Good afternoon, everyone, and welcome to TSMC's second quarter 2026 earnings conference and conference call. This is Jeff Su, TSMC's director of investor relations and your host for today.

Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. 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 second quarter 2026, followed by our guidance for the third 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'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release.

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

Thank you, Jeff. Good afternoon, everyone.

Thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2026.

After that, I will provide the guidance for the third quarter of 2026. Now let's move on to revenue by technology.

2-nanometer process technology contributed 3% of wafer revenue in the second quarter. 3-nanometer, 5-nanometer, and 7-nanometer accounted for 30%, 33%, and 11%, respectively.

Advanced technology, defined as 7-nanometer and below, accounted for 77% of wafer revenue. Moving on to revenue contribution by platform, HPC increased 20% quarter-over-quarter to account for 66% of our second quarter revenue.

Smartphone decreased 4% to account for 22%. IoT increased 4% to account for 5%.

Automotive increased 15% to account for 4%. DCE increased 5% to account for 1%.

Moving on to the balance sheet, we ended the second quarter with cash and marketable securities of NT$3.5 trillion, or $110 billion. On the liability side, current liabilities increased by NT$144 billion quarter-over-quarter, mainly due to the increase of 58 billion in accounts payable and the increase of 48 billion in accrued liabilities and others.

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

Regarding cash flow and CapEx, during the second quarter, we generated about NT$783 billion in cash from operations, spent 496 billion in CapEx, and distributed 156 billion for third quarter 2025 cash dividend. Overall, our cash balance increased NT$99 billion to 3.1 trillion at the end of the quarter.

In U.S. dollar terms, our second quarter capital expenditures totaled $15.7 billion.

I've finished my financial summary. Now let's turn to the current quarter guidance.

Based on the current business outlook, we expect our third quarter revenue to be between $44.6 billion and $45.8 billion, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint. Based on the exchange rate assumption of $1 to NT$32, gross margin is expected to be between 65% and 67%, operating margin between 56% and 58%.

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

I will start by talking about our second quarter '26 and third quarter '26 profitability. Compared to the first quarter, our second quarter gross margin increased by 150 basis points sequentially to 67.7%, slightly ahead of our guidance, primarily due to cost improvement efforts and a slightly higher overall capacity utilization rate, partially offset by dilution from our overseas fabs.

We have just guided our third quarter gross margin to decrease by 1.7 percentage points to 66% at the midpoint, primarily as we expect the steep ramp-up of our 2-nanometer technology to dilute our gross margin by about 3 to 4 percentage points. This dilution is expected to be partially offset by very strong demand for our leading-edge technologies and continued cost improvement efforts, including productivity gains and across-node capacity optimization.

Looking at the second half of the year, given the six factors that determine our profitability, there are a few puts and takes that I would like to share. First, we expect the steep ramp-up of our 2-nanometer to dilute our gross margin by about 3 to 4 percentage points in the second half of the year.

Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. On the other hand, demand for our leading-edge technologies is very strong.

In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater across-node capacity optimization in our fab operations to support our profitability. Finally, we have no control over the foreign exchange rate, but that may be another factor.

Next, let me talk about our 2026 capital budget. At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years.

With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI, and HPC. Given the continued strong structural demand from our customers, including the newly emerging agentic AI market, we have decided to raise our full-year 2026 capital budget to be between $60 billion and $64 billion as we continue to invest heavily to support our customers' growth.

We always collaborate closely with the tool suppliers well in advance to prepare the capacity, whether it is a strong upcycle or downcycle, just like our customers collaborate with us well in advance to plan our capacity. Thus, we do not foresee any bottlenecks to our capacity expansion plans.

About 70% to 80% of the 2026 capital budget will be allocated for advanced process technologies, about 10% will be spent for specialty technologies, and about 10% to 20% will be spent for advanced packaging, testing, mask making, and others. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders.

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

In 2026, they will receive NT$24 per share, up another 33% year-over-year, and we expect a continued and increasing cash dividends per share in 2027 as well. Now let me turn the microphone over to C.C.

Thank you, Wendell. Good afternoon, everyone.

First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of $40.2 billion, at the high end of our guidance in U.S.

dollar terms, driven by strong demand for our leading-edge process technologies. Moving into third quarter, we expect our business to be supported by continued strong demand for our leading-edge process technologies, including the steep ramp of our 2-nanometer technology.

