TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD — Call Transcript 2025

Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2024 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Director of Investor Relations, and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. 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 Fourth Quarter 2024, followed by our guidance for the First Quarter 2025. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open both the floor and the line for the question-and-answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now, I would like to turn the microphone over to TSMC's 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 Fourth Quarter of 2024. After that, I will provide the guidance for the First Quarter of 2025. Fourth Quarter revenue increased 14.3% sequentially in TWD, supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies. Gross margin increased by 1.2 percentage points sequentially to 59%, mainly reflecting a higher capacity utilization rate and productivity gains, partially offset by the dilution of 3-nanometer ramp-up. With operating leverage, total operating expenses accounted for 10% of net revenue. Thus, operating margin increased by 1.5 percentage points sequentially to 49%. Overall, our Fourth Quarter EPS was TWD 14.45, and ROE was 36.2%. Now, let's move on to revenue by technology. 3-nanometer process technology contributed 26% of wafer revenue in the Fourth Quarter. 5-nanometer and 7-nanometer accounted for 34% and 14%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 74% of wafer revenue. On a full-year basis, 3-nanometer revenue accounted for 18% of 2024 wafer revenue. 5-nanometer, 34%. 7-nanometer, 17%. Advanced technologies accounted for 69% of total wafer revenue, up from 58% in 2023. Moving on to revenue contribution by platform. HPC increased 19% quarter over quarter to account for 53% of our fourth quarter revenue. Smartphone increased 17% to account for 35%. IoT decreased 15% to account for 5%. Automotive increased 6% to account for 4%. DCE decreased 6% to account for 1%. On a full-year basis, HPC increased 58% year-on-year. Smartphone, IoT, automotive, DCE increased 23%, 2%, 4%, and 2%, respectively, in 2024. Overall, HPC accounted for 51% of our 2024 revenue. Smartphone accounted for 35%. IoT accounted for 6%, and automotive accounted for 5%. Moving on to the balance sheet, we ended the Fourth Quarter with cash and marketable securities of NT$2.4 trillion, or $74 billion. On the liabilities side, current liabilities increased by NT$184 billion, mainly due to the increase of NT$71 billion in accounts payable and increase of NT$99 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable turnover days declined by one day to 27 days, while inventory days decreased by seven days to 80 days, primarily due to shipment of N3 and N5 wafers. Regarding cash flow and CAPEX, during the Fourth Quarter, we generated about NT$620 billion in cash from operations, spent NT$362 billion in CAPEX, and distributed NT$104 billion for the First Quarter 2024 cash dividend. Overall, our cash balance increased NT$241 billion to NT$2.1 trillion at the end of the quarter. In U.S. dollar terms, our fourth quarter capital expenditures total $11.2 billion. Now, let me recap our performance in 2024. Due to the strong demand for our 3-nanometer and 5-nanometer process technologies, we continue to outperform the foundry industry in 2024. Our revenue increased 30% in U.S. dollar terms to $90 billion, or increased 33.9% in NT to NT 2.89 trillion. Gross margin increased 1.7 percentage points to 56.1%, mainly reflecting improvements in overall capacity utilization, partially offset by 3-nanometer dilution and higher electricity costs. With operating leverage, our operating margin increased 3.1 percentage points to 45.7%. Overall, full-year EPS increased 39.9% to NT 45.25, and ROE increased 4.1 percentage points to 30.3%. On cash flow, we spent $29.8 billion, or NT 956 billion in CapEx, generated NT 1.8 trillion in operating cash flow, and NT 870 billion in free cash flow. We paid NT 363 billion in cash dividends in 2024, up 24.5% year-over-year. I've finished my financial summary. Now, let's turn to our current quarter guidance. We expect our business in the First Quarter to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand. Based on the current business outlook, we expect our First Quarter revenue to be between $25 billion and $25.8 billion, which represents a 5.5% sequential decline, or a 34.7% year-over-year increase at the midpoint. Based on the exchange rate assumption of 1 US dollar to 32.8 NT, gross margin is expected to be between 57% and 59%, operating margin between 46.5% and 48.5%. Regarding tax rate, our effective tax rate was 16.7% in 2024. For 2025, we expect our effective tax rate to be between 16% and 17%. This concludes my financial presentation. Now, let me turn to our key messages. I will start by talking about our fourth quarter 2024 and first quarter 2025 profitability. Compared to third quarter, our fourth quarter gross margin increased by 120 basis points sequentially to 59%, primarily due to a higher capacity utilization rate and productivity gains, partially offset by dilution from the continued ramp-up of our 3-nanometer technology. We have just guided our first quarter gross margin to decrease by 100 basis points to 58% at the midpoint. This is primarily due to R&D costs associated with N2 and CoWoS expansion and the start of dilution from our overseas fabs. As a reminder, six factors determine TSMC's profitability: leadership, technology development, and ramp-up, pricing, cost reduction, technology mix, capacity utilization, and forward exchange rate. Looking at full year 2025, given the six factors, there are a few puts and takes I would like to share. On the one hand, we are working hard to increase our value. The dilution impact from our N3 ramp is expected to gradually reduce, and we expect our overall utilization rate to moderately increase in 2025. On the other hand, as we have said before, we forecast 2% to 3% margin dilution impact from the ramp-up of our overseas fabs. The impact is less than 100 basis points in the first quarter of 2025, but we expect it to grow more pronounced throughout the year as our fabs in Kumamoto and Arizona ramp up. We also expect inflationary costs, including higher electricity prices in Taiwan, to impact our gross margin by at least 1% in 2025. In addition, there are some ramp-up costs associated with N2 and further conversion of N5 to N3 capacity, which together we expect to impact our gross margin by about 1%. Finally, we have no control over the foreign exchange rate, but that may be another factor in 2025. Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margin of 53% and higher is achievable. Next, let me talk about our 2025 capital budget and depreciation. Every year, our CapEx is spent in anticipation of the growth that will follow in the future years, and our CapEx and capacity planning is based on the long-term market demand profile. At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. In 2024, we spent $29.8 billion as we continue to invest to support our customers' growth. With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structured demand from the industry megatrends of 5G, AI, and HPC. In 2025, we expect our capital budget to be between $38 billion and $42 billion as we invest to capture the future growth. Out of the $38-$42 billion CAPEX for 2025, about 70% of the capital budget will be allocated for advanced process technologies. About 10%-20% will be spent for specialty technologies, and about 10%-20% will be spent for advanced packaging, testing, mask making, and others. Our depreciation expense is expected to increase by a high single-digit % year-over-year in 2025, as newly incurred depreciation will be partially offset by other nodes rolling off depreciation. Even as we invest for the future growth with this level of CAPEX spending in 2025, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. Now, let me turn the microphone over to CC. Thank you, Wendell. Good afternoon, everyone. First, let me start with the conclusion of 2024 and our 2025 outlook. 2024 was a mixed year of recovery for the global semiconductor industry. AI-related demand was strong, while other applications saw only a very mild recovery. As macroeconomic conditions weigh on consumer sentiment and market demand. Concluding 2024, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making, and others, increased 6% year-over-year, slightly lower than our previous forecast. Supported by strong demand for our leading-edge process technologies, TSMC's revenue increased 30% year-over-year in U.S. dollar terms, outperforming the foundry industry growth. Entering 2025, we expect fabless semiconductor inventory to have returned to a healthier level exceeding 2024. We forecast the Foundry 2.0 industry to grow 10% year-over-year in 2025, supported by robust AI-related demand and a mild recovery in other end market segments. Supported by our technology leadership and broad customer base, we are confident we can continue to outperform the industry growth. We expect 2025 to be another strong growth year for TSMC and forecast our full-year revenue to increase by close to mid-20% in U.S. dollar terms. Now, I will talk about AI demand and TSMC's long-term growth outlook. We observe robust AI-related demand from our customers throughout 2024. Revenue from AI accelerators, which we now define as AI GPU, AI ASICs, and HBM controller for AI training and inference in the data center, accounted for close to 18% of our total revenue in 2024. Even after more than tripling in 2024, we forecast our revenue from AI accelerator to double in 2025 as the strong surge in AI-related demand continues. As a key enabler of AI applications, the value of our technology platform is increasing as customers rely on TSMC to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way. To address the structural increase in the long-term market demand profile, TSMC is working closely with our customers to plan our capacity and investing in leading-edge specialty and advanced packaging technologies to support their growth. As we have said before, TSMC employs a disciplined and robust capacity planning system to evaluate and judge the market demand to determine the appropriate capacity to build. This is especially important when we have such high forecasted demand from AI-related business. At the same time, we are committed to earning a sustainable and healthy return that enables us to continue to invest to support our customers' growth while delivering profitable growth for our shareholders. Underpinned by our technology leadership and broad customer base, we now forecast the revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period, starting off the already higher base of 2024. We expect AI accelerators to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. Looking ahead, as the world's most reliable and effective capacity provider, TSMC is playing a critical and integral role in the global semiconductor industry. With our technology leadership, manufacturing excellence, and customer trust, we are well positioned to address the growth from the industry megatrend of 5G, AI, and HPC with our differentiated technologies. For the five-year period starting from 2024, we expect our long-term revenue growth to approach a 20% CAGR in U.S. dollar terms, fueled by all four of our growth platforms, which are smartphone, HPC, IoT, and automotive. Next, let me talk about our global manufacturing footprint update. All our overseas decisions are based on our customers' needs, as they value some geographic flexibilities and the necessary level of government support. This is also to maximize the value for our shareholders. In the U.S., we have a long-standing good relationship with the U.S. government, dating back to even before our Arizona fab project announcement in May 2020. We have received a strong commitment and support from the U.S. customers and the U.S. federal, state, and city government and are making substantial progress. Building on the successful result of our earlier engineering wafer production, we were able to pull ahead the production schedule of our first fab in Arizona. Our first fab has already entered the high-volume production in 4Q24, utilizing N4 process technology with a yield comparable to our fabs in Taiwan. We expect a smooth ramp-up process, and with our strong manufacturing capability and execution, we are confident to deliver the same level of manufacturing quality and reliability from our fab in Arizona as from our fab in Taiwan. Our plans for second fab and third fab in Arizona are also on track. These fabs will utilize even more advanced technologies such as N3, N2, and A16 based on our customers' needs. TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner in enabling the U.S. semiconductor industry. Next, in Japan, thanks to the strong support from the Japanese government and local government, our progress is also very good. Our first specialty technology fab in Kumamoto has started volume production at the end of 2024 with very good yield. Construction of our second fab, specialty fab, is scheduled to begin this year. In Europe, we have received strong commitment from the European Commission and the German federal, state, and city government. We are progressing smoothly with our plans to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial applications. In Taiwan, we continue to receive support from the Taiwan government, and we are investing in and expanding our advanced technology and packaging capacities. Given the robust multi-year demand for our 3-nanometer technology, we continue to expand our 3-nanometer capacity in Tainan Science Park. We are also preparing for multiple phases of 2-nanometer fabs in both Hsinchu Science Park and Kaohsiung Science Park to support the strong structural demand from our customers. We are also expanding our advanced packaging facilities across several locations in Taiwan. As we have said before, under today's fragmented globalization environment, overseas fab costs are higher for everyone, including TSMC and all other semiconductor manufacturers. We are leveraging our fundamental competitive advantage of manufacturing technology leadership and large-scale manufacturing base to be the most efficient and cost-effective manufacturer in the region that we operate while supporting our customers' growth. Finally, I will talk about the N2 and the A16 introduction. Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable need for energy-efficient computing, and almost all the innovators are working with TSMC. We expect a number of the new tape-outs for 2-nanometer technology in the first two years to be higher than both 3-nanometer and 5-nanometer in their first two years, fueled by both smartphone and HPC applications. N2 will deliver full-chip performance and power benefit with 10%-15% speed improvement at the same power, or 20%-30% power improvement at the same speed, and more than 15% chip density increase as compared with the N3E. N2 is well on track for volume production in the second half of 2025 as scheduled, with a ramp profile similar to N3. With our strategy of continuous enhancement, we also introduced N2P as an extension of N2 family. N2P features further performance and power benefit on top of N2. N2P will support both smartphone and HPC applications, and volume production is scheduled for the second half of 2026. We will also introduce A16 featuring Super Power Rail, or SPR, as a separate offering. TSMC's SPR is an innovative, best-in-class backside power delivery solution that is first in the industry to incorporate a novel backside metal scheme that preserves the gate density and devices with flexibility to maximize the product benefit. Compared with N2P, A16 provides a further 8%-10% speed improvement at the same power, or 15%-20% power improvement at the same speed, and an additional 7%-10% chip density gain. A16 is the best suitable for specific HPC products with a complex signal route and dense power delivery network. Volume production is scheduled for the second half of 2026. We believe N2, N2P, A16, and its derivatives will further extend our technology leadership position and enable TSMC to capture the growth opportunity well into the future. This concludes our key message. 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. Questions will be taken from both the floor and from the call. Should you wish to raise your question in Chinese, I will translate it to English before 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 your telephone keypad now. If at any time you would like to remove yourself from the questioning queue, please press star two. Now we will begin the Q&A session. We'll take the first few questions here from the floor and then go to online. I think maybe left, middle, right. So why don't we start? I think first question, Gokul Hariharan from J.P. Morgan. Thanks, Jeff. Happy New Year, management team. My first question is on TSMC's U.S. future strategy. There have been a lot of changes recently. Taiwan relaxed the N-1 restriction. There was news about that a week back. C.C., you met Elon Musk as well recently, so you said there are a lot of developments that you've discussed. Your key IDM competitor seems to be struggling as well, while your Arizona fab seems to be ramping up quite well. So in light of all these, I just wanted to understand the longer-term strategy. Would you consider investing in the latest node in the U.S.? Because so far it has been N-1. Now you don't have the restriction from the Taiwan government to go and invest in the latest node. What has been your feedback in whatever discussions you have had with the incoming President Trump administration? Because they have talked a lot about the CHIPS Act and everything, but they're also supportive. Your original investment was during President Trump's first term. Lastly, I think, Wendell, I think last time you had mentioned you're not very keen on taking over any IDM fabs. Has that thinking changed, especially given TSMC has the potential to become an even stronger partner for the U.S. in terms of bringing up U.S. local manufacturing? Sorry, long question. Yes. Okay, thank you, Gokul. Indeed, a very long question. I think Gokul's question is looking at TSMC and our strategies in terms of global expansion, particularly in the U.S. He notes that Taiwan has recently relaxed, or said they relaxed the N-1 rule, and C.C. has met several many of our large customers in the U.S., and our Arizona fab is ramping quite well. So his question really is on the longer-term strategy. I believe three parts. Number one, what is the feedback or sort of discussions ongoing with the next administration in the U.S.? Secondly, would we consider taking over IDM's fabs? Has that thinking changed? And last on the new node. Maybe we'll go one by one. I almost forgot your question already. Okay, first one, the technology node. Actually, it's not we don't want to ramp up the same technology as in Taiwan. But if you look at the one we ramped up, introduced a new technology into manufacturing, the fab, the process is so complicated, so it has to be very close to the R&D people. So the initial phase of the ramping up always comes from the fab close to R&D. So in that sense, we want to ramp up the same kind of technology in the U.S., but that practically is a little bit difficult. So Taiwan will always be first. Does that answer your question? It's not because of N or N-1 limitation. No, it's practically we just have to ramp up a new node in Taiwan. Okay. And the second, do we change our strategy to expand faster or something? Again, this is we always say that we build the capacity overseas due to customers' need. If my customer has a very high demand, what should I do? I build a more fab, right? With the necessary government support, by the way. Okay, talking about the government, let me assure you that we have a very frank and open communication with the current government and with the future one also. I cannot say anything more than that. Okay. What is the IDM fab? That's my customer. And now that we again, our strategy is not based on my IDM competitor's status. They are our very good customers. I like them, and they are very important to TSMC's business also. That's all I can say. Thank you. Okay, thanks, C.C. Maybe my next question going to gross margins. So Wendell, we are almost approaching 60% gross margin. Last cycle, we peaked at about 60% towards the peak of the cycle. You're expecting the cycle to even strengthen based on guidance that C.C. provided for both AI as well as some improvement in non-AI. So how should we think about gross margins in this cycle? Is it realistic that we can get to more than 60% gross margin in this upcycle? And related to that, could you help us understand the U.S., especially the U.S. fab, overseas fabs, but especially U.S. fab dilution? What are the key factors there? Because as you mentioned, yield is already approaching or almost close to Taiwan yield. So, is it basically cycle time is longer, or is it that some other costs are much higher in the U.S. fab? Because new fab depreciation is probably fairly similar compared to the Taiwan fab. Okay, so Gokul's second question is on gross margin. Again, two parts. He notes gross margin is almost approaching 60%. In 2022, the last cycle, it was also around this type of level. We have said that this year is another very strong growth year for TSMC. So his question is, how should we think about gross margins in this current cycle? Can we approach or get to 60 or low 60s type of again? And then the second part is more specific to the U.S. in terms of the cost gap. What are the U.S. cost factors leading to the dilution impact? Okay, Gokul, first question on the gross margin. As we said, there are six factors affecting the profitability. Every year, different factors play different roles. But for example, if the utilization is extremely high, like the last cycle, it is not impossible for us to reach what you just said. And secondly, the U.S. fab cost. It is more expensive in the U.S., mainly because of several reasons. Number one, the smaller scale. Right. Now, number two, the higher price in the supply chain. And number three, the very early stage of the ecosystem. So if you add all these up, as we said, 2%-3% dilution from our overseas fabs every year in the next five years. If I use the 2%-3% and do some math, it feels like the overseas fab is starting at, I don't know, 10% gross margin or 5% gross margin. Just adding a factor. Obviously, it's not how it works, but I'm just doing outside in. Is that right? Is that the right kind of ballpark in terms of thinking about margin? All we can share is the 2%-3%. Yeah. I don't think TSMC has ever started a fab at 10% gross margin. Thank you. Gokul, we are working hard to improve it. Okay, thank you, Gokul. We'll go to the middle, Laura Chen from Citi. Thank you and congratulations for the good result. I just want to have more details about your review. I mean, I think people are kind of looking for your updated long-term kicker growth. So I believe that 20% starting from a very, already very high base in 2024 is a really good long-term objective. But just wondering that aside from the strong AI demand, what's your view on the traditional applications like PC and the smartphone growth, particularly for this year? Okay, so Laura's first question is looking. She notes that we have updated our long-term kicker to be approaching 20% revenue growth in U.S. dollars, starting off even the high base of 