Good afternoon, everyone, and welcome to TSMC's fourth quarter 2025 earnings conference and conference call. My name 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 2025, followed by our guidance for the first quarter 2026.

Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr.

C.C. Wei, will jointly provide the company's key messages.

Then we will open both the floor and the line for the question-and-answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements.

Please refer to the Safe Harbor notice that appears in our press release. 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 2025 and a recap of full year 2025.

After that, I will provide the guidance for the first quarter of 2026. Fourth quarter revenue increased 5.7% sequentially in NT, supported by strong demand for our leading-edge process technologies.

In US dollar terms, revenue increased 1.9% sequentially to $33.7 billion, slightly ahead of our fourth quarter guidance. Gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to cost improvement efforts, favorable foreign exchange rate, and a high capacity utilization rate.

The operating expenses accounted for 8.4% of net revenue, compared to 8.9% in third quarter of 2025, due to operating leverage. Thus, operating margin increased sequentially by 3.4 percentage points to 54%.

Overall, our fourth quarter EPS was NT$19.5, and ROE was 38.8%. Now, let's move on to revenue by technology.

3-nanometer process technology contributed 28% of wafer revenue in the fourth quarter, while 5-nanometer and 7-nanometer accounted for 35% and 14%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 77% of wafer revenue.

On a full-year basis, 3-nanometer revenue contribution came in at 24% of 2025 wafer revenue, 5-nanometer 36%, and 7-nanometer 14%. Advanced technologies accounted for 74% of total wafer revenue, up from 69% in 2024.

Moving on to revenue contribution by platform. HPC increased 4% quarter-over-quarter to account for 55% of our fourth quarter revenue.

Smartphone increased 11% to account for 32%. IoT increased 3% to account for 5%.

Automotive decreased 1% to account for 5%, while DCE decreased 22% to account for 1%. On a full-year basis, HPC increased 48% year-over-year.

Smartphone, IoT, and Automotive increased by 11%, 15%, and 34%, respectively, in 2025, while DCE remains flat. Overall, HPC accounted for 58% of our 2025 revenue, Smartphone accounted for 29%, IoT accounted for 5%, Automotive accounted for 5%, and DCE accounted for 1%.

Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of NT$3.1 trillion, or $98 billion.

On the liabilities side, current liabilities increased by NT$182 billion quarter-over-quarter, mainly due to the increase of $95 billion in accrued liabilities and others, and the increase of $61 billion from the reclassification of bonds payable to current portion. In terms of financial ratios, accounts receivable days increased by 1 day to 26 days.

Inventory days remained steady at 74 days. Regarding cash flow and CapEx.

During the fourth quarter, we generated about NT$726 billion in cash from operations, spent NT$357 billion in CapEx, and distributed NT$130 billion for first quarter 2025 cash dividend. Overall, our cash balance increased NT$297 billion to NT$2.8 trillion at the end of the quarter.

In US dollar terms, our fourth quarter capital expenditures totaled $11.5 billion. Now let's look at the recap of our performance in 2025.

Thanks to the strong demand for our leading-edge process technologies, we continue to outperform the foundry industry in 2025. Our revenue increased 35.9% in US dollar terms to $122 billion, or increased 31.6% in NT dollar terms to NT$3.8 trillion.

Gross margin increased 3.8 percentage points to 59.9%, mainly reflecting a higher capacity utilization rate and cost improvement efforts, partially offset by an unfavorable foreign exchange rate and margin dilution from our overseas fabs. With operating leverage, our operating margin increased 5.1 percentage points to 50.8%.

Overall, full-year EPS increased 46.4% to NT$66.25, and ROE increased 5.1 percentage points to 35.4%. In 2025, we generated NT$2.3 trillion in operating cash flow, spent NT$1.3 trillion, or $40.9 billion, on capital expenditures.

As a result, free cash flow amounted to NT$1 trillion, up 15.2% from 2024. Meanwhile, we paid NT$467 billion in cash dividends in 2025, up 28.6% year-over-year, as we continue to increase our cash dividend per share.

TSMC shareholders received a total of NT$18 cash dividend per share in 2025, up from NT$14 in 2024, and they will receive at least NT$23 per share in 2026. I've finished my financial summary.

Now, let's turn to our current quarter guidance. We expect our business to be supported by continued strong demand for our leading-edge process technologies.

Based on the current business outlook, we expect our first quarter revenue to be between $34.6 billion and $35.8 billion, which represents a 4% sequential increase, or a 38% year-over-year increase at the midpoint. Based on the exchange rate assumption of US$1 to NT$31.6, gross margin is expected to be between 63% and 65%, operating margin between 54% and 56%.

Lastly, our effective tax rate was 16% in 2025. For 2026, we expect our effective tax rate to be between 17% and 18%.

This concludes my financial presentation. Now, let me turn to our key messages.

I will start by talking about our fourth quarter 2025 and first quarter 2026 profitability. Compared to third quarter, our fourth quarter gross margin increased by 280 basis points sequentially to 62.3%, primarily due to cost improvement efforts, a more favorable foreign exchange rate, and a higher overall capacity utilization rate.

