthen our competitive position. Next, let me talk about the AI demand outlook and TSMC's capacity planning process disciplines. Recent developments in the AI market continue to be very positive. The explosive growth in token volume demonstrates increasing consumer AI model adoption, which means more and more computation is needed, leading to more leading-edge silicon demand. Companies such as TSMC are leveraging AI internally to drive greater productivity and efficiency to create more value. As such, enterprise AI is another source of demand. In addition, we continue to observe the rising emergence of sovereign AI. We are also happy to see continued strong outlook from our customers. In addition, we directly receive very strong signals from our customers' customers, requesting the capacity to support their business. Thus, our conviction in the AI megatrend is strengthening, and we believe the demand for semiconductors will continue to be very fundamental. As a key enabler of AI applications, TSMC's biggest responsibility is to prepare the most advanced technologies and necessary capacity to support our customers' growth. To address the structural increase in the long-term market demand profile, TSMC employs a disciplined and robust capacity planning system. Externally, we work closely with our customers and our customers' customers to plan our capacity. We have more than 500 different customers across all the end market segments. In addition, as process technology complexity increases, the engagement lead time with customers is now at least two to three years in advance. Therefore, we probably get the deepest and widest loop possible in the industry. Internally, our planning system involves multiple teams across several functions to assess and evaluate the market demand from both top-down and bottom-up approaches to determine the appropriate capacity to build. This is especially important when we have such high forecasted demand from AI-related businesses. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. We will also remain disciplined and robust in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now, let me talk about TSMC's global manufacturing footprint update. All our overseas decisions are based on our customers' needs, as they value some geographic flexibility and the necessary level of government support. This is also to maximize the value for our shareholders. With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city governments, we continue to speed up our capacity expansion in Arizona. We are making tangible progress and executing well to our plan. In addition, we are preparing to upgrade our technologies faster to end-to-end and more advanced process technologies in Arizona, given the strong AI-related demand from our customers. Furthermore, we are close to securing a second large piece of land nearby to support our current expansion plans and provide more flexibility in response to the very strong multi-year AI-related demand. Our plan will enable TSMC to scale up to an independent gigafab cluster in Arizona to support the needs of our leading-edge customers in smartphone, AI, and HPC applications. Next, in Japan, thanks to the strong support from the Japan Central, Prefectural, and Local Government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. The construction of our second fab has begun, and the ramp schedule will be based on our customers' needs and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal, state, and city governments. Construction of our specialty fab in Dresden, Germany, has also started, and we are progressing smoothly with our plans. The ramp schedule will be based on our customers' needs and market conditions. In Taiwan, with support from the Taiwan government, we are preparing for multiple phases of 2 nm fab in both Xinchu and Kaohsiung Science Parks. We will continue to invest in leading-edge and advanced packaging facilities in Taiwan over the next several years. By expanding our global footprint while continuing to invest in Taiwan, TSMC can continue to be the trusted technology and capacity provider of the global logic IC industry for years to come. Finally, let me talk about our N2 and S16 status. Our 2 nm and S16 technologies lead the industry in addressing insatiable demand for energy-efficient computing, and almost all innovators are working with TSMC. N2 is well on track for volume production later this quarter. With good yield, we expect a faster ramp in 2026, fueled by both smartphone and HPC AI applications. With our strategy of continuous enhancement, we also introduce N2P as an extension of our N2 family. N2P features further performance and power benefits on top of N2 and volume production scheduled for the second half of 2026. We also introduced A16 featuring our best-in-class superpower rail, or SPR. A16 is best suited for a specific HPC product with a complex signal route and dense power delivery networks. Volume production is on track for the second half of 2026. We believe N2, N2P, A16, and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC. This concludes our key message, and thank you for your attention. Thank you, C.C. This concludes our prepared statements. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question. For those of you on the call, if you would like to ask a question, please press the star, then one on the telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star, then two. Now, let's begin the Q&A session. Operator, can we please proceed with the first caller on the line? Thank you. Yes. First one, Gokul Hariharan, JPMorgan. Go ahead, please. Yeah, thanks. Good afternoon, C.C., Wendell, and Jeff. Great result again. On the AI front, C.C., I think you have met with pretty much everybody who is driving the Gen AI revolution over the last couple of months. As you said, everybody seems to be a lot more positive. I think we gave a guidance of mid-40% data center AI growth CAGR earlier this year until 2029. Anything that you see which should kind of change that number? It definitely feels like the growth today seems to be much stronger. Related to that, you did talk about the very detailed capacity expansion planning that TSMC does. In past technology cycles, TSMC CapEx has gone up significantly to prepare for the next upgrade or next leading-edge node. In this cycle, TSMC revenues have grown 50% from the previous peak in 2022. CapEx has only grown about 10%. How should we think about the CapEx over the next couple of years? I know that you're not giving numerical guidance yet, but I just wanted to understand, like are we looking at much higher CapEx in the next couple of years given all these conversations you've had? I had a follow-up after that. Thank you. Okay. Gokul, first question. Sorry, Gokul. Let me summarize for everyone's benefit. Again, he wants to know firstly related to the AI-related demand that TSMC works with many, if not everyone, who is doing AI, and many of the customers seem to be even more positive today. I guess he would like to ask C.C., sort of what are we seeing or hearing from our customers? We had previously said that the next five years from 2024 to 2029, we expect AI accelerator to grow at a mid-40% CAGR. Is there any update to this? I think this is the first part. I'll get to the second part on CapEx. Wow. That's a long question, isn't it? Gokul, the AI demand actually continues to be very strong. It's more strong than we thought three months ago. In today's situation, we have talked to customers, and then we talk to customers' customers. The CAGR we previously announced is about the mid-40%, but it's still a little bit better than that. We will update you probably in the beginning of next year. We have a more clear picture. Today, the numbers are incentive. The second part of Gokul's question related to CapEx, he notes that in the past, when TSMC sees opportunities for higher growth, past cycles or past instances, we would step up the CapEx significantly to prepare to drive the future growth. He notes this cycle, actually, though while CapEx is increasing, the revenue is increasing even faster. His question really, I think, is how do we see this playing out over the next few years, both in terms of the CapEx spend and the growth relative to the revenue growth? Okay. Gokul, every year we spend the CapEx based on the business opportunity in the following few years. As long as we believe there are business opportunities, we will not hesitate to invest. If we do our job right, the growth of our business or of our revenue should outpace the growth of the CapEX. That is what we have been delivering in the past few years. Now, going forward, assuming we're still doing a very good job, we will continue to see that happening again. A company of our size, the CapEx number, it's unlikely to suddenly drop significantly in any given year. When we continue to invest and our growth is outpacing our CapEx growth, you'll see the growth like what we have done in the past few years. Understood. I know that it is unlikely to drop, but it is also likely to grow quite a bit given what C.C. Wei mentioned in terms of every customer asking you and every customer's customer requesting you for capacity addition, right? Yeah, as I said, a higher level of CapEx is always going to be correlated with a higher growth opportunity. As C.C. said, next year looks to be a healthy year and that we are confident on the megatrend, then we'll continue to invest. Okay, got it. Yeah. Yeah, maybe one more follow-up question from me, C.C. I think last year also you gave us an indication of how much CoWoS capacity you would be building. I think you talked about 2x of doubling the CoWoS capacity. It clearly feels like even that is not enough. Could you give us some idea about how much capacity you would be building next year just to get some idea about what you are seeing in terms of AI demand? Also, just to get some understanding of TSMC's data center AI exposure, I think last year we talked about mid-teens revenues. Where do we end up this year? Do we end up close to like 30% of revenues coming from AI? Okay. Gokul, your second question really, he wants to understand, can we provide any detail or colors on the CoWoS capacity plan for 2026 in terms of year-on-year increase? Also, in terms of our definition of AI accelerator revenue, the narrow definition, how much will it contribute for 2025 revenue? Is it 30%? Gokul, this is C.C. Wei again. Talking about the CoWoS capacity, all I can say is continuing the three months ago, we are working very hard to narrow the gap between the demand and supply. We are still working to increase the capacity in 2026. The real number, we probably update you next year. Today, all I want to say about the AI, everything related, like the front-end and back-end capacity, is very tight. We are working very hard to make sure that the gap will be narrow, but all I can say is we are working very hard. Okay. Thank you, Gokul. I think we need to move on in the interest of time. Operator, can we move to the next participant, please? Yes. Next one, Charlie Chan, Morgan Stanley. Go ahead, please. Thanks for taking my question. Again, congratulations for very strong results, C.C., Wendell, and Jeff. My first question is really about your leading-edge demand. As C.C. just mentioned, your front-end demand is also very strong into next year. One of your major customers just said that more so is that. I think his point is that by doing maybe system-level innovation in the thermal, etc., can boost up more kind of performers. Just a kind of dumb question. How do we reconcile your very, very strong leading-edge demand and that customer continue to migrate to your most advanced nodes and also you continue to reflect value, whereas the customer continues to think that more so is that? Can we get some clarification from TSMC? All right. Charlie's question is very specific, although he wants us to comment on a customer saying more so is that. How do we reconcile this with a very strong leading-edge demand into 2026 and also with system-level innovations? Okay. Charlie, this is C.C. Wei. Yeah, one of my customers, very important customer, say more so is that. What he means is it's not only relying on the chip technology anymore. Now we have to focus on the whole system's performance. He wants to emphasize the whole system's performance rather than just talking about the more so, which is not enough to meet his requirement. We work very closely with his people to design our technology, both in front-end and back-end, and also in all the packagings to meet his requirement. That's all I can say. Okay. Thank you, C.C. Sure. Thanks, CC. Do you have a second question, Charlie? Yes, I do. Thanks, Jeff. I would interpret that as Foundry 2.0, that your co-COO, Mr. Cliff, also kind of shared during the SEMICON Taiwan. Thanks, C.C., for your commentary. My second question is actually a follow-up from last quarter's same question. Back then, I consulted you about the China AI GPU demand, right? Whether you can seize the market opportunity because China says VDL is setting their AI infrastructure very rapidly. Given the recent kind of back and forth between the U.S. and China, whether China can really impose this NVIDIA GPU, would that kind of discount your potential long-term growth of the AI CAGR? Is that something that TSMC would worry about? Okay. Charlie's second question is related around AI demand and specific to China. With the sort of the export control and restriction, his question is, does that impact our ability to address the market opportunity? Will this impact our AI CAGR growth if we're not allowed to fully serve China? I think there will be both sides, meaning restriction from the U.S., but also China government's kind of discouragement to procure a U.S. chip. Sorry for the interruption. Charlie, to speak the truth, I have a confidence in my customers. Both are in GPU or in ASIC. They all perform very well. If the China market is not available, I still think the AI's growth will be very dramatic and, as I said, very positive. I have confidence that our customers' performance and they will continue to grow, and we will support them. Thank you, C.C. Even with a limited opportunity from China for the time being, you are still confident that a 40% CAGR or even higher can be achieved in the coming years? You are right. Okay, great. Thank you. Okay. Thanks, gentlemen. Thank you, Charlie. Operator, can we move on to the next participant, please? Yes. Next one, Sunny Lin, UBS. Go ahead, please. Thank you very much. Good afternoon. Congrats on the very strong gross margin. My first question is, how should we think about 2026? I understand we should get better color maybe into January, but just want to get some directional major puts and takes for gross margin trending going into 2026. Especially, how should we think about the gross margin impact from 2 nm ramp for 2026? Okay. Sonya's first question is regarding gross margin. She would like to know directionally how do we see the gross margin for next year, 2026, in terms of certain puts and takes, and also if Wendell is able to comment specifically. Sunni, sorry if I heard you right, on the N2 dilution impact, correct? Yeah, that's right. Thank you. Okay. That's her first question. Okay, Sunni. Yeah, it's too early to talk about 2026. You already mentioned about the N2 dilution. As all the new nodes, when they just come out, the N2 will have dilution in our gross margin in 2026. At the same time, the N3 dilution is gradually coming down. We expect the N3 to catch up to the corporate average sometime in 2026. The other factors include overseas fabs dilution, which will continue, and which we said that it will be about 2%-3% dilution in the early stage of the next several years. That will also be there. We all saw the dramatic foreign exchange rate movement in the earlier part of this year. There's no control. We don't know where that will be. Every percentage move of dollar against TWD will affect our gross margin by 40 basis points. That just gives you some rough idea. Okay, thank you. Got it. Sunni, if I may, a very quick follow-up. On 2 nm, would the typical 2%-3% dilution by new node for the first seven to eight quarters of mass production be a good reference for two-nanometer as well for 2026? Okay. Sunni, a quick follow-up. She wants to know for the 2 nm dilution if we're able to provide any detail. Can she still think about it in terms of seven to eight quarters or six to eight quarters dilution to reach the time, sorry, to reach the corporate average? Yeah, Sunni, let me share with you. N2 structure profitability is better than N3. Now, secondly, it's less meaningful nowadays to talk about how long it will take for a new node to reach the corporate average in terms of profitability. That's because the corporate profitability, the corporate gross margin moves, and generally, it has been moving upwards. Less meaningful to talk about that. Got it. No problem. That's very helpful. My second question is maybe for C.C. Thanks a lot for sharing with us the details on how you think about the capacity expansions and planning. My question is, now Cloud AI is ramping a lot faster than the prior opportunities like smartphones and PCs. I think the demand for Cloud AI is also maybe harder to forecast. I just want to maybe get a bit more color from you. Compared to the prior rounds of capacity expansions, what is TSMC doing differently versus before? How do you ensure that while you are ramping up the capacities more quickly, you are still having a good risk control? Thank you. Thank you, Sunni. Sonia's second question is regarding capacity planning and expansion in a capital-intensive business. She notes this is very important. In the past, smartphone and PC megatrends, today it's AI and Cloud AI. She's wondering, does that make this planning process more difficult to forecast? What are we doing differently? How do we forecast this to make sure that we are investing appropriately? Sunni, indeed, right now, because I believe we are just in the early stage of the AI application, it is very hard to make a right forecast at this moment. What do we do differently? There's a big difference because right now we pay a lot of attention to our customers' customers. We talk to and then discuss with them and look at their applications, be it in the search engine or in social media applications. We talk with them and see how they view the AI application to those functions. Then we make a judgment about what the AI is going to grow. This is quite different as compared with before. We only talked to our customers and had an internal study. This is different. Did I answer your question? Got it. Thank you very much, C.C. Yeah, and looking forward to the [KPAC sky] in January. Thank you. You're welcome. All right. Thank you, Sunni. Operator, can we move on to the next participant, please? Next one, Bruce Lu, Goldman Sachs. Go ahead, please. Hello. Thank you for taking my question. I think Jensen talked about like $3 trillion-$4 trillion AI infrastructure opportunities by 2030, right? This compared to like $600 billion CapEx recent of this year implies for about 40% CAGR. This is similar to TSMC guidance for the AI growth, right? For me, first of all, what I want to know is what's the TSMC view for the AI infrastructure growth for the next five years? What's TSMC's forecast for the token growth rate in the next few years? TSMC used to provide the same industry growth, foundry growth, and how much TSMC can outperform the industry, right? Given the context, can we assume like TSMC AI-related revenue can track or will track with the CapEx growth of AI or the major cloud service provider? Should we expect an even higher growth rate for TSMC, considering you're potentially getting more value out of it? Okay. Let me try to summarize your question, Bruce. He notes that one of our customers has highlighted a $3 trillion-$4 trillion infrastructure opportunity over the next few years compared to $600 billion current CapEx, implying a 40-something % CAGR growth rate, which is similar to ours. Bruce's question is he wants to know what is TSMC's forecast or view for AI infrastructure growth. He would also like to know what is TSMC's forecast or view for the token growth? What is TSMC's AI-related revenue growth? Can it track that of the cloud service providers? His question is, should it be even higher? Shouldn't it be even higher given the value that we capture? That's actually several questions, but is that correct, Bruce? That's right. Thank you. Bruce, essentially just want to know how accurate that we can predict that the AI is in demand. We give you a number, roughly 40% in the mid-40s is a CAGR, not including all the infrastructures built up and also aligned with our major customers' forecasts or their view. More than that, I think if we are talking about the tokens, the number of tokens increase, it's exponential. I believe that almost every three months, it will be exponentially increased. That's why we are still very comfortable that the demand on leading-edge semiconductors is real. As I continue to say, we look at all the demand and look at our capacity expansion, we need TSMC to work very hard to narrow the gap. That's what we are doing right now. Exactly the number that we probably will share with you in next year so that when we have a very better clear picture. Thank you, C.C. I think the question is that the token growth seems to be substantially higher than the AI-related revenue guidance from TSMC, right? The gap is actually enlarging if you compound in the outer years, right? That's why that's the difference between what we see for the current TSMC outlook and the potential token consumptions, right? The gap is continuing to see an enlarging. How do we solve this? Do we really see that as a major issue as well? Okay. Bruce's second question, which is a follow-on from his first, is that the token growth is growing at a much higher rate or exponentially than TSMC's AI revenue growth. This gap will only widen in the next few years. He wants to know, Bruce, basically, what's the implication to TSMC or how do we see this? Is that correct? Okay. Okay, Bruce. You are right. You are right. The tokens and the number of tokens that increase exponentially is much, much higher than TSMC's CAGR as we forecasted. Let me tell you that first, our technology continues to improve. Our customer is moving from one node to the next node so that they can handle much more tokens' number in their basic fundamental calculation. That's one thing. You know we progress very well from one node to the other node. Our customer is working with TSMC to continuously improve their performance. That's why when we say that we have about 40%, 45% CAGR, the token number exponentially increases because of our customer and TSMC's technology combined that can handle much more or much efficiently than before. Did I answer your question? I see. You believe your node migration plus your customer design change can fulfill or can meet the exponential growth for the token consumption? Exactly. Is that the conclusion? Yes. I understand. Okay. Quick follow-up for the market. Bruce, that was your second question. Operator, we need to move on. Thank you, Bruce. Yes. Next one, Laura Chen, Citi. Go ahead, please. Yeah. Thank you very much for taking my questions. I appreciate C.C. sharing your view on TSMC's strategy on the AI capacity planning. I think along with the very strong advanced node demand, I believe that advanced packaging like CoWoS is also one of the focuses for your AI clients they are now looking for. I recall that TSMC previously also planned to expand advanced packaging in Arizona. Can you give us updates here? Also, for the time being, the very stretched demands at the moment, would TSMC work more closely with your OSAT partner to fulfill the strong demand at the same time? That's my first question. Thank you. Thank you, Lora. Her first question is on capacity planning. We have talked earlier on the call about the planning for leading nodes. She wants to understand also on the cohort capacity, and specifically, I guess, advanced packaging in Arizona. How do we work with our all-set partners? Okay. We have announced our plan to build two advanced packaging fabs in Arizona to support our customers. At the same time, right now we are working with one all-set big company and our good partner, and they are going to build their fab in Arizona. We are working with them because they are already breaking ground, and the schedule is earlier than TSMC's two advanced packaging fabs. We are working with them. Our main purpose is to support our customers, so we can marry in the U.S. Laura, do you have a second question? Yes, yes, certainly. I mean, obviously, we see that the advanced node, advanced packaging is quite strong. Also, at the same time, we are also seeing that the migration is also happening for N2 and N3. Just wondering, from the revenue growth perspective, I know it's still early to predict next year based on your guidance. I'm just wondering, will it be more driven by the ASP increase because of the technology migration? TSMC will be able to sell in your value or more that will be driven by the capacity or volume growth on both N2 ramp-up? Also, C.C, you mentioned some of the mild silico recovery. That may also drive some of the volume growth into next year. Just wondering, if you look at the growth outlook, would that be more driven by the technology upgrade ASP increase or also more like a volume? That's my second question. Thank you. Okay. Laura's, again, second question is looking at 2026. She would like to understand what will be the key drivers of the growth. Is it more from the technology mix migration, things like N2? Is it more from ASP upgrade, or is it more from just pure wafer volume growth? Laura, all the above. All right? Okay. Okay. You knew it, right? I mean, that's it. It's growing. Yeah. There are also follow-ups because we see that actually N3 is very tight. At the same time, we are also kind of expanding on N2. C.C., you previously mentioned that you will migrate some of the even N7, N6, and also N5 to like N3. Specifically on N3, do we also need to add more capacity into next year for newly added capacity? Laura, if I understand correctly, will we need to add new capacity? Will we continue to do conversion? What will we do to support the very strong demand we see at leading edge next year? Yes, thank you. Let me answer that question. We continue to optimize the N5, N3 capacity to support our customer. For the new building for the N3 capacity to expand, we put the new building for the N2 technology. That's today's plan. Okay. Okay? Okay. Thank you. Thank you. Very clear. Thank you. Thank you, Laura. Operator, in the interest of time, we'll take the questions from the last two participants, please. Thank you. Yes. Next one, Krish Sankar, TD Cowen. Go ahead, please. Yeah, hi. Thanks for taking my question. My first one is C.C. About 10 years ago, back in the smartphone days, TSMC would talk about the revenue opportunity for TSMC per phone. I was wondering, in today's world, can you talk about how much one gigawatt of AI data center capacity could translate in terms of wafer demand or revenue for TSMC? I have a follow-up. Okay. Krish's first question, you noted in the past in the smartphone megatrend, we talked about the content per phone opportunity for TSMC. Now with AI, is there a way to frame or quantify one gigawatt of data center capacity? What is the revenue opportunity for TSMC? Recently, as I said, the AI demand continues to increase. My customers say that 1 GW, they need to invest about $50 billion. How much of TSMC is a wafer inside? We are not ready to share with you yet because of different approaches. Okay? No worries. A quick follow-up. Excuse me. I just want to say that you know right now it's not only one chip. Actually, it's many chips together to form a system. All right? Got it. Very helpful for that. A little quick follow-up. You know, obviously, you folks forecast long-term trends and then build capacity towards that. I'm kind of curious, when you look at the AI demand over the next several years, from a TSMC angle, does it matter whether that demand is coming through a GPU or an ASIC? Does it have an impact on your revenue or gross margin mix? Thank you, Krish. His second question is, again, with our business outlook. We forecast the long-term trends. We plan our capacity, as C.C. said, in a thorough and disciplined manner. His question is, what are the implications, for example, of, I believe you said GPU versus ASIC in terms of the AI market? Do we have a preference or is there a difference for TSMC? Is that correct, Krish? That's right. The impact to revenue and gross margin, whether it's a GPU or an ASIC. Right. Okay. Krish, no matter if it's a GPU or it's an ASIC, it's all using our leading-edge technologies. From our perspective, we are working with our customer, and we all know that they are going to grow strongly in the next several years. There is no differentiation in front of TSMC. We support all kinds of types. Thank you very much. Thank you. Operator, can we take? Thank you. Thank you, Krish. We'll take the question from the final participant, please. Yes. Last one off the line, Macquarie. Go ahead, please. Hi, C.C., Wendell, and Jeff. Congrats on a strong outlook. Asalai from Macquarie. My question is about competition. C.C., you define the Foundry 2.0 market. I wonder what's the strategic initiative that TSMC is undertaking to further strengthen your competitive landscape and also in this broader ecosystem? For some context, I got the question from the U.S. investor as your clients announced they invest in Intel. Thank you. Okay. Arthur's question is around competition. In the Foundry 2.0 landscape, what strategic initiatives, what things are TSMC focusing on to further strengthen our competitive advantage? I think the last part, Arthur, you're asking in the environment where one of our competitors in the U.S., how do we focus on the competition? Is that correct? Yes. Thank you, Jeff. Okay. Let me answer that one. When we introduce Foundry 2.0, we set the purpose that, as I said, one of my customers said that the system performance is very important in these days, not only a single chip. Also, let me share with you that our advanced packaging revenue is approaching close to 10%. It's significant in our revenue, and it's important for our customer. That's why we introduce Foundry 2.0 to categorize this foundry business, not as usual. Previously, we only looked at the front-end portion. Now it's the whole thing, the front-end, the back-end, and also important for our customer. That's why we introduce 2.0. Talking about our competition in the U.S., that competitor happens to be our customer, a very good customer. In fact, we are working with them for their most advanced product. Other than that, I don't want to make any more comments. Yeah. Thank you, C.C. Can I ask one more question? Yes, you have two. Your second question, sure. Yeah. My second question is very quick on the end demand. Recall, C.C., you last time mentioned that we should also monitor and worry about the prebuilt, especially in the consumer electronics. This quarter, our numbers suggest that there's a QoQ 19% growth in the smartphone. My question is, do you still worry about the prebuilt? Thank you. Okay. Arthur, the second question is on smartphone. Are we concerned about prebuilt or sort of, I guess, pulling prebuilt from customers in that regard? No. We don't worry about the prebuilt because when you have a prebuilt, you have an inventory. These days, the inventory already goes to the very seasonal level and very healthy. So no prebuilt. Thank you very much. Okay. Thank you, C.C. Thank you, Arthur. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com. Thank you, everyone, for joining us today. We hope you all continue to stay well, and we hope you will join us again next quarter in early 2026. Thank you and have a good day.