Looking ahead, we observe consumer and price-sensitive end-market segments are being challenged due to the impact of rising component prices and macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on our fundamentals of our business to further strengthen our competitive position.

Having said that, AI-related demand continues to be extremely robust. The AI megatrend continued to drive the need for more and more computation, which supports the robust demand for leading-edge silicon.

Our customers and customers' customers, who are mainly the cloud service providers, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multiyear AI megatrend remains very high.

Supported by our robust technology differentiation and broad customer base, we now expect our full-year 2026 revenue growth to be slightly above 40% year-over-year in U.S. dollar terms.

Now let me talk about the acceleration of agentic AI. The AI market continued to be very dynamic.

The emergence of agentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drive more silicon demand in addition to AI accelerators. We believe this is positive for TSMC, as no matter what CPU approach is taken, whether it's x86, Arm-based, or RISC-V architecture, they are almost all TSMC's customers.

We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity so they can capture the agentic AI market opportunities. Next, let me talk about TSMC's capacity expansion strategies.

To address the structural increase in overall long-term semiconductor market demand profile, TSMC collaborate closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies and the design-in and lead time involved, we also have a very good idea of their multiyear product roadmap and production plans.

This is important because it takes more than 5 years to develop the technology and product, prepare the capacity, and ramp it up to high-volume production. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach.

This is a continuous and ongoing process. Based on our assessment, we are stepping up our CapEx investment to increase our capacity to support our customers' future growth.

Now, with a strong collaboration and support from our leading U.S. customers and the U.S.

federal, state, and city government, we would like to announce an additional $100 billion investment in Arizona. This is to build several more semiconductor logic wafer fabs for 2-nanometer and below technologies, as well as advanced packaging fabs to support a strong multiyear demand from our leading U.S.

customers. We believe this investment will help to further foster the development of the U.S.

semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States. At the same time, we are building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years, and we will continue to further invest in Taiwan.

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

We are executing well on our global plan to add 3 additional 3-nanometer fabs—one in Taiwan, one in Arizona, and one in Japan—to support the robust multiyear pipeline of demand for 3-nanometer technologies. In addition to all the new fabs, we continue to convert 5-nanometer tools to support 3-nanometer capacity in Taiwan.

We are also leveraging our manufacturing excellence to drive greater productivity across our fab in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, which including flexible capacity support among N7, N5, and N3 nodes.

In summary, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers. Now let me talk about our mature node strategies.

TSMC's strategy at mature nodes has not changed. Our first priority is to fully support our customers, and now we continue to increase, not decrease, our mature node capacity in the higher value-added segment.

For example, we are increasing our mature node capacity through JASM Fab 1 in Japan for CMOS image sensor applications, and ESMC in Germany for automotive and industrial applications. In today's market, outside of specific areas such as power management IC and CMOS image sensors, the mature node demand in other commodity areas is not that strong.

Thus, TSMC will continue to focus on the higher value-added and strategic segment by ensuring we have a necessary capacity to support our customers' growth. Finally, let me talk about our A14 status.

As I mentioned a few minutes ago, the complexity of leading-edge technology continue to increase. The lead time to develop a new technology such as A14, building the capacity, and then ramping it up now takes 5 to 7 years.

There are no shortcuts. Our A14 technology representing the second generation of nanosheet transistors and deliver another full-node stride from N2 with performance and power benefit to address the insatiable need for high performance and energy-efficient computing.

Compared with N2, A14 will provide 10% to 15% speed improvement at the same power, or 25% to 30% power improvement at the same speed, and close to 20% chip density gain. A14 technology development is on track and progressing well.

Internal product-like vehicle demonstrated close to 90% device performance and close to 90% 256-megabit SRAM yield. We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications, and customer tape-out activity is ongoing and ahead of schedules.

Risk production will start in 2027, and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduced A13 and A12 as extensions of the A14 family.

A13 represents a further advancement over A14, achieving an over 6% die area saving through an innovative 97% optical shrink. Through continuous design technology co-optimization, A13 also drive further performance and power efficient improvement.