24. So her question is, of course, AI demand is part of that, but what about smartphone and PC? And I think your question is specific to this year, C.C., 2025. This year is still a mild growth for PC and smartphone, but everything is AI related. All right, so you can start to see why we have confidence to give you a close to 20% kicker in the next five years. AI. You look at a smartphone, they will put the AI functionality inside. And not only that, so the silicon content will be increased. In addition to that, actually the replacement cycle will be shortened. And also they need to go into the very advanced technology. Because if you want to put a lot of functionality inside a small chip, you need much more advanced technology to put those kinds of things. Put all together that even smartphone, the unit growth is almost no single digit. But then the silicon and the replacement cycle and the technology migration that gives us more growth than just a unit growth. Similar reason for PC. So we can kind of expect those AI capable edge devices, they will all base on 2-nanometer next year. Perhaps second half. Leading-edge technology. That's all I say. Okay, thank you. And also my next question is about AI. I noted that these times you include the HBM controller into your AI business revenues definition. So can you provide us more update about what the HBM baseline business opportunities could be? And previously, TSMC kind of announced cooperation with key memory suppliers globally. Can you give us more details or updates on the progress of this business engagement? Okay, thank you, Laura. So Laura's second question is on HBM controllers. She notes that our definition of AI accelerators includes memory controllers or HBM controllers. So her question is, how do we see this opportunity or what is the opportunity for TSMC and what is the progress of this working with our memory partners? We are working with all the memory suppliers, all of them. And that is because of TSMC's logic chip or logic technology more advanced. And that means our customers' requirement. So all of them are working with TSMC. Now we start to see some of the product coming out. But the high volume probably you need to wait for another half of one year to see the high volume and big contribution to TSMC's revenue. Okay, thank you. We'll move to this side of the room. I guess we have Charlie Chan from Morgan Stanley. Hi, C.C., Wendell and Jeff. First of all, happy New Year. I think it's going to be a very exciting year given your bullish outlook and also lots of news going on, right? So let me start with overnight, the U.S. seems to put a new framework on restricting China's AI business, right? So I'm wondering whether that will create some business impact to your China business and how are we going to manage it? And also for some chips in the middle, high performers like crypto mining, a time-driving chip, do you think that counts as a cloud AI? And would TSMC be able to continue to service your China customers? Thank you. Okay, thank you, Charlie. So Charlie's first question, if I may sort of extrapolate or summarize, is about the announcements of different types of U.S. export restrictions this week pertaining to China and AI-related chips. So his question is, what is the impact to TSMC? How does it impact our business? So far, we look at, we don't have all analysis yet, but the first look is not significant. It's manageable. So that meaning that my customers who are being restricted or something, we are applying for the special permit for them. We believe that we have confidence that they will get some permission so long as they are not in the AI area. Okay. Especially automotive industry or even you talk about crypto mining. Yeah. Thank you. That is super helpful. My second question is actually a very hot topic recently as well, the CPO. I think your main partner, Jensen, came to Taiwan this time probably besides meeting you, right? Probably also want to enable this supply chain. Based on your recent technology symposium, right? You already get ready for your COUPE optical engine. But do you think the Taiwan supply chain can really facilitate this CPO? Because without these key components, the next generation Rubin schedule could have some issues. I think this is part of the first part of the question about how you're going to facilitate this CPO supply chain. And secondly, to TSMC, your foundry service, right? Do you see significant upside when the optical networking migrates to CPO? Because I ask this because some conventional product like optical transceiver, DSP, could be replaced. Thank you. Well, Charlie's second question is a very specific topic. He wants to know, well, if I can generalize because we certainly don't comment on customers or their products, but in terms of our progress on silicon photonics and CPO, how are we working with customers? How are we preparing as part of our advanced packaging solutions? And what are the opportunities for TSMC as optical moves to silicon photonics and other types of solutions on a general basis? Charlie, that is a very technical question. Silicon photonics, we are working on it, as you said, and we got a good result also. However, a big volume, I don't think it will be in this year or probably we have to wait for one or one and a half years to you can see that contribution or the volume production. The initial results are quite good, no doubt about it. And so my customers are quite happy. Okay. Thank you, C.C. Operator, we'll now move to the questions online. We'll take the first call from the online participant, please. Yes. First question, Brett Simpson, Arete Research. Yes, thanks very much. And can I just say congratulations on reaching $100 billion in annual sales in Q4. It's quite a milestone. So my first question is in Arizona. I think, Wendell, you mentioned that we need to see some higher scale. So can you update us on the status of phase two? It looks like the construction of the shell is nearly complete, but it would be great to understand more about how you see N2P developing over the course of 2025. And in terms of pricing U.S. wafers, how are you planning to do this? Will you have a U.S. price and a Taiwan price, or are you more likely to have a global price regardless of where you make the wafers? Thank you. Okay. So Brett's question, first question is on Arizona, maybe split into two parts. First is in terms of we have already started the volume production of the first fab. So Brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shells, etc. And then the second part would be on the pricing of overseas. As we say, there's value to our customers. He wants to know, do we charge a separate price or is it part of the overall pricing? Let me answer the second question first. Do we charge a little bit higher? Yes, we did because we have a value of geographic flexibility, right? And you guys know that many in the USA is premium product. Yes, we discussed with our customers and they are all agree and happy to work with TSMC so that we can because of the cost structure over there, so it's a little bit higher price over there. The progress of the first fab is right now in volume production. Second fab, we almost finished all the building and start to put the facility. And we expect that we move the tools this year also. And we have a plan that our third fab probably will start very soon. We will announce it in the later days. Okay. Okay, thank you, C.C. Brett, does that answer your first question and do you have a second one? Yeah, very clear. And the second question, I wanted to get your perspective. Broadcom CEO recently laid out a large SAM for AI hyperscalers building out custom silicon. I think he was talking about million accelerator clusters from each of the customers he has in the next two or three years. What's TSMC's perspective on all this? I'm sure you've spent a lot of time verifying what hyperscalers are planning over the years to come. And how comfortable are you with the scale of what's being implied here? Thanks. Okay, so Brett's second question is looking at AI, I guess specifically AI custom chips or ASICs. He notes that one of our customers recently laid out a very strong or large addressable SAM market for AI hyperscalers using custom silicon. Lots of them talking about clusters of 1 million chips. So he wants to know what is TSMC's view? How do we see this trend in terms of AI ASICs as part of the AI demand megatrend? Brett, I'm not going to answer the question of the specific number, but let me assure you that whether it's an ASIC or it's a graphic, they all need a very leading edge technology. And they're all working with TSMC. Okay. And the second one is, is the demand real? It's a number that my customer said. I would say that the demand is very strong. Is that enough to answer your question? Brett? Yeah, that's great. Thank you. Okay, thank you, Brett. Operator, do we have anyone else on the line? It seems not. Then let's, okay, we don't. Then let's go back to the floor. I think on the left side, Bruce Lu from Goldman Sachs. Hi. Thank you for taking my question. To be honest, I'm a bit surprised that the long-term gross margin target doesn't really change it. I believe TSMC's value is definitely more than selling the pass on the cost. I believe that TSMC needs to invest a lot more in R&D to maintain the leadership. TSMC suggested raise the gross margin target in 2022 with higher R&D requirement, with higher profitable target, right? So I asked the same question two quarters ago, which is in the process of price negotiation, which is understandable. But I think the price negotiation is pretty much done. What's the discrepancy here? Why TSMC cannot raise the profitability target? Okay, so Bruce's first question, he wants to know, again, our long-term gross margin. Why are we not changing the target of 53% and higher? Okay. He correctly notes that certainly TSMC's value is increasing and certainly TSMC, we need to invest a lot of money in R&D and capacity to support our customers' growth. So we have always had a focus on earning the right return. He also notes in 2022, well, our gross margin used to be about 50%, then we raised it to 53% and higher. So his question is, why is it not and higher, I guess? Okay, Bruce. As we said, six factors affecting the profitability. Every year, different factors have different weights. Now, two things to note. Number one, starting from this year, overseas fab expansion, two to three percentage points impact every year for the next five years. The other things to note: macro environment uncertainty, which may lead to impacting the global economy, which may lead to end market demand. Now, having said that, we are in a capital-intensive industry. So we will need to have to earn a healthy return to continue to invest, to support our customer, support their growth, and also deliver a profitable growth to our shareholders, and you mentioned about the raising of long-term gross margins back in 2022 to 53% and higher, and we have been able to deliver that and higher part since then, so given all the above, we continue to think that 53% and higher gross margin is achievable, and we work very hard to achieve only higher part. Okay, for the next two quarters. For the CoWoS capacity, TSMC has been very aggressive in expanding the capacity. However, the application is highly concentrated in AI at the current stage, which there are certain noise around it. When can we see non-AI application such as servers, smartphone, or anything else can start to adapt CoWoS capacity in case there is any fluctuation in the AI demand? Okay, thank you, Bruce. So Bruce's second question is on CoWoS capacity. In his words, we have been very aggressive to expand the capacity, but his concern is highly concentrated with AI-related demand. So his question is, when do we expect or to see more non-AI application adoption of CoWoS solutions? Well, yes, today is all AI-focused. And we have a very tight capacity and cannot even meet customers' need. But whether other products will adopt this kind of a CoWoS approach, they will. It's coming. And we know that it's coming. So that's all I can say. When? It's coming. Okay, I'll try next quarter. All right. Under CPU and under server chip, let me give you a hint. Thank you. Okay, thank you, Bruce. We'll go to the middle. Arthur Lai from Macquarie. Hi, C.C. Wei, and Wendell and Jeff. Arthur Lai from Macquarie. So first of all, congrats on the strong gross margin. Just have a very quick follow-up on the US and JP expansion. So this is important. My client keeps chasing me. So do you have an operational strategy to mitigate the cost gap between the overseas fab and Taiwan fab? Yeah, I think C.C. Wei, you hint that you will work on it and improve the gross margin. But during the Chinese New Year, I read Morris Chang's piece, Autobot Coffee, and he mentioned that the strategy is copied exactly from the Taiwan mother fab, right? So I want to understand how we maintain the high yield and also drive the cost down. Thank you. Okay, so Arthur's question is about our overseas expansion. His question is related to the cost gap and what are our operational strategies to mitigate the cost gap? How are we doing this internally in our fab operations and strategies to do so? Well, mention my boss's book, okay? That meaning that you really read it. What he says is a copy exactly is whatever Taiwan's improvement, the US will copy over there. Doesn't mean that this year, next year, and the following year will be the same. We continue to improve. That's improve the cost structure both in Taiwan and in the US. We also try very hard to find out a new methodology or whatever that I cannot share with you right now, but it will give Arizona fab some benefit. So that we will improve, we will minimize the gap between the cost structure between U.S. and Taiwan. We are working on that. No matter what I say, we will be the best fab over there. Okay. Second follow-up question, probably is on Wendell. You just mentioned that there's a 200 basis points or 300 basis points margin dilution, right? So can you give us one level down, like the variable cost and the fixed cost, maybe half of or maybe which one is higher? Okay, so Arthur's second question is on the overseas dilution of 2%-3%. He is asking if we can provide a further breakdown in terms of how much of that is composed from variable cost, how much of that is from the fixed cost, etc. Arthur, we really don't give breakdown these numbers, but both of them are higher. That's all I can share with you. Okay, thank you. We'll move to the right side of the room. I think Rick Hsu from Daiwa Securities. Yeah, hi, happy New Year, and thank you for taking my question. So the first one, C.C., can you share with us your view on this year's global semiconductor revenue forecast as memory or any driver by applications in priority across the main application? Thank you. Okay, so Rick's first question, he's asking for our forecast of the semiconductor industry, what we used to provide as semi ex-mem, but of course, we have already given Foundry 2.0. Then he would like the outlook by end market application in terms of ranking. Maybe just a comment on the overall end markets as a whole, right? Yeah. Rick? I think the memory business will grow this year also. But all I can say is that HBM will grow very fast. And I don't comment on other memories because it's not logic. And we have already provided Foundry 2.0 to grow 10% year over year. That's our industry forecast for 2025. Just a quick follow-up. Can I use your Foundry 2.0 market growth as a proxy for the global semi ex memory? So his question is, can we use Foundry 2.0 as a proxy for semiconductor ex memory? Yes. Thank you. Okay. On the second one, it's very quick about your CoWoS and SoIC capacity ramp. Can you give us more clarity here? Because recently, there seemed to be a lot of market noises, some add orders, some cut orders. So I would like to see your view on the CoWoS ramp. Okay, so Rick's second question is lots of market rumors here. So he would like to know any comment we can provide on CoWoS ramp in 2025. Rick, as you said, there's a lot of rumor. That's a rumor. I assure you. We are working very hard to meet the requirement of my customers' demand. So cut the order, that won't happen. It actually continues to increase. So we are, again, I will say that we are working very hard to increase the capacity. Yeah. Okay. Thank you. Thank you. Okay, let's move back to operators. Is there anyone online? Yes, we have next one, Robert Sanders, Deutsche Bank. Go ahead, please. Yeah, hi there. I just have a question on AI demand. Is there a scenario where HBM is more of a constraint on the demand rather than CoWoS, which seems to be the biggest constraint at the moment? And I have a follow-up. Thanks. Okay, so Rob is asking us to comment on AI demand and HBM status constraint or what is the bigger constraint in AI demand? I don't comment on other suppliers, but I know that we have a very tight capacity to support the AI demand. I don't want to say I'm the bottleneck. TSMC always working very hard with customers to meet their requirement. That's all I can say. You have a second question. Yeah, just on SoIC, there's been more discussion in the market around your smartphone customers adopting SoIC. Can you just discuss if there's any kind of inflection point here, whether it's in the PC domain or the smartphone domain, or is this still more of a data center story? Thanks. Okay, well, Rob, second question is on SoIC adoption. His question, basically in a nutshell, is when do we see an inflection point for smartphone application to adopt SoIC? Today, SoIC's demand still focuses on AI applications. Okay. For PC or for other areas, it's coming, but not right now. Okay, thank you, Rob. Thank you, C.C. I think in the interest of the time, we'll take the last two questions, please. Okay, I guess we'll go to Sunny Lin from UBS. Good afternoon. Thank you for taking my questions. And so my first question is to try to get a bit more clarity on the cloud growth for 2025. I think longer term, without a doubt, the technology definitely has lots of potential for demand opportunities. But I think if we look at 2025 and 2026, I think there could be increasing uncertainties coming from maybe CSP spending, macro, or even some of the supply chain challenges. And so I understand the management just provided a pretty good guidance for this year for itself to double. And so if you look at that number, do you think there is still more upside than downside as we go through 2025? Or how should we think about the demand profile for this year and next year? Okay, well, Sunny's question is about the AI-related demand. We have said that even after tripling, more than tripling last year, it will double again in 2025. She wants to know, is there upside or downside to this? And also for us to provide an outlook on the 2026 AI growth. Sunny, I certainly hope there is an upside, but I hope my team can supply enough capacity to support it. Did that give you enough hint? Okay. And we also forecast based on the 2024 high number, we also forecast of mid-40s % CAGR for the five years. That gives you some kind of estimate that you can calculate. Yeah, well, so mid-40% is the long-term expectation in terms of growth by next few years. But how should we think about the trajectory of the growth? For sure, this year is still pretty strong growth, but do you think at some point maybe we see a moderation of growth temporarily and then followed by another ramp? I think Sunny's question again is asking us to comment on 2026 outlook, which is a little bit early, or that how do we see the trajectory of the growth? I have already said it's a little bit too early. All right. Sure, no problem. So I'll follow up maybe next quarter as well. And so my second question is on Edge AI. And so last year, management guided by maybe 2025 to be the inflection point forward to see more content related to Edge AI. So based on your current visibility, are you seeing clients ramping for this year for the Edge AI products maybe into second half? And before you also mentioned Edge AI could potentially drive 5%-10% die size increase. Will that be a one-time increase? Or do you think beyond the 5%-10% increase for the maybe first-gen product, there should be sustainable increase going forward? Okay, so Sunny's second question is related to edge AI. She would like some more detail or color. Do we see customers ramping edge or what we call on-device AI products in second half of this year? And the second part in terms of the content increase, 5%-10% increase, is this a one-time thing? Is this an ongoing thing? How do we estimate the content benefit from on-device AI? Okay. On the edge AI, in our observation, we found out that our customers start to put more neural processors inside. And so we estimate it's a 5%-10% more silicon being used. Can you be every year 5%-10%? The definite is no, right? So they will move to next node, the technology migration. That's also to TSMC's advantage. Not only that, I also say that the replacement cycle, I think it will be shortened because of when you have a new toy that with an AI functionality inside, everybody will replace it, replace their smartphone, replace their PCs. And I count that one much more than a mere 5% increase. All right. Did I answer your question? Yeah, thank you very much. Okay, thank you. Operator, I think there's one more participant online, so we'll take the last question from online participant, please. But I think the last caller just dropped the line. Thank you. Okay, then we'll take the last question from Brad Lin from Bank of America. Thank you for squeezing me in. So, happy New Year and taking my question. So I would like to ask two questions. First question would be on the CoWoS as well. So we have observed an increasing margin of advanced packaging. Could you remind us the CoWoS contribution of last year? And do you expect the margin to kind of approach the corporate average or even exceed it after the so-called value reflection this year? That would be my first question. Thank you. Okay, so Brad's first question is very specific to CoWoS. Basically, he wants to know what is the revenue contribution from CoWoS last year and what is the margin profile. Maybe we can talk about advanced packaging. Brad, we don't break it down in different segments of the advanced packaging. But overall speaking, advanced packaging accounted for over 8% of revenue last year. And it will account for over 10% this year. In terms of gross margins, it is better. It is better than before, but still below the corporate average. Thank you. Thank you, Wendell. That's very helpful. And then my second question would be on the IDM. So we have seen IDMs increasingly rely on TSMC. And then do we still expect the IDM to support our long-term growth? Okay, so Brad's second question, I think, is on IDM and IDM outsourcing. He does note that we do see more IDM outsourcing business. So is this part of our long-term growth outlook, CAGR? Again, let me repeat again. They are our very good customers. And we work together. I don't say they rely on TSMC. We are partners. And I really hope that a long-term relationship will be there, for sure. Okay, thank you, C.C. Thank you, Brad. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and certainly, both will be available through TSMC's website at www.tsmc.com, so thank you, everyone, for joining us today online and in person. We'd like to wish everyone a happy New Year and hope everyone continues to stay well, and hope you'll join us again next quarter. Goodbye and thank you. Have a good day.