Speaker 3: Good afternoon, everyone, and welcome to TSMC's Third Quarter 2025 Earnings Conference call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the third quarter 2025, followed by our guidance for the fourth quarter 2025. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. We will open the line for Q&A. Good afternoon, everyone, and welcome to TSMC's T hird Quarter 2025 Earnings Conference call. good afternoon everyone and welcome to tsmc's t hird quarter 2025 earnings conference call This is Jeff Su, TSMC's Director of Investor Relations and your host for today. this is jeff su tsmc's director of investor relations and your host for today TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. tsmc is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com where you can also download the earnings release materials If you are joining us through the conference call, your dial-in lines are in listen-only mode. 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. the format for today's event will be as follows First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the third quarter 2025, followed by our guidance for the fourth quarter 2025. first tsmc's senior vice president and cfo mr wendell huang will summarize our operations in the third quarter 2025 followed by our guidance for the fourth quarter 2025 Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. afterwards mr huang and tsmc's chairman and ceo dr c.c Wei, will jointly provide the company's key messages. wei will jointly provide the company's key messages We will open the line for Q&A. we will open the line for q&a As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. I would like to turn the call over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. as usual i would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements Please refer to the safe harbor notice that appears in our press release. please refer to the safe harbor notice that appears in our press release I would like to turn the call over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. i would like to turn the call over to tsmc cfo mr wendell huang for the summary of operations and the current quarter guidance