A13 design rules are backward compatible with A14 to ensure smooth IP migration. We also introduced A12, which will bring our innovative Super Power Rail technology to the A14 platform for superior performance, power, and area benefit.

Both A13 and A12 are scheduled for volume production in 2029. We believe A14 and its derivative technologies will propel our A14 family to be an even larger and long-lasting node for TSMC than N2, just like 2-nanometer technology is a larger and longer lasting node than 3-nanometer, and help further extend our technology leadership position well into the future.

This concluded our key messages, and thank you for your attention.

Thank you, C.C. This does conclude our prepared statements.

Before we begin the Q&A session, again, I would like to remind everybody to please limit your questions to two at a time to allow all other participants an opportunity to ask their questions. Questions will be taken both from the floor and from the call online.

Should you wish to raise your question in Chinese, I will translate it to English before our management answers the question. For those of you on the call, if you'd like to ask a question, please press star then one on your telephone keypad now.

If at any time you'd like to remove yourself from the questioning queue, please press star two. Please note that we will try to conclude today's meeting at around 3:10 or so, we will try to get in as many participants, your questions, as possible.

If we're not able to, we do apologize in advance and thank you everyone for your patience. Operator, well, let's begin the Q&A session.

We'll take the first two questions from the floor, and then we'll go online. Maybe again, left, center, right.

Maybe we'll take the first question. Sunny Lin from UBS, please.

Thank you very much. Congrats on the very strong performance and outlook.

Number one, I'll do a double-click on the CapEx. Very encouraging CapEx outlook, and I do think it's essential that TSMC showcase stronger determination in capacity expansion given the stronger demand and the very tight supply.

Beyond 2026, I think every large client also wonder how aggressive TSMC is planning for CapEx. Back in the COVID supercycle, TSMC did provide a three-year CapEx outlook by then.

I wonder at this point, will it be possible for you to share any color, maybe for the coming three years CapEx? Thank you.

Okay. Sunny's first question is regarding CapEx.

She does believe it's essential to show our determination to support our customers with these large CapEx investments. She wants to know, do we have a three-year CapEx guidance, '26, '27, '28, similar to what we did back in 2021?

Sunny. We do not have a number to share with you.

As we invest CapEx this year for the future business opportunity. As long as there are business opportunities, we are not hesitate to invest.

As you can hear from our prepared remarks that our conviction in the AI megatrend, multiyear is very strong, and we're stepping up the CapEx, including increasing this year's CapEx. Last time we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years.

Now, the CapEx in the next three years will be even more significantly higher than the past three years. Okay.

Yeah. You just announced additional $100 billion CapEx in U.S., and I think that's pretty important for you to secure the business in the U.S.

as well. Now with total $265 billion CapEx in Arizona, what's your current plan to bring on the capacities in Arizona in the coming few years?

Okay.

Sunny's second question is on C.C. said investing an additional $100 billion in Arizona based on the strong demand from our customers, the total investment now is $265 billion.

What is the schedule, timeframe, or the plan for this investment? Is that correct, Sunny?

Okay.

Sunny, the schedule will depend on the market situation. That.

Today's the situation, the megatrend is so strong so that we announced additional $100 billion investment in Arizona. How many fabs?

Many. Actually, let me say that probably additional four or more fabs will be built.

That's combining front end and back end?

Yes.

Okay. Thank you.

Okay. Thank you.

Let's go to the middle. We have Charlie Chan from Morgan Stanley.

We'll go left, middle, right from where I sit. Thank you.

Thanks for taking my question. Good afternoon.

Also congrats for very strong outlook. My first question is really about the foundry competition.

I understand that there's no shortcut for a newcomer like TeraFab. How about Samsung Foundry, right?

They got huge profit from memory business. Intel got the U.S.

policy support. I'm not sure how TSMC is going to address those company because apparently several U.S.

companies are engaging with those industry peers. Yesterday, ASML just announced to expand the EUV capacity for 2028.

Would TSMC worry that your competitors to take more slots and build a large capacity in the future to compete with you in a leading-edge business? Thank you.

Okay.

Charlie's question is competition from two angles. One, he does note C.C.

said foundry competition, no shortcuts. He says, according to the news, many of our customers are engaging with our foundry competitors.

One of them in Korea is making huge amounts of money these days. Another one may have the U.S.

government policy support. The first part of his question, how do we see the competition and threat of customers moving to our competitors, number one?