Speaker 9: Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2024 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Director of Investor Relations, and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. 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 Fourth Quarter 2024, followed by our guidance for the First Quarter 2025. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open both the floor and the line for the question-and-answer session. Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2024 Earnings Conference and Conference Call. good afternoon everyone and welcome to tsmc's fourth quarter 2024 earnings conference and 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 Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. today's event is being webcast live through tsmc's website at www.tsmc.com where you can also download the earnings release materials If you 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 Fourth Quarter 2024, followed by our guidance for the First Quarter 2025. first tsmc's senior vice president and cfo mr wendell huang will summarize our operations in the fourth quarter 2024 followed by our guidance for the first quarter 2025 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 Then we will open both the floor and the line for the question-and-answer session. then we will open both the floor and the line for the question-and-answer session As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now, I would like to turn the microphone over to TSMC's 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 risk 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 risk and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements Please refer to the safe harbor notice that appears in our press release. please refer to the safe harbor notice that appears in our press release And now, I would like to turn the microphone over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. and now i would like to turn the microphone over to tsmc's cfo mr wendell huang for the summary of operations and the current quarter guidance

Speaker 8: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the Fourth Quarter of 2024. After that, I will provide the guidance for the First Quarter of 2025. Fourth Quarter revenue increased 14.3% sequentially in TWD, supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies. Gross margin increased by 1.2 percentage points sequentially to 59%, mainly reflecting a higher capacity utilization rate and productivity gains, partially offset by the dilution of 3-nanometer ramp-up. With operating leverage, total operating expenses accounted for 10% of net revenue. Thus, operating margin increased by 1.5 percentage points sequentially to 49%. Overall, our Fourth Quarter EPS was TWD 14.45, and ROE was 36.2%. 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 Fourth Quarter of 2024. my presentation will start with financial highlights for the fourth quarter of 2024 After that, I will provide the guidance for the First Quarter of 2025. after that i will provide the guidance for the first quarter of 2025 Fourth Quarter revenue increased 14.3% sequentially in TWD, supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies. fourth quarter revenue increased 14.3% sequentially in twd supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies Gross margin increased by 1.2 percentage points sequentially to 59%, mainly reflecting a higher capacity utilization rate and productivity gains, partially offset by the dilution of 3-nanometer ramp-up. gross margin increased by 1.2 percentage points sequentially to 59% mainly reflecting a higher capacity utilization rate and productivity gains partially offset by the dilution of 3-nanometer ramp-up With operating leverage, total operating expenses accounted for 10% of net revenue. with operating leverage total operating expenses accounted for 10% of net revenue Thus, operating margin increased by 1.5 percentage points sequentially to 49%. thus operating margin increased by 1.5 percentage points sequentially to 49% Overall, our Fourth Quarter EPS was TWD 14.45, and ROE was 36.2%. overall our fourth quarter eps was twd 14.45 and roe was 36.2% Now, let's move on to revenue by technology. 3-nanometer process technology contributed 26% of wafer revenue in the Fourth Quarter. 5-nanometer and 7-nanometer accounted for 34% and 14%, respectively. Now, let's move on to revenue by technology. 3-nanometer process technology contributed 26% of wafer revenue in the Fourth Quarter. 5-nanometer and 7-nanometer accounted for 34% and 14%, respectively. now let's move on to revenue by technology 3-nanometer process technology contributed 26% of wafer revenue in the fourth quarter 5-nanometer and 7-nanometer accounted for 34% and 14% respectively Advanced technologies, defined as 7-nanometer and below, accounted for 74% of wafer revenue. On a full-year basis, 3-nanometer revenue accounted for 18% of 2024 wafer revenue. 5-nanometer, 34%. 7-nanometer, 17%. Advanced technologies accounted for 69% of total wafer revenue, up from 58% in 2023. Moving on to revenue contribution by platform. HPC increased 19% quarter over quarter to account for 53% of our fourth quarter revenue. Smartphone increased 17% to account for 35%. IoT decreased 15% to account for 5%. Automotive increased 6% to account for 4%. DCE decreased 6% to account for 1%. On a full-year basis, HPC increased 58% year-on-year. Smartphone, IoT, automotive, DCE increased 23%, 2%, 4%, and 2%, respectively, in 2024. Overall, HPC accounted for 51% of our 2024 revenue. Smartphone accounted for 35%. IoT accounted for 6%, and automotive accounted for 5%. Advanced technologies, defined as 7-nanometer and below, accounted for 74% of wafer revenue. advanced technologies defined as 7-nanometer and below accounted for 74% of wafer revenue On a full-year basis, 3-nanometer revenue accounted for 18% of 2024 wafer revenue. 5-nanometer, 34%. 7-nanometer, 17%. on a full-year basis 3-nanometer revenue accounted for 18% of 2024 wafer revenue 5-nanometer 34% 7-nanometer 17% Advanced technologies accounted for 69% of total wafer revenue, up from 58% in 2023. advanced technologies accounted for 69% of total wafer revenue up from 58% in 2023 Moving on to revenue contribution by platform. moving on to revenue contribution by platform HPC increased 19% quarter over quarter to account for 53% of our fourth quarter revenue. hpc increased 19% quarter over quarter to account for 53% of our fourth quarter revenue Smartphone increased 17% to account for 35%. smartphone increased 17% to account for 35% IoT decreased 15% to account for 5%. iot decreased 15% to account for 5% Automotive increased 6% to account for 4%. automotive increased 6% to account for 4% DCE decreased 6% to account for 1%. dce decreased 6% to account for 1% On a full-year basis, HPC increased 58% year-on-year. on a full-year basis hpc increased 58% year-on-year Smartphone, IoT, automotive, DCE increased 23%, 2%, 4%, and 2%, respectively, in 2024. smartphone iot automotive dce increased 23% 2% 4% and 2% respectively in 2024 Overall, HPC accounted for 51% of our 2024 revenue. overall hpc accounted for 51% of our 2024 revenue Smartphone accounted for 35%. smartphone accounted for 35% IoT accounted for 6%, and automotive accounted for 5%. iot accounted for 6% and automotive accounted for 5% Moving on to the balance sheet, we ended the Fourth Quarter with cash and marketable securities of NT$2.4 trillion, or $74 billion. On the liabilities side, current liabilities increased by NT$184 billion, mainly due to the increase of NT$71 billion in accounts payable and increase of NT$99 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable turnover days declined by one day to 27 days, while inventory days decreased by seven days to 80 days, primarily due to shipment of N3 and N5 wafers. Regarding cash flow and CAPEX, during the Fourth Quarter, we generated about NT$620 billion in cash from operations, spent NT$362 billion in CAPEX, and distributed NT$104 billion for the First Quarter 2024 cash dividend. Overall, our cash balance increased NT$241 billion to NT$2.1 trillion at the end of the quarter. Moving on to the balance sheet, we ended the Fourth Quarter with cash and marketable securities of NT$2.4 trillion, or $74 billion. moving on to the balance sheet we ended the fourth quarter with cash and marketable securities of nt$2.4 trillion or $74 billion On the liabilities side, current liabilities increased by NT$184 billion, mainly due to the increase of NT$71 billion in accounts payable and increase of NT$99 billion in accrued liabilities and others. on the liabilities side current liabilities increased by nt$184 billion mainly due to the increase of nt$71 billion in accounts payable and increase of nt$99 billion in accrued liabilities and others In terms of financial ratios, accounts receivable turnover days declined by one day to 27 days, while inventory days decreased by seven days to 80 days, primarily due to shipment of N3 and N5 wafers. in terms of financial ratios accounts receivable turnover days declined by one day to 27 days while inventory days decreased by seven days to 80 days primarily due to shipment of n3 and n5 wafers Regarding cash flow and CAPEX, during the Fourth Quarter, we generated about NT$620 billion in cash from operations, spent NT$362 billion in CAPEX, and distributed NT$104 billion for the First Quarter 2024 cash dividend. regarding cash flow and capex during the fourth quarter we generated about nt$620 billion in cash from operations spent nt$362 billion in capex and distributed nt$104 billion for the first quarter 2024 cash dividend Overall, our cash balance increased NT$241 billion to NT$2.1 trillion at the end of the quarter. overall our cash balance increased nt$241 billion to nt$2.1 trillion at the end of the quarter In U.S. dollar terms, our fourth quarter capital expenditures total $11.2 billion. Now, let me recap our performance in 2024. Due to the strong demand for our 3-nanometer and 5-nanometer process technologies, we continue to outperform the foundry industry in 2024. Our revenue increased 30% in U.S. dollar terms to $90 billion, or increased 33.9% in NT to NT 2.89 trillion. Gross margin increased 1.7 percentage points to 56.1%, mainly reflecting improvements in overall capacity utilization, partially offset by 3-nanometer dilution and higher electricity costs. With operating leverage, our operating margin increased 3.1 percentage points to 45.7%. Overall, full-year EPS increased 39.9% to NT 45.25, and ROE increased 4.1 percentage points to 30.3%. On cash flow, we spent $29.8 billion, or NT 956 billion in CapEx, generated NT 1.8 trillion in operating cash flow, and NT 870 billion in free cash flow. In U.S. dollar terms, our fourth quarter capital expenditures total $11.2 billion. in u.s dollar terms our fourth quarter capital expenditures total $11.2 billion Now, let me recap our performance in 2024. now let me recap our performance in 2024 Due to the strong demand for our 3-nanometer and 5-nanometer process technologies, we continue to outperform the foundry industry in 2024. due to the strong demand for our 3-nanometer and 5-nanometer process technologies we continue to outperform the foundry industry in 2024 Our revenue increased 30% in U.S. dollar terms to $90 billion, or increased 33.9% in NT to NT 2.89 trillion. our revenue increased 30% in u.s dollar terms to $90 billion or increased 33.9% in nt to nt 2.89 trillion Gross margin increased 1.7 percentage points to 56.1%, mainly reflecting improvements in overall capacity utilization, partially offset by 3-nanometer dilution and higher electricity costs. gross margin increased 1.7 percentage points to 56.1% mainly reflecting improvements in overall capacity utilization partially offset by 3-nanometer dilution and higher electricity costs With operating leverage, our operating margin increased 3.1 percentage points to 45.7%. with operating leverage our operating margin increased 3.1 percentage points to 45.7% Overall, full-year EPS increased 39.9% to NT 45.25, and ROE increased 4.1 percentage points to 30.3%. overall full-year eps increased 39.9% to nt 45.25 and roe increased 4.1 percentage points to 30.3% On cash flow, we spent $29.8 billion, or NT 956 billion in CapEx, generated NT 1.8 trillion in operating cash flow, and NT 870 billion in free cash flow. on cash flow we spent $29.8 billion or nt 956 billion in capex generated nt 1.8 trillion in operating cash flow and nt 870 billion in free cash flow We paid NT 363 billion in cash dividends in 2024, up 24.5% year-over-year. I've finished my financial summary. Now, let's turn to our current quarter guidance. We expect our business in the First Quarter to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand. Based on the current business outlook, we expect our First Quarter revenue to be between $25 billion and $25.8 billion, which represents a 5.5% sequential decline, or a 34.7% year-over-year increase at the midpoint. Based on the exchange rate assumption of 1 US dollar to 32.8 NT, gross margin is expected to be between 57% and 59%, operating margin between 46.5% and 48.5%. Regarding tax rate, our effective tax rate was 16.7% in 2024. For 2025, we expect our effective tax rate to be between 16% and 17%. This concludes my financial presentation. Now, let me turn to our key messages. We paid NT 363 billion in cash dividends in 2024, up 24.5% year-over-year. we paid nt 363 billion in cash dividends in 2024 up 24.5% year-over-year I've finished my financial summary. i've finished my financial summary Now, let's turn to our current quarter guidance. now let's turn to our current quarter guidance We expect our business in the First Quarter to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand. we expect our business in the first quarter to be impacted by smartphone seasonality partially offset by continued growth in ai-related demand Based on the current business outlook, we expect our First Quarter revenue to be between $25 billion and $25.8 billion, which represents a 5.5% sequential decline, or a 34.7% year-over-year increase at the midpoint. based on the current business outlook we expect our first quarter revenue to be between $25 billion and $25.8 billion which represents a 5.5% sequential decline or a 34.7% year-over-year increase at the midpoint Based on the exchange rate assumption of 1 US dollar to 32.8 NT, gross margin is expected to be between 57% and 59%, operating margin between 46.5% and 48.5%. based on the exchange rate assumption of 1 us dollar to 32.8 nt gross margin is expected to be between 57% and 59% operating margin between 46.5% and 48.5% Regarding tax rate, our effective tax rate was 16.7% in 2024. regarding tax rate our effective tax rate was 16.7% in 2024 For 2025, we expect our effective tax rate to be between 16% and 17%. for 2025 we expect our effective tax rate to be between 16% and 17% 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 fourth quarter 2024 and first quarter 2025 profitability. Compared to third quarter, our fourth quarter gross margin increased by 120 basis points sequentially to 59%, primarily due to a higher capacity utilization rate and productivity gains, partially offset by dilution from the continued ramp-up of our 3-nanometer technology. We have just guided our first quarter gross margin to decrease by 100 basis points to 58% at the midpoint. This is primarily due to R&D costs associated with N2 and CoWoS expansion and the start of dilution from our overseas fabs. As a reminder, six factors determine TSMC's profitability: leadership, technology development, and ramp-up, pricing, cost reduction, technology mix, capacity utilization, and forward exchange rate. Looking at full year 2025, given the six factors, there are a few puts and takes I would like to share. I will start by talking about our fourth quarter 2024 and first quarter 2025 profitability. i will start by talking about our fourth quarter 2024 and first quarter 2025 profitability Compared to third quarter, our fourth quarter gross margin increased by 120 basis points sequentially to 59%, primarily due to a higher capacity utilization rate and productivity gains, partially offset by dilution from the continued ramp-up of our 3-nanometer technology. compared to third quarter our fourth quarter gross margin increased by 120 basis points sequentially to 59% primarily due to a higher capacity utilization rate and productivity gains partially offset by dilution from the continued ramp-up of our 3-nanometer technology We have just guided our first quarter gross margin to decrease by 100 basis points to 58% at the midpoint. we have just guided our first quarter gross margin to decrease by 100 basis points to 58% at the midpoint This is primarily due to R&D costs associated with N2 and CoWoS expansion and the start of dilution from our overseas fabs. this is primarily due to r&d costs associated with n2 and cowos expansion and the start of dilution from our overseas fabs As a reminder, six factors determine TSMC's profitability: leadership, technology development, and ramp-up, pricing, cost reduction, technology mix, capacity utilization, and forward exchange rate. as a reminder six factors determine tsmc's profitability leadership technology development and ramp-up pricing cost reduction technology mix capacity utilization and forward exchange rate Looking at full year 2025, given the six factors, there are a few puts and takes I would like to share. looking at full year 2025 given the six factors there are a few puts and takes i would like to share On the one hand, we are working hard to increase our value. The dilution impact from our N3 ramp is expected to gradually reduce, and we expect our overall utilization rate to moderately increase in 2025. On the other hand, as we have said before, we forecast 2% to 3% margin dilution impact from the ramp-up of our overseas fabs. The impact is less than 100 basis points in the first quarter of 2025, but we expect it to grow more pronounced throughout the year as our fabs in Kumamoto and Arizona ramp up. We also expect inflationary costs, including higher electricity prices in Taiwan, to impact our gross margin by at least 1% in 2025. In addition, there are some ramp-up costs associated with N2 and further conversion of N5 to N3 capacity, which together we expect to impact our gross margin by about 1%. On the one hand, we are working hard to increase our value. on the one hand we are working hard to increase our value The dilution impact from our N3 ramp is expected to gradually reduce, and we expect our overall utilization rate to moderately increase in 2025. the dilution impact from our n3 ramp is expected to gradually reduce and we expect our overall utilization rate to moderately increase in 2025 On the other hand, as we have said before, we forecast 2% to 3% margin dilution impact from the ramp-up of our overseas fabs. on the other hand as we have said before we forecast 2% to 3% margin dilution impact from the ramp-up of our overseas fabs The impact is less than 100 basis points in the first quarter of 2025, but we expect it to grow more pronounced throughout the year as our fabs in Kumamoto and Arizona ramp up. the impact is less than 100 basis points in the first quarter of 2025 but we expect it to grow more pronounced throughout the year as our fabs in kumamoto and arizona ramp up We also expect inflationary costs, including higher electricity prices in Taiwan, to impact our gross margin by at least 1% in 2025. we also expect inflationary costs including higher electricity prices in taiwan to impact our gross margin by at least 1% in 2025 In addition, there are some ramp-up costs associated with N2 and further conversion of N5 to N3 capacity, which together we expect to impact our gross margin by about 1%. in addition there are some ramp-up costs associated with n2 and further conversion of n5 to n3 capacity which together we expect to impact our gross margin by about 1% Finally, we have no control over the foreign exchange rate, but that may be another factor in 2025. Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margin of 53% and higher is achievable. Next, let me talk about our 2025 capital budget and depreciation. Every year, our CapEx is spent in anticipation of the growth that will follow in the future years, and our CapEx and capacity planning is based on the long-term market demand profile. At TSMC, a higher level of capital expenditures is always correlated with higher growth opportunities in the following years. In 2024, we spent $29.8 billion as we continue to invest to support our customers' growth. Finally, we have no control over the foreign exchange rate, but that may be another factor in 2025. finally we have no control over the foreign exchange rate but that may be another factor in 2025 Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margin of 53% and higher is achievable. longer term excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans we continue to forecast a long-term gross margin of 53% and higher is achievable Next, let me talk about our 2025 capital budget and depreciation. next let me talk about our 2025 capital budget and depreciation Every year, our CapEx is spent in anticipation of the growth that will follow in the future years, and our CapEx and capacity planning is based on the long-term market demand profile. every year our capex is spent in anticipation of the growth that will follow in the future years and our capex and capacity planning is based on the long-term market demand profile 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 In 2024, we spent $29.8 billion as we continue to invest to support our customers' growth. in 2024 we spent $29.8 billion as we continue to invest to support our customers' growth With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structured demand from the industry megatrends of 5G, AI, and HPC. In 2025, we expect our capital budget to be between $38 billion and $42 billion as we invest to capture the future growth. Out of the $38-$42 billion CAPEX for 2025, about 70% of the capital budget will be allocated for advanced process technologies. About 10%-20% will be spent for specialty technologies, and about 10%-20% will be spent for advanced packaging, testing, mask making, and others. Our depreciation expense is expected to increase by a high single-digit % year-over-year in 2025, as newly incurred depreciation will be partially offset by other nodes rolling off depreciation. With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structured demand from the industry megatrends of 5G, AI, and HPC. with our strong technology leadership and differentiation we are well positioned to capture the multi-year structured demand from the industry megatrends of 5g ai and hpc In 2025, we expect our capital budget to be between $38 billion and $42 billion as we invest to capture the future growth. in 2025 we expect our capital budget to be between $38 billion and $42 billion as we invest to capture the future growth Out of the $38-$42 billion CAPEX for 2025, about 70% of the capital budget will be allocated for advanced process technologies. out of the $38-$42 billion capex for 2025 about 70% of the capital budget will be allocated for advanced process technologies About 10%-20% will be spent for specialty technologies, and about 10%-20% will be spent for advanced packaging, testing, mask making, and others. about 10%-20% will be spent for specialty technologies and about 10%-20% will be spent for advanced packaging testing mask making and others Our depreciation expense is expected to increase by a high single-digit % year-over-year in 2025, as newly incurred depreciation will be partially offset by other nodes rolling off depreciation. our depreciation expense is expected to increase by a high single-digit % year-over-year in 2025 as newly incurred depreciation will be partially offset by other nodes rolling off depreciation Even as we invest for the future growth with this level of CAPEX spending in 2025, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. Now, let me turn the microphone over to CC. Even as we invest for the future growth with this level of CAPEX spending in 2025, we remain committed to delivering profitable growth to our shareholders. even as we invest for the future growth with this level of capex spending in 2025 we remain committed to delivering profitable growth to our shareholders We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. we also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis Now, let me turn the microphone over to CC. now let me turn the microphone over to cc

