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're joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the second quarter of 2026, followed by our guidance for the third quarter of 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. Cici Wei, will join me to provide the company's key messages. Then we will open both the floor and the line for the question and answer session. As usual, I'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now, I would like to turn the microphone over to TSMC CFO, Mr. Wendell Huang for the summary of operations and the current quarter guidance.

Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2026. After that, I will provide the guidance for the third quarter of 2026. Now let's move on to revenue by technology. 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 3.5 trillion NT or 110 billion US dollars. On the liability side, current liabilities increased by 144 billion NT quarter over quarter mainly due to the increase of $58 billion in accounts payable and the increase of $48 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable days increased by 3 days to 29 days. Inventory days increased 7 days to 87 days primarily due to the ramp of N2 technology. Regarding cash flow and CAPEX, during the second quarter, we generated about 783 billion NT in cash from operations, spent 496 billion in CAPEX, and distributed 156 billion for third quarter 2025 cash dividend. Overall, our cash balance increased 99 billion NT to 3.1 trillion at the end of the quarter. In U.S. dollar terms, our second quarter capital expenditures total $15.7 billion. I finished my financial summary. Now let's turn to the current quarter guidance. Based on the current business outlook, we expect our third quarter revenue to be between $44.6 billion and $45.8 billion U.S. dollars. which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint. Based on the exchange rate assumption of US$1 to 32 NT, 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 its 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 with 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 continue 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 a steep ramp-up of our two-nanometer To dilute our gross margin by about 3-4 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 FAS in the next several years to be 2-3% in the early stages and widen to 3-4% in the latter stages. On the other hand, demand for our leading-edge technologies is very strong. In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater across-node capacity optimization in our fab operations to support our profitability. Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about our 2026 capital budget. At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structural demand from the industry megatrends of 5G, AI, and HPC. Given the continuous strong structural demand from our customers, including the newly emerging agentic AI market, we have decided to raise our full year 2026 capital budget to be between 60 and 64 billion US dollars as we continue to invest heavily to support our customers' growth. We always collaborate closely With the two suppliers well in advance to prepare the capacity, whether it is a strong up cycle or down cycle. Just like our customers collaborate with us well in advance to plan our capacity. Thus, we do not foresee any bottlenecks to our capacity expansion plans. About 70 to 80% of the 2026 capital budget will be allocated for advanced process technology. 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 KPAC spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increased Thank you for joining us. 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 US$40.2 billion at the high end of our guidance in US dollar terms. We expect our business to be supported by continuous strong demand for our leading edge process technologies, including the steep ramp of our 2 nanometer technology. Looking ahead, we observe consumer and the price sensitive end market segment are being challenged. Thank you for joining us today. The AI megatrend continues to drive the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers, and customers are customers, who are mainly the cloud service provider, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multi-year AI megatrend remains very high. Supported by our robust technology differentiation and broad customer base, we now expect our four-year 2026 revenue growth to be slightly above 40% year-over-year in U.S. dollar terms. Now let me talk about the acceleration of authentic AI. The AI market continues to be very dynamic. The emergence of authentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drive more silicon demand in addition to AI accelerators. We believe this is positive for TSMC, as no matter what We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity So they can capture the authentic AI market opportunities. Next, let me talk about TSMC's capacity expansion strategies. To address the structural increase in overall long-term semiconductor market demand profile, TSMC collaborates closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies and the designing that this time involved, we also have a very good idea of their multi-year product roadmap and production plans. This is important because it takes more than five years to develop the technology and product, prepare the capacity, and ramp it up to high-volume production. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach. This is a continuous and ongoing process. Based on our assessment, we are stepping up our capex investment to increase our capacity to support our customers' future growth. Now, with the strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city government, we would like to announce an additional $100 billion U.S. dollar investment in Arizona. This is to build several more semiconductor logical wafer plants for two nanometer and below technologies, as well as an advanced packaging class to support the strong multi-year demand from our leading U.S. customers. We believe this investment will help to further foster the development of the U.S. semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech are paying jobs in the United States. At the same time, we are building 13 leading edge and advanced packaging plants in Taiwan over the next several years, and we will continue to further invest in Taiwan. Therefore, the SMC's semiconductor technology and manufacturing will continue to play a pivotal role in supporting the global semiconductor industry Our customers are innovative. Now let me talk about the current N3 capacity expansion. We are executing well on our global plan to add three additional three nanometer plants, one in Taiwan, one in Arizona, and one in Japan to support the robust multi-year pipeline of demand for 3 nanometer technologies. In addition to all the new plants, 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 plant in all locations to generate more waiver output. We are also focusing on capacity optimization across nodes, which includes 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 strategy. TMC's strategy at mature node has not changed. Our first priority is to fully support our customer. And now we continue to increase, not decrease, our mature node capacity in the higher value entry segment. For example, we are increasing our material load capacity through JASM-Vec-1 in Japan for CMOS image sensor application 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 sensor, The regional 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 customer support. Finally, let me talk about our A14 status. As I mentioned a few minutes ago, The complexity of leading-edge technology continues to increase. The lead time to develop a new technology such as the N14, building the capacity, and then ramping it up now takes 5 to 7 years. There are no shortcuts. Our N14 technology representing the second generation of narrow-seed transistors can 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 IN2, 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% shift density gain. A14 technology development is on track and Poverty Will. Internal product like the vehicle demonstrated close to 90% device performance and close to 90% 256 megabits SRAM yield. We are observing a strong level of customer interest and engagement from both smartphone and SPC AI applications and customer now tap out activities ongoing and ahead of schedule. Reproduction was started in 2027 and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduced A13 and A12 as extension of the A14 family. A13 represents a further advancement over A14 Achieving an over 6% high area saving through an innovative 97% optical strength. Through continuous design technology co-optimization, A13 also drives further performance and power efficient improvement. A13 design rules are backward compatible with the A14 to ensure smooth IP migration. We also introduced A12, which will bring our innovative superpower rail technology to the A14 platform for superior performance, power, and area benefits. Both A13 and A12 are scheduled for volume production in 2029. We believe A14 and its derivative technologies will prepare our A14 Thank you, C.C.