Speaker 7: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the third quarter 2025. After that, I will provide the guidance for the fourth quarter 2025. Third quarter revenue increased 6% sequentially in NT, as our business was supported by a strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 10.1% sequentially to $33.1 billion, slightly ahead of our third quarter guidance. Gross margin increased 0.9% percentage point sequentially to 59.5%, primarily due to cost improvement efforts and a higher capacity utilization rate, partially offset by an unfavorable foreign exchange rate and dilution from our overseas fabs. Accordingly, operating margin increased 1.0 percentage point sequentially to 50.6%. Overall, our third quarter EPS was TWD 17.44, up 39% year-over-year, and ROE was 37.8%. Now, let's move on to revenue by technology. Thank you, Jeff. thank you jeff Good afternoon, everyone. good afternoon everyone Thank you for joining us today. thank you for joining us today My presentation will start with financial highlights for the third quarter 2025. my presentation will start with financial highlights for the third quarter 2025 After that, I will provide the guidance for the fourth quarter 2025. after that i will provide the guidance for the fourth quarter 2025 Third quarter revenue increased 6% sequentially in NT, as our business was supported by a strong demand for our leading-edge process technologies. third quarter revenue increased 6% sequentially in nt as our business was supported by a strong demand for our leading-edge process technologies In U.S. dollar terms, revenue increased 10.1% sequentially to $33.1 billion, slightly ahead of our third quarter guidance. in u.s dollar terms revenue increased 10.1% sequentially to $33.1 billion slightly ahead of our third quarter guidance Gross margin increased 0.9% percentage point sequentially to 59.5%, primarily due to cost improvement efforts and a higher capacity utilization rate, partially offset by an unfavorable foreign exchange rate and dilution from our overseas fabs. gross margin increased 0.9% percentage point sequentially to 59.5% primarily due to cost improvement efforts and a higher capacity utilization rate partially offset by an unfavorable foreign exchange rate and dilution from our overseas fabs Accordingly, operating margin increased 1.0 percentage point sequentially to 50.6%. accordingly operating margin increased 1.0 percentage point sequentially to 50.6% Overall, our third quarter EPS was TWD 17.44 , up 39% year-over-year, and ROE was 37.8%. overall our third quarter eps was twd 17.44 up 39% year-over-year and roe was 37.8% Now, let's move on to revenue by technology. now let's move on to revenue by technology 3 nm process technology contributed 23% of wafer revenue in the third quarter, while 5 nm and 7 nm accounted for 37% and 14% respectively. Advanced Technologies defined as 7 nm and below accounted for 74% of wafer revenue. Moving on to revenue contribution by platform, HPC remained flat quarter-over-quarter to account for 57% of our third quarter revenue. Smartphone increased 19% to account for 30%. IoT increased 20% to account for 5%. Automotive increased 18% to account for 5%. DCE decreased 20% to account for 1%. Moving on to the balance sheet, we ended the third quarter with cash and marketable securities of TWD 2.8 trillion, or $90 billion. On the liability side, current liability decreased by TWD 101 billion, quarter-over-quarter, mainly due to the decrease of TWD 112 billion in accrued liabilities and others, as we paid out 2025 provisional tax of TWD 136 billion. 3 nm process technology contributed 23% of wafer revenue in the third quarter, while 5 nm and 7 nm accounted for 37% and 14% respectively. 3 nm process technology contributed 23% of wafer revenue in the third quarter while 5 nm and 7 nm accounted for 37% and 14% respectively Advanced Technologies defined as 7 nm and below accounted for 74% of wafer revenue. advanced technologies defined as 7 nm and below accounted for 74% of wafer revenue Moving on to revenue contribution by platform, HPC remained flat quarter- over- quarter to account for 57% of our third quarter revenue. moving on to revenue contribution by platform hpc remained flat quarter- over- quarter to account for 57% of our third quarter revenue Smartphone increased 19% to account for 30%. smartphone increased 19% to account for 30% IoT increased 20% to account for 5%. iot increased 20% to account for 5% Automotive increased 18% to account for 5%. automotive increased 18% to account for 5% DCE decreased 20% to account for 1%. dce decreased 20% to account for 1% Moving on to the balance sheet, we ended the third quarter with cash and marketable securities of TWD 2.8 trillion , or $90 billion. moving on to the balance sheet we ended the third quarter with cash and marketable securities of twd 2.8 trillion or $90 billion On the liability side, current liability decreased by TWD 101 billion , quarter- over- quarter, mainly due to the decrease of TWD 112 billion in accrued liabilities and others, as we paid out 2025 provisional tax of TWD 136 billion . on the liability side current liability decreased by twd 101 billion quarter- over- quarter mainly due to the decrease of twd 112 billion in accrued liabilities and others as we paid out 2025 provisional tax of twd 136 billion In terms of financial ratios, accounts receivable turnover days increased two days to 25 days. Days of inventory decreased two days to 74 days due to strong shipment in N3 and N5. Regarding cash flow and CapEx, during the third quarter, we generated about TWD 427 billion in cash from operations, spent TWD 287 billion in CapEx, and distributed TWD 117 billion for Q2 2024 cash dividend. Overall, our cash balance increased TWD 106 billion to TWD 2.5 trillion at the end of the quarter. In U.S. dollar terms, our third quarter capital expenditures totaled $9.7 billion. I have finished my financial summary. Now, let's turn to our current quarter guidance. Based on the current business outlook, we expect our fourth quarter revenue to be between $32.2 billion and $33.4 billion, which represents a 1% sequential decrease or a 22% year-over-year increase at the midpoint. In terms of financial ratios, accounts receivable turnover days increased two days to 25 days. in terms of financial ratios accounts receivable turnover days increased two days to 25 days Days of inventory decreased two days to 74 days due to strong shipment in N3 and N5. days of inventory decreased two days to 74 days due to strong shipment in n3 and n5 Regarding cash flow and CapEx, during the third quarter, we generated about TWD 427 billion in cash from operations, spent TWD 287 billion in CapEx, and distributed TWD 117 billion for Q2 2024 cash dividend. regarding cash flow and capex during the third quarter we generated about twd 427 billion in cash from operations spent twd 287 billion in capex and distributed twd 117 billion for q2 2024 cash dividend Overall, our cash balance increased TWD 106 billion to TWD 2.5 trillion at the end of the quarter. overall our cash balance increased twd 106 billion to twd 2.5 trillion at the end of the quarter In U.S. dollar terms, our third quarter capital expenditures totaled $9.7 billion. in u.s dollar terms our third quarter capital expenditures totaled $9.7 billion I have finished my financial summary. i have finished my financial summary Now, let's turn to our current quarter guidance. now let's turn to our current quarter guidance Based on the current business outlook, we expect our fourth quarter revenue to be between $32.2 billion and $33.4 billion, which represents a 1% sequential decrease or a 22% year-over-year increase at the midpoint. based on the current business outlook we expect our fourth quarter revenue to be between $32.2 billion and $33.4 billion which represents a 1% sequential decrease or a 22% year-over-year increase at the midpoint Based on the exchange rate assumption of $1 to TWD 30.6, gross margin is expected to be between 59% and 61%. Operating margin between 49% and 51%. This concludes my financial presentation. Now, let me turn to our key messages. I will start by talking about our third quarter 2025 and fourth quarter 2025 profitability. Compared to the second quarter, our third quarter gross margin increased by 90 basis points sequentially to 59.5%, primarily due to cost improvement efforts and a higher overall capacity utilization rate, partially offset by margin dilution from our overseas fabs and an unfavorable foreign exchange rate. Compared to our third quarter guidance, our actual gross margin exceeded the high end of the range provided three months ago by 200 basis points, mainly as the actual third quarter exchange rate was $1 to TWD 29.91, compared to our guidance of $1 to TWD 29. Based on the exchange rate assumption of $1 to TWD 30.6 , gross margin is expected to be between 59% and 61%. based on the exchange rate assumption of $1 to twd 30.6 gross margin is expected to be between 59% and 61% Operating margin between 49% and 51%. operating margin between 49% and 51% This concludes my financial presentation. this concludes my financial presentation Now, let me turn to our key messages. now let me turn to our key messages I will start by talking about our third quarter 2025 and fourth quarter 2025 profitability. i will start by talking about our third quarter 2025 and fourth quarter 2025 profitability Compared to the second quarter, our third quarter gross margin increased by 90 basis points sequentially to 59.5%, primarily due to cost improvement efforts and a higher overall capacity utilization rate, partially offset by margin dilution from our overseas fabs and an unfavorable foreign exchange rate. compared to the second quarter our third quarter gross margin increased by 90 basis points sequentially to 59.5% primarily due to cost improvement efforts and a higher overall capacity utilization rate partially offset by margin dilution from our overseas fabs and an unfavorable foreign exchange rate Compared to our third quarter guidance, our actual gross margin exceeded the high end of the range provided three months ago by 200 basis points, mainly as the actual third quarter exchange rate was $1 to TWD 29.91 , compared to our guidance of $1 to TWD 29 . compared to our third quarter guidance our actual gross margin exceeded the high end of the range provided three months ago by 200 basis points mainly as the actual third quarter exchange rate was $1 to twd 29.91 compared to our guidance of $1 to twd 29 In addition, we also delivered better than expected cost improvement efforts. We have just guided our fourth quarter gross margin to increase by 50 basis points to 60% at the midpoint, primarily driven by a more favorable foreign exchange rate, partially offset by continued dilution from our overseas fabs. While the cost of overseas fabs remains higher, thanks to the company's overall larger scale, we now expect the gross margin dilution from the ramp-up of our overseas fabs to be closer to 2% in the second half of 2025. For the full year 2025, we now expect it to be between 1%-2% as compared to 2%-3% previously. In addition, we also delivered better than expected cost improvement efforts. in addition we also delivered better than expected cost improvement efforts We have just guided our fourth quarter gross margin to increase by 50 basis points to 60% at the midpoint, primarily driven by a more favorable foreign exchange rate, partially offset by continued dilution from our overseas fabs. we have just guided our fourth quarter gross margin to increase by 50 basis points to 60% at the midpoint primarily driven by a more favorable foreign exchange rate partially offset by continued dilution from our overseas fabs While the cost of overseas fabs remains higher, thanks to the company's overall larger scale, we now expect the gross margin dilution from the ramp-up of our overseas fabs to be closer to 2% in the second half of 2025. while the cost of overseas fabs remains higher thanks to the company's overall larger scale we now expect the gross margin dilution from the ramp-up of our overseas fabs to be closer to 2% in the second half of 2025 For the full year 2025, we now expect it to be between 1%- 2% as compared to 2%- 3% previously. for the full year 2025 we now expect it to be between 1%- 2% as compared to 2%- 3% previously Looking ahead, we continue to forecast the gross margin dilution from the ramp-up of our overseas fabs in the next several years to be 2%-3% in the early stages and widen to 3%-4% in the latter stages. We will leverage our increasing size in Arizona and work on our operations to improve the cost structure. We will also continue to work closely with our customers and suppliers to manage the impact. Overall, with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base, we expect TSMC to be the most efficient and cost-effective manufacturer in every region that we operate. Now, let me make some comments on our 2025 CapEx. As the structured AI-related demand continues to be very strong, we continue to invest to support our customers' growth. Looking ahead, we continue to forecast the gross margin dilution from the ramp-up of our overseas fabs in the next several years to be 2%- 3% in the early stages and widen to 3%- 4% in the latter stages. looking ahead we continue to forecast the gross margin dilution from the ramp-up of our overseas fabs in the next several years to be 2%- 3% in the early stages and widen to 3%- 4% in the latter stages We will leverage our increasing size in Arizona and work on our operations to improve the cost structure. we will leverage our increasing size in arizona and work on our operations to improve the cost structure We will also continue to work closely with our customers and suppliers to manage the impact. we will also continue to work closely with our customers and suppliers to manage the impact Overall, with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base, we expect TSMC to be the most efficient and cost-effective manufacturer in every region that we operate. overall with our fundamental competitive advantages of manufacturing technology leadership and large-scale production base we expect tsmc to be the most efficient and cost-effective manufacturer in every region that we operate Now, let me make some comments on our 2025 CapEx . now let me make some comments on our 2025 capex As the structured AI-related demand continues to be very strong, we continue to invest to support our customers' growth. as the structured ai-related demand continues to be very strong we continue to invest to support our customers' growth We are narrowing the range of our 2025 CapEx to be between $40 billion and $42 billion, as compared to $38 billion-$42 billion previously. About 70% of the capital budget will be allocated for advanced process technologies. About 10%-20% will be spent for specialty technologies. About 10%-20% will be spent for advanced packaging, testing, mask making, and others. At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. Even as we invest for the future growth with this higher level of CapEx spending in 2025, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis. Now, let me turn the microphone over to C.C. We are narrowing the range of our 2025 CapEx to be between $40 billion and $42 billion, as compared to $38 billion- $42 billion previously. we are narrowing the range of our 2025 capex to be between $40 billion and $42 billion as compared to $38 billion- $42 billion previously About 70% of the capital budget will be allocated for advanced process technologies. about 70% of the capital budget will be allocated for advanced process technologies About 10%- 20% will be spent for specialty technologies. about 10%- 20% will be spent for specialty technologies About 10%- 20% will be spent for advanced packaging, testing, mask making, and others. about 10%- 20% will be spent for advanced packaging testing mask making and others At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. at tsmc a higher level of capital expenditures is always correlated with higher growth opportunities in the following years Even as we invest for the future growth with this higher level of CapEx spending in 2025, we remain committed to delivering profitable growth to our shareholders. even as we invest for the future growth with this higher level of capex spending in 2025 we remain committed to delivering profitable growth to our shareholders We also remain committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis. we also remain committed to a sustainable and steadily increasing cash dividend per share on both an annual and quarterly basis Now, let me turn the microphone over to C.C. now let me turn the microphone over to c.c