Let me say that, yes, one of my competitor in South Korea, they make a huge amount of money, and I'm jealous about it. Then the other one in the U.S., they got a very strong U.S.

government's support. We also got the government support, by the way, although we don't announce it.

However, let me share with you, as we say, there's no shortcut. What does that mean?

Meaning that in this semiconductor industry, you have to go back to fundamental. Government's help is welcome.

Really, we also appreciate that. A lot of money, of course, that's nice to have.

The most important thing, as we continue to say, is technology, manufacturing, and customer trust. These three fundamental never change for my 30-some, 40 years career.

It's always the most important thing. That's always the TSMC's secret recipe to win the business.

From the competition point of view, choosing a technology, ramping it up is not buying a milk from 7-Eleven. I'm quoting the sentence from my customer anyway.

They say that you're choosing a kind of technology partner. It's no shortcut.

You need to understand the technology. You need to really utilize it using the test chip and then something, and work together, and then prepare the capacity and ramp it up.

That's what I say it takes about 5 years. It's not that today you think this milk is better, you go to the next door, the 7-Eleven.

You don't like it, you go to another store. No.

That's my answer, Charlie. Is agree?

Yeah. Hope you can buy more milk, other people cannot get it.

Thank you. Yeah.

Let me switch gear to a more exciting side. C.C.

just said you see a very strong signal from customer's customers. You also revise up the full-year revenue guide.

Are you ready to revise up the five-year revenue CAGR, especially this AI semi CAGR? I remember it was high 50%.

Here comes a question, right? That agentic AI demand so strong, CPU is a great opportunity for TSMC.

How about there's a kind of memory cost increase, right, kind of big chunk of this kind of AI CapEx? What's the update of the AI semi CAGR and how should we look at the content of this AI semi related to TSMC's growth?

Thank you.

Okay. Charlie second question is regarding the AI-related demand.

We do continue to see very strong and positive signals from our customers, customers' customers. We revised up our full year.

His question is around our AI CAGR guidance that we gave in January on a five-year period, mid to high 50s CAGR growth. He's wondering if there's any update to that.

Agentic AI, a new opportunity, what is our definition of AI accelerator, do we include that, and what is the CAGR?

Charlie, if you read our message that we continue to invest more, we increase the CapEx with a good reason. If you're asking about the AI's CAGR, let me give you not a number, but it's stronger and stronger and stronger.

We don't give you the number today because of it continues to increase, we don't know that how to answer this question. Stronger than what we said before.

Okay? Great.

Thank you.

Thank you, Charlie. All right, let's move to this side.

Maybe we'll take the question from Arthur from Macquarie.

Hi. First, congrats on the strong execution and performance.

My question is regarding the new advanced packaging technology. We notice that especially the EMIB-T is gaining the traction.

How would TSMC react this request?

Sorry. Arthur's first question is on advanced packaging and competition.

I guess, very simply put, EMIB-T, in his view, is gaining traction, how do we see the competitive threat from this?

Let me say that our packaging capacity is so tight that now is limit my customer's growth. We welcome that additional flexibility in the market, and so that will help TSMC's front-end wafer business growth, which is a majority part of TSMC's business.

The technology looks good according to the newspaper, and we hope they will be successful, and so that share some of the loading from TSMC. Today, we're working very hard to shorten the gap between the demand and the capacity.

As I said, we welcome have this additional alternatives and so the flexibility for my customer.

Thank you. That make a lot of sense.

A follow-up. At least this is a new technology, right?

If your clients they ask you a support and our value is support our customers' success, right? How TSMC will handle this special request?

Sorry, your question is—

If this technology is have some small problem and then ask our company to support, how our company accommodate?

Arthur's question is if there's some issues with this technology, do we have a are we—well, I don't know how to say it. Is there an alternative plan—

Let me answer the question. Our number one is to support our customer's success.

Whatever that we can help our customer's business, we will do it. Did that answer your question?

Okay.

Let's come back. We'll take one more here, and then we'll go online, and then back to the room.

Gokul, yeah. Gokul.

Hi. Thanks, C.C., Wendell, and Jeff.

Maybe since you're not wanting to give a longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity? Obviously, customer feedback, customers' customers' feedback is important.