So 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 the 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. So for those of you on the call, if you'd like to ask the question, please press star then 1 on your telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star 2. Please note that we will try to conclude today's meeting at around 3.10 or so. So we will try to get in as many persistent questions as possible. But if we're not able to, we do apologize in advance and thank you everyone for your patience. So, operator, well, let's begin the Q&A session. We'll take the first 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. So, number one, I'll do a double-click on the KPACs. So very encouraging KPEX outlook, and I do think it's essential that TSMZ showcase stronger determination in capacity expansion, given the stronger demand and the very tight supply. And so beyond 2026, I think every large client also wonders how aggressive TSMZ is planning for KPEX. Back in the COVID super cycle, TSM 50 provided a three-year KPEX outlook by then. I wonder at this point, will it be possible for you to share any colors, maybe for the coming three years KPEX? Thank you.

Okay, so Sunny's first question is regarding KPEX. She does believe it's important, essential to show our determination to support our customers with these large KPEX investments. So she wants to know, Do we have a three-year CAPEX guidance, 26, 27, 28, similar to what we did back in 2021?

Sunny, we do not have a number to share with you. But as you know, we invest CAPEX this year for the future business opportunity. And as long as there are business opportunities, we will not hesitate to invest. As you can hear from our prepared remarks that we are conviction in the megatrend, AI megatrend multi-year is very strong and we are 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 is the CAPEX in the Next three years will be even more significantly higher than the past three years.

Yeah, well, sorry, maybe let me follow up on K-PACS for another. Oh, yeah, sure. So you just announced additional $100 billion K-PACS in the U.S., and I think that's pretty important for you to secure the business in the U.S. as well. And so now with total $265 billion K-PACS in Arizona, what's your current plan to bring on the capacities in Arizona in the coming few years?