Speaker 2: Thank you, Wendell. Good afternoon, everyone. First, let me start with the conclusion of 2024 and our 2025 outlook. 2024 was a mixed year of recovery for the global semiconductor industry. AI-related demand was strong, while other applications saw only a very mild recovery. As macroeconomic conditions weigh on consumer sentiment and market demand. Concluding 2024, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making, and others, increased 6% year-over-year, slightly lower than our previous forecast. Thank you, Wendell. thank you wendell Good afternoon, everyone. good afternoon everyone First, let me start with the conclusion of 2024 and our 2025 outlook. 2024 was a mixed year of recovery for the global semiconductor industry. first let me start with the conclusion of 2024 and our 2025 outlook 2024 was a mixed year of recovery for the global semiconductor industry AI-related demand was strong, while other applications saw only a very mild recovery. ai-related demand was strong while other applications saw only a very mild recovery As macroeconomic conditions weigh on consumer sentiment and market demand. as macroeconomic conditions weigh on consumer sentiment and market demand Concluding 2024, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making, and others, increased 6% year-over-year, slightly lower than our previous forecast. concluding 2024 the foundry 2.0 industry which we define as all logic wafer manufacturing packaging testing mask making and others increased 6% year-over-year slightly lower than our previous forecast Supported by strong demand for our leading-edge process technologies, TSMC's revenue increased 30% year-over-year in U.S. dollar terms, outperforming the foundry industry growth. Entering 2025, we expect fabless semiconductor inventory to have returned to a healthier level exceeding 2024. We forecast the Foundry 2.0 industry to grow 10% year-over-year in 2025, supported by robust AI-related demand and a mild recovery in other end market segments. Supported by our technology leadership and broad customer base, we are confident we can continue to outperform the industry growth. We expect 2025 to be another strong growth year for TSMC and forecast our full-year revenue to increase by close to mid-20% in U.S. dollar terms. Supported by strong demand for our leading-edge process technologies, TSMC's revenue increased 30% year-over-year in U.S. dollar terms, outperforming the foundry industry growth. supported by strong demand for our leading-edge process technologies tsmc's revenue increased 30% year-over-year in u.s dollar terms outperforming the foundry industry growth Entering 2025, we expect fabless semiconductor inventory to have returned to a healthier level exceeding 2024. entering 2025 we expect fabless semiconductor inventory to have returned to a healthier level exceeding 2024 We forecast the Foundry 2.0 industry to grow 10% year-over-year in 2025, supported by robust AI-related demand and a mild recovery in other end market segments. we forecast the foundry 2.0 industry to grow 10% year-over-year in 2025 supported by robust ai-related demand and a mild recovery in other end market segments Supported by our technology leadership and broad customer base, we are confident we can continue to outperform the industry growth. supported by our technology leadership and broad customer base we are confident we can continue to outperform the industry growth We expect 2025 to be another strong growth year for TSMC and forecast our full-year revenue to increase by close to mid-20% in U.S. dollar terms. we expect 2025 to be another strong growth year for tsmc and forecast our full-year revenue to increase by close to mid-20% in u.s dollar terms Now, I will talk about AI demand and TSMC's long-term growth outlook. We observe robust AI-related demand from our customers throughout 2024. Now, I will talk about AI demand and TSMC's long-term growth outlook. now i will talk about ai demand and tsmc's long-term growth outlook We observe robust AI-related demand from our customers throughout 2024. we observe robust ai-related demand from our customers throughout 2024 Revenue from AI accelerators, which we now define as AI GPU, AI ASICs, and HBM controller for AI training and inference in the data center, accounted for close to 18% of our total revenue in 2024. Even after more than tripling in 2024, we forecast our revenue from AI accelerator to double in 2025 as the strong surge in AI-related demand continues. As a key enabler of AI applications, the value of our technology platform is increasing as customers rely on TSMC to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way. To address the structural increase in the long-term market demand profile, TSMC is working closely with our customers to plan our capacity and investing in leading-edge specialty and advanced packaging technologies to support their growth. Revenue from AI accelerators, which we now define as AI GPU, AI ASICs, and HBM controller for AI training and inference in the data center, accounted for close to 18% of our total revenue in 2024. revenue from ai accelerators which we now define as ai gpu ai asics and hbm controller for ai training and inference in the data center accounted for close to 18% of our total revenue in 2024 Even after more than tripling in 2024, we forecast our revenue from AI accelerator to double in 2025 as the strong surge in AI-related demand continues. even after more than tripling in 2024 we forecast our revenue from ai accelerator to double in 2025 as the strong surge in ai-related demand continues As a key enabler of AI applications, the value of our technology platform is increasing as customers rely on TSMC to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way. as a key enabler of ai applications the value of our technology platform is increasing as customers rely on tsmc to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way To address the structural increase in the long-term market demand profile, TSMC is working closely with our customers to plan our capacity and investing in leading-edge specialty and advanced packaging technologies to support their growth. to address the structural increase in the long-term market demand profile tsmc is working closely with our customers to plan our capacity and investing in leading-edge specialty and advanced packaging technologies to support their growth As we have said before, TSMC employs a disciplined and robust capacity planning system to evaluate and judge the market demand to determine the appropriate capacity to build. This is especially important when we have such high forecasted demand from AI-related business. At the same time, we are committed to earning a sustainable and healthy return that enables us to continue to invest to support our customers' growth while delivering profitable growth for our shareholders. Underpinned by our technology leadership and broad customer base, we now forecast the revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period, starting off the already higher base of 2024. We expect AI accelerators to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. As we have said before, TSMC employs a disciplined and robust capacity planning system to evaluate and judge the market demand to determine the appropriate capacity to build. as we have said before tsmc employs a disciplined and robust capacity planning system to evaluate and judge the market demand to determine the appropriate capacity to build This is especially important when we have such high forecasted demand from AI-related business. this is especially important when we have such high forecasted demand from ai-related business At the same time, we are committed to earning a sustainable and healthy return that enables us to continue to invest to support our customers' growth while delivering profitable growth for our shareholders. at the same time we are committed to earning a sustainable and healthy return that enables us to continue to invest to support our customers' growth while delivering profitable growth for our shareholders Underpinned by our technology leadership and broad customer base, we now forecast the revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period, starting off the already higher base of 2024. underpinned by our technology leadership and broad customer base we now forecast the revenue growth from ai accelerators to approach a mid-40% cagr for the five-year period starting off the already higher base of 2024 We expect AI accelerators to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. we expect ai accelerators to be the strongest driver of our hpc platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years Looking ahead, as the world's most reliable and effective capacity provider, TSMC is playing a critical and integral role in the global semiconductor industry. With our technology leadership, manufacturing excellence, and customer trust, we are well positioned to address the growth from the industry megatrend of 5G, AI, and HPC with our differentiated technologies. For the five-year period starting from 2024, we expect our long-term revenue growth to approach a 20% CAGR in U.S. dollar terms, fueled by all four of our growth platforms, which are smartphone, HPC, IoT, and automotive. Next, let me talk about our global manufacturing footprint update. All our overseas decisions are based on our customers' needs, as they value some geographic flexibilities and the necessary level of government support. This is also to maximize the value for our shareholders. Looking ahead, as the world's most reliable and effective capacity provider, TSMC is playing a critical and integral role in the global semiconductor industry. looking ahead as the world's most reliable and effective capacity provider tsmc is playing a critical and integral role in the global semiconductor industry With our technology leadership, manufacturing excellence, and customer trust, we are well positioned to address the growth from the industry megatrend of 5G, AI, and HPC with our differentiated technologies. with our technology leadership manufacturing excellence and customer trust we are well positioned to address the growth from the industry megatrend of 5g ai and hpc with our differentiated technologies For the five-year period starting from 2024, we expect our long-term revenue growth to approach a 20% CAGR in U.S. dollar terms, fueled by all four of our growth platforms, which are smartphone, HPC, IoT, and automotive. for the five-year period starting from 2024 we expect our long-term revenue growth to approach a 20% cagr in u.s dollar terms fueled by all four of our growth platforms which are smartphone hpc iot and automotive Next, let me talk about our global manufacturing footprint update. next let me talk about our global manufacturing footprint update All our overseas decisions are based on our customers' needs, as they value some geographic flexibilities and the necessary level of government support. all our overseas decisions are based on our customers' needs as they value some geographic flexibilities 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 In the U.S., we have a long-standing good relationship with the U.S. government, dating back to even before our Arizona fab project announcement in May 2020. We have received a strong commitment and support from the U.S. customers and the U.S. federal, state, and city government and are making substantial progress. Building on the successful result of our earlier engineering wafer production, we were able to pull ahead the production schedule of our first fab in Arizona. Our first fab has already entered the high-volume production in 4Q24, utilizing N4 process technology with a yield comparable to our fabs in Taiwan. We expect a smooth ramp-up process, and with our strong manufacturing capability and execution, we are confident to deliver the same level of manufacturing quality and reliability from our fab in Arizona as from our fab in Taiwan. In the U.S., we have a long-standing good relationship with the U.S. government, dating back to even before our Arizona fab project announcement in May 2020. in the u.s we have a long-standing good relationship with the u.s government dating back to even before our arizona fab project announcement in may 2020 We have received a strong commitment and support from the U.S. customers and the U.S. federal, state, and city government and are making substantial progress. we have received a strong commitment and support from the u.s customers and the u.s federal state and city government and are making substantial progress Building on the successful result of our earlier engineering wafer production, we were able to pull ahead the production schedule of our first fab in Arizona. building on the successful result of our earlier engineering wafer production we were able to pull ahead the production schedule of our first fab in arizona Our first fab has already entered the high-volume production in 4Q24, utilizing N4 process technology with a yield comparable to our fabs in Taiwan. our first fab has already entered the high-volume production in 4q24 utilizing n4 process technology with a yield comparable to our fabs in taiwan We expect a smooth ramp-up process, and with our strong manufacturing capability and execution, we are confident to deliver the same level of manufacturing quality and reliability from our fab in Arizona as from our fab in Taiwan. we expect a smooth ramp-up process and with our strong manufacturing capability and execution we are confident to deliver the same level of manufacturing quality and reliability from our fab in arizona as from our fab in taiwan Our plans for second fab and third fab in Arizona are also on track. These fabs will utilize even more advanced technologies such as N3, N2, and A16 based on our customers' needs. TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner in enabling the U.S. semiconductor industry. Next, in Japan, thanks to the strong support from the Japanese government and local government, our progress is also very good. Our first specialty technology fab in Kumamoto has started volume production at the end of 2024 with very good yield. Construction of our second fab, specialty fab, is scheduled to begin this year. In Europe, we have received strong commitment from the European Commission and the German federal, state, and city government. Our plans for second fab and third fab in Arizona are also on track. our plans for second fab and third fab in arizona are also on track These fabs will utilize even more advanced technologies such as N3, N2, and A16 based on our customers' needs. these fabs will utilize even more advanced technologies such as n3 n2 and a16 based on our customers' needs TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner in enabling the U.S. semiconductor industry. tsmc will continue to play a critical and integral role in enabling our customers' success while remaining a key partner in enabling the u.s semiconductor industry Next, in Japan, thanks to the strong support from the Japanese government and local government, our progress is also very good. next in japan thanks to the strong support from the japanese government and local government our progress is also very good Our first specialty technology fab in Kumamoto has started volume production at the end of 2024 with very good yield. our first specialty technology fab in kumamoto has started volume production at the end of 2024 with very good yield Construction of our second fab, specialty fab, is scheduled to begin this year. construction of our second fab specialty fab is scheduled to begin this year In Europe, we have received strong commitment from the European Commission and the German federal, state, and city government. in europe we have received strong commitment from the european commission and the german federal state and city government We are progressing smoothly with our plans to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial applications. In Taiwan, we continue to receive support from the Taiwan government, and we are investing in and expanding our advanced technology and packaging capacities. Given the robust multi-year demand for our 3-nanometer technology, we continue to expand our 3-nanometer capacity in Tainan Science Park. We are also preparing for multiple phases of 2-nanometer fabs in both Hsinchu Science Park and Kaohsiung Science Park to support the strong structural demand from our customers. We are also expanding our advanced packaging facilities across several locations in Taiwan. As we have said before, under today's fragmented globalization environment, overseas fab costs are higher for everyone, including TSMC and all other semiconductor manufacturers. We are progressing smoothly with our plans to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial applications. we are progressing smoothly with our plans to build a specialty technology fab in dresden germany focusing on automotive and industrial applications In Taiwan, we continue to receive support from the Taiwan government, and we are investing in and expanding our advanced technology and packaging capacities. in taiwan we continue to receive support from the taiwan government and we are investing in and expanding our advanced technology and packaging capacities Given the robust multi-year demand for our 3-nanometer technology, we continue to expand our 3-nanometer capacity in Tainan Science Park. given the robust multi-year demand for our 3-nanometer technology we continue to expand our 3-nanometer capacity in tainan science park We are also preparing for multiple phases of 2-nanometer fabs in both Hsinchu Science Park and Kaohsiung Science Park to support the strong structural demand from our customers. we are also preparing for multiple phases of 2-nanometer fabs in both hsinchu science park and kaohsiung science park to support the strong structural demand from our customers We are also expanding our advanced packaging facilities across several locations in Taiwan. we are also expanding our advanced packaging facilities across several locations in taiwan As we have said before, under today's fragmented globalization environment, overseas fab costs are higher for everyone, including TSMC and all other semiconductor manufacturers. as we have said before under today's fragmented globalization environment overseas fab costs are higher for everyone including tsmc and all other semiconductor manufacturers We are leveraging our fundamental competitive advantage of manufacturing technology leadership and large-scale manufacturing base to be the most efficient and cost-effective manufacturer in the region that we operate while supporting our customers' growth. Finally, I will talk about the N2 and the A16 introduction. Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable need for energy-efficient computing, and almost all the innovators are working with TSMC. We expect a number of the new tape-outs for 2-nanometer technology in the first two years to be higher than both 3-nanometer and 5-nanometer in their first two years, fueled by both smartphone and HPC applications. We are leveraging our fundamental competitive advantage of manufacturing technology leadership and large-scale manufacturing base to be the most efficient and cost-effective manufacturer in the region that we operate while supporting our customers' growth. we are leveraging our fundamental competitive advantage of manufacturing technology leadership and large-scale manufacturing base to be the most efficient and cost-effective manufacturer in the region that we operate while supporting our customers' growth Finally, I will talk about the N2 and the A16 introduction. finally i will talk about the n2 and the a16 introduction Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable need for energy-efficient computing, and almost all the innovators are working with TSMC. our 2-nanometer and a16 technologies lead the industry in addressing the insatiable need for energy-efficient computing and almost all the innovators are working with tsmc We expect a number of the new tape-outs for 2-nanometer technology in the first two years to be higher than both 3-nanometer and 5-nanometer in their first two years, fueled by both smartphone and HPC applications. we expect a number of the new tape-outs for 2-nanometer technology in the first two years to be higher than both 3-nanometer and 5-nanometer in their first two years fueled by both smartphone and hpc applications N2 will deliver full-chip performance and power benefit with 10%-15% speed improvement at the same power, or 20%-30% power improvement at the same speed, and more than 15% chip density increase as compared with the N3E. N2 will deliver full-chip performance and power benefit with 10%-15% speed improvement at the same power, or 20%-30% power improvement at the same speed, and more than 15% chip density increase as compared with the N3E. n2 will deliver full-chip performance and power benefit with 10%-15% speed improvement at the same power or 20%-30% power improvement at the same speed and more than 15% chip density increase as compared with the n3e N2 is well on track for volume production in the second half of 2025 as scheduled, with a ramp profile similar to N3. With our strategy of continuous enhancement, we also introduced N2P as an extension of N2 family. N2P features further performance and power benefit on top of N2. N2P will support both smartphone and HPC applications, and volume production is scheduled for the second half of 2026. We will also introduce A16 featuring Super Power Rail, or SPR, as a separate offering. TSMC's SPR is an innovative, best-in-class backside power delivery solution that is first in the industry to incorporate a novel backside metal scheme that preserves the gate density and devices with flexibility to maximize the product benefit. N2 is well on track for volume production in the second half of 2025 as scheduled, with a ramp profile similar to N3. n2 is well on track for volume production in the second half of 2025 as scheduled with a ramp profile similar to n3 With our strategy of continuous enhancement, we also introduced N2P as an extension of N2 family. with our strategy of continuous enhancement we also introduced n2p as an extension of n2 family N2P features further performance and power benefit on top of N2. n2p features further performance and power benefit on top of n2 N2P will support both smartphone and HPC applications, and volume production is scheduled for the second half of 2026. n2p will support both smartphone and hpc applications and volume production is scheduled for the second half of 2026 We will also introduce A16 featuring Super Power Rail, or SPR, as a separate offering. we will also introduce a16 featuring super power rail or spr as a separate offering TSMC's SPR is an innovative, best-in-class backside power delivery solution that is first in the industry to incorporate a novel backside metal scheme that preserves the gate density and devices with flexibility to maximize the product benefit. tsmc's spr is an innovative best-in-class backside power delivery solution that is first in the industry to incorporate a novel backside metal scheme that preserves the gate density and devices with flexibility to maximize the product benefit Compared with N2P, A16 provides a further 8%-10% speed improvement at the same power, or 15%-20% power improvement at the same speed, and an additional 7%-10% chip density gain. A16 is the best suitable for specific HPC products with a complex signal route and dense power delivery network. Volume production is scheduled for the second half of 2026. We believe N2, N2P, A16, and its derivatives will further extend our technology leadership position and enable TSMC to capture the growth opportunity well into the future. This concludes our key message. Thank you for your attention. Compared with N2P, A16 provides a further 8%-10% speed improvement at the same power, or 15%-20% power improvement at the same speed, and an additional 7%-10% chip density gain. compared with n2p a16 provides a further 8%-10% speed improvement at the same power or 15%-20% power improvement at the same speed and an additional 7%-10% chip density gain A16 is the best suitable for specific HPC products with a complex signal route and dense power delivery network. a16 is the best suitable for specific hpc products with a complex signal route and dense power delivery network Volume production is scheduled for the second half of 2026. volume production is scheduled for the second half of 2026 We believe N2, N2P, A16, and its derivatives will further extend our technology leadership position and enable TSMC to capture the growth opportunity well into the future. we believe n2 n2p a16 and its derivatives will further extend our technology leadership position and enable tsmc to capture the growth opportunity well into the future This concludes our key message. this concludes our key message Thank you for your attention. thank you for your attention