Do you also consider competitive pressure? Because as a outright market leader, having undersupply for very long period of time is not really desirable for TSMC, right?

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

That's one. Second, chips, obviously, is the current shortage.

There is also a lot of discussion about data center delay, power capacity being available. Could you also share some thoughts on how you are layering in that kind of concerns?

Because you don't want your chips to be available, but having to wait for the data center deployment to happen. Just to understand how that goes into your planning framework as well.

Yeah.

Thank you. Gokul's first question is, again, how do we plan our capacity and determine the capacity expansion plan?

Certainly, we take into consideration the multiyear demand from our customers and customers' customers. Do we also consider the competitive pressures from competitors building capacity?

Is that part of our calculus to expand the capacity, one? Then also what about things outside of chips, like data center delays or power, these type of deals?

Gokul, that's a good question. Definitely, every time when we think about the business, we consider the competition.

That's a number one. Then we do get where we are.

Then we decide a bottom-up and then top-down's assessment of all those demand. Those are the typical thing in our daily life.

We make a lot of judgment, and then we be more careful. We talk to customer and customers' customer.

Those are the CSPs. Then we get all their input for the demand, and then we make a judgment.

Now, remember that I believe every customer tell me the truth, everyone. You put all the truths together, it's not the truth.

We have to make some of the judgment. What I mean?

Since you are laughing. Because all the customer are very aggressive, right?

That's a CEO's job. CEO got to be aggressive.

They give me the number of their demand, and I believe they try their best to tell me the truth. I put all together, all the truths together is not a truth.

Mark down that word. Yes, we do a very careful judgment.

May not be correct. May not be correct, but we did the carefully.

Because this is a big money, right? This year, we say we increase the CapEx from 60 from 52 to 56, now 60 to 64.

We'll bet that it will continue to increase. It's a big money, we do it carefully.

We did all the assessment, and that lead to your second question. Are we sure that we deliver the chips to our customer and they will not put into inventory?

We are checking the AI data centers' progress: the building, the location, the demand, the racks. We checking all that to make sure that TSMC's chips will not be put in inventory.

That answer your question?

That's clear. C.C., do you still believe even end of next year, we are still going to be running short of supply even with this elevated capacity build-out plans?

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

Whether in between there's a dip or not, I'm not very sure. The trend is so robust that I believe we are witnessing a kind of a new industry.

I would like to say the new industry called the AI industry, which is so common in our daily life because it's going to affect our automotive, affect the humanoids robot, and also impact all the industry. By the amount of money we put in, including all the CSPs, this alone is a very important new industry to the world.

The demand will be there. The fundamental thing is semiconductor chips, and most of them in TSMC.

Thanks, C.C. My second question is on your profitability.

C.C., you joked that you are definitely jealous of your memory competitor on their margins. It definitely feels like, profitability-wise, longer-term foundry, especially leading-edge foundry, should be higher than memory, looking at number of competitors out there.

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

You probably have less pressure in terms of passing on your value and capturing your value right now compared to maybe one year back.

Okay. Gokul's second question is on profitability and pricing to a certain extent.

Of course, some of the memory makers are making very good profitability and margins today. He notes the role of foundry could be even more value and TSMC's role as well.

What should be the right way to think about the long-term profitability for a foundry? Should it be better, and then, I guess, really pricing into this?

What type of pricing approach do we want to take?

Gokul. Your question actually is simple.

What is the wafer pricing strategy for TSMC and what kind of a gross margin we should have? The higher the better, of course.

We are a partner. A partner meaning that I said many times, our customer got to be successful.

I don't want to squeeze them out from the market. Besides, we are very trustable company with our customer.

We don't suddenly increase our price by, which I like to have, 4x or 5x. For your customer to survive for that kind of a price increase.

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

That's our philosophy. Yes, I'm really jealous about the memory company's 86% gross margin.

86. 68, I will be happy, but All right, anyway.

I answer your question. We are very trustable.

Thank you.

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

Thank you. Could I ask about the risk that you see around customer concentration as AI demand continues to significantly outgrow other end markets?

I hear your exposure to your top five customers is becoming meaningfully larger than at any point in your history, I just like to understand how you see that risk.

Okay. Jim's first question is risk around customer concentration.