Okay, so Sunny's second question is on, you know, CC said investing an additional $100 billion in Arizona based on the strong demand from our customers. So the total investment now is $265 billion. What is the schedule, time frame, or the plan for this investment? Is that correct, Sunny? Yeah, okay.

Sunny, the schedule will depend on the market situation. You know that. So today's the situation. The NANCO trend is so strong so that we announced additional $100 billion investment in Arizona. How many fax? Many. So actually, let me say that. Probably additional four or more fax were reviewed.

And that's combining funding back in?

Yes. 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. Thank you for taking my question. Good afternoon. So first of all, so congrats for a very strong outlook. My first question is really about the foundry competition. I understand that there's no shortcut for a newcomer like TerraFed, but how about like Samsung Foundry, right? They've got a huge property from memory business. I'm not sure how TSNC is going to address those competitions because apparently several U.S. companies are engaging with those industry peers. And recently, actually yesterday, ASMS has announced to expand the EUV capacity for 2028 with TSNC worried that your competitors to take more slots and build a large capacity in the future to

Thank you. Okay, so Charlie's question is competition from two angles. One, you know, he does note, as he said, boundary competition, no shortcuts, but he says according to the news, many of our customers are engaging with our boundary competitors. One of them in Korea is making huge amounts of money these days. Another one may have

Let me say that, yes, one of my competitors in South Korea, they make a huge amount of money, and I'm jealous about it. And then the other one in the U.S., they got very strong U.S. government 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 is no shortcut. What does that mean? Meaning that in this semiconductor industry, you have to go back to fundamental. You know, governments are here. It's welcome. Really, we also appreciate that. A lot of money, of course, that's nice to have. But the most important thing, as we continue to say, is that technology, manufacturing, and Cosmo Trucks. These three fundamentals never changed for my 30 some 40 years of career. It's always the most important thing. And that's always the TSMC's secret recipe to win the business. So from the competition point of view, choosing a technology Ren Vinilab is not buying milk from 7-Eleven. Well, I'm using that. I'm quoting the sentence for 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 five years. It's not that today you think this milk is better, you go to the next store, it's a 7-Eleven. You don't like it, you go to another store. No. So that's my answer.

Charlie, do you agree? Yeah, so hope you can buy more milk so other people can get it. Thank you. Yeah, so let me switch here to a more exciting side. Cici just said you see a very strong signal from customers. You also revised the four-year rule guide. Are you ready to revise the five-year rule, especially the AI semi-cager? I remember it was like high 50%. But here comes the question, right, that HMD AI demands so strong, CPU is a great opportunity for TSMC, but how about there's a kind of memory cost increase, right, it's kind of a big chunk of the AI capacity. So what's the aspect of the AI as a indicator, and how should we look at the contents

Okay, so Charlie's second question is regarding the AI-related demand. We do continue to see very strong and positive signals from our customers, customers, customers. We've revised up our full year. So his question is around our AI CAGR guidance that we gave in January on a five-year period, mid to high 50s CAGR growth. He's wondering if there's any update to that. GenTech AI, a new opportunity. What is our definition? of AI Southerners, do we include that, and what is the CAGR?

Charlie, if you read our message that we continue to invest more, we increase the CAGR, with a good reason. So if you 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 it continues to increase, so we don't know how to answer this question. But 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.

First, congrats on the strong execution and performance. My question is regarding the new advanced packaging technology. We noticed that especially the EMIDT is gaining attraction. So how would TSMC react to this request?

Okay, sorry. So Arthur's first question is on advanced packaging and competition. I guess very simply put, EMIDT, in his view, is gaining traction. So how do we see the competitive threat from this?

Well, let me say that our packaging capacity is so tight that now it's a little bit of my customers' growth. So we welcome that additional flexibility in the market. And so that will help TSMC's, you know, business growth, which is a majority part of TSMC's business. The technology looks good according to the newspaper. And we hope they will be successful and so that they share some of the loading from THMC. Today we're working very hard to shorten the gap between the demand and the capacity. And so as I said, we welcome these additional alternatives and so the flexibility for my customer.