Compared to our fourth quarter guidance, our actual gross margin exceeded the high end of the range provided three months ago by 130 basis points, mainly as we delivered better-than-expected cost improvement efforts. In addition, the actual fourth quarter exchange rate was US$1 to NT$31.01, as compared to our guidance of US$1 to NT$30.6.

We have just guided our first quarter gross margin to increase by 170 basis points to 64% at the midpoint, primarily driven by continued cost improvement efforts, including productivity gains and a higher overall capacity utilization rate, partially offset by continued dilution from our overseas fab. Looking at full year 2026, given the six factors, there are a few puts and takes I would like to share.

On the one hand, we expect our overall utilization rate to moderately increase in 2026. N3 gross margin is expected to cross over to the corporate average sometime in 2026, and we continue to work hard to earn our value.

In addition, we are leveraging our manufacturing excellence to drive greater productivity in our fabs to generate more wafer output. We are also increasing cross-node capacity optimization, which includes flexible capacity support among N7, N5, and N3 nodes to support our profitability.

On the other hand, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be between 2% to 3% in the early stages, and widen to 3% to 4% in the latter stages. Furthermore, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of the year, and we expect between 2% to 3% dilution for the full year of 2026.

Finally, we have no control over the foreign exchange rate, but that may be another factor in 2026. Next, let me talk about our 2026 capital budget and depreciation.

At TSMC, a higher level of capital expenditures is always correlated to the high-growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structural demand from the industry megatrends of 5G, AI, and HPC.

In 2025, we spent $40.9 billion, as compared to $29.8 billion in 2024, as we began to raise our level of capital spending in anticipation of the growth that will follow in the future years. In 2026, we expect our capital budget to be between $52 billion and $56 billion, as we continue to invest to support our customers' growth.

About 70% to 80% of the 2026 capital budget will be allocated to advanced process technologies. About 10% will be spent for specialty technologies, and about 10% to 20% will be spent for advanced packaging, testing, mask making, and others.

Our depreciation expense is expected to increase by high teens percentage year-over-year in 2026, mainly as we ramp our 2-nanometer technologies. Even as we invest in the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders.

Finally, let me talk about TSMC's long-term profitability outlook. As a foundry, our biggest responsibility is to support our customers' growth, and we always view them as partners.

Having said that, we are in a very capital-intensive business. In the last five years alone, our CapEx totaled $167 billion; our R&D investments totaled $30 billion.

Therefore, it is important for TSMC to earn a sustainable and healthy return as we continue to invest in leading-edge, specialty, and advanced packaging technologies to support our customers' growth. Today, we face increasing manufacturing cost challenges due to the rising costs of leading nodes.

For example, the cost of tools are becoming more expensive, and process complexity is increasing. As a result, the CapEx dollar required to build 1K wafer per month capacity of N2 is substantially higher than 1K wafer per month capacity for N3.

The CapEx per K cost for A14 will be even higher. We also face additional cost challenges from expansion of our global manufacturing footprint, new investments in specialty technologies, and inflationary costs.

These all lead to a higher level of CapEx spending. As a result, in the last three years, our CapEx dollars amount total $101 billion, but is expected to be significantly higher in the next three years.

Having said that, we continue to work closely with our customers to plan our capacity while sticking to our disciplines to ensure a healthy overall capacity utilization rate through the cycle. Our pricing will remain strategic, not opportunistic, to earn our value.

We will work diligently with our suppliers to drive greater cost improvements. We will also leverage our manufacturing excellence to generate more wafer output and drive greater cross-node capacity optimization in our fab operations to support our profitability.

By taking such actions, we believe a long-term gross margins of 56% and higher through the cycle is achievable, and we can earn an ROE of high 20s percent through the cycle. By earning a sustainable and healthy return, even as we shoulder a greater burden of CapEx investment for our customers, we can continue to invest in technology and capacity to support their growth while delivering long-term profitable growth to our shareholders.

We also remain committed to a sustainable and steadily increasing cash dividends per share on both an annual and quarterly basis. Now, let me turn the microphone over to C.C.

Thank you, Wendell. Good afternoon, everybody.

First, let me start with our 2026 outlook. In 2025, we observed robust AI-related demand throughout the whole year, while non-AI end-market segments bottomed out and saw a milder recovery.

Concluding 2025, the foundry 2.0 industry, which we defined as all logic wafer manufacturing, packaging, testing, mask making, and others, increased 16% year-over-year. Supported by our strong technology differentiation and broad customer base, TSMC's revenue increased 35.9% year-over-year in US dollar terms, outperforming the foundry 2.0 industry growth.

Entering 2026, we understand there are uncertainties and risks from the potential impact of tariff policies and rising component prices, especially in consumer-related and price-sensitive end-market segments. As such, we will be prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position.