We have large customers that are getting larger. Are we worried that we have too many big customers or the customer concentration?

No, that's not our concern. Besides what you say the customer is growing bigger and bigger, we are very happy about it.

Some of the customer also growing very fast. Jim, it's not what you said that the bigger customer is going bigger and bigger.

No. Yes, a lot of new player in the AI industry.

Do you have a second question?

Thank you. Yes.

You're seeing your direct customers, but capital into both financing and investing in AI demand. Is that something that TSMC is considering?

Jim's second question, he knows some of our customers are helping to invest in their customers. Jim, if I understand you correctly, you're asking if this is an approach we would take to invest in our customers?

Is that correct? Or financing and investing

in— In the end customers, not your direct customers.

Right. In customers' customers as well.

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

Thank you. Operator, can we move on to the next participant on the line, then we'll come back to the floor?

Yes, thanks for taking my question. Two from my end.

One, go back to the $100 billion investment in U.S. Is there any way you can give us some timeline?

Is it over the next 3 years, 5 years? How should we think about the progression of this $100 billion investment in U.S.?

I have a follow-up.

Mehdi's first question is around the announcement today, additional $100 billion investment in the U.S. In terms of the CapEx, a timeframe, is it in the next 3 years, in the 5 years?

Do we have any schedule or timeframe to share about this additional 100 billion?

We do have a plan, but let me share with you, actually, the progress or the schedule most of the time depend on the market situation and our customers' demand. If you ask me to give you a firm schedule, no, we don't have it today, but we do have a plan.

We try to speed it up as fast as possible.

The message is you are flexible, but also you're expediting the investment in U.S. Is that correct?

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

Yeah. We also moving the new fabs and the facilities in Taiwan as fast as possible.

The same thing, we try to bring up a new fab in the Japan as fast as possible, because of the situation today is the demand and the supply, the gap is so big. We are working very hard to narrow the gap.

Great. Thanks.

I wanted to dive into the compute part of HPC and want to ask you about the network switches. In that context, when should we expect the CPO platform to have a material contribution to your top line?

Okay. Mehdi's second question, very specific, he wants to know for our CPO platform, when will it have a very meaningful contribution to the business?

We start the production right now, and it will be ramped up. As time goes by, I think the AI data center need to lower down the power consumption and increase the bandwidth of the communication channel.

I believe the CPO will continue to increase the demand, and then will become a fairly important technology in the next few years.

Okay. Thank you.

Let's come back to the floor. We'll take the next question from Citibank, Laura Chen.

Thank you very much, Jeff, for taking my questions. My first question is also about very promising outlook as TSMC raise the CapEx and also the gross outlook for this year.

In particular, I think, C.C., you mentioned about the agentic AI and the CPU growth potential. Can you give us some more update among that AI different kind of chips between GPU, accelerators, or CPU, what you see the growth potential and your visibility?

Thank you.

Laura's first question is around sort of the outlook. We obviously raised the CapEx and growth outlook for this year.

She wants to know the outlook for agentic AI and CPUs versus AI accelerators, GPUs, etc., how do we see these segments?

Laura, I don't think I can give you a very specific number. Let me share with you, all of them are in TSMC.

They're also using the same kind of leading-edge technologies. We're working with our customer to allocate the wafer supply to balance the CPU, GPU, XPUs ratio.

Okay.

Thank you. That makes sense.

Then my second question is also about advanced packaging. We know that during the symposium, TSMC previously already announced 14 times reticle CoWoS roadmap to enable larger AI packaging.

At the same time, we also noted that TSMC, maybe last month in Japan, you showed the substrate developments for CoWoS to enable some of the glass technology. I'm just wondering if you can give us more technologies progress update on the difference kind of technology for glass core or glass substrate or glass carrier.

What's the progress at TSMC right now? Thank you.

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

She also wants to know the technology process and newer areas like glass substrates, glass cores, what is the progress and status?

Let me say that today the majority is still CoWoS, right? We are developing that alternative try to lower down the cost.

We also work with substrate vendor so that our customer can have their product be in the market. The progress, we building a pilot line I announced that a few quarters ago.

It will take about another 1 year to be mature, we can put into the production with our customer.

Thank you.

Thank you. Let's move to this side of the room.

Bank of America, Haas, sorry.