Thank you. That makes a lot of sense. So the follow-up. So this is a new technology, right? So if your clients, they ask you support and our value is support our customer success, right? How TSMC will handle this special request? Sorry, your question is... So if these technologies have some... Our number one is to support our customers' success.

So, whatever that we can help our customers, the business, we want to win. Does 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.

Google, yeah.

Google.

Yeah, hi. Thanks, Sissy 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, customer-customer feedback is important. Do you also consider competitive pressure, because as an outright market leader, having Under supply for a very long period of time is not really desirable for TSMC. You probably want a market which is more balanced. So 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. And second, chips obviously is the current shortage, but there's also a lot of discussion about data center delay, Power capacity being available. So, would you also share some thoughts on how you are layering in that kind of concerns because you don't want your chips to be available but having to wait for the data center deployment to happen. So, just to understand how that goes into your planning framework as well.

Thank you. So, Koko's first question is, again, how do we plan our capacity and determine the capacity expansion plan? Certainly, we take into consideration the demand, multi-year demand from our customers and customers' customers. But do we also consider the competitive pressures from competitors' building capacity? Is that part of our calculus to expand the capacity, one? And then also, what about things outside of chips like data center delays or power, these type of deals?

Goku, that's a good question. Definitely, every time when we think about business, we consider the competition. That's the number one. And then we look at where we are. And then we decide a bottom-up and then top-down assessment of those demands. Those are the typical things in our daily lives. So we make a lot of adjustments and then we be more careful We talk to customers, and customers are customers. Those are the CSPs. And then we get all their input, all the demand. And then we make a judgment. Now remember that I believe every customer tells me the truth. Everyone. You put all the truth together, it's not the truth. So we have to make some of the judgements. You know what I mean? You know, things you are loving. Because all the customers are very aggressive, right? That's a CEO's job. CEO's got to be aggressive. So they give me the number of their demand, and I believe they try their best to tell me the truth. So I put all together. All the truth together is not a truth. Marks on that word. So, yes, we do a very careful judgment. Might not be correct, might not be correct, but we did a careful, and because this is a big money, right? This year we say we increase the K-PAL from 60, from 52 to 56 now, 60 to 64. And that, that's what continues to increase. It's a big money, so we do it carefully. So we did all the assessment and that leads to your second question. Are we sure that we deliver the chips to our customer and they will not put into inventory? So we actually, we are checking the AI data centers of progress. The building, the location, the demand, the rest, we checking all that. to make sure that THMC's chips will not be put in inventory. Does that answer your question?

Yeah, that's clear. So, Sivi, 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 plants?

You want me to give you a guarantee, right? Let me say that. I believe from this day on all the way to probably 20, 29, 20, 30, the demand is very strong. Whether in between there's a dip or not, I'm not very sure. But the trend is so robust that I believe we are witnessing a kind of a new industry. I would like to say the new industry called AI technology. Thank you for your attention. And so the demand will be there. And the fundamental thing is semiconductor chips, and most of them in TSMC.

Thanks, Sinti. My second question is on your profitability. So, Sinti, you joke that you are definitely jealous of your memory competitor on their margins. Thank you very much. Semiconductor Manufacturing Company at this point in time. So you probably have less pressure in terms of passing on your value and capturing your value right now compared to maybe one year back.

Okay. So Gokul's second question is on profitability and pricing to a certain extent. Of course, some of the memory makers are making very good profitability and margins today. But he knows the role of foundry could be even more value and TSMC's role as well. So what should be the right way to think about the long-term profitability for a foundry? Should it be better? And then I guess really pricing into this. What type of pricing approach do we want to take?