We forecast the foundry 2.0 industry to grow 14% year-over-year in 2026, supported by robust AI-related demand. Underpinned by strong demand for our leading-edge, specialty, and advanced packaging technologies, we are confident we can continue to outperform the industry growth.

We expect 2026 to be another strong growth year for TSMC, and forecast our full-year revenue to increase by close to 30% in US dollar terms. Next, let me talk about AI demand and TSMC's long-term growth outlook.

Recent developments in the AI market continue to be very positive. Revenue from AI accelerators accounted for high-teens percent of our total revenue in 2025.

Looking ahead, we observe increasing AI model adoption across consumer, enterprise, and sovereign AI segments. This is driving need for more and more computation, which supports the robust demand for leading-edge silicon.

Our customers continue to provide us with their positive outlook. In addition, our customers' customers, who are mainly the cloud service providers, are also providing strong signals and reaching out directly to request the capacity to support their business.

Thus, our conviction in the multi-year AI megatrend remains strong, and we believe the demand for semiconductors will continue to be very fundamental. As a foundry, our first responsibility is to fully support our customer with the most advanced technology and necessary capacity to unleash their innovations.

To address the structural increase in the long-term market demand profile, TSMC works closely with our customer and our customers' customers to plan our capacity. This process is continuous and ongoing.

In addition, as process technology complexity increases, the engagement lead time with customer is now at least 2 to 3 years in advance. Internally, as we have said before, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approaches.

We focus on the overall addressable megatrend to determine the appropriate capacity to build. Based on our assessment, we are preparing to increase our capacity and stepping up our CapEx investment to support our customers' future growth.

We are also putting forward the existing fab schedule to the extent possible, both in Taiwan and in Arizona. We are also leveraging our manufacturing excellence to drive greater productivity in our fabs to generate more output, convert N5 capacity to support N3 wherever necessary, and focus on capacity optimization across nodes to maximize the support to our customers.

Based on our planning framework, we raise our forecast for the revenue growth from AI accelerators to approach a mid-to-high 50s percent CAGR for the 5-years period from 2024 to 2029. Underpinned by our technology differentiation and broad customer base, we now expect our overall long-term revenue growth to approach 25% CAGR in US dollar terms for the 5-years period starting from 2024.

While we expect AI accelerators to be the largest contributor in terms of our incremental revenue growth, our overall revenue growth will be fueled by all four of our growth platforms, which are Smartphone, HPC, IoT, and Automotive, in the next several years. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge, specialty, and advanced packaging technologies to support their growth.

We will also remain disciplined in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now, let me talk about the TSMC's global manufacturing footprint update.

All our overseas decisions are based on our customers' need, as they value some geographic flexibility and a necessary level of government support. This is also to maximize the value for our shareholders.

With the strong collaboration and support from our leading US customers and the US federal, state, and city governments, we are speeding up our capacity expansion in Arizona and executing well to our plan. Our first fab has already successfully entered high-volume production in 4Q24.

Construction of our second fab is already complete, and tool move-in and installation is planned in 2026. Due to the strong demand from our customers, we are also putting forward the production schedule, and now expect to enter high-volume manufacturing in the second half of 2027.

Construction of our third fab has already started, and we are in the process of applying for permits to begin the construction of our fourth fab and first advanced packaging fab. Furthermore, we have just completed the purchase of a second large piece of land nearby to support our current expansion plan and provide more flexibility in response to the very strong multi-year AI-related demand.

Our plan will enable TSMC to scale up an independent GigaFab cluster in Arizona to support the needs of our leading-edge customers in smartphone, AI, and HPC applications. Next, in Japan, thanks to the strong support from the Japan central, prefectural, and local government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield.

The construction of our second fab has started, and the technologies and ramp schedule will be based on our customers' need and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal, state, and city governments.

Construction of our specialty fab in Dresden, Germany, is progressing in our plan. The ramp schedule will be based on our customers' need and market conditions.

In Taiwan, with support from Taiwan government, we are preparing multiple phases of 2-nanometer fabs in both Hsinchu and Kaohsiung Science Park. We will continue to invest in leading-edge and advanced packaging facilities in Taiwan over the next few years.

By expanding our global footprint while continuing investing in Taiwan, TSMC can continue to be better, to be the trusted technology and capacity provider of the global logic industry for years to come. Last, let me talk about N2 and A16 status.

Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable demand for energy-efficient computing, and almost all the innovators are working with TSMC. N2 successfully entered high-volume manufacturing in 4Q2025 at both our Hsinchu and Kaohsiung sites with good yield.

We are seeing strong demand from smartphone and HPC AI applications, and expect a faster ramp in 2026. With our strategy of continuous enhancement, we also introduced the N2P as an extension of N2 family.

N2P features a further performance and power benefit on top of N2, and volume production is scheduled for the second half of this year. We also introduced A16, featuring our best-in-class Super Power Rail, or SPR.

A16 is best suited for specific HPC products with complex signal route and dense power delivery network. Volume production is on track for second half 2026.

We believe N2, N2P, A16, and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC, while further extending our technology leadership position well into the future. This concludes our key message, and thank you for your attention.