Speaker 9: 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. 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 Questions will be taken from both the floor and from the call. Should you wish to raise your question in Chinese, I will translate it to English before 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 your telephone keypad now. If at any time you would like to remove yourself from the questioning queue, please press star two. Now we will begin the Q&A session. We'll take the first few questions here from the floor and then go to online. I think maybe left, middle, right. So why don't we start? I think first question, Gokul Hariharan from J.P. Morgan. Questions will be taken from both the floor and from the call. questions will be taken from both the floor and from the call Should you wish to raise your question in Chinese, I will translate it to English before 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 your 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 your telephone keypad now If at any time you would like to remove yourself from the questioning queue, please press star two. if at any time you would like to remove yourself from the questioning queue please press star two Now we will begin the Q&A session. now we will begin the q&a session We'll take the first few questions here from the floor and then go to online. we'll take the first few questions here from the floor and then go to online I think maybe left, middle, right. i think maybe left middle right So why don't we start? so why don't we start I think first question, Gokul Hariharan from J.P. i think first question gokul hariharan from j.p Morgan. morgan

Speaker 6: Thanks, Jeff. Happy New Year, management team. My first question is on TSMC's U.S. future strategy. There have been a lot of changes recently. Taiwan relaxed the N-1 restriction. Thanks, Jeff. thanks jeff Happy New Year, management team. happy new year management team My first question is on TSMC's U.S. future strategy. my first question is on tsmc's u.s future strategy There have been a lot of changes recently. there have been a lot of changes recently Taiwan relaxed the N-1 restriction. taiwan relaxed the n-1 restriction There was news about that a week back. C.C., you met Elon Musk as well recently, so you said there are a lot of developments that you've discussed. Your key IDM competitor seems to be struggling as well, while your Arizona fab seems to be ramping up quite well. So in light of all these, I just wanted to understand the longer-term strategy. Would you consider investing in the latest node in the U.S.? Because so far it has been N-1. Now you don't have the restriction from the Taiwan government to go and invest in the latest node. What has been your feedback in whatever discussions you have had with the incoming President Trump administration? Because they have talked a lot about the CHIPS Act and everything, but they're also supportive. Your original investment was during President Trump's first term. There was news about that a week back. there was news about that a week back C.C., you met Elon Musk as well recently, so you said there are a lot of developments that you've discussed. c.c you met elon musk as well recently so you said there are a lot of developments that you've discussed Your key IDM competitor seems to be struggling as well, while your Arizona fab seems to be ramping up quite well. your key idm competitor seems to be struggling as well while your arizona fab seems to be ramping up quite well So in light of all these, I just wanted to understand the longer-term strategy. so in light of all these i just wanted to understand the longer-term strategy Would you consider investing in the latest node in the U.S.? would you consider investing in the latest node in the u.s Because so far it has been N-1. because so far it has been n-1 Now you don't have the restriction from the Taiwan government to go and invest in the latest node. now you don't have the restriction from the taiwan government to go and invest in the latest node What has been your feedback in whatever discussions you have had with the incoming President Trump administration? what has been your feedback in whatever discussions you have had with the incoming president trump administration Because they have talked a lot about the CHIPS Act and everything, but they're also supportive. because they have talked a lot about the chips act and everything but they're also supportive Your original investment was during President Trump's first term. your original investment was during president trump's first term Lastly, I think, Wendell, I think last time you had mentioned you're not very keen on taking over any IDM fabs. Has that thinking changed, especially given TSMC has the potential to become an even stronger partner for the U.S. in terms of bringing up U.S. local manufacturing? Sorry, long question. Lastly, I think, Wendell, I think last time you had mentioned you're not very keen on taking over any IDM fabs. lastly i think wendell i think last time you had mentioned you're not very keen on taking over any idm fabs Has that thinking changed, especially given TSMC has the potential to become an even stronger partner for the U.S. in terms of bringing up U.S. local manufacturing? has that thinking changed especially given tsmc has the potential to become an even stronger partner for the u.s in terms of bringing up u.s local manufacturing Sorry, long question. sorry long question

Speaker 9: Yes. Okay, thank you, Gokul. Indeed, a very long question. I think Gokul's question is looking at TSMC and our strategies in terms of global expansion, particularly in the U.S. He notes that Taiwan has recently relaxed, or said they relaxed the N-1 rule, and C.C. has met several many of our large customers in the U.S., and our Arizona fab is ramping quite well. So his question really is on the longer-term strategy. I believe three parts. Number one, what is the feedback or sort of discussions ongoing with the next administration in the U.S.? Yes. yes Okay, thank you, Gokul. okay thank you gokul Indeed, a very long question. indeed a very long question I think Gokul's question is looking at TSMC and our strategies in terms of global expansion, particularly in the U.S. i think gokul's question is looking at tsmc and our strategies in terms of global expansion particularly in the u.s He notes that Taiwan has recently relaxed, or said they relaxed the N-1 rule, and C.C. has met several many of our large customers in the U.S., and our Arizona fab is ramping quite well. he notes that taiwan has recently relaxed or said they relaxed the n-1 rule and c.c has met several many of our large customers in the u.s and our arizona fab is ramping quite well So his question really is on the longer-term strategy. so his question really is on the longer-term strategy I believe three parts. i believe three parts Number one, what is the feedback or sort of discussions ongoing with the next administration in the U.S.? number one what is the feedback or sort of discussions ongoing with the next administration in the u.s Secondly, would we consider taking over IDM's fabs? Has that thinking changed? And last on the new node. Maybe we'll go one by one. Secondly, would we consider taking over IDM's fabs? secondly would we consider taking over idm's fabs Has that thinking changed? has that thinking changed And last on the new node. and last on the new node Maybe we'll go one by one. maybe we'll go one by one

Speaker 2: I almost forgot your question already. I almost forgot your question already. i almost forgot your question already Okay, first one, the technology node. Actually, it's not we don't want to ramp up the same technology as in Taiwan. But if you look at the one we ramped up, introduced a new technology into manufacturing, the fab, the process is so complicated, so it has to be very close to the R&D people. So the initial phase of the ramping up always comes from the fab close to R&D. So in that sense, we want to ramp up the same kind of technology in the U.S., but that practically is a little bit difficult. So Taiwan will always be first. Does that answer your question? Okay, first one, the technology node. okay first one the technology node Actually, it's not we don't want to ramp up the same technology as in Taiwan. actually it's not we don't want to ramp up the same technology as in taiwan But if you look at the one we ramped up, introduced a new technology into manufacturing, the fab, the process is so complicated, so it has to be very close to the R&D people. but if you look at the one we ramped up introduced a new technology into manufacturing the fab the process is so complicated so it has to be very close to the r&d people So the initial phase of the ramping up always comes from the fab close to R&D. so the initial phase of the ramping up always comes from the fab close to r&d So in that sense, we want to ramp up the same kind of technology in the U.S., but that practically is a little bit difficult. so in that sense we want to ramp up the same kind of technology in the u.s but that practically is a little bit difficult So Taiwan will always be first. so taiwan will always be first Does that answer your question? does that answer your question

Speaker 6: It's not because of N or N-1 limitation. It's not because of N or N-1 limitation. it's not because of n or n-1 limitation No, it's practically we just have to ramp up a new node in Taiwan. Okay. No, it's practically we just have to ramp up a new node in Taiwan. no it's practically we just have to ramp up a new node in taiwan Okay. okay

Speaker 2: And the second, do we change our strategy to expand faster or something? Again, this is we always say that we build the capacity overseas due to customers' need. If my customer has a very high demand, what should I do? I build a more fab, right? With the necessary government support, by the way. Okay, talking about the government, let me assure you that we have a very frank and open communication with the current government and with the future one also. I cannot say anything more than that. Okay. What is the IDM fab? That's my customer. And now that we again, our strategy is not based on my IDM competitor's status. They are our very good customers. I like them, and they are very important to TSMC's business also. And the second, do we change our strategy to expand faster or something? and the second do we change our strategy to expand faster or something Again, this is we always say that we build the capacity overseas due to customers' need. again this is we always say that we build the capacity overseas due to customers' need If my customer has a very high demand, what should I do? if my customer has a very high demand what should i do I build a more fab, right? i build a more fab right With the necessary government support, by the way. with the necessary government support by the way Okay, talking about the government, let me assure you that we have a very frank and open communication with the current government and with the future one also. okay talking about the government let me assure you that we have a very frank and open communication with the current government and with the future one also I cannot say anything more than that. i cannot say anything more than that Okay. okay What is the IDM fab? what is the idm fab That's my customer. that's my customer And now that we again, our strategy is not based on my IDM competitor's status. and now that we again our strategy is not based on my idm competitor's status They are our very good customers. they are our very good customers I like them, and they are very important to TSMC's business also. i like them and they are very important to tsmc's business also That's all I can say. Thank you. That's all I can say. that's all i can say Thank you. thank you

Speaker 6: Okay, thanks, C.C. Maybe my next question going to gross margins. So Wendell, we are almost approaching 60% gross margin. Last cycle, we peaked at about 60% towards the peak of the cycle. You're expecting the cycle to even strengthen based on guidance that C.C. provided for both AI as well as some improvement in non-AI. So how should we think about gross margins in this cycle? Is it realistic that we can get to more than 60% gross margin in this upcycle? And related to that, could you help us understand the U.S., especially the U.S. fab, overseas fabs, but especially U.S. fab dilution? What are the key factors there? Because as you mentioned, yield is already approaching or almost close to Taiwan yield. Okay, thanks, C.C. okay thanks c.c Maybe my next question going to gross margins. maybe my next question going to gross margins So Wendell, we are almost approaching 60% gross margin. so wendell we are almost approaching 60% gross margin Last cycle, we peaked at about 60% towards the peak of the cycle. last cycle we peaked at about 60% towards the peak of the cycle You're expecting the cycle to even strengthen based on guidance that C.C. provided for both AI as well as some improvement in non-AI. you're expecting the cycle to even strengthen based on guidance that c.c provided for both ai as well as some improvement in non-ai So how should we think about gross margins in this cycle? so how should we think about gross margins in this cycle Is it realistic that we can get to more than 60% gross margin in this upcycle? is it realistic that we can get to more than 60% gross margin in this upcycle And related to that, could you help us understand the U.S., especially the U.S. fab, overseas fabs, but especially U.S. fab dilution? and related to that could you help us understand the u.s especially the u.s fab overseas fabs but especially u.s fab dilution What are the key factors there? what are the key factors there Because as you mentioned, yield is already approaching or almost close to Taiwan yield. because as you mentioned yield is already approaching or almost close to taiwan yield So, is it basically cycle time is longer, or is it that some other costs are much higher in the U.S. fab? Because new fab depreciation is probably fairly similar compared to the Taiwan fab. So, is it basically cycle time is longer, or is it that some other costs are much higher in the U.S. fab? so is it basically cycle time is longer or is it that some other costs are much higher in the u.s fab Because new fab depreciation is probably fairly similar compared to the Taiwan fab. because new fab depreciation is probably fairly similar compared to the taiwan fab

Speaker 9: Okay, so Gokul's second question is on gross margin. Again, two parts. He notes gross margin is almost approaching 60%. In 2022, the last cycle, it was also around this type of level. We have said that this year is another very strong growth year for TSMC. So his question is, how should we think about gross margins in this current cycle? Can we approach or get to 60 or low 60s type of again? And then the second part is more specific to the U.S. in terms of the cost gap. What are the U.S. cost factors leading to the dilution impact? Okay, so Gokul's second question is on gross margin. okay so gokul's second question is on gross margin Again, two parts. again two parts He notes gross margin is almost approaching 60%. he notes gross margin is almost approaching 60% In 2022, the last cycle, it was also around this type of level. in 2022 the last cycle it was also around this type of level We have said that this year is another very strong growth year for TSMC. we have said that this year is another very strong growth year for tsmc So his question is, how should we think about gross margins in this current cycle? so his question is how should we think about gross margins in this current cycle Can we approach or get to 60 or low 60s type of again? can we approach or get to 60 or low 60s type of again And then the second part is more specific to the U.S. in terms of the cost gap. and then the second part is more specific to the u.s in terms of the cost gap What are the U.S. cost factors leading to the dilution impact? what are the u.s cost factors leading to the dilution impact

Speaker 8: Okay, Gokul, first question on the gross margin. Okay, Gokul, first question on the gross margin. okay gokul first question on the gross margin As we said, there are six factors affecting the profitability. Every year, different factors play different roles. But for example, if the utilization is extremely high, like the last cycle, it is not impossible for us to reach what you just said. And secondly, the U.S. fab cost. It is more expensive in the U.S., mainly because of several reasons. Number one, the smaller scale. Right. Now, number two, the higher price in the supply chain. And number three, the very early stage of the ecosystem. So if you add all these up, as we said, 2%-3% dilution from our overseas fabs every year in the next five years. As we said, there are six factors affecting the profitability. as we said there are six factors affecting the profitability Every year, different factors play different roles. every year different factors play different roles But for example, if the utilization is extremely high, like the last cycle, it is not impossible for us to reach what you just said. but for example if the utilization is extremely high like the last cycle it is not impossible for us to reach what you just said And secondly, the U.S. fab cost. and secondly the u.s fab cost It is more expensive in the U.S., mainly because of several reasons. it is more expensive in the u.s mainly because of several reasons Number one, the smaller scale. number one the smaller scale Right. right Now, number two, the higher price in the supply chain. now number two the higher price in the supply chain And number three, the very early stage of the ecosystem. and number three the very early stage of the ecosystem So if you add all these up, as we said, 2%-3% dilution from our overseas fabs every year in the next five years. so if you add all these up as we said 2%-3% dilution from our overseas fabs every year in the next five years

Speaker 6: If I use the 2%-3% and do some math, it feels like the overseas fab is starting at, I don't know, 10% gross margin or 5% gross margin. Just adding a factor. If I use the 2%-3% and do some math, it feels like the overseas fab is starting at, I don't know, 10% gross margin or 5% gross margin. if i use the 2%-3% and do some math it feels like the overseas fab is starting at i don't know 10% gross margin or 5% gross margin Just adding a factor. just adding a factor Obviously, it's not how it works, but I'm just doing outside in. Is that right? Is that the right kind of ballpark in terms of thinking about margin? Obviously, it's not how it works, but I'm just doing outside in. obviously it's not how it works but i'm just doing outside in Is that right? is that right Is that the right kind of ballpark in terms of thinking about margin? is that the right kind of ballpark in terms of thinking about margin

Speaker 8: All we can share is the 2%-3%. All we can share is the 2%-3%. all we can share is the 2%-3%

Speaker 6: Yeah. I don't think TSMC has ever started a fab at 10% gross margin. Thank you. Yeah. yeah I don't think TSMC has ever started a fab at 10% gross margin. i don't think tsmc has ever started a fab at 10% gross margin Thank you. thank you

Speaker 8: Gokul, we are working hard to improve it. Gokul, we are working hard to improve it. gokul we are working hard to improve it

Speaker 9: Okay, thank you, Gokul. We'll go to the middle, Laura Chen from Citi. Okay, thank you, Gokul. okay thank you gokul We'll go to the middle, Laura Chen from Citi. we'll go to the middle laura chen from citi

Speaker 3: Thank you and congratulations for the good result. I just want to have more details about your review. I mean, I think people are kind of looking for your updated long-term kicker growth. So I believe that 20% starting from a very, already very high base in 2024 is a really good long-term objective. Thank you and congratulations for the good result. thank you and congratulations for the good result I just want to have more details about your review. i just want to have more details about your review I mean, I think people are kind of looking for your updated long-term kicker growth. i mean i think people are kind of looking for your updated long-term kicker growth So I believe that 20% starting from a very, already very high base in 2024 is a really good long-term objective. so i believe that 20% starting from a very already very high base in 2024 is a really good long-term objective But just wondering that aside from the strong AI demand, what's your view on the traditional applications like PC and the smartphone growth, particularly for this year? But just wondering that aside from the strong AI demand, what's your view on the traditional applications like PC and the smartphone growth, particularly for this year? but just wondering that aside from the strong ai demand what's your view on the traditional applications like pc and the smartphone growth particularly for this year