Yeah, Goku, your question actually is simple. You know, what is the vapor pricing strategy for TSMC and what kind of gross margin we should have? The higher the better, of course. But we are a partner. A partner meaning that I say many times, our customers have to be successful. I don't want to sweep them out from the market. And besides, we are a very trustable company with our customers. So we don't suddenly increase our price by, which I like to have, 4X or 5X. Yeah, it's... We cannot survive for your customer to survive for that kind of a price increase. So we earn our value and we make sure that our profit, our gross margin is enough for our long-term sustaining expansion that's to the benefit of my customer and TSMC also. That's our philosophy. So, yes, I'm really jealous about the memory company's 86% gross margin. 86, 68, I'll be happy about that. All right, anyway, so I answer the question. We are very trustable.

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

Yes. Now this is Jim Fontanelli from Erity.

Yeah, thank you. Thank you. So, can I ask about the risk that you see around customer concentration as AI demand continues to significantly outgrow other end markets? I think your exposure to your top five customers is becoming meaningfully larger than at any point in your history, so I'd just like to understand how you see that risk.

So 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 customers are growing bigger and bigger. We are very happy about it. And some of the customers are growing very fast. So it's not, Jim, it's not what you... I mean, there's a lot of new players in the AI industry.

Do you have a second question? Thank you.

Yes. So you would say your direct customers put capital into both financing, investing, and investing in AI demand. Is that something that CSMC is considering?

So, Chyn's second question, he knows some of our customers are, you know, helping to invest in their customers. Chyn, if I understand you right, correctly, you're asking if TSMC, if this is an approach we would take to invest in our customers, is that correct? For financing and investing?

Yeah, in the end-end customers, not the direct customers.

Right, so in customers' customers as well.

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

Okay. Thank you, operator. Can we move on to the next participant on the line? Then we'll come back to the floor.

Next one to ask question, Madi Hussaini, Tai Chi.

Yes, thanks for taking my question. Two from my end. I want to go back to the 100 billion investment in the U.S. Is there any way you can give us some timeline over the next three years, five years? How should we think about the progression of these 100 billion investment in the U.S.? I don't have a follow-up.

So Madi's first question is around the announcement today, additional 100 billion investment in the U.S., In terms of the CAPEX timeframe, is it in the next three years, in the five years? Do we have any schedule or timeframe to share about this additional $100 billion?

We do have a plan, but let me share with you actually the progress or the schedule. Most of the time depends on the market situation and our customers' demand. So if you ask me to give you a firm schedule, no, we don't have it today. But we do have a plan. And we speed it up. We try to speed it up as fast as possible. So the message is, you're practical, but also you're expediting the investment to us.

Is that correct? So it is. Well, I think the thesis is that we're trying to move as fast as we can, but everything is based on our customer needs. Yeah.

We're also moving the The demand and the supply, the gap is so big. So we are working very hard to narrow the gap. Do you have a question?

And I want to follow, actually I want to dive into the compute part of an HPC. And I want to ask you about networking switches. And in that context, when should we expect a group platform to have a material contribution to your top line?

So Medhi's second question is very specific. He wants to know, for our coop platform, when will it have a very meaningful contribution to the business?

We start the production right now. And you will remember, as time goes by, I think the AI data center needs to lower down the power consumption. and increase the bandwidth of the communication channel. So I believe the coop will continue to increase the demand and then will become a very important technology in the next few years. Okay.

Thank you. Let's come back to the floor. We'll take the next question from City Bank, Laura Chen.

Thank you. Thank you very much for taking my questions. My first question is also about very promising outlook as TSMC raised the CapEx and also the growth outlook for this year. And particularly, I think, Siti, you mentioned about the agentic AI and the CPU growth potential. But can you give us more update among that AI, different kind of achieves between GPU, accelerators, or CPU? You see the growth potential and your visibility. Thank you.

So 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 within the AI, the outlook for, you know, agentic AI and CPUs versus AI accelerators, GPUs, et cetera. How do we see these segments?

Laura, I don't think I can give you a very specific number, but let me share with you. All of them are in TSMC, and they're also using the same kind of leading-edge technologies. We're working with our customers to allocate the waiver, the supply, to balance the CPU, GPU, XPU ratio.