Yes. Thanks, C.C., Wendell, and Jeff for taking my questions and congrats on the great results.

My first question is regarding your CapEx and sales. You gave pretty solid CapEx outlook for this year and also said the CapEx outlook in the next couple of years will continue to be pretty significant.

You also raised this year at 40% plus. Would you be able to provide your next couple of years sales growth outlook, try to quantify it?

Relatively, I think also on that topic is whether you can just try to break down which part of the demand you are seeing as the key driver for you to raise your CapEx and also for this year's demand. Is it still mostly driven by cloud computing, or it is proliferating to edge computing, or to some extent, is it also related to your equipment supply chain is raising their price as well?

Thank you.

Okay. That's several questions in one, I'm going to take that as one and a half questions at least.

Basically, Haas is asking with the CapEx increase and the revenue increase this year, I think he's trying to look at intensity, but he wants to know what about the revenue guidance for the next several years? I'll stop here.

Let me answer that question. Because of the revenue corresponding to our investment, right?

Because of we know we forecast our demand and then we make assessment, and then we do the CapEx. Next few years, it's going to be a very good business for TSMC.

That's what I can say. Then

the other part, what's the key driver? Is it cloud AI?

Is it edge AI? Is it because tool vendors are increasing their price?

It's all AI-related, everything.

Yeah.

You have a quick follow-up.

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

Thank you.

Thank you. Haiss' second question is around the competition in advanced packaging.

If our competitors are able to gain traction or business with things like EMIB-T, would that be the gateway or an entry way into more competitive threat on the front-end logic wafer side? Does advanced packaging lead to front-end wafer—

Haas, let me answer that. The front-end wafer business and the back-end business are two different thing, right?

If they are the same, then you can expect the ASE become the front-end competitor also. It's two different thing.

I also say that since our capacity in the back end is so in shortage mode, the gap is bigger. I welcome that the competitor offers some of the flexibility to my customer, so that their front-end wafer can be put into the package, and that help TSMC's front-end wafer business.

That's our attitude.

Thank you.

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

Thanks for taking my question. You previously said that the high-NA tools were too expensive, but could you please discuss how your customers are considering the impact of die stitching challenges from a smaller field size with high-NA?

Could that actually slow the adoption of high-NA even if the tech looking improved or the tech there gets more productive? I have a follow-up.

Thanks.

Rob's first question is a very specific technology, around high-NA adoption. He wants to know the customer's feedback on the challenges with die stitching.

Is this an impediment or barrier to high-NA adoption in our view?

You've got a very detailed understanding of the high-NA. Today, the field size is only one half, and we put that one into our consideration of the manufacturing cost and something.

Again, let me answer this question quickly. Whether we use a high-NA or not, actually, one, high-NA is a very good tool.

Let's assume that, all right? We understand it's a very high performance.

Then TSMC make it clear that we work with ASML and try to make it more suitable for manufacturing in terms of the cost and in terms of the maturity. We always consider that technology, maturity, and the cost, and whether we use it or not.

Okay.

Okay. Thank you, C.C.

Do you have a second question, Robert?

Just a quick follow-up. I think all of us on this call are assuming that the unconstrained demand for 3-nanometer and below is sort of 30% to 50% above your ability to supply.

Is it, in fact, much larger than 30% to 50% above? Because it feels like it might be based on what you're saying, because I think all of us are assuming it sort of solvable over the next 3, 4 years, but it sounds like the number could be much larger.

Thanks.

Those are your numbers, but Robert is asking the demand in excess of supply, is it 30% to 50%? Is it something even larger?

Do we have a number to share?

No, we don't have a number to share because of let me say that the gap is very big. Sorry, I don't want to make a comment on the memory, but a very big gap.

Okay. We have about 9 minutes left.

We'll come back to the floor with any question. Let's take one from here.

Evelyn Yu from Goldman.

Thank you for taking my question. Cuz we mentioned a lot on that we're going to step up our capacity growth, I'm just trying to quantify here cuz I noticed that during your symposium that you actually mentioned about 2-nanometer family capacity growth will be growing at around 70% CAGR from 2026 to '28, and N3+ and N5 to grow by 25% CAGR from 2022 to 2027.