Speaker 8: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our third quarter with revenue of $33.1 billion, slightly above our guidance in U.S. dollar terms, mainly due to the strong demand for our leading-edge process technologies. Moving into the fourth quarter 2025, we expect our business to be supported by continued strong demand for our leading-edge process technologies. We continue to observe robust AI-related demand throughout 2025, while the non-AI end market segment has patterned out and is seeing a mild recovery. Supported by our strong technology differentiation and broad customer base, we now expect our full-year 2025 revenue to increase by close to mid-30% year-over-year in U.S. dollar terms. Thank you, Wendell. thank you wendell Good afternoon, everyone. good afternoon everyone First, let me start with our near-term demand outlook. first let me start with our near-term demand outlook We concluded our third quarter with revenue of $33.1 billion, slightly above our guidance in U.S. dollar terms, mainly due to the strong demand for our leading-edge process technologies. we concluded our third quarter with revenue of $33.1 billion slightly above our guidance in u.s dollar terms mainly due to the strong demand for our leading-edge process technologies Moving into the fourth quarter 2025, we expect our business to be supported by continued strong demand for our leading-edge process technologies. moving into the fourth quarter 2025 we expect our business to be supported by continued strong demand for our leading-edge process technologies We continue to observe robust AI-related demand throughout 2025, while the non-AI end market segment has patterned out and is seeing a mild recovery. we continue to observe robust ai-related demand throughout 2025 while the non-ai end market segment has patterned out and is seeing a mild recovery Supported by our strong technology differentiation and broad customer base, we now expect our full-year 2025 revenue to increase by close to mid-30% year-over-year in U.S. dollar terms. supported by our strong technology differentiation and broad customer base we now expect our full-year 2025 revenue to increase by close to mid-30% year-over-year in u.s dollar terms While we have not observed any change in our customers' behavior so far, we understand there are uncertainties and risks from the potential impact of tariff policies, especially in the consumer-related and price-sensitive end market segments. As such, we will remain mindful of the potential impact and be prudent in our business planning going into 2026 while continuing to invest for the future megatrend. Amidst the uncertainty, we will also continue to focus on the fundamentals of our business, that is technology leadership, manufacturing excellence, and customer trust, to further strengthen our competitive position. Next, let me talk about the AI demand outlook and TSMC's capacity planning process disciplines. Recent developments in the AI market continue to be very positive. The explosive growth in token volume demonstrates increasing consumer AI model adoption, which means more and more computation is needed, leading to more leading-edge silicon demand. While we have not observed any change in our customers' behavior so far, we understand there are uncertainties and risks from the potential impact of tariff policies, especially in the consumer-related and price-sensitive end market segments. while we have not observed any change in our customers' behavior so far we understand there are uncertainties and risks from the potential impact of tariff policies especially in the consumer-related and price-sensitive end market segments As such, we will remain mindful of the potential impact and be prudent in our business planning going into 2026 while continuing to invest for the future megatrend. as such we will remain mindful of the potential impact and be prudent in our business planning going into 2026 while continuing to invest for the future megatrend Amidst the uncertainty, we will also continue to focus on the fundamentals of our business, that is technology leadership, manufacturing excellence, and customer trust, to further strengthen our competitive position. amidst the uncertainty we will also continue to focus on the fundamentals of our business that is technology leadership manufacturing excellence and customer trust to further strengthen our competitive position Next, let me talk about the AI demand outlook and TSMC's capacity planning process disciplines. next let me talk about the ai demand outlook and tsmc's capacity planning process disciplines Recent developments in the AI market continue to be very positive. recent developments in the ai market continue to be very positive The explosive growth in token volume demonstrates increasing consumer AI model adoption, which means more and more computation is needed, leading to more leading-edge silicon demand. the explosive growth in token volume demonstrates increasing consumer ai model adoption which means more and more computation is needed leading to more leading-edge silicon demand Companies such as TSMC are leveraging AI internally to drive greater productivity and efficiency to create more value. As such, enterprise AI is another source of demand. In addition, we continue to observe the rising emergence of sovereign AI. We are also happy to see continued strong outlook from our customers. In addition, we directly receive very strong signals from our customers' customers, requesting the capacity to support their business. Thus, our conviction in the AI megatrend is strengthening, and we believe the demand for semiconductors will continue to be very fundamental. As a key enabler of AI applications, TSMC's biggest responsibility is to prepare the most advanced technologies and necessary capacity to support our customers' growth. To address the structural increase in the long-term market demand profile, TSMC employs a disciplined and robust capacity planning system. Companies such as TSMC are leveraging AI internally to drive greater productivity and efficiency to create more value. companies such as tsmc are leveraging ai internally to drive greater productivity and efficiency to create more value As such, enterprise AI is another source of demand. as such enterprise ai is another source of demand In addition, we continue to observe the rising emergence of sovereign AI. in addition we continue to observe the rising emergence of sovereign ai We are also happy to see continued strong outlook from our customers. we are also happy to see continued strong outlook from our customers In addition, we directly receive very strong signals from our customers' customers, requesting the capacity to support their business. in addition we directly receive very strong signals from our customers' customers requesting the capacity to support their business Thus, our conviction in the AI megatrend is strengthening, and we believe the demand for semiconductors will continue to be very fundamental. thus our conviction in the ai megatrend is strengthening and we believe the demand for semiconductors will continue to be very fundamental As a key enabler of AI applications, TSMC's biggest responsibility is to prepare the most advanced technologies and necessary capacity to support our customers' growth. as a key enabler of ai applications tsmc's biggest responsibility is to prepare the most advanced technologies and necessary capacity to support our customers' growth To address the structural increase in the long-term market demand profile, TSMC employs a disciplined and robust capacity planning system. to address the structural increase in the long-term market demand profile tsmc employs a disciplined and robust capacity planning system Externally, we work closely with our customers and our customers' customers to plan our capacity. We have more than 500 different customers across all the end market segments. In addition, as process technology complexity increases, the engagement lead time with customers is now at least two to three years in advance. Therefore, we probably get the deepest and widest loop possible in the industry. Internally, our planning system involves multiple teams across several functions to assess and evaluate the market demand from both top-down and bottom-up approaches to determine the appropriate capacity to build. This is especially important when we have such high forecasted demand from AI-related businesses. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. Externally, we work closely with our customers and our customers' customers to plan our capacity. externally we work closely with our customers and our customers' customers to plan our capacity We have more than 500 different customers across all the end market segments. we have more than 500 different customers across all the end market segments In addition, as process technology complexity increases, the engagement lead time with customers is now at least two to three years in advance. in addition as process technology complexity increases the engagement lead time with customers is now at least two to three years in advance Therefore, we probably get the deepest and widest loop possible in the industry. therefore we probably get the deepest and widest loop possible in the industry Internally, our planning system involves multiple teams across several functions to assess and evaluate the market demand from both top-down and bottom-up approaches to determine the appropriate capacity to build. internally our planning system involves multiple teams across several functions to assess and evaluate the market demand from both top-down and bottom-up approaches to determine the appropriate capacity to build This is especially important when we have such high forecasted demand from AI-related businesses. this is especially important when we have such high forecasted demand from ai-related businesses As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. as the world's most reliable and effective capacity provider we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth We will also remain disciplined and robust in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now, let me talk about TSMC's global manufacturing footprint update. All our overseas decisions are based on our customers' needs, as they value some geographic flexibility and the necessary level of government support. This is also to maximize the value for our shareholders. With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city governments, we continue to speed up our capacity expansion in Arizona. We are making tangible progress and executing well to our plan. In addition, we are preparing to upgrade our technologies faster to end-to-end and more advanced process technologies in Arizona, given the strong AI-related demand from our customers. We will also remain disciplined and robust in our capacity planning approach to ensure we deliver profitable growth for our shareholders. we will also remain disciplined and robust in our capacity planning approach to ensure we deliver profitable growth for our shareholders Now, let me talk about TSMC's global manufacturing footprint update. now let me talk about tsmc's global manufacturing footprint update All our overseas decisions are based on our customers' needs, as they value some geographic flexibility and the necessary level of government support. all our overseas decisions are based on our customers' needs as they value some geographic flexibility and the necessary level of government support This is also to maximize the value for our shareholders. this is also to maximize the value for our shareholders With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city governments, we continue to speed up our capacity expansion in Arizona. with a strong collaboration and support from our leading u.s customers and the u.s federal state and city governments we continue to speed up our capacity expansion in arizona We are making tangible progress and executing well to our plan. we are making tangible progress and executing well to our plan In addition, we are preparing to upgrade our technologies faster to end-to-end and more advanced process technologies in Arizona, given the strong AI-related demand from our customers. in addition we are preparing to upgrade our technologies faster to end-to-end and more advanced process technologies in arizona given the strong ai-related demand from our customers Furthermore, we are close to securing a second large piece of land nearby to support our current expansion plans and provide more flexibility in response to the very strong multi-year AI-related demand. Our plan will enable TSMC to scale up to an independent gigafab cluster in Arizona to support the needs of our leading-edge customers in smartphone, AI, and HPC applications. Next, in Japan, thanks to the strong support from the Japan Central, Prefectural, and Local Government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. The construction of our second fab has begun, and the ramp schedule will be based on our customers' needs and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal, state, and city governments. Furthermore, we are close to securing a second large piece of land nearby to support our current expansion plans and provide more flexibility in response to the very strong multi-year AI-related demand. furthermore we are close to securing a second large piece of land nearby to support our current expansion plans and provide more flexibility in response to the very strong multi-year ai-related demand Our plan will enable TSMC to scale up to an independent gigafab cluster in Arizona to support the needs of our leading-edge customers in smartphone, AI, and HPC applications. our plan will enable tsmc to scale up to an independent gigafab cluster in arizona to support the needs of our leading-edge customers in smartphone ai and hpc applications Next, in Japan, thanks to the strong support from the Japan Central, Prefectural, and Local Government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. next in japan thanks to the strong support from the japan central prefectural and local government our first specialty fab in kumamoto has already started volume production in late 2024 with very good yield The construction of our second fab has begun, and the ramp schedule will be based on our customers' needs and market conditions. the construction of our second fab has begun and the ramp schedule will be based on our customers' needs and market conditions In Europe, we have received strong commitment from the European Commission and the German federal, state, and city governments. in europe we have received strong commitment from the european commission and the german federal state and city governments Construction of our specialty fab in Dresden, Germany, has also started, and we are progressing smoothly with our plans. The ramp schedule will be based on our customers' needs and market conditions. In Taiwan, with support from the Taiwan government, we are preparing for multiple phases of 2 nm fab in both Xinchu and Kaohsiung Science Parks. We will continue to invest in leading-edge and advanced packaging facilities in Taiwan over the next several years. By expanding our global footprint while continuing to invest in Taiwan, TSMC can continue to be the trusted technology and capacity provider of the global logic IC industry for years to come. Finally, let me talk about our N2 and S16 status. Our 2 nm and S16 technologies lead the industry in addressing insatiable demand for energy-efficient computing, and almost all innovators are working with TSMC. N2 is well on track for volume production later this quarter. Construction of our specialty fab in Dresden, Germany, has also started, and we are progressing smoothly with our plans. construction of our specialty fab in dresden germany has also started and we are progressing smoothly with our plans The ramp schedule will be based on our customers' needs and market conditions. the ramp schedule will be based on our customers' needs and market conditions In Taiwan, with support from the Taiwan government, we are preparing for multiple phases of 2 nm fab in both Xinchu and Kaohsiung Science Parks. in taiwan with support from the taiwan government we are preparing for multiple phases of 2 nm fab in both xinchu and kaohsiung science parks We will continue to invest in leading-edge and advanced packaging facilities in Taiwan over the next several years. we will continue to invest in leading-edge and advanced packaging facilities in taiwan over the next several years By expanding our global footprint while continuing to invest in Taiwan, TSMC can continue to be the trusted technology and capacity provider of the global logic IC industry for years to come. by expanding our global footprint while continuing to invest in taiwan tsmc can continue to be the trusted technology and capacity provider of the global logic ic industry for years to come Finally, let me talk about our N2 and S16 status. finally let me talk about our n2 and s16 status Our 2 nm and S16 technologies lead the industry in addressing insatiable demand for energy-efficient computing, and almost all innovators are working with TSMC. our 2 nm and s16 technologies lead the industry in addressing insatiable demand for energy-efficient computing and almost all innovators are working with tsmc N2 is well on track for volume production later this quarter. n2 is well on track for volume production later this quarter With good yield, we expect a faster ramp in 2026, fueled by both smartphone and HPC AI applications. With our strategy of continuous enhancement, we also introduce N2P as an extension of our N2 family. N2P features further performance and power benefits on top of N2 and volume production scheduled for the second half of 2026. We also introduced A16 featuring our best-in-class superpower rail, or SPR. A16 is best suited for a specific HPC product with a complex signal route and dense power delivery networks. Volume production is on track for the second half of 2026. We believe N2, N2P, A16, and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC. This concludes our key message, and thank you for your attention. With good yield, we expect a faster ramp in 2026, fueled by both smartphone and HPC AI applications. with good yield we expect a faster ramp in 2026 fueled by both smartphone and hpc ai applications With our strategy of continuous enhancement, we also introduce N2P as an extension of our N2 family. with our strategy of continuous enhancement we also introduce n2p as an extension of our n2 family N2P features further performance and power benefits on top of N2 and volume production scheduled for the second half of 2026. n2p features further performance and power benefits on top of n2 and volume production scheduled for the second half of 2026 We also introduced A16 featuring our best-in-class superpower rail, or SPR. we also introduced a16 featuring our best-in-class superpower rail or spr A16 is best suited for a specific HPC product with a complex signal route and dense power delivery networks. a16 is best suited for a specific hpc product with a complex signal route and dense power delivery networks Volume production is on track for the second half of 2026. volume production is on track for the second half of 2026 We believe N2, N2P, A16, and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC. we believe n2 n2p a16 and its derivatives will propel our n2 family to be another large and long-lasting node for tsmc This concludes our key message, and thank you for your attention. this concludes our key message and thank you for your attention

Speaker 3: Thank you, C.C. This concludes our prepared statements. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question. For those of you on the call, if you would like to ask a question, please press the star, then one on the telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star, then two. Now, let's begin the Q&A session. Operator, can we please proceed with the first caller on the line? Thank you. Thank you, C.C. thank you c.c This concludes our prepared statements. this concludes our prepared statements Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. before we begin the q&a session i would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question. should you wish to raise your question in chinese i will translate it to english before our management answers your question For those of you on the call, if you would like to ask a question, please press the star, then one on the telephone keypad now. for those of you on the call if you would like to ask a question please press the star then one on the telephone keypad now If at any time you'd like to remove yourself from the questioning queue, please press star, then two. if at any time you'd like to remove yourself from the questioning queue please press star then two Now, let's begin the Q&A session. now let's begin the q&a session Operator, can we please proceed with the first caller on the line? operator can we please proceed with the first caller on the line Thank you. thank you

Speaker 1: Yes. First one, Gokul Hariharan, JPMorgan. Go ahead, please. Yes. yes First one, Gokul Hariharan, JPMorgan . first one gokul hariharan jpmorgan Go ahead, please. go ahead please

Speaker 2: Yeah, thanks. Good afternoon, C.C., Wendell, and Jeff. Great result again. On the AI front, C.C., I think you have met with pretty much everybody who is driving the Gen AI revolution over the last couple of months. As you said, everybody seems to be a lot more positive. I think we gave a guidance of mid-40% data center AI growth CAGR earlier this year until 2029. Anything that you see which should kind of change that number? It definitely feels like the growth today seems to be much stronger. Related to that, you did talk about the very detailed capacity expansion planning that TSMC does. In past technology cycles, TSMC CapEx has gone up significantly to prepare for the next upgrade or next leading-edge node. In this cycle, TSMC revenues have grown 50% from the previous peak in 2022. CapEx has only grown about 10%. Yeah, thanks. yeah thanks Good afternoon, C.C., Wendell, and Jeff. good afternoon c.c wendell and jeff Great result again. great result again On the AI front, C.C., I think you have met with pretty much everybody who is driving the Gen AI revolution over the last couple of months. on the ai front c.c i think you have met with pretty much everybody who is driving the gen ai revolution over the last couple of months As you said, everybody seems to be a lot more positive. as you said everybody seems to be a lot more positive I think we gave a guidance of mid-40% data center AI growth CAGR earlier this year until 2029. i think we gave a guidance of mid-40% data center ai growth cagr earlier this year until 2029 Anything that you see which should kind of change that number? anything that you see which should kind of change that number It definitely feels like the growth today seems to be much stronger. it definitely feels like the growth today seems to be much stronger Related to that, you did talk about the very detailed capacity expansion planning that TSMC does. related to that you did talk about the very detailed capacity expansion planning that tsmc does In past technology cycles, TSMC CapEx has gone up significantly to prepare for the next upgrade or next leading-edge node. in past technology cycles tsmc capex has gone up significantly to prepare for the next upgrade or next leading-edge node In this cycle, TSMC revenues have grown 50% from the previous peak in 2022. in this cycle tsmc revenues have grown 50% from the previous peak in 2022 CapEx has only grown about 10%. capex has only grown about 10% How should we think about the CapEx over the next couple of years? I know that you're not giving numerical guidance yet, but I just wanted to understand, like are we looking at much higher CapEx in the next couple of years given all these conversations you've had? I had a follow-up after that. Thank you. How should we think about the CapEx over the next couple of years? how should we think about the capex over the next couple of years I know that you're not giving numerical guidance yet, but I just wanted to understand, like are we looking at much higher CapEx in the next couple of years given all these conversations you've had? i know that you're not giving numerical guidance yet but i just wanted to understand like are we looking at much higher capex in the next couple of years given all these conversations you've had I had a follow-up after that. i had a follow-up after that Thank you. thank you

Speaker 3: Okay. Gokul, first question. Sorry, Gokul. Let me summarize for everyone's benefit. Again, he wants to know firstly related to the AI-related demand that TSMC works with many, if not everyone, who is doing AI, and many of the customers seem to be even more positive today. I guess he would like to ask C.C., sort of what are we seeing or hearing from our customers? We had previously said that the next five years from 2024 to 2029, we expect AI accelerator to grow at a mid-40% CAGR. Is there any update to this? I think this is the first part. I'll get to the second part on CapEx. Okay. okay Gokul, first question. gokul first question Sorry, Gokul. sorry gokul Let me summarize for everyone's benefit. let me summarize for everyone's benefit Again, he wants to know firstly related to the AI-related demand that TSMC works with many, if not everyone, who is doing AI, and many of the customers seem to be even more positive today. again he wants to know firstly related to the ai-related demand that tsmc works with many if not everyone who is doing ai and many of the customers seem to be even more positive today I guess he would like to ask C.C., sort of what are we seeing or hearing from our customers? i guess he would like to ask c.c sort of what are we seeing or hearing from our customers We had previously said that the next five years from 2024 to 2029, we expect AI accelerator to grow at a mid-40% CAGR. we had previously said that the next five years from 2024 to 2029 we expect ai accelerator to grow at a mid-40% cagr Is there any update to this? is there any update to this I think this is the first part. i think this is the first part I'll get to the second part on CapEx. i'll get to the second part on capex