Okay, thank you. Yeah, that makes sense. And then my second question is also about event packaging. We know that during the symposium, TSMC previously already announced 14 times radical COAS roadmap to enable larger AI packaging. But at the same time, we also noted that TSMC, maybe last month in Japan, we showed the software developments for COAS to enable some of the glass technology. So I'm just wondering if you can give us more like technologies, progress update on the different kind of technology for glass core or glass substrate or glass carrier. What's the progress at TSMT right now? Thank you.

So Laura's second question is on mass packaging. She knows, as we said, we wrote back to even larger than 14X reticle size with co-ops. But she also wants to know the technology process in newer areas like glass substrates, glass cores. What is the progress and status?

Let me say that today the majority is still cores, right? And we are developing that alternative to try to lower down the cost. And we also work with substrate vendors so that our customers can have their product be in the market. The progress, we're building a pipeline that I announced a few quarters ago. And it will take about another one year to be mature so we can put it into the production with our customer.

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

Bank of America, Hoss Lou, sorry. Thanks CT, 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. And you also raised this year at 40% plus. So will you be able to provide your next couple of years sales growth outlook, try to quantify it? Relatedly, I think also on that topic is whether you can just try to break down which part of the demand you are seeing as the key driver for you to raise your key packs and also for this year's demand. Is this still mostly driven by cloud computing or it is probably relating 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. So I'm going to take that as one and a half questions at least. But Desley 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.

Yeah, I'll stop there. Okay, let me answer that question. Because of the revenue... Corresponding to our investment, right? Because we know, we forecast our demand, and then we make an assessment, and then we do the K-PASS. Next few years, it's going to be a very good business for TSMC, that's all I can say.

And then the other part, so what's the key driver? Is it cloud AI? Is it edge AI? Is it because cool vendors are increasing the price? It's all AI-related. Okay, 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 KPEX 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 MFT, are you worried that your value-add or your overall boundary business across front-end manufacturing to the back-end packaging business, the value-add could actually be cannibalized? With great competition.

Okay, thank you. So, Haas, the second question is around the competition in advanced packaging. If our competitors are able to gain traction or business with things like EMF-T, would that be the gateway or an entryway into more competitive threat on the front-end logic wafer side? So, does advanced packaging lead to front-end?

Haas, let me answer that. The front-end is wafer, basically. If they are the same, then you can expect ASE to become the front-end competitor also. It's too different. Too different thing. And I also say that since our capacity in the back-end is so in shortage mode, the gap is bigger. And so I welcome that Thank you. Operator, let's take one more from the online, and then we'll wrap up with back-to-person.

Next question, Robert Sanders from Toys R Us.

Yeah, thanks for taking my question. You recently stated that INA tools are too expensive, but could you please discuss how your customers are considering the impact of dive fishing challenges from a smaller field size with INA? Could that actually slow the adoption of INA, even if the tech improves or the tech gets more productive? I don't know if that makes sense.

Rob's first question is very specific technology. Around high NA adoption, he wants to know the customer's feedback on the challenges with die stitching. Is this an impediment or barrier to high NA adoption in our view?

You've got a very detailed understanding of the high NA. Today, the fuel size is only one-half. and we put that one into our consideration of the manufacturing cost and something. Again, let me answer this question quickly. Whether we use a high-end A or not, actually one, high-end A is a very good tool. Let's assume that, right? We understand it's a very high performance. But then, TSMC make it clear that we work with Thank you, CC. Do you have a second question, Robert? Yeah, just a quick follow-up.

I think all of us on this call are assuming that the unconstrained demand for free nanometre below is sort of 30% to 50% above your ability to supply. Is it in fact much larger than 30% to 50% above? It feels like it might be based on what you're saying, because I think all of us are assuming it's sort of solvable over the next three, four years, but it sounds like the number could be much larger than you think.