Thank you, Wendell. Thank you, C.C.

This does conclude our prepared statements. Before we begin the Q&A session, I would like to remind everybody to please limit your question to two at a time to allow all the participants an opportunity to ask their questions.

Questions will be taken both from the floor and from the call. Should you wish to raise your question in Chinese, I will translate it to English before management answers your question.

For those of you on the call, if you'd like to ask a question, please press the star then 1 on your telephone keypad now. Questions will be taken in the order they were received.

If at any time you'd like to remove yourself from the questioning queue, please press star 2. Now, let's begin the question-and-answer session.

I think we'll take the first few questions from the floor here. Why don't we start over here with Gokul Hariharan from JPMorgan.

Thank you.

Thank you, and Happy New Year. C.C., it definitely feels like you have heard what your customers have said to you over the last 3-4 months.

Could you give us a little bit more color on what you are hearing from your customers' customers on demand, because this is a very big step-up in the capacity commitment. There is definitely a lot of concern in the financial market especially about whether we are in a bit of a bubble, and obviously, you are the one who is putting up all the capital in this industry, you've definitely considered this very carefully as well.

Give us a little bit more detail in terms of what you're hearing from customers and your views on this cycle given, if we think about typical semiconductor cycle, we've already probably lasted a little bit longer than usual cycles, but this definitely doesn't feel like a typical semiconductor cycle.

Gokul, let me summarize your question for the benefit of those online and those in person. Again, Gokul's question is really he would like to hear C.C.'

s views about the overall AI-related demand and the semiconductor cycle. Again, Gokul notes that as Wendell and you said, we are substantially stepping up our CapEx to support the customers, but he does say there is concerns about an AI bubble and risk.

Part of Gokul's question is what is the feedback, any color we can share about what type of discussions and feedback we're getting from both customers and the customers' customers that C.C. mentioned, and how long do we think this cycle can last.

Gokul, you essentially try to ask and say whether the AI demand is real or not. I'm also very nervous about it.

You bet, because we have to invest about $52 to $56 billion US dollar for the CapEx, right? If we didn't do it carefully, and that would be a big disaster to TSMC for sure.

Of course, I spent a lot of time in the last 3-4 months talking to my customer and then customers' customer. I want to make sure that my customers' demand are real.

I talked to those cloud service providers, all of them. Their answer is that I'm quite satisfied with their answer.

Actually, they showed me the evidence that the AI really helped their business. They grow their business successfully, and here see the in their financial return.

I also double-check their financial status. They are very rich.

That sounds much better than TSMC's, so. No doubt, I also asked specifically that what's the application, right?

That's for one of the hyperscalers, they told me that that helped their social media's software, and so the customer continue to increase. I believe that, and with our own experience in the AI application, we also help to our own fab to improve the productivity.

As I mentioned one time, say that 1% or 2% productivity improvement, that is free to TSMC, and that's why also our gross margin is to be satisfied, even in this a very high-cost period of time. All in all, I believe, in my point of view, the AI is real.

Not only real, it's starting to grow into our daily life. We believe that it's kind of we call it AI megatrend.

We certainly believe that. Your another question is can the semiconductor industry to be good for 3, 4, 5 years in a row?

I tell you the truth, I don't know. I look at the AI, looks like it is going to be like endless, that's for many years to come.

No matter what, TSMC stick on the fundamental: technology leadership, manufacturing excellence, and we work with customer to get their trust. I think that fundamental thing will position TSMC to be very good future growth.

Let me say that: 25% CAGR as we projected, and we used to be conservative, you know that.

Thanks, C.C. My second question is on the US expansion.

You're pulling in some of the capacity in response to customers. You're already starting plans for the phase 4.

There's a lot of media reports about TSMC might have to build more fabs in the US. How should we think about US expansion in principle over the next few years?

I think previously you had talked about reaching 20% or even 30% of 2-nanometer capacity in the US eventually, the total capacity could be in the US. Could you give us a little bit more detail about how that is progressing and when could we get there in terms of the 30% or even 20% capacity?

Gokul's second question is about our overseas expansion, particularly in the US. He notes that C.C.

said we are pulling in the schedule for fab 2 earlier, we're starting the application for the fourth fab. His question is party around recent reports that we intend to build more fabs in Arizona.

His question is how is TSMC thinking about the future expansion in Arizona. We have said in the past that around 30% of our 2-nanometer and more advanced capacity would be based in Arizona once we complete scaling out to this independent GigaFab cluster.

What is the time frame or time table for that? How quickly can we get there?

That's a long question. We build a fab in Arizona, and we work hard.

Today, everything, even the yield or defect density, is almost equal to Taiwan. Due to the strong demand, as I just answered from the AI, that's a megatrend, all my AI customer is in the US.

They ask a lot of support from the US fab. Because of that, we have to speed up our fab expansion in Arizona.

In Taiwan also, actually, we increased most of the capacity in Taiwan. No doubt about it, because this is most adjacent one, we can progress very well.