Speaker 8: Wow. That's a long question, isn't it? Gokul, the AI demand actually continues to be very strong. It's more strong than we thought three months ago. In today's situation, we have talked to customers, and then we talk to customers' customers. The CAGR we previously announced is about the mid-40%, but it's still a little bit better than that. We will update you probably in the beginning of next year. We have a more clear picture. Today, the numbers are incentive. Wow. wow That's a long question, isn't it? that's a long question isn't it Gokul, the AI demand actually continues to be very strong. gokul the ai demand actually continues to be very strong It's more strong than we thought three months ago. it's more strong than we thought three months ago In today's situation, we have talked to customers, and then we talk to customers' customers. in today's situation we have talked to customers and then we talk to customers' customers The CAGR we previously announced is about the mid-40%, but it's still a little bit better than that. the cagr we previously announced is about the mid-40% but it's still a little bit better than that We will update you probably in the beginning of next year. we will update you probably in the beginning of next year We have a more clear picture. we have a more clear picture Today, the numbers are incentive. today the numbers are incentive

Speaker 3: The second part of Gokul's question related to CapEx, he notes that in the past, when TSMC sees opportunities for higher growth, past cycles or past instances, we would step up the CapEx significantly to prepare to drive the future growth. He notes this cycle, actually, though while CapEx is increasing, the revenue is increasing even faster. His question really, I think, is how do we see this playing out over the next few years, both in terms of the CapEx spend and the growth relative to the revenue growth? The second part of Gokul's question related to CapEx, he notes that in the past, when TSMC sees opportunities for higher growth, past cycles or past instances, we would step up the CapEx significantly to prepare to drive the future growth. the second part of gokul's question related to capex he notes that in the past when tsmc sees opportunities for higher growth past cycles or past instances we would step up the capex significantly to prepare to drive the future growth He notes this cycle, actually, though while CapEx is increasing, the revenue is increasing even faster. he notes this cycle actually though while capex is increasing the revenue is increasing even faster His question really, I think, is how do we see this playing out over the next few years, both in terms of the CapEx spend and the growth relative to the revenue growth? his question really i think, is how do we see this playing out over the next few years both in terms of the capex spend and the growth relative to the revenue growth

Speaker 7: Okay. Gokul, every year we spend the CapEx based on the business opportunity in the following few years. As long as we believe there are business opportunities, we will not hesitate to invest. If we do our job right, the growth of our business or of our revenue should outpace the growth of the CapEX. That is what we have been delivering in the past few years. Now, going forward, assuming we're still doing a very good job, we will continue to see that happening again. A company of our size, the CapEx number, it's unlikely to suddenly drop significantly in any given year. When we continue to invest and our growth is outpacing our CapEx growth, you'll see the growth like what we have done in the past few years. Okay. okay Gokul, every year we spend the CapEx based on the business opportunity in the following few years. gokul every year we spend the capex based on the business opportunity in the following few years As long as we believe there are business opportunities, we will not hesitate to invest. as long as we believe there are business opportunities we will not hesitate to invest If we do our job right, the growth of our business or of our revenue should outpace the growth of the CapEX. if we do our job right the growth of our business or of our revenue should outpace the growth of the capex That is what we have been delivering in the past few years. that is what we have been delivering in the past few years Now, going forward, assuming we're still doing a very good job, we will continue to see that happening again. now going forward assuming we're still doing a very good job we will continue to see that happening again A company of our size, the CapEx number, it's unlikely to suddenly drop significantly in any given year. a company of our size the capex number it's unlikely to suddenly drop significantly in any given year When we continue to invest and our growth is outpacing our CapEx growth, you'll see the growth like what we have done in the past few years. when we continue to invest and our growth is outpacing our capex growth you'll see the growth like what we have done in the past few years

Speaker 2: Understood. I know that it is unlikely to drop, but it is also likely to grow quite a bit given what C.C. Wei mentioned in terms of every customer asking you and every customer's customer requesting you for capacity addition, right? Understood. understood I know that it is unlikely to drop, but it is also likely to grow quite a bit given what C.C. i know that it is unlikely to drop but it is also likely to grow quite a bit given what c.c Wei mentioned in terms of every customer asking you and every customer's customer requesting you for capacity addition, right? wei mentioned in terms of every customer asking you and every customer's customer requesting you for capacity addition right

Speaker 7: Yeah, as I said, a higher level of CapEx is always going to be correlated with a higher growth opportunity. As C.C. said, next year looks to be a healthy year and that we are confident on the megatrend, then we'll continue to invest. Yeah, as I said, a higher level of CapEx is always going to be correlated with a higher growth opportunity. yeah as i said a higher level of capex is always going to be correlated with a higher growth opportunity As C.C. said, next year looks to be a healthy year and that we are confident on the megatrend, then we'll continue to invest. as c.c said next year looks to be a healthy year and that we are confident on the megatrend then we'll continue to invest

Speaker 2: Okay, got it. Yeah. Okay, got it. okay got it Yeah. yeah Yeah, maybe one more follow-up question from me, C.C. I think last year also you gave us an indication of how much CoWoS capacity you would be building. I think you talked about 2x of doubling the CoWoS capacity. It clearly feels like even that is not enough. Could you give us some idea about how much capacity you would be building next year just to get some idea about what you are seeing in terms of AI demand? Also, just to get some understanding of TSMC's data center AI exposure, I think last year we talked about mid-teens revenues. Where do we end up this year? Do we end up close to like 30% of revenues coming from AI? Yeah, maybe one more follow-up question from me, C.C. yeah maybe one more follow-up question from me c.c I think last year also you gave us an indication of how much CoWoS capacity you would be building. i think last year also you gave us an indication of how much cowos capacity you would be building I think you talked about 2x of doubling the CoWoS capacity. i think you talked about 2x of doubling the cowos capacity It clearly feels like even that is not enough. it clearly feels like even that is not enough Could you give us some idea about how much capacity you would be building next year just to get some idea about what you are seeing in terms of AI demand? could you give us some idea about how much capacity you would be building next year just to get some idea about what you are seeing in terms of ai demand Also, just to get some understanding of TSMC's data center AI exposure, I think last year we talked about mid-teens revenues. also just to get some understanding of tsmc's data center ai exposure i think last year we talked about mid-teens revenues Where do we end up this year? where do we end up this year Do we end up close to like 30% of revenues coming from AI? do we end up close to like 30% of revenues coming from ai

Speaker 3: Okay. Gokul, your second question really, he wants to understand, can we provide any detail or colors on the CoWoS capacity plan for 2026 in terms of year-on-year increase? Also, in terms of our definition of AI accelerator revenue, the narrow definition, how much will it contribute for 2025 revenue? Is it 30%? Okay. okay Gokul, your second question really, he wants to understand, can we provide any detail or colors on the CoWoS capacity plan for 2026 in terms of year-on-year increase? gokul your second question really he wants to understand can we provide any detail or colors on the cowos capacity plan for 2026 in terms of year-on-year increase Also, in terms of our definition of AI accelerator revenue, the narrow definition, how much will it contribute for 2025 revenue? also in terms of our definition of ai accelerator revenue the narrow definition how much will it contribute for 2025 revenue Is it 30%? is it 30%

Speaker 8: Gokul, this is C.C. Wei again. Talking about the CoWoS capacity, all I can say is continuing the three months ago, we are working very hard to narrow the gap between the demand and supply. We are still working to increase the capacity in 2026. The real number, we probably update you next year. Today, all I want to say about the AI, everything related, like the front-end and back-end capacity, is very tight. We are working very hard to make sure that the gap will be narrow, but all I can say is we are working very hard. Gokul, this is C.C. gokul this is c.c Wei again. wei again Talking about the CoWoS capacity, all I can say is continuing the three months ago, we are working very hard to narrow the gap between the demand and supply. talking about the cowos capacity all i can say is continuing the three months ago we are working very hard to narrow the gap between the demand and supply We are still working to increase the capacity in 2026. we are still working to increase the capacity in 2026 The real number, we probably update you next year. the real number we probably update you next year Today, all I want to say about the AI, everything related, like the front-end and back-end capacity, is very tight. today all i want to say about the ai everything related like the front-end and back-end capacity is very tight We are working very hard to make sure that the gap will be narrow, but all I can say is we are working very hard. we are working very hard to make sure that the gap will be narrow but all i can say is we are working very hard

Speaker 3: Okay. Thank you, Gokul. I think we need to move on in the interest of time. Operator, can we move to the next participant, please? Okay. okay Thank you, Gokul. thank you gokul I think we need to move on in the interest of time. i think we need to move on in the interest of time Operator, can we move to the next participant, please? operator can we move to the next participant please

Speaker 1: Yes. Next one, Charlie Chan, Morgan Stanley. Go ahead, please. Yes. yes Next one, Charlie Chan, Morgan Stanley. next one charlie chan morgan stanley Go ahead, please. go ahead please

Speaker 4: Thanks for taking my question. Again, congratulations for very strong results, C.C., Wendell, and Jeff. My first question is really about your leading-edge demand. As C.C. just mentioned, your front-end demand is also very strong into next year. One of your major customers just said that more so is that. I think his point is that by doing maybe system-level innovation in the thermal, etc., can boost up more kind of performers. Just a kind of dumb question. How do we reconcile your very, very strong leading-edge demand and that customer continue to migrate to your most advanced nodes and also you continue to reflect value, whereas the customer continues to think that more so is that? Can we get some clarification from TSMC? Thanks for taking my question. thanks for taking my question Again, congratulations for very strong results, C.C., Wendell, and Jeff. again congratulations for very strong results c.c wendell and jeff My first question is really about your leading-edge demand. my first question is really about your leading-edge demand As C.C. just mentioned, your front-end demand is also very strong into next year. as c.c just mentioned your front-end demand is also very strong into next year One of your major customers just said that more so is that. one of your major customers just said that more so is that I think his point is that by doing maybe system-level innovation in the thermal, etc., can boost up more kind of performers. i think his point is that by doing maybe system-level innovation in the thermal etc can boost up more kind of performers Just a kind of dumb question. just a kind of dumb question How do we reconcile your very, very strong leading-edge demand and that customer continue to migrate to your most advanced nodes and also you continue to reflect value, whereas the customer continues to think that more so is that? how do we reconcile your very very strong leading-edge demand and that customer continue to migrate to your most advanced nodes and also you continue to reflect value whereas the customer continues to think that more so is that Can we get some clarification from TSMC? can we get some clarification from tsmc

Speaker 3: All right. Charlie's question is very specific, although he wants us to comment on a customer saying more so is that. How do we reconcile this with a very strong leading-edge demand into 2026 and also with system-level innovations? All right. all right Charlie's question is very specific, although he wants us to comment on a customer saying more so is that. charlie's question is very specific although he wants us to comment on a customer saying more so is that How do we reconcile this with a very strong leading-edge demand into 2026 and also with system-level innovations? how do we reconcile this with a very strong leading-edge demand into 2026 and also with system-level innovations

Speaker 8: Okay. Charlie, this is C.C. Wei. Yeah, one of my customers, very important customer, say more so is that. What he means is it's not only relying on the chip technology anymore. Now we have to focus on the whole system's performance. He wants to emphasize the whole system's performance rather than just talking about the more so, which is not enough to meet his requirement. We work very closely with his people to design our technology, both in front-end and back-end, and also in all the packagings to meet his requirement. That's all I can say. Okay. okay Charlie, this is C.C. charlie this is c.c Wei. wei Yeah, one of my customers, very important customer, say more so is that. yeah one of my customers very important customer say more so is that What he means is it's not only relying on the chip technology anymore. what he means is it's not only relying on the chip technology anymore Now we have to focus on the whole system's performance. now we have to focus on the whole system's performance He wants to emphasize the whole system's performance rather than just talking about the more so, which is not enough to meet his requirement. he wants to emphasize the whole system's performance rather than just talking about the more so which is not enough to meet his requirement We work very closely with his people to design our technology, both in front-end and back-end, and also in all the packagings to meet his requirement. we work very closely with his people to design our technology both in front-end and back-end and also in all the packagings to meet his requirement That's all I can say. that's all i can say

Speaker 3: Okay. Thank you, C.C. Okay. okay Thank you, C.C. thank you c.c

Speaker 8: Sure. Sure. sure

Speaker 4: Thanks, CC. Thanks, CC. thanks cc

Speaker 3: Do you have a second question, Charlie? Do you have a second question, Charlie? do you have a second question charlie

Speaker 4: Yes, I do. Thanks, Jeff. I would interpret that as Foundry 2.0, that your co-COO, Mr. Cliff, also kind of shared during the SEMICON Taiwan. Thanks, C.C., for your commentary. My second question is actually a follow-up from last quarter's same question. Back then, I consulted you about the China AI GPU demand, right? Whether you can seize the market opportunity because China says VDL is setting their AI infrastructure very rapidly. Given the recent kind of back and forth between the U.S. and China, whether China can really impose this NVIDIA GPU, would that kind of discount your potential long-term growth of the AI CAGR? Is that something that TSMC would worry about? Yes, I do. yes i do Thanks, Jeff. thanks jeff I would interpret that as Foundry 2.0, that your co-COO, Mr. Cliff, also kind of shared during the SEMICON Taiwan. i would interpret that as foundry 2.0 that your co-coo mr cliff also kind of shared during the semicon taiwan Thanks, C.C., for your commentary. thanks c.c for your commentary My second question is actually a follow-up from last quarter's same question. my second question is actually a follow-up from last quarter's same question Back then, I consulted you about the China AI GPU demand, right? back then i consulted you about the china ai gpu demand right Whether you can seize the market opportunity because China says VDL is setting their AI infrastructure very rapidly. whether you can seize the market opportunity because china says vdl is setting their ai infrastructure very rapidly Given the recent kind of back and forth between the U.S. and China, whether China can really impose this NVIDIA GPU, would that kind of discount your potential long-term growth of the AI CAGR? given the recent kind of back and forth between the u.s and china whether china can really impose this nvidia gpu would that kind of discount your potential long-term growth of the ai cagr Is that something that TSMC would worry about? is that something that tsmc would worry about

Speaker 3: Okay. Charlie's second question is related around AI demand and specific to China. With the sort of the export control and restriction, his question is, does that impact our ability to address the market opportunity? Will this impact our AI CAGR growth if we're not allowed to fully serve China? Okay. okay Charlie's second question is related around AI demand and specific to China. charlie's second question is related around ai demand and specific to china With the sort of the export control and restriction, his question is, does that impact our ability to address the market opportunity? with the sort of the export control and restriction his question is does that impact our ability to address the market opportunity Will this impact our AI CAGR growth if we're not allowed to fully serve China? will this impact our ai cagr growth if we're not allowed to fully serve china