Speaker 9: Okay, so Laura's first question is looking. She notes that we have updated our long-term kicker to be approaching 20% revenue growth in U.S. dollars, starting off even the high base of 24. So her question is, of course, AI demand is part of that, but what about smartphone and PC? And I think your question is specific to this year, C.C., 2025. Okay, so Laura's first question is looking. okay so laura's first question is looking She notes that we have updated our long-term kicker to be approaching 20% revenue growth in U.S. dollars, starting off even the high base of 24. she notes that we have updated our long-term kicker to be approaching 20% revenue growth in u.s dollars starting off even the high base of 24 So her question is, of course, AI demand is part of that, but what about smartphone and PC? so her question is of course ai demand is part of that but what about smartphone and pc And I think your question is specific to this year, C.C., 2025. and i think your question is specific to this year c.c 2025

Speaker 2: This year is still a mild growth for PC and smartphone, but everything is AI related. All right, so you can start to see why we have confidence to give you a close to 20% kicker in the next five years. AI. You look at a smartphone, they will put the AI functionality inside. This year is still a mild growth for PC and smartphone, but everything is AI related. this year is still a mild growth for pc and smartphone but everything is ai related All right, so you can start to see why we have confidence to give you a close to 20% kicker in the next five years. all right so you can start to see why we have confidence to give you a close to 20% kicker in the next five years AI. ai You look at a smartphone, they will put the AI functionality inside. you look at a smartphone they will put the ai functionality inside And not only that, so the silicon content will be increased. In addition to that, actually the replacement cycle will be shortened. And also they need to go into the very advanced technology. Because if you want to put a lot of functionality inside a small chip, you need much more advanced technology to put those kinds of things. Put all together that even smartphone, the unit growth is almost no single digit. But then the silicon and the replacement cycle and the technology migration that gives us more growth than just a unit growth. Similar reason for PC. And not only that, so the silicon content will be increased. and not only that so the silicon content will be increased In addition to that, actually the replacement cycle will be shortened. in addition to that actually the replacement cycle will be shortened And also they need to go into the very advanced technology. and also they need to go into the very advanced technology Because if you want to put a lot of functionality inside a small chip, you need much more advanced technology to put those kinds of things. because if you want to put a lot of functionality inside a small chip you need much more advanced technology to put those kinds of things Put all together that even smartphone, the unit growth is almost no single digit. put all together that even smartphone the unit growth is almost no single digit But then the silicon and the replacement cycle and the technology migration that gives us more growth than just a unit growth. but then the silicon and the replacement cycle and the technology migration that gives us more growth than just a unit growth Similar reason for PC. similar reason for pc

Speaker 3: So we can kind of expect those AI capable edge devices, they will all base on 2-nanometer next year. Perhaps second half. So we can kind of expect those AI capable edge devices, they will all base on 2-nanometer next year. so we can kind of expect those ai capable edge devices they will all base on 2-nanometer next year Perhaps second half. perhaps second half

Speaker 2: Leading-edge technology. That's all I say. Leading-edge technology. leading-edge technology That's all I say. that's all i say

Speaker 3: Okay, thank you. And also my next question is about AI. Okay, thank you. okay thank you And also my next question is about AI. and also my next question is about ai I noted that these times you include the HBM controller into your AI business revenues definition. So can you provide us more update about what the HBM baseline business opportunities could be? And previously, TSMC kind of announced cooperation with key memory suppliers globally. Can you give us more details or updates on the progress of this business engagement? I noted that these times you include the HBM controller into your AI business revenues definition. i noted that these times you include the hbm controller into your ai business revenues definition So can you provide us more update about what the HBM baseline business opportunities could be? so can you provide us more update about what the hbm baseline business opportunities could be And previously, TSMC kind of announced cooperation with key memory suppliers globally. and previously tsmc kind of announced cooperation with key memory suppliers globally Can you give us more details or updates on the progress of this business engagement? can you give us more details or updates on the progress of this business engagement

Speaker 9: Okay, thank you, Laura. So Laura's second question is on HBM controllers. She notes that our definition of AI accelerators includes memory controllers or HBM controllers. So her question is, how do we see this opportunity or what is the opportunity for TSMC and what is the progress of this working with our memory partners? Okay, thank you, Laura. okay thank you laura So Laura's second question is on HBM controllers. so laura's second question is on hbm controllers She notes that our definition of AI accelerators includes memory controllers or HBM controllers. she notes that our definition of ai accelerators includes memory controllers or hbm controllers So her question is, how do we see this opportunity or what is the opportunity for TSMC and what is the progress of this working with our memory partners? so her question is how do we see this opportunity or what is the opportunity for tsmc and what is the progress of this working with our memory partners

Speaker 2: We are working with all the memory suppliers, all of them. And that is because of TSMC's logic chip or logic technology more advanced. And that means our customers' requirement. We are working with all the memory suppliers, all of them. we are working with all the memory suppliers all of them And that is because of TSMC's logic chip or logic technology more advanced. and that is because of tsmc's logic chip or logic technology more advanced And that means our customers' requirement. and that means our customers' requirement So all of them are working with TSMC. Now we start to see some of the product coming out. But the high volume probably you need to wait for another half of one year to see the high volume and big contribution to TSMC's revenue. So all of them are working with TSMC. so all of them are working with tsmc Now we start to see some of the product coming out. now we start to see some of the product coming out But the high volume probably you need to wait for another half of one year to see the high volume and big contribution to TSMC's revenue. but the high volume probably you need to wait for another half of one year to see the high volume and big contribution to tsmc's revenue

Speaker 9: Okay, thank you. We'll move to this side of the room. I guess we have Charlie Chan from Morgan Stanley. Okay, thank you. okay thank you We'll move to this side of the room. we'll move to this side of the room I guess we have Charlie Chan from Morgan Stanley. i guess we have charlie chan from morgan stanley

Speaker 10: Hi, C.C., Wendell and Jeff. First of all, happy New Year. I think it's going to be a very exciting year given your bullish outlook and also lots of news going on, right? So let me start with overnight, the U.S. seems to put a new framework on restricting China's AI business, right? So I'm wondering whether that will create some business impact to your China business and how are we going to manage it? Hi, C.C., Wendell and Jeff. hi c.c wendell and jeff First of all, happy New Year. first of all happy new year I think it's going to be a very exciting year given your bullish outlook and also lots of news going on, right? i think it's going to be a very exciting year given your bullish outlook and also lots of news going on right So let me start with overnight, the U.S. seems to put a new framework on restricting China's AI business, right? so let me start with overnight the u.s seems to put a new framework on restricting china's ai business right So I'm wondering whether that will create some business impact to your China business and how are we going to manage it? so i'm wondering whether that will create some business impact to your china business and how are we going to manage it And also for some chips in the middle, high performers like crypto mining, a time-driving chip, do you think that counts as a cloud AI? And would TSMC be able to continue to service your China customers? Thank you. And also for some chips in the middle, high performers like crypto mining, a time-driving chip, do you think that counts as a cloud AI? and also for some chips in the middle high performers like crypto mining a time-driving chip do you think that counts as a cloud ai And would TSMC be able to continue to service your China customers? and would tsmc be able to continue to service your china customers Thank you. thank you

Speaker 9: Okay, thank you, Charlie. So Charlie's first question, if I may sort of extrapolate or summarize, is about the announcements of different types of U.S. export restrictions this week pertaining to China and AI-related chips. So his question is, what is the impact to TSMC? How does it impact our business? Okay, thank you, Charlie. okay thank you charlie So Charlie's first question, if I may sort of extrapolate or summarize, is about the announcements of different types of U.S. export restrictions this week pertaining to China and AI-related chips. so charlie's first question if i may sort of extrapolate or summarize is about the announcements of different types of u.s export restrictions this week pertaining to china and ai-related chips So his question is, what is the impact to TSMC? so his question is what is the impact to tsmc How does it impact our business? how does it impact our business

Speaker 2: So far, we look at, we don't have all analysis yet, but the first look is not significant. It's manageable. So that meaning that my customers who are being restricted or something, we are applying for the special permit for them. So far, we look at, we don't have all analysis yet, but the first look is not significant. so far we look at we don't have all analysis yet but the first look is not significant It's manageable. it's manageable So that meaning that my customers who are being restricted or something, we are applying for the special permit for them. so that meaning that my customers who are being restricted or something we are applying for the special permit for them We believe that we have confidence that they will get some permission so long as they are not in the AI area. Okay. Especially automotive industry or even you talk about crypto mining. Yeah. We believe that we have confidence that they will get some permission so long as they are not in the AI area. we believe that we have confidence that they will get some permission so long as they are not in the ai area Okay. okay Especially automotive industry or even you talk about crypto mining. especially automotive industry or even you talk about crypto mining Yeah. yeah

Speaker 10: Thank you. That is super helpful. My second question is actually a very hot topic recently as well, the CPO. I think your main partner, Jensen, came to Taiwan this time probably besides meeting you, right? Probably also want to enable this supply chain. Based on your recent technology symposium, right? You already get ready for your COUPE optical engine. But do you think the Taiwan supply chain can really facilitate this CPO? Because without these key components, the next generation Rubin schedule could have some issues. I think this is part of the first part of the question about how you're going to facilitate this CPO supply chain. Thank you. thank you That is super helpful. that is super helpful My second question is actually a very hot topic recently as well, the CPO. my second question is actually a very hot topic recently as well the cpo I think your main partner, Jensen, came to Taiwan this time probably besides meeting you, right? i think your main partner jensen came to taiwan this time probably besides meeting you right Probably also want to enable this supply chain. probably also want to enable this supply chain Based on your recent technology symposium, right? based on your recent technology symposium right You already get ready for your COUPE optical engine. you already get ready for your coupe optical engine But do you think the Taiwan supply chain can really facilitate this CPO? but do you think the taiwan supply chain can really facilitate this cpo Because without these key components, the next generation Rubin schedule could have some issues. because without these key components the next generation rubin schedule could have some issues I think this is part of the first part of the question about how you're going to facilitate this CPO supply chain. i think this is part of the first part of the question about how you're going to facilitate this cpo supply chain And secondly, to TSMC, your foundry service, right? Do you see significant upside when the optical networking migrates to CPO? Because I ask this because some conventional product like optical transceiver, DSP, could be replaced. Thank you. And secondly, to TSMC, your foundry service, right? and secondly to tsmc your foundry service right Do you see significant upside when the optical networking migrates to CPO? do you see significant upside when the optical networking migrates to cpo Because I ask this because some conventional product like optical transceiver, DSP, could be replaced. because i ask this because some conventional product like optical transceiver dsp could be replaced Thank you. thank you

Speaker 9: Well, Charlie's second question is a very specific topic. He wants to know, well, if I can generalize because we certainly don't comment on customers or their products, but in terms of our progress on silicon photonics and CPO, how are we working with customers? How are we preparing as part of our advanced packaging solutions? And what are the opportunities for TSMC as optical moves to silicon photonics and other types of solutions on a general basis? Well, Charlie's second question is a very specific topic. well charlie's second question is a very specific topic He wants to know, well, if I can generalize because we certainly don't comment on customers or their products, but in terms of our progress on silicon photonics and CPO, how are we working with customers? he wants to know well if i can generalize because we certainly don't comment on customers or their products but in terms of our progress on silicon photonics and cpo how are we working with customers How are we preparing as part of our advanced packaging solutions? how are we preparing as part of our advanced packaging solutions And what are the opportunities for TSMC as optical moves to silicon photonics and other types of solutions on a general basis? and what are the opportunities for tsmc as optical moves to silicon photonics and other types of solutions on a general basis

Speaker 2: Charlie, that is a very technical question. Silicon photonics, we are working on it, as you said, and we got a good result also. Charlie, that is a very technical question. charlie that is a very technical question Silicon photonics, we are working on it, as you said, and we got a good result also. silicon photonics we are working on it as you said and we got a good result also However, a big volume, I don't think it will be in this year or probably we have to wait for one or one and a half years to you can see that contribution or the volume production. The initial results are quite good, no doubt about it. And so my customers are quite happy. Okay. However, a big volume, I don't think it will be in this year or probably we have to wait for one or one and a half years to you can see that contribution or the volume production. however a big volume i don't think it will be in this year or probably we have to wait for one or one and a half years to you can see that contribution or the volume production The initial results are quite good, no doubt about it. the initial results are quite good no doubt about it And so my customers are quite happy. and so my customers are quite happy Okay. okay

Speaker 9: Thank you, C.C. Operator, we'll now move to the questions online. We'll take the first call from the online participant, please. Thank you, C.C. thank you c.c Operator, we'll now move to the questions online. operator we'll now move to the questions online We'll take the first call from the online participant, please. we'll take the first call from the online participant please

Speaker 14: Yes. First question, Brett Simpson, Arete Research. Yes. yes First question, Brett Simpson, Arete Research. first question brett simpson arete research

Speaker 1: Yes, thanks very much. And can I just say congratulations on reaching $100 billion in annual sales in Q4. It's quite a milestone. So my first question is in Arizona. I think, Wendell, you mentioned that we need to see some higher scale. So can you update us on the status of phase two? Yes, thanks very much. yes thanks very much And can I just say congratulations on reaching $100 billion in annual sales in Q4. and can i just say congratulations on reaching $100 billion in annual sales in q4 It's quite a milestone. it's quite a milestone So my first question is in Arizona. so my first question is in arizona I think, Wendell, you mentioned that we need to see some higher scale. i think wendell you mentioned that we need to see some higher scale So can you update us on the status of phase two? so can you update us on the status of phase two It looks like the construction of the shell is nearly complete, but it would be great to understand more about how you see N2P developing over the course of 2025. And in terms of pricing U.S. wafers, how are you planning to do this? Will you have a U.S. price and a Taiwan price, or are you more likely to have a global price regardless of where you make the wafers? Thank you. It looks like the construction of the shell is nearly complete, but it would be great to understand more about how you see N2P developing over the course of 2025. it looks like the construction of the shell is nearly complete but it would be great to understand more about how you see n2p developing over the course of 2025 And in terms of pricing U.S. wafers, how are you planning to do this? and in terms of pricing u.s wafers how are you planning to do this Will you have a U.S. price and a Taiwan price, or are you more likely to have a global price regardless of where you make the wafers? will you have a u.s price and a taiwan price or are you more likely to have a global price regardless of where you make the wafers Thank you. thank you

Speaker 9: Okay. So Brett's question, first question is on Arizona, maybe split into two parts. First is in terms of we have already started the volume production of the first fab. So Brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shells, etc. And then the second part would be on the pricing of overseas. As we say, there's value to our customers. Okay. okay So Brett's question, first question is on Arizona, maybe split into two parts. so brett's question first question is on arizona maybe split into two parts First is in terms of we have already started the volume production of the first fab. first is in terms of we have already started the volume production of the first fab So Brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shells, etc. And then the second part would be on the pricing of overseas. so brett would like an update on the progress of the second fab in terms of the construction of the buildings and the shells etc and then the second part would be on the pricing of overseas As we say, there's value to our customers. as we say there's value to our customers He wants to know, do we charge a separate price or is it part of the overall pricing? He wants to know, do we charge a separate price or is it part of the overall pricing? he wants to know do we charge a separate price or is it part of the overall pricing

Speaker 2: Let me answer the second question first. Do we charge a little bit higher? Yes, we did because we have a value of geographic flexibility, right? And you guys know that many in the USA is premium product. Yes, we discussed with our customers and they are all agree and happy to work with TSMC so that we can because of the cost structure over there, so it's a little bit higher price over there. The progress of the first fab is right now in volume production. Second fab, we almost finished all the building and start to put the facility. And we expect that we move the tools this year also. And we have a plan that our third fab probably will start very soon. Let me answer the second question first. let me answer the second question first Do we charge a little bit higher? do we charge a little bit higher Yes, we did because we have a value of geographic flexibility, right? yes we did because we have a value of geographic flexibility right And you guys know that many in the USA is premium product. and you guys know that many in the usa is premium product Yes, we discussed with our customers and they are all agree and happy to work with TSMC so that we can because of the cost structure over there, so it's a little bit higher price over there. yes we discussed with our customers and they are all agree and happy to work with tsmc so that we can because of the cost structure over there so it's a little bit higher price over there The progress of the first fab is right now in volume production. the progress of the first fab is right now in volume production Second fab, we almost finished all the building and start to put the facility. second fab we almost finished all the building and start to put the facility And we expect that we move the tools this year also. and we expect that we move the tools this year also And we have a plan that our third fab probably will start very soon. and we have a plan that our third fab probably will start very soon We will announce it in the later days. Okay. We will announce it in the later days. we will announce it in the later days Okay. okay

Speaker 9: Okay, thank you, C.C. Brett, does that answer your first question and do you have a second one? Okay, thank you, C.C. okay thank you c.c Brett, does that answer your first question and do you have a second one? brett does that answer your first question and do you have a second one

Speaker 1: Yeah, very clear. And the second question, I wanted to get your perspective. Broadcom CEO recently laid out a large SAM for AI hyperscalers building out custom silicon. I think he was talking about million accelerator clusters from each of the customers he has in the next two or three years. What's TSMC's perspective on all this? I'm sure you've spent a lot of time verifying what hyperscalers are planning over the years to come. And how comfortable are you with the scale of what's being implied here? Thanks. Yeah, very clear. yeah very clear And the second question, I wanted to get your perspective. and the second question i wanted to get your perspective Broadcom CEO recently laid out a large SAM for AI hyperscalers building out custom silicon. broadcom ceo recently laid out a large sam for ai hyperscalers building out custom silicon I think he was talking about million accelerator clusters from each of the customers he has in the next two or three years. i think he was talking about million accelerator clusters from each of the customers he has in the next two or three years What's TSMC's perspective on all this? what's tsmc's perspective on all this I'm sure you've spent a lot of time verifying what hyperscalers are planning over the years to come. i'm sure you've spent a lot of time verifying what hyperscalers are planning over the years to come And how comfortable are you with the scale of what's being implied here? and how comfortable are you with the scale of what's being implied here Thanks. thanks

Speaker 9: Okay, so Brett's second question is looking at AI, I guess specifically AI custom chips or ASICs. Okay, so Brett's second question is looking at AI, I guess specifically AI custom chips or ASICs. okay so brett's second question is looking at ai i guess specifically ai custom chips or asics He notes that one of our customers recently laid out a very strong or large addressable SAM market for AI hyperscalers using custom silicon. Lots of them talking about clusters of 1 million chips. So he wants to know what is TSMC's view? How do we see this trend in terms of AI ASICs as part of the AI demand megatrend? He notes that one of our customers recently laid out a very strong or large addressable SAM market for AI hyperscalers using custom silicon. he notes that one of our customers recently laid out a very strong or large addressable sam market for ai hyperscalers using custom silicon Lots of them talking about clusters of 1 million chips. lots of them talking about clusters of 1 million chips So he wants to know what is TSMC's view? so he wants to know what is tsmc's view How do we see this trend in terms of AI ASICs as part of the AI demand megatrend? how do we see this trend in terms of ai asics as part of the ai demand megatrend