In US, we try to speed it up, and progress is very good. We got the help from the government.

Still, we have to meet all the requirement for the permits or for those kind of thing. Both in Taiwan and in Arizona, we speeded up our capacity expansion to meet the AI demand.

I can always say one word: the capacity is very tight. We work very hard to narrow the gap so far.

Probably this year, next year, we have to work extremely hard to narrow the gap. Okay.

We just bought a second land in Arizona. That's give you a hint that's what we plan to do, because we need it.

We are going to expand many fabs over there, and this GigaFab cluster can help us to improve the productivity, to lower down the cost, and to serve our customer in the US better.

Okay. Thank you, Gokul.

Let's move over here next to Laura Chen from Citibank, please.

Thank you. Thank you, C.C.

and Wendell, for very comprehensive outlook briefing, and also congratulate for the great results. Of course, we see that the AI semiconductor growth seen very strong growth, and I believe all of your customer and customers' customer very desperate to ask more capacity support from TSMC.

I'm just wondering how does TSMC evaluate the potential power electricity supply for data center? Other than that the chips we discussed with our customers, I think for the overall infrastructure build-up for data center, a lot of factor also very important.

Just want to understand more how does TSMC evaluate those key factors for the AI infrastructure build-up? That's my first question.

Laura's first question is around the AI demand. She notes again, as we said, AI megatrend and the growth is very strong, and customers, customers' customers, and ourselves are strong believers.

When we do our planning, how do we balance this against the other considerations? Do we look at things, for example, I think Laura's question is power electricity grid availability to basically assess is this included as part of our planning process?

Do we factor such things in?

Laura, let me tell you first, I worry about the electricity in Taiwan first. I need to have enough electricity so I can start to expand the capacity without any limitation.

Talking about the build a lot of AI data center all over the world, I use one of my customers' customers' answer, that I ask the same question. They told me that they plan this one 5-6 years ago already.

As I said, those cloud service provider are smart, very smart. If I knew that, I would.

Anyway. They say that they work on the power supply 5-6 years ago.

Today, their message to me is silicon from TSMC is a bottleneck. Asked me not to pay attention to all others, because they have to solve the silicon bottleneck first.

Indeed, we look at the power supply in all over the world, especially in the US. Not only that, we also look at who support those kind of power supply, like a turbine, like a what's nuclear power plant, the plan, all those kind of thing.

We also look at the supply of the rack. We also look at the supply of the cooling system.

Everything so far so good. We have to work hard to narrow the gap between the demand and supply from TSMC.

Did that answer your question?

That great to know that it's would not be the constraint for the further AI development. Thank you.

My second question is on the leading-edge advanced packaging. Wendell, can you remind us that what would be the revenue contribution last year for the advanced packaging overall?

I recall that in the past, that the CapEx for leading-edge advanced packaging roughly about 10%. Now it could be up to 20%.

I'm just wondering that for the expansion, can you give us more detail about what kind of the plans you are looking for? Will you focus more on like a 3DIC, SoIC, or are you also start to work on more advanced like a panel-based in the longer term?

I also think that before we talked about that we'll work more closely with OSATs partner on the leading-edge advanced packaging. Just wondering what kind of the process will be the key expansion plan in this space?

Thank you.

Laura's second question is more related to advanced packaging. What was the revenue contribution of what we call the back end, which is advanced packaging and testing as a whole, in 2025?

Then she notes the CapEx actually this year, I believe Wendell we guided 10% to 20% of CapEx, which is the same as last year, but anyways, she wants to know what is the focus of this CapEx? Is it on 3DIC, is it on SoIC packaging solution, is on panel level, sort of what is the key areas we're focusing on relative to the CapEx?

Laura, the revenue contribution last year from advanced packaging is close to 10%, it's about 8%. For this year, we expect it to be slightly over 10%.

We expect it to grow in the next five years higher or faster than the corporate. The CapEx, yes, you're right, in the past is about 10%, lower than 10%.

Now we're saying advanced packaging, together with mask making and others, accounted for between 10% to 20%. You can see that the investments amount is higher.

We're investing in areas in advanced packagings where our customers need. The areas that you mentioned, basically we continue to invest.

Thank you, Wendell. Let's move on to Charlie Chan from Morgan Stanley here.

Thanks, Jeff. Happy New Year, C.C.

and Wendell. Amazing result and guidance.

Congratulations to the management team. My first question is about outside of AI, what do you see for those end markets?

You talked about the memory cost, etc. Can you give us some kind of your underlying assumptions for PC shipments, smartphone shipments, etc.?

Also in your HPC, there are some other pieces like networking and general servers. Can you comment about the growth potential for those segments?

Thank you.

Charlie's first question is very specific. Generally he wants to know about how do we see the non-AI demand, especially in the context where certain component costs such as memory costs are rising.

He wants to know what do we see the impact on the PC and smartphone markets in terms of shipments? He's also asking very specifically what about networking, what about general server, each these different segments?