Speaker 4: I think there will be both sides, meaning restriction from the U.S., but also China government's kind of discouragement to procure a U.S. chip. Sorry for the interruption. I think there will be both sides, meaning restriction from the U.S., but also China government's kind of discouragement to procure a U.S. chip. i think there will be both sides meaning restriction from the u.s but also china government's kind of discouragement to procure a u.s chip Sorry for the interruption. sorry for the interruption

Speaker 8: Charlie, to speak the truth, I have a confidence in my customers. Both are in GPU or in ASIC. They all perform very well. If the China market is not available, I still think the AI's growth will be very dramatic and, as I said, very positive. I have confidence that our customers' performance and they will continue to grow, and we will support them. Charlie, to speak the truth, I have a confidence in my customers. charlie to speak the truth i have a confidence in my customers Both are in GPU or in ASIC. both are in gpu or in asic They all perform very well. they all perform very well If the China market is not available, I still think the AI's growth will be very dramatic and, as I said, very positive. if the china market is not available i still think the ai's growth will be very dramatic and as i said very positive I have confidence that our customers' performance and they will continue to grow, and we will support them. i have confidence that our customers' performance and they will continue to grow and we will support them

Speaker 3: Thank you, C.C. Thank you, C.C. thank you c.c

Speaker 4: Even with a limited opportunity from China for the time being, you are still confident that a 40% CAGR or even higher can be achieved in the coming years? Even with a limited opportunity from China for the time being, you are still confident that a 40% CAGR or even higher can be achieved in the coming years? even with a limited opportunity from china for the time being you are still confident that a 40% cagr or even higher can be achieved in the coming years

Speaker 8: You are right. You are right. you are right

Speaker 4: Okay, great. Thank you. Okay, great. okay great Thank you. thank you Okay. Okay. okay Thanks, gentlemen. Thanks, gentlemen. thanks gentlemen

Speaker 3: Thank you, Charlie. Operator, can we move on to the next participant, please? Thank you, Charlie. thank you charlie Operator, can we move on to the next participant, please? operator can we move on to the next participant please

Speaker 1: Yes. Next one, Sunny Lin, UBS. Go ahead, please. Yes. yes Next one, Sunny Lin, UBS. next one sunny lin ubs Go ahead, please. go ahead please

Speaker 5: Thank you very much. Good afternoon. Congrats on the very strong gross margin. My first question is, how should we think about 2026? I understand we should get better color maybe into January, but just want to get some directional major puts and takes for gross margin trending going into 2026. Especially, how should we think about the gross margin impact from 2 nm ramp for 2026? Thank you very much. thank you very much Good afternoon. good afternoon Congrats on the very strong gross margin. congrats on the very strong gross margin My first question is, how should we think about 2026? my first question is how should we think about 2026 I understand we should get better color maybe into January, but just want to get some directional major puts and takes for gross margin trending going into 2026. i understand we should get better color maybe into january but just want to get some directional major puts and takes for gross margin trending going into 2026 Especially, how should we think about the gross margin impact from 2 nm ramp for 2026? especially how should we think about the gross margin impact from 2 nm ramp for 2026

Speaker 3: Okay. Sonya's first question is regarding gross margin. She would like to know directionally how do we see the gross margin for next year, 2026, in terms of certain puts and takes, and also if Wendell is able to comment specifically. Sunni, sorry if I heard you right, on the N2 dilution impact, correct? Okay. okay Sonya's first question is regarding gross margin. sonya's first question is regarding gross margin She would like to know directionally how do we see the gross margin for next year, 2026, in terms of certain puts and takes, and also if Wendell is able to comment specifically. she would like to know directionally how do we see the gross margin for next year 2026 in terms of certain puts and takes and also if wendell is able to comment specifically Sunni, sorry if I heard you right, on the N2 dilution impact, correct? sunni sorry if i heard you right on the n2 dilution impact correct

Speaker 5: Yeah, that's right. Thank you. Yeah, that's right. yeah that's right Thank you. thank you

Speaker 3: Okay. That's her first question. Okay. okay That's her first question. that's her first question

Speaker 7: Okay, Sunni. Yeah, it's too early to talk about 2026. You already mentioned about the N2 dilution. As all the new nodes, when they just come out, the N2 will have dilution in our gross margin in 2026. At the same time, the N3 dilution is gradually coming down. We expect the N3 to catch up to the corporate average sometime in 2026. The other factors include overseas fabs dilution, which will continue, and which we said that it will be about 2%-3% dilution in the early stage of the next several years. That will also be there. We all saw the dramatic foreign exchange rate movement in the earlier part of this year. There's no control. We don't know where that will be. Every percentage move of dollar against TWD will affect our gross margin by 40 basis points. That just gives you some rough idea. Okay, Sunni. okay sunni Yeah, it's too early to talk about 2026. yeah it's too early to talk about 2026 You already mentioned about the N2 dilution. you already mentioned about the n2 dilution As all the new nodes, when they just come out, the N2 will have dilution in our gross margin in 2026. as all the new nodes when they just come out the n2 will have dilution in our gross margin in 2026 At the same time, the N3 dilution is gradually coming down. at the same time the n3 dilution is gradually coming down We expect the N3 to catch up to the corporate average sometime in 2026. we expect the n3 to catch up to the corporate average sometime in 2026 The other factors include overseas fabs dilution, which will continue, and which we said that it will be about 2%- 3% dilution in the early stage of the next several years. the other factors include overseas fabs dilution which will continue and which we said that it will be about 2%- 3% dilution in the early stage of the next several years That will also be there. that will also be there We all saw the dramatic foreign exchange rate movement in the earlier part of this year. we all saw the dramatic foreign exchange rate movement in the earlier part of this year There's no control. there's no control We don't know where that will be. we don't know where that will be Every percentage move of dollar against TWD will affect our gross margin by 40 basis points. every percentage move of dollar against twd will affect our gross margin by 40 basis points That just gives you some rough idea. that just gives you some rough idea

Speaker 3: Okay, thank you. Okay, thank you. okay thank you

Speaker 5: Got it. Sunni, if I may, a very quick follow-up. On 2 nm, would the typical 2%-3% dilution by new node for the first seven to eight quarters of mass production be a good reference for two-nanometer as well for 2026? Got it. got it Sunni, if I may, a very quick follow-up. sunni if i may a very quick follow-up On 2 nm, would the typical 2%- 3% dilution by new node for the first seven to eight quarters of mass production be a good reference for two-nanometer as well for 2026? on 2 nm would the typical 2%- 3% dilution by new node for the first seven to eight quarters of mass production be a good reference for two-nanometer as well for 2026

Speaker 3: Okay. Sunni, a quick follow-up. She wants to know for the 2 nm dilution if we're able to provide any detail. Can she still think about it in terms of seven to eight quarters or six to eight quarters dilution to reach the time, sorry, to reach the corporate average? Okay. okay Sunni, a quick follow-up. sunni a quick follow-up She wants to know for the 2 nm dilution if we're able to provide any detail. she wants to know for the 2 nm dilution if we're able to provide any detail Can she still think about it in terms of seven to eight quarters or six to eight quarters dilution to reach the time, sorry, to reach the corporate average? can she still think about it in terms of seven to eight quarters or six to eight quarters dilution to reach the time sorry to reach the corporate average

Speaker 7: Yeah, Sunni, let me share with you. N2 structure profitability is better than N3. Now, secondly, it's less meaningful nowadays to talk about how long it will take for a new node to reach the corporate average in terms of profitability. That's because the corporate profitability, the corporate gross margin moves, and generally, it has been moving upwards. Less meaningful to talk about that. Yeah, Sunni, let me share with you. yeah sunni let me share with you N2 structure profitability is better than N3. n2 structure profitability is better than n3 Now, secondly, it's less meaningful nowadays to talk about how long it will take for a new node to reach the corporate average in terms of profitability. now secondly it's less meaningful nowadays to talk about how long it will take for a new node to reach the corporate average in terms of profitability That's because the corporate profitability, the corporate gross margin moves, and generally, it has been moving upwards. that's because the corporate profitability the corporate gross margin moves and generally it has been moving upwards Less meaningful to talk about that. less meaningful to talk about that

Speaker 5: Got it. No problem. That's very helpful. My second question is maybe for C.C. Thanks a lot for sharing with us the details on how you think about the capacity expansions and planning. My question is, now Cloud AI is ramping a lot faster than the prior opportunities like smartphones and PCs. I think the demand for Cloud AI is also maybe harder to forecast. I just want to maybe get a bit more color from you. Compared to the prior rounds of capacity expansions, what is TSMC doing differently versus before? How do you ensure that while you are ramping up the capacities more quickly, you are still having a good risk control? Thank you. Got it. got it No problem. no problem That's very helpful. that's very helpful My second question is maybe for C.C. my second question is maybe for c.c Thanks a lot for sharing with us the details on how you think about the capacity expansions and planning. thanks a lot for sharing with us the details on how you think about the capacity expansions and planning My question is, now Cloud AI is ramping a lot faster than the prior opportunities like smartphones and PCs. my question is now cloud ai is ramping a lot faster than the prior opportunities like smartphones and pcs I think the demand for Cloud AI is also maybe harder to forecast. i think the demand for cloud ai is also maybe harder to forecast I just want to maybe get a bit more color from you. i just want to maybe get a bit more color from you Compared to the prior rounds of capacity expansions, what is TSMC doing differently versus before? compared to the prior rounds of capacity expansions what is tsmc doing differently versus before How do you ensure that while you are ramping up the capacities more quickly, you are still having a good risk control? how do you ensure that while you are ramping up the capacities more quickly, you are still having a good risk control Thank you. thank you

Speaker 3: Thank you, Sunni. Sonia's second question is regarding capacity planning and expansion in a capital-intensive business. She notes this is very important. In the past, smartphone and PC megatrends, today it's AI and Cloud AI. She's wondering, does that make this planning process more difficult to forecast? What are we doing differently? How do we forecast this to make sure that we are investing appropriately? Thank you, Sunni. thank you sunni Sonia's second question is regarding capacity planning and expansion in a capital-intensive business. sonia's second question is regarding capacity planning and expansion in a capital-intensive business She notes this is very important. she notes this is very important In the past, smartphone and PC megatrends, today it's AI and Cloud AI. in the past smartphone and pc megatrends today it's ai and cloud ai She's wondering, does that make this planning process more difficult to forecast? she's wondering does that make this planning process more difficult to forecast What are we doing differently? what are we doing differently How do we forecast this to make sure that we are investing appropriately? how do we forecast this to make sure that we are investing appropriately

Speaker 8: Sunni, indeed, right now, because I believe we are just in the early stage of the AI application, it is very hard to make a right forecast at this moment. What do we do differently? There's a big difference because right now we pay a lot of attention to our customers' customers. We talk to and then discuss with them and look at their applications, be it in the search engine or in social media applications. We talk with them and see how they view the AI application to those functions. Then we make a judgment about what the AI is going to grow. This is quite different as compared with before. We only talked to our customers and had an internal study. This is different. Did I answer your question? Sunni, indeed, right now, because I believe we are just in the early stage of the AI application, it is very hard to make a right forecast at this moment. sunni indeed right now because i believe we are just in the early stage of the ai application it is very hard to make a right forecast at this moment What do we do differently? what do we do differently There's a big difference because right now we pay a lot of attention to our customers' customers. there's a big difference because right now we pay a lot of attention to our customers' customers We talk to and then discuss with them and look at their applications, be it in the search engine or in social media applications. we talk to and then discuss with them and look at their applications be it in the search engine or in social media applications We talk with them and see how they view the AI application to those functions. we talk with them and see how they view the ai application to those functions Then we make a judgment about what the AI is going to grow. then we make a judgment about what the ai is going to grow This is quite different as compared with before. this is quite different as compared with before We only talked to our customers and had an internal study. we only talked to our customers and had an internal study This is different. this is different Did I answer your question? did i answer your question

Speaker 5: Got it. Thank you very much, C.C. Yeah, and looking forward to the [KPAC sky] in January. Thank you. Got it. got it Thank you very much, C.C. thank you very much c.c Yeah, and looking forward to the [KPAC sky] in January. yeah and looking forward to the [kpac sky] in january Thank you. thank you

Speaker 8: You're welcome. You're welcome. you're welcome

Speaker 3: All right. Thank you, Sunni. Operator, can we move on to the next participant, please? All right. all right Thank you, Sunni. thank you sunni Operator, can we move on to the next participant, please? operator can we move on to the next participant please

Speaker 1: Next one, Bruce Lu, Goldman Sachs. Go ahead, please. Next one, Bruce Lu, Goldman Sachs. next one bruce lu goldman sachs Go ahead, please. go ahead please

Speaker 6: Hello. Thank you for taking my question. I think Jensen talked about like $3 trillion-$4 trillion AI infrastructure opportunities by 2030, right? This compared to like $600 billion CapEx recent of this year implies for about 40% CAGR. This is similar to TSMC guidance for the AI growth, right? For me, first of all, what I want to know is what's the TSMC view for the AI infrastructure growth for the next five years? What's TSMC's forecast for the token growth rate in the next few years? TSMC used to provide the same industry growth, foundry growth, and how much TSMC can outperform the industry, right? Given the context, can we assume like TSMC AI-related revenue can track or will track with the CapEx growth of AI or the major cloud service provider? Hello. hello Thank you for taking my question. thank you for taking my question I think Jensen talked about like $3 trillion- $4 trillion AI infrastructure opportunities by 2030, right? i think jensen talked about like $3 trillion- $4 trillion ai infrastructure opportunities by 2030 right This compared to like $600 billion CapEx recent of this year implies for about 40% CAGR. this compared to like $600 billion capex recent of this year implies for about 40% cagr This is similar to TSMC guidance for the AI growth, right? this is similar to tsmc guidance for the ai growth right For me, first of all, what I want to know is what's the TSMC view for the AI infrastructure growth for the next five years? for me first of all what i want to know is what's the tsmc view for the ai infrastructure growth for the next five years What's TSMC's forecast for the token growth rate in the next few years? what's tsmc's forecast for the token growth rate in the next few years TSMC used to provide the same industry growth, foundry growth, and how much TSMC can outperform the industry, right? tsmc used to provide the same industry growth foundry growth and how much tsmc can outperform the industry right Given the context, can we assume like TSMC AI-related revenue can track or will track with the CapEx growth of AI or the major cloud service provider? given the context can we assume like tsmc ai-related revenue can track or will track with the capex growth of ai or the major cloud service provider Should we expect an even higher growth rate for TSMC, considering you're potentially getting more value out of it? Should we expect an even higher growth rate for TSMC, considering you're potentially getting more value out of it? should we expect an even higher growth rate for tsmc considering you're potentially getting more value out of it