Speaker 2: Brett, I'm not going to answer the question of the specific number, but let me assure you that whether it's an ASIC or it's a graphic, they all need a very leading edge technology. And they're all working with TSMC. Okay. And the second one is, is the demand real? It's a number that my customer said. I would say that the demand is very strong. Is that enough to answer your question? Brett? Brett, I'm not going to answer the question of the specific number, but let me assure you that whether it's an ASIC or it's a graphic, they all need a very leading edge technology. brett i'm not going to answer the question of the specific number but let me assure you that whether it's an asic or it's a graphic they all need a very leading edge technology And they're all working with TSMC. and they're all working with tsmc Okay. okay And the second one is, is the demand real? and the second one is is the demand real It's a number that my customer said. it's a number that my customer said I would say that the demand is very strong. i would say that the demand is very strong Is that enough to answer your question? is that enough to answer your question Brett? brett

Speaker 1: Yeah, that's great. Thank you. Yeah, that's great. yeah that's great Thank you. thank you

Speaker 9: Okay, thank you, Brett. Okay, thank you, Brett. okay thank you brett Operator, do we have anyone else on the line? It seems not. Then let's, okay, we don't. Then let's go back to the floor. I think on the left side, Bruce Lu from Goldman Sachs. Operator, do we have anyone else on the line? operator do we have anyone else on the line It seems not. it seems not Then let's, okay, we don't. then let's okay we don't Then let's go back to the floor. then let's go back to the floor I think on the left side, Bruce Lu from Goldman Sachs. i think on the left side bruce lu from goldman sachs

Speaker 5: Hi. Thank you for taking my question. To be honest, I'm a bit surprised that the long-term gross margin target doesn't really change it. I believe TSMC's value is definitely more than selling the pass on the cost. I believe that TSMC needs to invest a lot more in R&D to maintain the leadership. TSMC suggested raise the gross margin target in 2022 with higher R&D requirement, with higher profitable target, right? So I asked the same question two quarters ago, which is in the process of price negotiation, which is understandable. But I think the price negotiation is pretty much done. What's the discrepancy here? Why TSMC cannot raise the profitability target? Hi. hi Thank you for taking my question. thank you for taking my question To be honest, I'm a bit surprised that the long-term gross margin target doesn't really change it. to be honest i'm a bit surprised that the long-term gross margin target doesn't really change it I believe TSMC's value is definitely more than selling the pass on the cost. i believe tsmc's value is definitely more than selling the pass on the cost I believe that TSMC needs to invest a lot more in R&D to maintain the leadership. i believe that tsmc needs to invest a lot more in r&d to maintain the leadership TSMC suggested raise the gross margin target in 2022 with higher R&D requirement, with higher profitable target, right? tsmc suggested raise the gross margin target in 2022 with higher r&d requirement with higher profitable target right So I asked the same question two quarters ago, which is in the process of price negotiation, which is understandable. so i asked the same question two quarters ago which is in the process of price negotiation which is understandable But I think the price negotiation is pretty much done. but i think the price negotiation is pretty much done What's the discrepancy here? what's the discrepancy here Why TSMC cannot raise the profitability target? why tsmc cannot raise the profitability target

Speaker 9: Okay, so Bruce's first question, he wants to know, again, our long-term gross margin. Why are we not changing the target of 53% and higher? Okay. He correctly notes that certainly TSMC's value is increasing and certainly TSMC, we need to invest a lot of money in R&D and capacity to support our customers' growth. So we have always had a focus on earning the right return. He also notes in 2022, well, our gross margin used to be about 50%, then we raised it to 53% and higher. So his question is, why is it not and higher, I guess? Okay, so Bruce's first question, he wants to know, again, our long-term gross margin. okay so bruce's first question he wants to know again our long-term gross margin Why are we not changing the target of 53% and higher? why are we not changing the target of 53% and higher Okay. okay He correctly notes that certainly TSMC's value is increasing and certainly TSMC, we need to invest a lot of money in R&D and capacity to support our customers' growth. he correctly notes that certainly tsmc's value is increasing and certainly tsmc we need to invest a lot of money in r&d and capacity to support our customers' growth So we have always had a focus on earning the right return. so we have always had a focus on earning the right return He also notes in 2022, well, our gross margin used to be about 50%, then we raised it to 53% and higher. he also notes in 2022 well our gross margin used to be about 50% then we raised it to 53% and higher So his question is, why is it not and higher, I guess? so his question is why is it not and higher i guess

Speaker 2: Okay, Bruce. As we said, six factors affecting the profitability. Every year, different factors have different weights. Now, two things to note. Number one, starting from this year, overseas fab expansion, two to three percentage points impact every year for the next five years. Okay, Bruce. okay bruce As we said, six factors affecting the profitability. as we said six factors affecting the profitability Every year, different factors have different weights. every year different factors have different weights Now, two things to note. now two things to note Number one, starting from this year, overseas fab expansion, two to three percentage points impact every year for the next five years. number one starting from this year overseas fab expansion two to three percentage points impact every year for the next five years The other things to note: macro environment uncertainty, which may lead to impacting the global economy, which may lead to end market demand. Now, having said that, we are in a capital-intensive industry. So we will need to have to earn a healthy return to continue to invest, to support our customer, support their growth, and also deliver a profitable growth to our shareholders, and you mentioned about the raising of long-term gross margins back in 2022 to 53% and higher, and we have been able to deliver that and higher part since then, so given all the above, we continue to think that 53% and higher gross margin is achievable, and we work very hard to achieve only higher part. The other things to note: macro environment uncertainty, which may lead to impacting the global economy, which may lead to end market demand. the other things to note macro environment uncertainty which may lead to impacting the global economy which may lead to end market demand Now, having said that, we are in a capital-intensive industry. now having said that we are in a capital-intensive industry So we will need to have to earn a healthy return to continue to invest, to support our customer, support their growth, and also deliver a profitable growth to our shareholders, and you mentioned about the raising of long-term gross margins back in 2022 to 53% and higher, and we have been able to deliver that and higher part since then, so given all the above, we continue to think that 53% and higher gross margin is achievable, and we work very hard to achieve only higher part. so we will need to have to earn a healthy return to continue to invest to support our customer support their growth and also deliver a profitable growth to our shareholders and you mentioned about the raising of long-term gross margins back in 2022 to 53% and higher and we have been able to deliver that and higher part since then so given all the above we continue to think that 53% and higher gross margin is achievable and we work very hard to achieve only higher part

Speaker 5: Okay, for the next two quarters. For the CoWoS capacity, TSMC has been very aggressive in expanding the capacity. Okay, for the next two quarters. okay for the next two quarters For the CoWoS capacity, TSMC has been very aggressive in expanding the capacity. for the cowos capacity tsmc has been very aggressive in expanding the capacity However, the application is highly concentrated in AI at the current stage, which there are certain noise around it. When can we see non-AI application such as servers, smartphone, or anything else can start to adapt CoWoS capacity in case there is any fluctuation in the AI demand? However, the application is highly concentrated in AI at the current stage, which there are certain noise around it. however the application is highly concentrated in ai at the current stage which there are certain noise around it When can we see non-AI application such as servers, smartphone, or anything else can start to adapt CoWoS capacity in case there is any fluctuation in the AI demand? when can we see non-ai application such as servers smartphone or anything else can start to adapt cowos capacity in case there is any fluctuation in the ai demand

Speaker 9: Okay, thank you, Bruce. So Bruce's second question is on CoWoS capacity. In his words, we have been very aggressive to expand the capacity, but his concern is highly concentrated with AI-related demand. So his question is, when do we expect or to see more non-AI application adoption of CoWoS solutions? Okay, thank you, Bruce. okay thank you bruce So Bruce's second question is on CoWoS capacity. so bruce's second question is on cowos capacity In his words, we have been very aggressive to expand the capacity, but his concern is highly concentrated with AI-related demand. in his words we have been very aggressive to expand the capacity but his concern is highly concentrated with ai-related demand So his question is, when do we expect or to see more non-AI application adoption of CoWoS solutions? so his question is when do we expect or to see more non-ai application adoption of cowos solutions

Speaker 2: Well, yes, today is all AI-focused. And we have a very tight capacity and cannot even meet customers' need. But whether other products will adopt this kind of a CoWoS approach, they will. It's coming. And we know that it's coming. Well, yes, today is all AI-focused. well yes today is all ai-focused And we have a very tight capacity and cannot even meet customers' need. and we have a very tight capacity and cannot even meet customers' need But whether other products will adopt this kind of a CoWoS approach, they will. but whether other products will adopt this kind of a cowos approach they will It's coming. it's coming And we know that it's coming. and we know that it's coming So that's all I can say. So that's all I can say. so that's all i can say

Speaker 5: When? When? when

Speaker 2: It's coming. It's coming. it's coming

Speaker 5: Okay, I'll try next quarter. All right. Okay, I'll try next quarter. okay i'll try next quarter All right. all right

Speaker 2: Under CPU and under server chip, let me give you a hint. Under CPU and under server chip, let me give you a hint. under cpu and under server chip let me give you a hint

Speaker 5: Thank you. Thank you. thank you

Speaker 9: Okay, thank you, Bruce. We'll go to the middle. Arthur Lai from Macquarie. Okay, thank you, Bruce. okay thank you bruce We'll go to the middle. we'll go to the middle Arthur Lai from Macquarie. arthur lai from macquarie

Speaker 13: Hi, C.C. Wei, and Wendell and Jeff. Arthur Lai from Macquarie. So first of all, congrats on the strong gross margin. Just have a very quick follow-up on the US and JP expansion. So this is important. My client keeps chasing me. So do you have an operational strategy to mitigate the cost gap between the overseas fab and Taiwan fab? Yeah, I think C.C. Wei, you hint that you will work on it and improve the gross margin. But during the Chinese New Year, I read Morris Chang's piece, Autobot Coffee, and he mentioned that the strategy is copied exactly from the Taiwan mother fab, right? Hi, C.C. hi, c.c Wei, and Wendell and Jeff. wei and wendell and jeff Arthur Lai from Macquarie. arthur lai from macquarie So first of all, congrats on the strong gross margin. so first of all congrats on the strong gross margin Just have a very quick follow-up on the US and JP expansion. just have a very quick follow-up on the us and jp expansion So this is important. so this is important My client keeps chasing me. my client keeps chasing me So do you have an operational strategy to mitigate the cost gap between the overseas fab and Taiwan fab? so do you have an operational strategy to mitigate the cost gap between the overseas fab and taiwan fab Yeah, I think C.C. yeah i think c.c Wei, you hint that you will work on it and improve the gross margin. wei you hint that you will work on it and improve the gross margin But during the Chinese New Year, I read Morris Chang's piece, Autobot Coffee, and he mentioned that the strategy is copied exactly from the Taiwan mother fab, right? but during the chinese new year i read morris chang's piece autobot coffee and he mentioned that the strategy is copied exactly from the taiwan mother fab right So I want to understand how we maintain the high yield and also drive the cost down. Thank you. So I want to understand how we maintain the high yield and also drive the cost down. so i want to understand how we maintain the high yield and also drive the cost down Thank you. thank you

Speaker 9: Okay, so Arthur's question is about our overseas expansion. His question is related to the cost gap and what are our operational strategies to mitigate the cost gap? How are we doing this internally in our fab operations and strategies to do so? Okay, so Arthur's question is about our overseas expansion. okay so arthur's question is about our overseas expansion His question is related to the cost gap and what are our operational strategies to mitigate the cost gap? his question is related to the cost gap and what are our operational strategies to mitigate the cost gap How are we doing this internally in our fab operations and strategies to do so? how are we doing this internally in our fab operations and strategies to do so

Speaker 2: Well, mention my boss's book, okay? That meaning that you really read it. What he says is a copy exactly is whatever Taiwan's improvement, the US will copy over there. Doesn't mean that this year, next year, and the following year will be the same. We continue to improve. That's improve the cost structure both in Taiwan and in the US. Well, mention my boss's book, okay? well mention my boss's book okay That meaning that you really read it. that meaning that you really read it What he says is a copy exactly is whatever Taiwan's improvement, the US will copy over there. what he says is a copy exactly is whatever taiwan's improvement the us will copy over there Doesn't mean that this year, next year, and the following year will be the same. doesn't mean that this year next year and the following year will be the same We continue to improve. we continue to improve That's improve the cost structure both in Taiwan and in the US. that's improve the cost structure both in taiwan and in the us We also try very hard to find out a new methodology or whatever that I cannot share with you right now, but it will give Arizona fab some benefit. So that we will improve, we will minimize the gap between the cost structure between U.S. and Taiwan. We are working on that. No matter what I say, we will be the best fab over there. We also try very hard to find out a new methodology or whatever that I cannot share with you right now, but it will give Arizona fab some benefit. we also try very hard to find out a new methodology or whatever that i cannot share with you right now but it will give arizona fab some benefit So that we will improve, we will minimize the gap between the cost structure between U.S. and Taiwan. so that we will improve we will minimize the gap between the cost structure between u.s and taiwan We are working on that. we are working on that No matter what I say, we will be the best fab over there. no matter what i say we will be the best fab over there

Speaker 13: Okay. Second follow-up question, probably is on Wendell. You just mentioned that there's a 200 basis points or 300 basis points margin dilution, right? So can you give us one level down, like the variable cost and the fixed cost, maybe half of or maybe which one is higher? Okay. okay Second follow-up question, probably is on Wendell. second follow-up question probably is on wendell You just mentioned that there's a 200 basis points or 300 basis points margin dilution, right? you just mentioned that there's a 200 basis points or 300 basis points margin dilution right So can you give us one level down, like the variable cost and the fixed cost, maybe half of or maybe which one is higher? so can you give us one level down like the variable cost and the fixed cost maybe half of or maybe which one is higher

Speaker 9: Okay, so Arthur's second question is on the overseas dilution of 2%-3%. Okay, so Arthur's second question is on the overseas dilution of 2%-3%. okay so arthur's second question is on the overseas dilution of 2%-3% He is asking if we can provide a further breakdown in terms of how much of that is composed from variable cost, how much of that is from the fixed cost, etc. He is asking if we can provide a further breakdown in terms of how much of that is composed from variable cost, how much of that is from the fixed cost, etc. he is asking if we can provide a further breakdown in terms of how much of that is composed from variable cost how much of that is from the fixed cost etc

Speaker 8: Arthur, we really don't give breakdown these numbers, but both of them are higher. That's all I can share with you. Arthur, we really don't give breakdown these numbers, but both of them are higher. arthur we really don't give breakdown these numbers but both of them are higher That's all I can share with you. that's all i can share with you

Speaker 9: Okay, thank you. We'll move to the right side of the room. I think Rick Hsu from Daiwa Securities. Okay, thank you. okay thank you We'll move to the right side of the room. we'll move to the right side of the room I think Rick Hsu from Daiwa Securities. i think rick hsu from daiwa securities

Speaker 11: Yeah, hi, happy New Year, and thank you for taking my question. So the first one, C.C., can you share with us your view on this year's global semiconductor revenue forecast as memory or any driver by applications in priority across the main application? Thank you. Yeah, hi, happy New Year, and thank you for taking my question. yeah hi happy new year and thank you for taking my question So the first one, C.C., can you share with us your view on this year's global semiconductor revenue forecast as memory or any driver by applications in priority across the main application? so the first one c.c can you share with us your view on this year's global semiconductor revenue forecast as memory or any driver by applications in priority across the main application Thank you. thank you

Speaker 9: Okay, so Rick's first question, he's asking for our forecast of the semiconductor industry, what we used to provide as semi ex-mem, but of course, we have already given Foundry 2.0. Okay, so Rick's first question, he's asking for our forecast of the semiconductor industry, what we used to provide as semi ex-mem, but of course, we have already given Foundry 2.0. okay so rick's first question he's asking for our forecast of the semiconductor industry what we used to provide as semi ex-mem but of course we have already given foundry 2.0 Then he would like the outlook by end market application in terms of ranking. Maybe just a comment on the overall end markets as a whole, right? Yeah. Then he would like the outlook by end market application in terms of ranking. then he would like the outlook by end market application in terms of ranking Maybe just a comment on the overall end markets as a whole, right? maybe just a comment on the overall end markets as a whole right Yeah. yeah

Speaker 2: Rick? I think the memory business will grow this year also. But all I can say is that HBM will grow very fast. And I don't comment on other memories because it's not logic. And we have already provided Foundry 2.0 to grow 10% year over year. That's our industry forecast for 2025. Rick? rick I think the memory business will grow this year also. i think the memory business will grow this year also But all I can say is that HBM will grow very fast. but all i can say is that hbm will grow very fast And I don't comment on other memories because it's not logic. and i don't comment on other memories because it's not logic And we have already provided Foundry 2.0 to grow 10% year over year. and we have already provided foundry 2.0 to grow 10% year over year That's our industry forecast for 2025. that's our industry forecast for 2025

Speaker 11: Just a quick follow-up. Can I use your Foundry 2.0 market growth as a proxy for the global semi ex memory? Just a quick follow-up. just a quick follow-up Can I use your Foundry 2.0 market growth as a proxy for the global semi ex memory? can i use your foundry 2.0 market growth as a proxy for the global semi ex memory

Speaker 9: So his question is, can we use Foundry 2.0 as a proxy for semiconductor ex memory? So his question is, can we use Foundry 2.0 as a proxy for semiconductor ex memory? so his question is can we use foundry 2.0 as a proxy for semiconductor ex memory

Speaker 2: Yes. Yes. yes

Speaker 11: Thank you. Okay. On the second one, it's very quick about your CoWoS and SoIC capacity ramp. Can you give us more clarity here? Thank you. thank you Okay. okay on On the second one, it's very quick about your CoWoS and SoIC capacity ramp. on the second one it's very quick about your cowos and soic capacity ramp Can you give us more clarity here? can you give us more clarity here Because recently, there seemed to be a lot of market noises, some add orders, some cut orders. So I would like to see your view on the CoWoS ramp. Because recently, there seemed to be a lot of market noises, some add orders, some cut orders. because recently there seemed to be a lot of market noises some add orders some cut orders So I would like to see your view on the CoWoS ramp. so i would like to see your view on the cowos ramp