Charlie, although we say is called non-AI, but actually they related to AI, you know that, right? Because the networking processor you still need to have a AI data to scale up or scale out.

Those are the networking switches, all those kind of things, and still grow very strong. As for PC or the smartphone, to tell you the truth, we expect because higher memory's price, we expect the unit growth will be very minimal.

For TSMC, we did not feel our customer change their behavior. We look at it, and then we found out that we supply most of the high-end smartphones.

The high-end smartphone is less sensitive to the memory's price. The demand is still strong.

Using one sentence I'd like to say, we still try very hard to narrow the gap. We have to supply a lot of wafers to them also.

Thanks, C.C. I think that's very consistent with your 5-year CAGR outlook for all the four segments.

My second question is about the Intel's foundry competition. I think US President seems to be very happy with Intel's recent progress, and even mentioned two of your key customers, right, Nvidia, Apple, may have some partnership with Intel Foundry.

Should we concern about this so-called competition, and what TSMC can really do to mitigate or avoid a potential market share loss at those key US customers, not limited to the two customers I just mentioned? Thank you.

Charlie's second question is on the foundry competition and competition from a US IDM. He notes US President is very happy with the progress.

Two of our key customers, he also was mentioned. His question is fundamentally, is there a concern or risk going forward of market share loss for TSMC to our foundry competition?

Kind of a simple question, I should say no. Let me explain a little bit, because in these days, it's not money to help you to compete, right?

I also like whoever you just mentioned that to invest on Intel, I like them to invest on TSMC also. The most fundamental thing is, let me share with you, today's technology is so complicated, once you want to design a very complete or advanced technology, it takes 2 to 3 years to fully utilize that technology.

That's today's situation. After 2 to 3 years of preparation, you can design your product.

Once you get your product being approved, it takes another 1 to 2 years to ramp it up. We have a competitor, no doubt about it.

That's formidable competitor. First, it takes time.

Two, we don't underestimate their progress. Are we afraid of it?

For 30-some years, we always in a competition with our competitor. No, we have a confidence that to keep our business grow as we estimated.

Thank you, C.C. All right, let's take the next two questions online in the interest of time.

Operator, can we take the first call from the line, please?

Hi. First, congrats, very strong performance.

Thank you, C.C., Wendell, and Jeff, for taking my question. My first question is about the global capacity plan.

Recently, Taiwan local news report that TSMC could exit the 8-inch business and mature node 12-inch to convert into the advanced packaging. The investor is keen to know if this is true, and the decision is based on what kind of key factor, i.e., C.C.

just mentioned about the power tightness or it's ROI concern? Thank you.

Arthur's first question is about basically our strategy on mature node. He notes the local news has been reporting that TSMC is exiting 8-inch and 12-inch businesses and converting the capacity to advanced packaging.

He wants to know if this is true and, if so, what are the reasons behind it? Power constraints, ROI, etc., etc.

Good question. Indeed, we reduce our 8-inch wafers the capacity and 6-inch.

Let me assure you that we support all our customer. We discuss with our customer, and to do this kind of resources more flexibly and more optimize the resources to support our customer.

Let me assure you also to my customer that we continue to support them. We will not let them down.

If they have a good business, we continue to support, even in the 8-inch wafers business.

Arthur, do you have a second question?

Yes, thank you. My second question is regarding the consumer and demand outlook.

C.C. also mentioned that the memory price actually inflation, and also pushing up the cost of the consumer electronics.

Investor actually concerned about the further demand softness in this year and the next year, or particularly next year. Can management comment about your client or your client's client how to resolve this memory tightness or we call a memory urgency issue?

Thank you.

Arthur's second question is on the impact from the memory price increase and the demand softness. I believe his question really, because C.C.

already shared the impact this year, he wants to know what is the impact for 2027.

For TSMC, no impact. As I just mentioned, most of my customer now focus on high-end smartphone or PCs.

Those kind of demand has less sensitive to the components' price. They continue to give us a very healthy forecast, this year and the next year.

Thank you, C.C. All right, Operator, let's move on to the next participant from the line, please.

Next one,

Thanks very much. My question is really on AI.

TSMC has been supply-constrained for your AI customers, I think since 2024, and it sounds like 2026 is another year where we're going to see challenges. Do you think the CapEx you've laid out for this year, $52 to $56 billion, could that mean that we start to see supply and demand more in balance in 2027?

Any thoughts there just in terms of how you're thinking about that capacity plan and does it alleviate this supply bottlenecks that we see today? As part of this, on a supply perspective, we hear TSMC is finding it quite challenging to develop enough engineering talents quick enough, both in the US and in Taiwan.

Can you talk more about this trend, and what's the scale of the labor shortage of foundry engineers at the moment? Thank you.

Brett's first question is related around AI and our capacity. He notes the supply looks to continue to be tight in 2026, but with this significant step-up in our CapEx to support the customers, $52 to $56 billion, do we expect the supply, demand, or the gap, to speak, to be more balanced in 2027?