Speaker 3: Okay. Let me try to summarize your question, Bruce. He notes that one of our customers has highlighted a $3 trillion-$4 trillion infrastructure opportunity over the next few years compared to $600 billion current CapEx, implying a 40-something % CAGR growth rate, which is similar to ours. Bruce's question is he wants to know what is TSMC's forecast or view for AI infrastructure growth. He would also like to know what is TSMC's forecast or view for the token growth? What is TSMC's AI-related revenue growth? Can it track that of the cloud service providers? His question is, should it be even higher? Shouldn't it be even higher given the value that we capture? That's actually several questions, but is that correct, Bruce? Okay. okay Let me try to summarize your question, Bruce. let me try to summarize your question bruce He notes that one of our customers has highlighted a $3 trillion- $4 trillion infrastructure opportunity over the next few years compared to $600 billion current CapEx , implying a 40-something % CAGR growth rate, which is similar to ours. he notes that one of our customers has highlighted a $3 trillion- $4 trillion infrastructure opportunity over the next few years compared to $600 billion current capex implying a 40-something % cagr growth rate which is similar to ours Bruce's question is he wants to know what is TSMC's forecast or view for AI infrastructure growth. bruce's question is he wants to know what is tsmc's forecast or view for ai infrastructure growth He would also like to know what is TSMC's forecast or view for the token growth? he would also like to know what is tsmc's forecast or view for the token growth What is TSMC's AI-related revenue growth? what is tsmc's ai-related revenue growth Can it track that of the cloud service providers? can it track that of the cloud service providers His question is, should it be even higher? his question is should it be even higher Shouldn't it be even higher given the value that we capture? shouldn't it be even higher given the value that we capture That's actually several questions, but is that correct, Bruce? that's actually several questions but is that correct bruce

Speaker 6: That's right. Thank you. That's right. that's right Thank you. thank you

Speaker 8: Bruce, essentially just want to know how accurate that we can predict that the AI is in demand. We give you a number, roughly 40% in the mid-40s is a CAGR, not including all the infrastructures built up and also aligned with our major customers' forecasts or their view. More than that, I think if we are talking about the tokens, the number of tokens increase, it's exponential. I believe that almost every three months, it will be exponentially increased. That's why we are still very comfortable that the demand on leading-edge semiconductors is real. As I continue to say, we look at all the demand and look at our capacity expansion, we need TSMC to work very hard to narrow the gap. That's what we are doing right now. Bruce, essentially just want to know how accurate that we can predict that the AI is in demand. bruce essentially just want to know how accurate that we can predict that the ai is in demand We give you a number, roughly 40% in the mid-40s is a CAGR, not including all the infrastructures built up and also aligned with our major customers' forecasts or their view. we give you a number roughly 40% in the mid-40s is a cagr not including all the infrastructures built up and also aligned with our major customers' forecasts or their view More than that, I think if we are talking about the tokens, the number of tokens increase, it's exponential. more than that i think if we are talking about the tokens the number of tokens increase it's exponential I believe that almost every three months, it will be exponentially increased. i believe that almost every three months it will be exponentially increased That's why we are still very comfortable that the demand on leading-edge semiconductors is real. that's why we are still very comfortable that the demand on leading-edge semiconductors is real As I continue to say, we look at all the demand and look at our capacity expansion, we need TSMC to work very hard to narrow the gap. as i continue to say we look at all the demand and look at our capacity expansion we need tsmc to work very hard to narrow the gap That's what we are doing right now. that's what we are doing right now Exactly the number that we probably will share with you in next year so that when we have a very better clear picture. Exactly the number that we probably will share with you in next year so that when we have a very better clear picture. exactly the number that we probably will share with you in next year so that when we have a very better clear picture

Speaker 3: Thank you, C.C. Thank you, C.C. thank you c.c

Speaker 6: I think the question is that the token growth seems to be substantially higher than the AI-related revenue guidance from TSMC, right? The gap is actually enlarging if you compound in the outer years, right? That's why that's the difference between what we see for the current TSMC outlook and the potential token consumptions, right? The gap is continuing to see an enlarging. How do we solve this? Do we really see that as a major issue as well? I think the question is that the token growth seems to be substantially higher than the AI-related revenue guidance from TSMC, right? i think the question is that the token growth seems to be substantially higher than the ai-related revenue guidance from tsmc right The gap is actually enlarging if you compound in the outer years, right? the gap is actually enlarging if you compound in the outer years right That's why that's the difference between what we see for the current TSMC outlook and the potential token consumptions, right? that's why that's the difference between what we see for the current tsmc outlook and the potential token consumptions right The gap is continuing to see an enlarging. the gap is continuing to see an enlarging How do we solve this? how do we solve this Do we really see that as a major issue as well? do we really see that as a major issue as well

Speaker 3: Okay. Bruce's second question, which is a follow-on from his first, is that the token growth is growing at a much higher rate or exponentially than TSMC's AI revenue growth. This gap will only widen in the next few years. He wants to know, Bruce, basically, what's the implication to TSMC or how do we see this? Is that correct? Okay. okay Bruce's second question, which is a follow-on from his first, is that the token growth is growing at a much higher rate or exponentially than TSMC's AI revenue growth. bruce's second question which is a follow-on from his first is that the token growth is growing at a much higher rate or exponentially than tsmc's ai revenue growth This gap will only widen in the next few years. this gap will only widen in the next few years He wants to know, Bruce, basically, what's the implication to TSMC or how do we see this? he wants to know bruce basically what's the implication to tsmc or how do we see this Is that correct? is that correct

Speaker 8: Okay. Okay, Bruce. You are right. You are right. The tokens and the number of tokens that increase exponentially is much, much higher than TSMC's CAGR as we forecasted. Let me tell you that first, our technology continues to improve. Our customer is moving from one node to the next node so that they can handle much more tokens' number in their basic fundamental calculation. That's one thing. You know we progress very well from one node to the other node. Our customer is working with TSMC to continuously improve their performance. That's why when we say that we have about 40%, 45% CAGR, the token number exponentially increases because of our customer and TSMC's technology combined that can handle much more or much efficiently than before. Did I answer your question? Okay. okay okay Okay, Bruce. okay bruce You are right. you are right You are right. you are right The tokens and the number of tokens that increase exponentially is much, much higher than TSMC's CAGR as we forecasted. the tokens and the number of tokens that increase exponentially is much much higher than tsmc's cagr as we forecasted Let me tell you that first, our technology continues to improve. let me tell you that first our technology continues to improve Our customer is moving from one node to the next node so that they can handle much more tokens' number in their basic fundamental calculation. our customer is moving from one node to the next node so that they can handle much more tokens' number in their basic fundamental calculation That's one thing. that's one thing You know we progress very well from one node to the other node. you know we progress very well from one node to the other node Our customer is working with TSMC to continuously improve their performance. our customer is working with tsmc to continuously improve their performance That's why when we say that we have about 40%, 45% CAGR, the token number exponentially increases because of our customer and TSMC's technology combined that can handle much more or much efficiently than before. that's why when we say that we have about 40% 45% cagr the token number exponentially increases because of our customer and tsmc's technology combined that can handle much more or much efficiently than before Did I answer your question? did i answer your question

Speaker 6: I see. I see. i see You believe your node migration plus your customer design change can fulfill or can meet the exponential growth for the token consumption? You believe your node migration plus your customer design change can fulfill or can meet the exponential growth for the token consumption? you believe your node migration plus your customer design change can fulfill or can meet the exponential growth for the token consumption

Speaker 8: Exactly. Exactly. exactly

Speaker 6: Is that the conclusion? Is that the conclusion? is that the conclusion

Speaker 8: Yes. Yes. yes

Speaker 6: I understand. I understand. i understand Okay. Quick follow-up for the market. Okay. okay Quick follow-up for the market. quick follow-up for the market

Speaker 3: Bruce, that was your second question. Operator, we need to move on. Thank you, Bruce. Bruce, that was your second question. bruce that was your second question Operator, we need to move on. operator we need to move on Thank you, Bruce. thank you bruce

Speaker 1: Yes. Next one, Laura Chen, Citi. Go ahead, please. Yes. yes Next one, Laura Chen, Citi . next one laura chen, citi Go ahead, please. go ahead please

Speaker 10: Yeah. Thank you very much for taking my questions. I appreciate C.C. sharing your view on TSMC's strategy on the AI capacity planning. I think along with the very strong advanced node demand, I believe that advanced packaging like CoWoS is also one of the focuses for your AI clients they are now looking for. I recall that TSMC previously also planned to expand advanced packaging in Arizona. Can you give us updates here? Also, for the time being, the very stretched demands at the moment, would TSMC work more closely with your OSAT partner to fulfill the strong demand at the same time? That's my first question. Thank you. Yeah. yeah Thank you very much for taking my questions. thank you very much for taking my questions I appreciate C.C. sharing your view on TSMC's strategy on the AI capacity planning. i appreciate c.c sharing your view on tsmc's strategy on the ai capacity planning I think along with the very strong advanced node demand, I believe that advanced packaging like CoWoS is also one of the focuses for your AI clients they are now looking for. i think along with the very strong advanced node demand i believe that advanced packaging like cowos is also one of the focuses for your ai clients they are now looking for I recall that TSMC previously also planned to expand advanced packaging in Arizona. i recall that tsmc previously also planned to expand advanced packaging in arizona Can you give us updates here? can you give us updates here Also, for the time being, the very stretched demands at the moment, would TSMC work more closely with your OSAT partner to fulfill the strong demand at the same time? also for the time being the very stretched demands at the moment would tsmc work more closely with your osat partner to fulfill the strong demand at the same time That's my first question. that's my first question Thank you. thank you

Speaker 3: Thank you, Lora. Her first question is on capacity planning. We have talked earlier on the call about the planning for leading nodes. She wants to understand also on the cohort capacity, and specifically, I guess, advanced packaging in Arizona. How do we work with our all-set partners? Thank you, Lora. thank you lora Her first question is on capacity planning. her first question is on capacity planning We have talked earlier on the call about the planning for leading nodes. we have talked earlier on the call about the planning for leading nodes She wants to understand also on the cohort capacity, and specifically, I guess, advanced packaging in Arizona. she wants to understand also on the cohort capacity and specifically i guess advanced packaging in arizona How do we work with our all-set partners? how do we work with our all-set partners

Speaker 8: Okay. We have announced our plan to build two advanced packaging fabs in Arizona to support our customers. At the same time, right now we are working with one all-set big company and our good partner, and they are going to build their fab in Arizona. We are working with them because they are already breaking ground, and the schedule is earlier than TSMC's two advanced packaging fabs. We are working with them. Our main purpose is to support our customers, so we can marry in the U.S. Okay. okay We have announced our plan to build two advanced packaging fabs in Arizona to support our customers. we have announced our plan to build two advanced packaging fabs in arizona to support our customers At the same time, right now we are working with one all-set big company and our good partner, and they are going to build their fab in Arizona. at the same time right now we are working with one all-set big company and our good partner and they are going to build their fab in arizona We are working with them because they are already breaking ground, and the schedule is earlier than TSMC's two advanced packaging fabs. we are working with them because they are already breaking ground and the schedule is earlier than tsmc's two advanced packaging fabs We are working with them. we are working with them Our main purpose is to support our customers, so we can marry in the U.S. our main purpose is to support our customers so we can marry in the u.s

Speaker 3: Laura, do you have a second question? Laura, do you have a second question? laura do you have a second question

Speaker 10: Yes, yes, certainly. I mean, obviously, we see that the advanced node, advanced packaging is quite strong. Also, at the same time, we are also seeing that the migration is also happening for N2 and N3. Just wondering, from the revenue growth perspective, I know it's still early to predict next year based on your guidance. I'm just wondering, will it be more driven by the ASP increase because of the technology migration? TSMC will be able to sell in your value or more that will be driven by the capacity or volume growth on both N2 ramp-up? Also, C.C, you mentioned some of the mild silico recovery. That may also drive some of the volume growth into next year. Just wondering, if you look at the growth outlook, would that be more driven by the technology upgrade ASP increase or also more like a volume? Yes, yes, certainly. yes yes certainly I mean, obviously, we see that the advanced node, advanced packaging is quite strong. i mean obviously we see that the advanced node advanced packaging is quite strong Also, at the same time, we are also seeing that the migration is also happening for N2 and N3. also at the same time we are also seeing that the migration is also happening for n2 and n3 Just wondering, from the revenue growth perspective, I know it's still early to predict next year based on your guidance. just wondering from the revenue growth perspective i know it's still early to predict next year based on your guidance I'm just wondering, will it be more driven by the ASP increase because of the technology migration? i'm just wondering will it be more driven by the asp increase because of the technology migration TSMC will be able to sell in your value or more that will be driven by the capacity or volume growth on both N2 ramp-up? tsmc will be able to sell in your value or more that will be driven by the capacity or volume growth on both n2 ramp-up Also, C.C , you mentioned some of the mild silico recovery. also c.c you mentioned some of the mild silico recovery That may also drive some of the volume growth into next year. that may also drive some of the volume growth into next year Just wondering, if you look at the growth outlook, would that be more driven by the technology upgrade ASP increase or also more like a volume? just wondering if you look at the growth outlook would that be more driven by the technology upgrade asp increase or also more like a volume That's my second question. Thank you. That's my second question. that's my second question Thank you. thank you

Speaker 3: Okay. Laura's, again, second question is looking at 2026. She would like to understand what will be the key drivers of the growth. Is it more from the technology mix migration, things like N2? Is it more from ASP upgrade, or is it more from just pure wafer volume growth? Okay. okay Laura's, again, second question is looking at 2026. laura's again second question is looking at 2026 She would like to understand what will be the key drivers of the growth. she would like to understand what will be the key drivers of the growth Is it more from the technology mix migration, things like N2? is it more from the technology mix migration things like n2 Is it more from ASP upgrade, or is it more from just pure wafer volume growth? is it more from asp upgrade or is it more from just pure wafer volume growth

Speaker 8: Laura, all the above. All right? Laura, all the above. laura all the above All right? all right

Speaker 10: Okay. Okay. Okay. okay Okay. okay

Speaker 8: You knew it, right? I mean, that's it. You knew it, right? you knew it right I mean, that's it. i mean, that's it It's growing. It's growing. it's growing

Speaker 10: Yeah. Yeah. yeah There are also follow-ups because we see that actually N3 is very tight. At the same time, we are also kind of expanding on N2. C.C., you previously mentioned that you will migrate some of the even N7, N6, and also N5 to like N3. Specifically on N3, do we also need to add more capacity into next year for newly added capacity? There are also follow-ups because we see that actually N3 is very tight. there are also follow-ups because we see that actually n3 is very tight At the same time, we are also kind of expanding on N2. at the same time we are also kind of expanding on n2 C.C., you previously mentioned that you will migrate some of the even N7, N6, and also N5 to like N3. c.c you previously mentioned that you will migrate some of the even n7 n6 and also n5 to like n3 Specifically on N3, do we also need to add more capacity into next year for newly added capacity? specifically on n3 do we also need to add more capacity into next year for newly added capacity