Speaker 9: Okay, so Rick's second question is lots of market rumors here. So he would like to know any comment we can provide on CoWoS ramp in 2025. Okay, so Rick's second question is lots of market rumors here. okay so rick's second question is lots of market rumors here So he would like to know any comment we can provide on CoWoS ramp in 2025. so he would like to know any comment we can provide on cowos ramp in 2025

Speaker 2: Rick, as you said, there's a lot of rumor. That's a rumor. I assure you. We are working very hard to meet the requirement of my customers' demand. So cut the order, that won't happen. It actually continues to increase. So we are, again, I will say that we are working very hard to increase the capacity. Yeah. Rick, as you said, there's a lot of rumor. rick as you said there's a lot of rumor That's a rumor. that's a rumor I assure you. i assure you We are working very hard to meet the requirement of my customers' demand. we are working very hard to meet the requirement of my customers' demand So cut the order, that won't happen. so cut the order that won't happen It actually continues to increase. it actually continues to increase So we are, again, I will say that we are working very hard to increase the capacity. so we are again i will say that we are working very hard to increase the capacity Yeah. yeah

Speaker 11: Okay. Thank you. Okay. okay Thank you. thank you

Speaker 2: Thank you. Thank you. thank you

Speaker 9: Okay, let's move back to operators. Is there anyone online? Yes, we have next one, Robert Sanders, Deutsche Bank. Go ahead, please. Okay, let's move back to operators. okay let's move back to operators Is there anyone online? is there anyone online Yes, we have next one, Robert Sanders, Deutsche Bank. yes we have next one robert sanders deutsche bank Go ahead, please. go ahead please

Speaker 4: Yeah, hi there. Yeah, hi there. yeah hi there I just have a question on AI demand. Is there a scenario where HBM is more of a constraint on the demand rather than CoWoS, which seems to be the biggest constraint at the moment? And I have a follow-up. Thanks. I just have a question on AI demand. i just have a question on ai demand Is there a scenario where HBM is more of a constraint on the demand rather than CoWoS, which seems to be the biggest constraint at the moment? is there a scenario where hbm is more of a constraint on the demand rather than cowos which seems to be the biggest constraint at the moment And I have a follow-up. and i have a follow-up Thanks. thanks

Speaker 9: Okay, so Rob is asking us to comment on AI demand and HBM status constraint or what is the bigger constraint in AI demand? Okay, so Rob is asking us to comment on AI demand and HBM status constraint or what is the bigger constraint in AI demand? okay so rob is asking us to comment on ai demand and hbm status constraint or what is the bigger constraint in ai demand

Speaker 2: I don't comment on other suppliers, but I know that we have a very tight capacity to support the AI demand. I don't want to say I'm the bottleneck. TSMC always working very hard with customers to meet their requirement. That's all I can say. I don't comment on other suppliers, but I know that we have a very tight capacity to support the AI demand. i don't comment on other suppliers but i know that we have a very tight capacity to support the ai demand I don't want to say I'm the bottleneck. i don't want to say i'm the bottleneck TSMC always working very hard with customers to meet their requirement. tsmc always working very hard with customers to meet their requirement That's all I can say. that's all i can say

Speaker 9: You have a second question. You have a second question. you have a second question

Speaker 4: Yeah, just on SoIC, there's been more discussion in the market around your smartphone customers adopting SoIC. Yeah, just on SoIC, there's been more discussion in the market around your smartphone customers adopting SoIC. yeah just on soic there's been more discussion in the market around your smartphone customers adopting soic Can you just discuss if there's any kind of inflection point here, whether it's in the PC domain or the smartphone domain, or is this still more of a data center story? Thanks. Can you just discuss if there's any kind of inflection point here, whether it's in the PC domain or the smartphone domain, or is this still more of a data center story? can you just discuss if there's any kind of inflection point here whether it's in the pc domain or the smartphone domain or is this still more of a data center story Thanks. thanks

Speaker 9: Okay, well, Rob, second question is on SoIC adoption. His question, basically in a nutshell, is when do we see an inflection point for smartphone application to adopt SoIC? Okay, well, Rob, second question is on SoIC adoption. okay well rob second question is on soic adoption His question, basically in a nutshell, is when do we see an inflection point for smartphone application to adopt SoIC? his question basically in a nutshell is when do we see an inflection point for smartphone application to adopt soic

Speaker 2: Today, SoIC's demand still focuses on AI applications. Okay. For PC or for other areas, it's coming, but not right now. Today, SoIC's demand still focuses on AI applications. today soic's demand still focuses on ai applications Okay. okay For PC or for other areas, it's coming, but not right now. for pc or for other areas it's coming but not right now

Speaker 9: Okay, thank you, Rob. Thank you, C.C. I think in the interest of the time, we'll take the last two questions, please. Okay, I guess we'll go to Sunny Lin from UBS. Okay, thank you, Rob. okay thank you rob Thank you, C.C. thank you c.c I think in the interest of the time, we'll take the last two questions, please. i think in the interest of the time we'll take the last two questions please Okay, I guess we'll go to Sunny Lin from UBS. okay i guess we'll go to sunny lin from ubs

Speaker 12: Good afternoon. Thank you for taking my questions. And so my first question is to try to get a bit more clarity on the cloud growth for 2025. Good afternoon. good afternoon Thank you for taking my questions. thank you for taking my questions And so my first question is to try to get a bit more clarity on the cloud growth for 2025. and so my first question is to try to get a bit more clarity on the cloud growth for 2025 I think longer term, without a doubt, the technology definitely has lots of potential for demand opportunities. But I think if we look at 2025 and 2026, I think there could be increasing uncertainties coming from maybe CSP spending, macro, or even some of the supply chain challenges. And so I understand the management just provided a pretty good guidance for this year for itself to double. And so if you look at that number, do you think there is still more upside than downside as we go through 2025? Or how should we think about the demand profile for this year and next year? I think longer term, without a doubt, the technology definitely has lots of potential for demand opportunities. i think longer term without a doubt the technology definitely has lots of potential for demand opportunities But I think if we look at 2025 and 2026, I think there could be increasing uncertainties coming from maybe CSP spending, macro, or even some of the supply chain challenges. but i think if we look at 2025 and 2026 i think there could be increasing uncertainties coming from maybe csp spending macro or even some of the supply chain challenges And so I understand the management just provided a pretty good guidance for this year for itself to double. and so i understand the management just provided a pretty good guidance for this year for itself to double And so if you look at that number, do you think there is still more upside than downside as we go through 2025? and so if you look at that number do you think there is still more upside than downside as we go through 2025 Or how should we think about the demand profile for this year and next year? or how should we think about the demand profile for this year and next year

Speaker 9: Okay, well, Sunny's question is about the AI-related demand. We have said that even after tripling, more than tripling last year, it will double again in 2025. She wants to know, is there upside or downside to this? Okay, well, Sunny's question is about the AI-related demand. okay well sunny's question is about the ai-related demand We have said that even after tripling, more than tripling last year, it will double again in 2025. we have said that even after tripling more than tripling last year it will double again in 2025 She wants to know, is there upside or downside to this? she wants to know is there upside or downside to this And also for us to provide an outlook on the 2026 AI growth. And also for us to provide an outlook on the 2026 AI growth. and also for us to provide an outlook on the 2026 ai growth

Speaker 2: Sunny, I certainly hope there is an upside, but I hope my team can supply enough capacity to support it. Did that give you enough hint? Okay. And we also forecast based on the 2024 high number, we also forecast of mid-40s % CAGR for the five years. That gives you some kind of estimate that you can calculate. Sunny, I certainly hope there is an upside, but I hope my team can supply enough capacity to support it. sunny i certainly hope there is an upside but i hope my team can supply enough capacity to support it Did that give you enough hint? did that give you enough hint Okay. okay And we also forecast based on the 2024 high number, we also forecast of mid-40s % CAGR for the five years. and we also forecast based on the 2024 high number we also forecast of mid-40s % cagr for the five years That gives you some kind of estimate that you can calculate. that gives you some kind of estimate that you can calculate

Speaker 12: Yeah, well, so mid-40% is the long-term expectation in terms of growth by next few years. But how should we think about the trajectory of the growth? For sure, this year is still pretty strong growth, but do you think at some point maybe we see a moderation of growth temporarily and then followed by another ramp? Yeah, well, so mid-40% is the long-term expectation in terms of growth by next few years. yeah well so mid-40% is the long-term expectation in terms of growth by next few years But how should we think about the trajectory of the growth? but how should we think about the trajectory of the growth For sure, this year is still pretty strong growth, but do you think at some point maybe we see a moderation of growth temporarily and then followed by another ramp? for sure this year is still pretty strong growth but do you think at some point maybe we see a moderation of growth temporarily and then followed by another ramp

Speaker 9: I think Sunny's question again is asking us to comment on 2026 outlook, which is a little bit early, or that how do we see the trajectory of the growth? I think Sunny's question again is asking us to comment on 2026 outlook, which is a little bit early, or that how do we see the trajectory of the growth? i think sunny's question again is asking us to comment on 2026 outlook which is a little bit early or that how do we see the trajectory of the growth

Speaker 2: I have already said it's a little bit too early. All right. I have already said it's a little bit too early. i have already said it's a little bit too early All right. all right

Speaker 12: Sure, no problem. So I'll follow up maybe next quarter as well. And so my second question is on Edge AI. And so last year, management guided by maybe 2025 to be the inflection point forward to see more content related to Edge AI. So based on your current visibility, are you seeing clients ramping for this year for the Edge AI products maybe into second half? And before you also mentioned Edge AI could potentially drive 5%-10% die size increase. Will that be a one-time increase? Or do you think beyond the 5%-10% increase for the maybe first-gen product, there should be sustainable increase going forward? Sure, no problem. sure no problem So I'll follow up maybe next quarter as well. so i'll follow up maybe next quarter as well And so my second question is on Edge AI. and so my second question is on edge ai And so last year, management guided by maybe 2025 to be the inflection point forward to see more content related to Edge AI. and so last year management guided by maybe 2025 to be the inflection point forward to see more content related to edge ai So based on your current visibility, are you seeing clients ramping for this year for the Edge AI products maybe into second half? so based on your current visibility are you seeing clients ramping for this year for the edge ai products maybe into second half And before you also mentioned Edge AI could potentially drive 5%-10% die size increase. and before you also mentioned edge ai could potentially drive 5%-10% die size increase Will that be a one-time increase? will that be a one-time increase Or do you think beyond the 5%-10% increase for the maybe first-gen product, there should be sustainable increase going forward? or do you think beyond the 5%-10% increase for the maybe first-gen product there should be sustainable increase going forward

Speaker 9: Okay, so Sunny's second question is related to edge AI. She would like some more detail or color. Do we see customers ramping edge or what we call on-device AI products in second half of this year? And the second part in terms of the content increase, 5%-10% increase, is this a one-time thing? Is this an ongoing thing? How do we estimate the content benefit from on-device AI? Okay, so Sunny's second question is related to edge AI. okay so sunny's second question is related to edge ai She would like some more detail or color. she would like some more detail or color Do we see customers ramping edge or what we call on-device AI products in second half of this year? do we see customers ramping edge or what we call on-device ai products in second half of this year And the second part in terms of the content increase, 5%-10% increase, is this a one-time thing? and the second part in terms of the content increase 5%-10% increase is this a one-time thing Is this an ongoing thing? is this an ongoing thing How do we estimate the content benefit from on-device AI? how do we estimate the content benefit from on-device ai

Speaker 2: Okay. On the edge AI, in our observation, we found out that our customers start to put more neural processors inside. And so we estimate it's a 5%-10% more silicon being used. Can you be every year 5%-10%? The definite is no, right? So they will move to next node, the technology migration. That's also to TSMC's advantage. Okay. okay On the edge AI, in our observation, we found out that our customers start to put more neural processors inside. on the edge ai in our observation we found out that our customers start to put more neural processors inside And so we estimate it's a 5%-10% more silicon being used. and so we estimate it's a 5%-10% more silicon being used Can you be every year 5%-10%? can you be every year 5%-10% The definite is no, right? the definite is no right So they will move to next node, the technology migration. so they will move to next node the technology migration That's also to TSMC's advantage. that's also to tsmc's advantage Not only that, I also say that the replacement cycle, I think it will be shortened because of when you have a new toy that with an AI functionality inside, everybody will replace it, replace their smartphone, replace their PCs. And I count that one much more than a mere 5% increase. All right. Did I answer your question? Not only that, I also say that the replacement cycle, I think it will be shortened because of when you have a new toy that with an AI functionality inside, everybody will replace it, replace their smartphone, replace their PCs. not only that i also say that the replacement cycle i think it will be shortened because of when you have a new toy that with an ai functionality inside everybody will replace it replace their smartphone replace their pcs And I count that one much more than a mere 5% increase. and i count that one much more than a mere 5% increase All right. all right Did I answer your question? did i answer your question

Speaker 12: Yeah, thank you very much. Yeah, thank you very much. yeah thank you very much

Speaker 9: Okay, thank you. Operator, I think there's one more participant online, so we'll take the last question from online participant, please. Okay, thank you. okay thank you Operator, I think there's one more participant online, so we'll take the last question from online participant, please. operator i think there's one more participant online so we'll take the last question from online participant please

Speaker 14: But I think the last caller just dropped the line. Thank you. But I think the last caller just dropped the line. but i think the last caller just dropped the line Thank you. thank you

Speaker 9: Okay, then we'll take the last question from Brad Lin from Bank of America. Okay, then we'll take the last question from Brad Lin from Bank of America. okay then we'll take the last question from brad lin from bank of america

Speaker 7: Thank you for squeezing me in. So, happy New Year and taking my question. So I would like to ask two questions. First question would be on the CoWoS as well. Thank you for squeezing me in. thank you for squeezing me in So, happy New Year and taking my question. so happy new year and taking my question So I would like to ask two questions. so i would like to ask two questions First question would be on the CoWoS as well. first question would be on the cowos as well So we have observed an increasing margin of advanced packaging. Could you remind us the CoWoS contribution of last year? And do you expect the margin to kind of approach the corporate average or even exceed it after the so-called value reflection this year? That would be my first question. Thank you. So we have observed an increasing margin of advanced packaging. so we have observed an increasing margin of advanced packaging Could you remind us the CoWoS contribution of last year? could you remind us the cowos contribution of last year And do you expect the margin to kind of approach the corporate average or even exceed it after the so-called value reflection this year? and do you expect the margin to kind of approach the corporate average or even exceed it after the so-called value reflection this year That would be my first question. that would be my first question Thank you. thank you

Speaker 9: Okay, so Brad's first question is very specific to CoWoS. Basically, he wants to know what is the revenue contribution from CoWoS last year and what is the margin profile. Maybe we can talk about advanced packaging. Okay, so Brad's first question is very specific to CoWoS. okay so brad's first question is very specific to cowos Basically, he wants to know what is the revenue contribution from CoWoS last year and what is the margin profile. basically he wants to know what is the revenue contribution from cowos last year and what is the margin profile Maybe we can talk about advanced packaging. maybe we can talk about advanced packaging

Speaker 8: Brad, we don't break it down in different segments of the advanced packaging. But overall speaking, advanced packaging accounted for over 8% of revenue last year. And it will account for over 10% this year. In terms of gross margins, it is better. It is better than before, but still below the corporate average. Thank you. Brad, we don't break it down in different segments of the advanced packaging. brad we don't break it down in different segments of the advanced packaging But overall speaking, advanced packaging accounted for over 8% of revenue last year. but overall speaking advanced packaging accounted for over 8% of revenue last year And it will account for over 10% this year. and it will account for over 10% this year In terms of gross margins, it is better. in terms of gross margins it is better It is better than before, but still below the corporate average. it is better than before but still below the corporate average Thank you. thank you

Speaker 7: Thank you, Wendell. That's very helpful. And then my second question would be on the IDM. So we have seen IDMs increasingly rely on TSMC. And then do we still expect the IDM to support our long-term growth? Thank you, Wendell. thank you wendell That's very helpful. that's very helpful And then my second question would be on the IDM. and then my second question would be on the idm So we have seen IDMs increasingly rely on TSMC. so we have seen idms increasingly rely on tsmc And then do we still expect the IDM to support our long-term growth? and then do we still expect the idm to support our long-term growth

Speaker 9: Okay, so Brad's second question, I think, is on IDM and IDM outsourcing. He does note that we do see more IDM outsourcing business. So is this part of our long-term growth outlook, CAGR? Okay, so Brad's second question, I think, is on IDM and IDM outsourcing. okay so brad's second question i think is on idm and idm outsourcing He does note that we do see more IDM outsourcing business. he does note that we do see more idm outsourcing business So is this part of our long-term growth outlook, CAGR? so is this part of our long-term growth outlook cagr

Speaker 2: Again, let me repeat again. They are our very good customers. And we work together. I don't say they rely on TSMC. We are partners. And I really hope that a long-term relationship will be there, for sure. Again, let me repeat again. again let me repeat again They are our very good customers. they are our very good customers And we work together. and we work together I don't say they rely on TSMC. i don't say they rely on tsmc We are partners. we are partners And I really hope that a long-term relationship will be there, for sure. and i really hope that a long-term relationship will be there for sure

Speaker 9: Okay, thank you, C.C. Thank you, Brad. Thank you, everyone. This concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. Okay, thank you, C.C. okay thank you c.c Thank you, Brad. thank you brad 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

Speaker 8: The transcript will become available 24 hours from now, and certainly, both will be available through TSMC's website at www.tsmc.com, so thank you, everyone, for joining us today online and in person. We'd like to wish everyone a happy New Year and hope everyone continues to stay well, and hope you'll join us again next quarter. Goodbye and thank you. Have a good day. The transcript will become available 24 hours from now, and certainly, both will be available through TSMC's website at www.tsmc.com, so thank you, everyone, for joining us today online and in person. the transcript will become available 24 hours from now and certainly both will be available through tsmc's website at www.tsmc.com so thank you everyone for joining us today online and in person We'd like to wish everyone a happy New Year and hope everyone continues to stay well, and hope you'll join us again next quarter. we'd like to wish everyone a happy new year and hope everyone continues to stay well and hope you'll join us again next quarter Goodbye and thank you. goodbye and thank you Have a good day. have a good day