Then is engineering resources, fab engineers, a constraint or a bottleneck for us in making these expansions, whether in Taiwan or the US?

Let me answer this question first. You build a new fab, it takes 2 and 3 years, 2 to 3 years to build a new fab.

Even we start to spend the $52 to $56 billion, the contribution to this year almost none, and to 2027 a little bit. We actually are looking for 2028, 2029 supply.

We hope at that time that the gap will be narrow. For 2026 and 2027, we are focused on the short-term more output.

Actually, our productivity continue to increase. Our people has an incentive, because of one of the TSMC's incentive is to satisfy customer.

It's not because of our financial results are good, but we want to let customer feel that TSMC is trusted, that whenever they have a good opportunity to grow, we will support it. In 2026, 2027, for the short term, we focus on the productivity improvement, which we done quite a good result, because of Wendell just mentioned that we can have a good financial result is because of that.

That's our incentive, but that's not our purpose. Our purpose is to support our customer.

So 2026, 2027 for the short term, we are looking to improve our productivity. 2028, 2029, yes, we start to increase our CapEx significantly, and it will continue this way if the AI demand megatrend as we expected.

Brett, thank you, C.C. Brett, do you have a second question?

I do, and thanks, that was very clear. I guess my second question is about pricing.

If I look at 2025, this is the second consecutive year where TSMC's wafer ASPs were up around 20%. As leading edge becomes a bigger portion of the mix and also you feed through price increases, when we factor in the ramp of more expensive overseas fabs, is 20% wafer ASP increases the new normal for TSMC?

Typically, you have an annual price negotiation about this time of the year, and so I'm trying to understand how you project ASPs in '26 and is your March quarter guidance factoring in price increases at leading edge? Thank you.

Brett's question is on pricing. He notes that he's looking at the blended wafer price is increasing at close to 20% according to his estimates.

Of course, that's blended both on price and mix, but as a leading edge and also we have mentioned earning our value, he wants to know is this the new normal going forward?

This is a tough question, I let the CFO to answer.

Every new node the price will increase, the blended ASP will increase. I think that continued this way in the past and will continue the way in going forward.

Brett, I think you're asking about the contribution from pricing to the profitability. Now, as we mentioned before, the profitability, there are six factors affecting the profitability, and price is just one of them.

Of course, we continue trying to earn our value, but in fact, in the last few years, the pricing benefits to the profitability was just enough to cover the inflation cost from tools, equipment, materials, labor, etc. There are other factors contributing to the higher profitability.

The first one will be a high utilization rate, as the demand is so high and as our disciplined approach to capacity planning, the utilization rate supports our high profitability. The other one will be our manufacturing excellence.

As C.C. said, we continue to drive increasing productivity to generate more wafer output.

Also, we continue to drive optimization capacity among nodes, which includes converting part of the N5 to N3, it also involve cross-supports from different nodes, from the mature nodes to the more advanced nodes. That is a very important advantages of TSMC.

With all these efforts, we're able to maintain a good, healthy, sustainable profitability, so that we can continue to invest to support our customers' growth.

Thank you, Wendell. In the interest of time, we will take two more questions from the floor and one more from the line.

We'll go here, Sunny Lin, UBS, and then.

Thank you. Good afternoon.

Very strong results, congratulations. Number one, if we look at the company, very different versus in the past from many angles.

If we look at the ramp from new node, now you can generate actually higher revenue from new node in year 4 or even year 5 of mass production versus in the past, new node peak revenue in the second or even third year of mass production. Could you help us understand with this new trend, what's the financial implications?

Then what does that imply for you to operate or even compete differently versus in the past?

Sunny's first question, I think maybe is related, well, to our technology differentiation, but she notes that in the past when we have a new node, after a few years, sort of the revenue comes down a bit, but she notes that nowadays we can still enjoy very high revenue from a node even after in its fourth or fifth year. Her question is what are the financial implications from this and also from I believe competitive dynamics?

If I can answer, say we are lucky. Actually, if you look at the semiconductor product, right now the trend is you need to have a lower power consumption always and then high-speed performance.

For TSMC, our technology differentiation become more and more clear. We have both benefit.

We have a high speed and we have a low power consumption. Our leading-edge customer, the first wave, the second wave, the third wave continue to come, and so that sustain the demand for long, long time.

That's the difference. Of course, this one you need to have a technology leadership, and which the technology leadership much easier to say, but every year you have to improve.

As we said, we have a N2, N2P, and then you won't be surprised and the third one will be N2 something, and continuously. That one give us the benefit and to support our customers continuous innovation, and so they continue to stay with TSMC, and so their product can be very competitive in the market.

That answers the question, say that, once we got the peak revenue and did not decrease, is continuous, because second wave, third wave customer continue to join.

Thank you very much, C.C. Then maybe a questions on 2-nanometer.

Would you see, C.C., meaningful revenue coming soon in 2026? In the past, you guide how much a new node will contribute to sales for the year, and so any expectations on the revenue contribution from 2-nanometer in 2026?