Speaker 3: Laura, if I understand correctly, will we need to add new capacity? Will we continue to do conversion? What will we do to support the very strong demand we see at leading edge next year? Laura, if I understand correctly, will we need to add new capacity? laura if i understand correctly will we need to add new capacity Will we continue to do conversion? will we continue to do conversion What will we do to support the very strong demand we see at leading edge next year? what will we do to support the very strong demand we see at leading edge next year

Speaker 10: Yes, thank you. Yes, thank you. yes thank you

Speaker 7: Let me answer that question. We continue to optimize the N5, N3 capacity to support our customer. For the new building for the N3 capacity to expand, we put the new building for the N2 technology. That's today's plan. Let me answer that question. let me answer that question We continue to optimize the N5, N3 capacity to support our customer. we continue to optimize the n5 n3 capacity to support our customer For the new building for the N3 capacity to expand, we put the new building for the N2 technology. for the new building for the n3 capacity to expand we put the new building for the n2 technology That's today's plan. that's today's plan

Speaker 10: Okay. Okay. okay

Speaker 7: Okay? Okay? okay

Speaker 10: Okay. Thank you. Thank you. Very clear. Okay. okay Thank you. thank you Thank you. thank you Very clear. very clear

Speaker 7: Thank you. Thank you. thank you

Speaker 3: Thank you, Laura. Operator, in the interest of time, we'll take the questions from the last two participants, please. Thank you. Thank you, Laura. thank you laura Operator, in the interest of time, we'll take the questions from the last two participants, please. operator in the interest of time we'll take the questions from the last two participants please Thank you. thank you

Speaker 1: Yes. Next one, Krish Sankar, TD Cowen. Go ahead, please. Yes. yes Next one, Krish Sankar, TD Cowen. next one krish sankar td cowen Go ahead, please. go ahead please

Speaker 11: Yeah, hi. Thanks for taking my question. My first one is C.C. About 10 years ago, back in the smartphone days, TSMC would talk about the revenue opportunity for TSMC per phone. I was wondering, in today's world, can you talk about how much one gigawatt of AI data center capacity could translate in terms of wafer demand or revenue for TSMC? I have a follow-up. Yeah, hi. yeah hi Thanks for taking my question. thanks for taking my question My first one is C.C. my first one is c.c About 10 years ago, back in the smartphone days, TSMC would talk about the revenue opportunity for TSMC per phone. about 10 years ago back in the smartphone days tsmc would talk about the revenue opportunity for tsmc per phone I was wondering, in today's world, can you talk about how much one gigawatt of AI data center capacity could translate in terms of wafer demand or revenue for TSMC? i was wondering in today's world can you talk about how much one gigawatt of ai data center capacity could translate in terms of wafer demand or revenue for tsmc I have a follow-up. i have a follow-up

Speaker 3: Okay. Krish's first question, you noted in the past in the smartphone megatrend, we talked about the content per phone opportunity for TSMC. Now with AI, is there a way to frame or quantify one gigawatt of data center capacity? What is the revenue opportunity for TSMC? Okay. okay Krish's first question, you noted in the past in the smartphone megatrend, we talked about the content per phone opportunity for TSMC. krish's first question you noted in the past in the smartphone megatrend we talked about the content per phone opportunity for tsmc Now with AI, is there a way to frame or quantify one gigawatt of data center capacity? now with ai is there a way to frame or quantify one gigawatt of data center capacity What is the revenue opportunity for TSMC? what is the revenue opportunity for tsmc

Speaker 8: Recently, as I said, the AI demand continues to increase. My customers say that 1 GW, they need to invest about $50 billion. How much of TSMC is a wafer inside? We are not ready to share with you yet because of different approaches. Okay? Recently, as I said, the AI demand continues to increase. recently as i said the ai demand continues to increase My customers say that 1 GW , they need to invest about $50 billion. my customers say that 1 gw they need to invest about $50 billion How much of TSMC is a wafer inside? how much of tsmc is a wafer inside We are not ready to share with you yet because of different approaches. we are not ready to share with you yet because of different approaches Okay? okay

Speaker 11: No worries. A quick follow-up. No worries. no worries A quick follow-up. a quick follow-up

Speaker 8: Excuse me. I just want to say that you know right now it's not only one chip. Actually, it's many chips together to form a system. All right? Excuse me. excuse me I just want to say that you know right now it's not only one chip. i just want to say that you know right now it's not only one chip Actually, it's many chips together to form a system. actually it's many chips together to form a system All right? all right

Speaker 11: Got it. Very helpful for that. A little quick follow-up. You know, obviously, you folks forecast long-term trends and then build capacity towards that. I'm kind of curious, when you look at the AI demand over the next several years, from a TSMC angle, does it matter whether that demand is coming through a GPU or an ASIC? Does it have an impact on your revenue or gross margin mix? Got it. got it Very helpful for that. very helpful for that A little quick follow-up. a little quick follow-up You know, obviously, you folks forecast long-term trends and then build capacity towards that. you know obviously you folks forecast long-term trends and then build capacity towards that I'm kind of curious, when you look at the AI demand over the next several years, from a TSMC angle, does it matter whether that demand is coming through a GPU or an ASIC? i'm kind of curious when you look at the ai demand over the next several years from a tsmc angle does it matter whether that demand is coming through a gpu or an asic Does it have an impact on your revenue or gross margin mix? does it have an impact on your revenue or gross margin mix

Speaker 3: Thank you, Krish. His second question is, again, with our business outlook. We forecast the long-term trends. We plan our capacity, as C.C. said, in a thorough and disciplined manner. His question is, what are the implications, for example, of, I believe you said GPU versus ASIC in terms of the AI market? Do we have a preference or is there a difference for TSMC? Is that correct, Krish? Thank you, Krish. thank you krish His second question is, again, with our business outlook. his second question is again with our business outlook We forecast the long-term trends. we forecast the long-term trends We plan our capacity, as C.C. said, in a thorough and disciplined manner. we plan our capacity as c.c said in a thorough and disciplined manner His question is, what are the implications, for example, of, I believe you said GPU versus ASIC in terms of the AI market? his question is what are the implications for example of i believe you said gpu versus asic in terms of the ai market Do we have a preference or is there a difference for TSMC? do we have a preference or is there a difference for tsmc Is that correct, Krish? is that correct krish

Speaker 11: That's right. The impact to revenue and gross margin, whether it's a GPU or an ASIC. That's right. that's right The impact to revenue and gross margin, whether it's a GPU or an ASIC. the impact to revenue and gross margin whether it's a gpu or an asic

Speaker 3: Right. Okay. Right. right Okay. okay

Speaker 8: Krish, no matter if it's a GPU or it's an ASIC, it's all using our leading-edge technologies. From our perspective, we are working with our customer, and we all know that they are going to grow strongly in the next several years. There is no differentiation in front of TSMC. We support all kinds of types. Krish, no matter if it's a GPU or it's an ASIC, it's all using our leading-edge technologies. krish no matter if it's a gpu or it's an asic it's all using our leading-edge technologies From our perspective, we are working with our customer, and we all know that they are going to grow strongly in the next several years. There is no differentiation in front of TSMC. from our perspective we are working with our customer and we all know that they are going to grow strongly in the next several years. there is no differentiation in front of tsmc We support all kinds of types. we support all kinds of types

Speaker 11: Thank you very much. Thank you very much. thank you very much

Speaker 3: Thank you. Operator, can we take? Thank you. thank you Operator, can we take? operator can we take

Speaker 11: Thank you. Thank you. thank you

Speaker 3: Thank you, Krish. We'll take the question from the final participant, please. Thank you, Krish. thank you krish We'll take the question from the final participant, please. we'll take the question from the final participant please

Speaker 1: Yes. Last one off the line, Macquarie. Go ahead, please. Yes. yes Last one off the line, Macquarie. last one off the line macquarie Go ahead, please. go ahead please

Speaker 9: Hi, C.C., Wendell, and Jeff. Congrats on a strong outlook. Asalai from Macquarie. My question is about competition. C.C., you define the Foundry 2.0 market. I wonder what's the strategic initiative that TSMC is undertaking to further strengthen your competitive landscape and also in this broader ecosystem? For some context, I got the question from the U.S. investor as your clients announced they invest in Intel. Thank you. Hi, C.C., Wendell, and Jeff. hi c.c wendell and jeff Congrats on a strong outlook. congrats on a strong outlook Asalai from Macquarie. asalai from macquarie My question is about competition. my question is about competition C.C., you define the Foundry 2.0 market. c.c you define the foundry 2.0 market I wonder what's the strategic initiative that TSMC is undertaking to further strengthen your competitive landscape and also in this broader ecosystem? i wonder what's the strategic initiative that tsmc is undertaking to further strengthen your competitive landscape and also in this broader ecosystem For some context, I got the question from the U.S. investor as your clients announced they invest in Intel. for some context i got the question from the u.s investor as your clients announced they invest in intel Thank you. thank you

Speaker 3: Okay. Arthur's question is around competition. In the Foundry 2.0 landscape, what strategic initiatives, what things are TSMC focusing on to further strengthen our competitive advantage? I think the last part, Arthur, you're asking in the environment where one of our competitors in the U.S., how do we focus on the competition? Is that correct? Okay. okay Arthur's question is around competition. arthur's question is around competition In the Foundry 2.0 landscape, what strategic initiatives, what things are TSMC focusing on to further strengthen our competitive advantage? in the foundry 2.0 landscape what strategic initiatives what things are tsmc focusing on to further strengthen our competitive advantage I think the last part, Arthur, you're asking in the environment where one of our competitors in the U.S., how do we focus on the competition? i think the last part arthur you're asking in the environment where one of our competitors in the u.s how do we focus on the competition Is that correct? is that correct

Speaker 9: Yes. Thank you, Jeff. Yes. yes Thank you, Jeff. thank you jeff

Speaker 8: Okay. Let me answer that one. When we introduce Foundry 2.0, we set the purpose that, as I said, one of my customers said that the system performance is very important in these days, not only a single chip. Also, let me share with you that our advanced packaging revenue is approaching close to 10%. It's significant in our revenue, and it's important for our customer. That's why we introduce Foundry 2.0 to categorize this foundry business, not as usual. Previously, we only looked at the front-end portion. Now it's the whole thing, the front-end, the back-end, and also important for our customer. That's why we introduce 2.0. Talking about our competition in the U.S., that competitor happens to be our customer, a very good customer. In fact, we are working with them for their most advanced product. Other than that, I don't want to make any more comments. Okay. okay Let me answer that one. let me answer that one When we introduce Foundry 2.0, we set the purpose that, as I said, one of my customers said that the system performance is very important in these days, not only a single chip. when we introduce foundry 2.0 we set the purpose that as i said one of my customers said that the system performance is very important in these days not only a single chip Also, let me share with you that our advanced packaging revenue is approaching close to 10%. also let me share with you that our advanced packaging revenue is approaching close to 10% It's significant in our revenue, and it's important for our customer. it's significant in our revenue and it's important for our customer That's why we introduce Foundry 2.0 to categorize this foundry business, not as usual. that's why we introduce foundry 2.0 to categorize this foundry business not as usual Previously, we only looked at the front-end portion. previously we only looked at the front-end portion Now it's the whole thing, the front-end, the back-end, and also important for our customer. now it's the whole thing the front-end the back-end and also important for our customer That's why we introduce 2.0. that's why we introduce 2.0 Talking about our competition in the U.S., that competitor happens to be our customer, a very good customer. talking about our competition in the u.s that competitor happens to be our customer a very good customer In fact, we are working with them for their most advanced product. in fact we are working with them for their most advanced product Other than that, I don't want to make any more comments. other than that i don't want to make any more comments

Speaker 9: Yeah. Thank you, C.C. Can I ask one more question? Yeah. yeah Thank you, C.C. thank you c.c Can I ask one more question? can i ask one more question

Speaker 3: Yes, you have two. Your second question, sure. Yes, you have two. yes you have two Your second question, sure. your second question sure

Speaker 9: Yeah. My second question is very quick on the end demand. Recall, C.C., you last time mentioned that we should also monitor and worry about the prebuilt, especially in the consumer electronics. This quarter, our numbers suggest that there's a QoQ 19% growth in the smartphone. My question is, do you still worry about the prebuilt? Thank you. Yeah. yeah My second question is very quick on the end demand. my second question is very quick on the end demand Recall, C.C., you last time mentioned that we should also monitor and worry about the prebuilt, especially in the consumer electronics. recall c.c you last time mentioned that we should also monitor and worry about the prebuilt especially in the consumer electronics This quarter, our numbers suggest that there's a QoQ 19% growth in the smartphone. this quarter our numbers suggest that there's a qoq 19% growth in the smartphone My question is, do you still worry about the prebuilt? my question is do you still worry about the prebuilt Thank you. thank you

Speaker 3: Okay. Arthur, the second question is on smartphone. Are we concerned about prebuilt or sort of, I guess, pulling prebuilt from customers in that regard? Okay. okay Arthur, the second question is on smartphone. arthur the second question is on smartphone Are we concerned about prebuilt or sort of, I guess, pulling prebuilt from customers in that regard? are we concerned about prebuilt or sort of i guess pulling prebuilt from customers in that regard

Speaker 8: No. We don't worry about the prebuilt because when you have a prebuilt, you have an inventory. These days, the inventory already goes to the very seasonal level and very healthy. So no prebuilt. No. no We don't worry about the prebuilt because when you have a prebuilt, you have an inventory. we don't worry about the prebuilt because when you have a prebuilt you have an inventory These days, the inventory already goes to the very seasonal level and very healthy. these days the inventory already goes to the very seasonal level and very healthy So no prebuilt. so no prebuilt

Speaker 9: Thank you very much. Thank you very much. thank you very much

Speaker 3: Okay. Thank you, C.C. Thank you, Arthur. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com. Thank you, everyone, for joining us today. We hope you all continue to stay well, and we hope you will join us again next quarter in early 2026. Thank you and have a good day. Okay. okay Thank you, C.C. thank you c.c Thank you, Arthur. thank you arthur Thank you, everyone. thank you everyone This concludes our Q&A session. this concludes our q&a session Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. 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. the transcript will become available 24 hours from now Both are going to be available through TSMC's website at www.tsmc.com. both are going to be available through tsmc's website at www.tsmc.com Thank you, everyone, for joining us today. thank you everyone for joining us today We hope you all continue to stay well, and we hope you will join us again next quarter in early 2026. we hope you all continue to stay well and we hope you will join us again next quarter in early 2026 Thank you and have a good day. thank you and have a good day