I'm just wondering are those numbers still right assumptions today? Are we seeing actually any changes over the past quarter and how should we compare with the non-supporting demand out there?

Okay. Evelyn's first question is around capacity growth.

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

Did we say that in technology symposium? Oh, we showed the chart.

Now is a bigger. That's what I say.

Do

you have a second question?

Okay. Thank you, very good direction.

All right. My other question is touch based on the advanced packaging side, cuz you always bundle the advanced packaging CapEx together with testing, mask making, and others, that's around 10% to 20% of total CapEx.

One thing I'm trying to figure out here is that how much of that actually goes to advanced packaging alone? Cuz given that advanced packaging is less capital intensive versus front end, how should we think about a gap between its raise in revenue share and its CapEx share over the next few years?

I think finally is that as it becomes more important, maybe you should consider bringing it out as a separate CapEx item going forward?

Okay. Evelyn's question is around advanced packaging.

She wants to know when we guide for the CapEx, of course, we guide it in a bucket of packaging, testing, mask making, and others together. Why do we not separate out just into packaging specifically?

Her suggestion is we should. I think more so that's part of it, number one, the CapEx breakdown.

Evelyn, let me say that we try very hard to make sure that our CapEx number is correct, but with a flexibility between the front end and the back end. Sometimes we have a bottleneck, we put more money to buy the bottleneck tools.

Sometimes is in the front end, sometimes is in the back. In the ballpark, the percentage is just like Wendell share with everybody, for long term, that back end is about

10%

to 20%. Oh, that's a big range.

Anyway. What I can say is that's still 10% to 20%.

Because of, as I said, actually, I'm very honest to tell you that as time goes by, some of the CapEx in the tester or in the packaging or in other areas, so that's why we cannot very specifically say which area we put how much of the CapEx.

That's too specific. Yeah.

Okay. We have the last participant, KGI, Felix Pan.

Thank you for being patient.

Hello, good afternoon. Thanks for taking my question.

My first question is regarding to the CapEx revision. From year to date, TSMC raise the CapEx guidance by almost 10, yeah, $10 billion.

Can you give me some color where is the upside from? How you guys see the different from 6 months ago?

Is that from like CPU accelerator, or memory company, or back-end CoWoS expansion? Just the upside, how we see things differently from 6 months ago?

Okay. Felix is noting in January we guided for $52 billion to $56 billion, in April we said closer to 56, now 60 to 64.

We have increased the CapEx guidance. What is driving this?

Is it agentic AI only? Is it packaging?

Is it AI accelerator?

Simply put, the most important reason is because of demand continued to increase, and we feel the pressure from the customer to cooperate with TSMC for the capacity increase. That's one of the major reason.

The second reason is inflation. Now we buy the tools with the inflation price.

Okay. You understand what I say.

Okay. Thank you.

My second question is about the mature node. People always focus on AI leading node, but it seems like mature node also seeing a very strong demand recovery and also some supply issue as well.

How you guys see the demand-supply dynamic and pricing for the mature node? Because apparently, there's some impact from the AI crowding out effect, but mature node still largely depends on the consumer demand.

Consumer demand still weak, how you guys see the demand-supply dynamic for mature node? Thank you.

Thank you. Felix's second question is on mature node.

He notes there's lots of talk that mature nodes are seeing a strong demand recovery and the supply is very tight, mature node pricing is very favorable or strong. He wants to know how do we see the mature node supply-demand situation?

Actually, the mature node cover a lot of different segment. Only the one with related to AI is in shortage, which is the most important one is the number one is the power management IC, because of all the AI data center need a lot of power management.

Those are the mature node technology, like 0.18 micron, 90-nanometer, or something like that. Those are in shortage, definitely.

Also, the sensor portion, because of you need a lot of sensor to detect the environmental information and put into the AI data center to analyze it. Other than that, other area, just like you pointed out, the consumer product is not in a high demand.

Other segment is not so strong demand. As I pointed out in my statement, other area, no, it's not so much of say in a lot of shortage, not at all.

Okay. Thank you.

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

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

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

If some of you were not able to ask your question, please feel free to reach out to TSMC IR, and we will follow up with you. Thank you, everyone, for joining us today.

We hope everyone continues to stay well. Have a good summer, and we hope you'll join us again next quarter.

Thank you, and have a good day.