Then I recall in terms of process migration, a few years ago, there were lots of concerns on increasing cost per transistor, and that obviously is not declining from 5-nanometer. Then now looking at 2-nanometer, I think process migration seems to be reaccelerating, even for smartphone and PC, and then with larger demand coming from high-performance compute.

Maybe based on your feedback from clients, maybe for smartphone and PC clients, why are they reaccelerating process migration into 2-nanometer?

Sunny's second question very quickly in two parts: 2-nanometer, as we said, is a fast ramp in 2026, very strong customer interest and demand, one, do we have any revenue percentage to guide for in 2026?

Sunny, the 2-nanometer will be a bigger node than 3-nanometer from the start. Okay.

It's less meaningful nowadays to talk about the percentage of revenue contribution when the new node starts, because the corporate as a whole, the revenue has become much bigger than before. Revenue dollar, it's a bigger node, but percentage-wise, less meaningful.

Okay. Then the second part of Sunny's question, from a technology perspective, as she noted increasing cost per transistor, as we said CapEx per K is going higher, her question very simply, what's the value, what's driving smartphone, HPC customers actually we're seeing a widening out of the adoption of N2, what is the value that is providing that the customers are willing to adopt N2?

I already answered the question, right? Because of now the whole product is looking for lower power consumption and high-speed performance, and our technology can provide that value.

I also say that every year we improve. Every year they adopt even the same name of the same node, their product continue to improve.

That provide the value. If you say that cost per transistor is increased, I saw the cost per transistor the performance compared that called CP value is increased, is much better, so that customer stick with TSMC.

Our headache right now, if I can call it headache, is a demand and supply gap. We need to work hard to narrow the gap.

Very clear, thank you.

Thank you. Operator, can we take the last call from the line, and then we will take one last one from the floor?

Hello? Okay.

Krish, are you there? I guess not, then let's just take the last question from Bruce Lu from Goldman Sachs.

Thank you.

Thank you for letting me to ask the last question. Hopefully it's not that difficult.

I think I understand that TSMC is trying very hard to increase the capacity. AI revenue is growing 50% a year, 50% plus a year.

Token consumption for last few quarters is 50% a quarter. The gap is still there, right?

That's why Elon Musk was talking about the chip war. Can you share with us that in your assumption, when you provide 50% plus AI revenue growth, what kind of token consumption you can support, and how many gigawatts power in terms of the chips you can support in your assumption when you provide this kind of 5-years revenue guidance for AI?

Bruce's first question is around our AI CAGR. Actually, to be correct, as we have guided for the AI CAGR to grow mid-to-high 50s CAGR in the 5-year period from 2024 to 2029.

That is the official guidance we have provided just today. Bruce's question is in this guidance, what is our assumption basically assuming about the token growth behind this type of CAGR?

What is our assumption in terms of translating to how much gigawatts of data center can we support, and other specific assumptions behind our guidance?

Bruce, you got me. I also try to understand what is the tokens' growth, but my customers' product improvement continue to increase.

It's well-known from Hopper to Blackwell to Rubin, they almost double, triple their performance. The one they can support the tokens' growth or the one they can continue to support the compute power is enormous.

I lost the track, to be frank with you. For gigawatt, I want to see that how much of TSMC can make the money from the gigawatt, rather than say how much we can support.

Today, from my point of view, still the bottleneck is TSMC's wafer supply, not power consumption, not yet. We also look at carefully to answer your question, say that the TSMC's wafer can support how much of the gigawatt, still not enough.

They still have abundant of power supply in the US.

My next question is for the CapEx, right? I want to double-check with what I just heard that C.C.

was talking about 2027, the CapEx will be more for the productivity improvement, and 2028, 2029 maybe meaningfully higher. I do recall that in 2021, TSMC provided 3 years for $100 billion CapEx to support a structural growth.

Now the demand is even stronger. Based on that, can we do 3 years $200 billion CapEx for next 3 years?

The math's doable.

First a slight clarification, because C.C. was talking about this year we have substantially stepping up our CapEx investment, but C.C.

also mentioned it takes 2 to 3 years to build capacity. In terms of Bruce's question, do we say 2027 step up in CapEx?

I think we're saying it takes time for that capacity to come out. That's the first part.

I think, Bruce, what C.C. said was the productivity was our main focus in '26 and '27, because when we start to invest, the volume production will not come out until '28 and '29.

The dollar amount invested today is for 2 years or even in the future. CapEx dollar amount, as I said, in the last three years, $101 billion.

In the next three years, significantly higher. I'm not going to share with you the number, but significantly higher.

I think Wendell has addressed at least both parts of Bruce's question. Okay?

Again, thank you, everyone. This does conclude our Q&A session.

Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and both are available or will be available through TSMC's website at www.tsmc.com.

Again, thank you, everyone, for taking the time to join us today. We certainly would like to wish everyone a Happy New Year.

We hope everyone continues to stay well, and you will join us again next quarter. Thank you, goodbye, and have a good day.