Those are your numbers, but Robert is asking, you know, the demand in excess of supply, is it 30 to 50 percent? Is it something even larger? Do we have a number to share?

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

Okay. We have about nine minutes left. We'll come back to the floor with any questions. Let's take one from here. Evelyn Yu from Goldman.

Thank you for taking my question. Because we mentioned a lot on that we're going to step up our capacity growth. I'm just trying to quantify here because I noticed that during your symposium that you actually mentioned about two millimeter family capacity growth will be growing at around 17% CAGR from 26 to 28, and N3+, N5 to grow by 25 CAGR from 22 to 27. So I was just wondering, are those numbers still right, assumptions today? Are we seeing actually any changes over the past quarter, and how should we compare with the non-supporting demand out there?

Okay, so Evelyn's first question is around capacity growth. She knows during the symposium we did share some Did we say that in technology symposium? Oh, we show the chart. Okay, now it's bigger. That's all I say. You have a second question.

Okay. Thank you. Very good direction. All right. My other question is touched based on the advanced packaging side because you always bundle the advanced packaging CapEx together with testing, mass making, and others. That's around 10% to 20% of total CapEx. And so one thing I'm trying to figure out here is that how much of that actually goes to advanced packaging alone? And because given that a bank's packaging is capital intensive, a lack of capital intensive versus front end, so how should we think about a gap between its pricing revenue share and its CapEx share over the next few years? And well, I think finally is that as it becomes more important, how should we think of maybe you should consider breaking it out as a separate CapEx item going forward?

Okay, so Evelyn's question is around advanced packaging. She wants to know when we guide for the CAPEX, of course, we guide it in a bucket of packaging, testing, mass making, and others together. Why do we not separate it out just into packaging specifically? Her suggestion is we should. But I think more, so that's part of it, number one, the CAPEX breakdown.

Evelyn, let me say that. We try very hard to make sure that our capex number is correct, but with flexibility between the front end and the back end. Sometimes we have a bottleneck, so we put more money to buy the bottleneck tools. And sometimes it's in the front end, sometimes it's in the back end. But in the ballpark, the percentage is just like a window shared with everybody. For long term, I mean, that's the back end, it's a So, we are 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 customers of products need more testers. You cannot believe that. I mean, so the tester in shortage, so we have to put more KPEX in the testers. or in the packaging or in other areas. So that's why we cannot very specifically see which area we put how much of the KPAX. That's too specific. Yeah.

Okay. Will the last participant, KGI Felix Pan, thank you for being patient.

Hello. Good afternoon. Thank you for taking my question. So my first question is regarding to the KPAX revision. So from here today, so TSNC raised the cathode guidance by almost 10 billion US dollars. So can you give me some color where is the upside from how you guys see the difference from six months ago? Is that from like CPU accelerator or memory combination or back-end code work expansion? Just the upside, how we see things differently from six months ago?

Okay, so Felix is noting in January we guided for $52 to $56 billion, in April we said closer to $56, now $60 to $64. So we have increased the KPEX guidance. What is driving this? Is it agentic AI only? Is it packaging? Is it AI accelerator?

Well, simply put, the most important reason is because of a demand continue to increase. and we feel the pressure from the customer to cooperate with TSMC for the capacity increase. That's one of the major reasons. The second reason is inflation. Now we buy the tools with inflation price. You understand what I say?

Okay. Thank you. So my second question is about the mature nodes. So people always focus on AI leading nodes, but it seems like mature nodes also seeing a very strong demand recovery and also some supply issue as well. So how you guys see the demand supply dynamic and pricing for the mature node? Because apparently there's some impact from the AI grounding our effect, but MatureNode still largely depends on the consumer demand. So consumer demand is still weak. So how do you guys see the demand supply dynamic for MatureNode? Thank you.

Thank you. So Felix's second question is on MatureNode. He notes there's lots of talk that MatureNodes are seeing a strong demand recovery and the supply is very tight. So MatureNode pricing is very favorable or strong. So he wants to know how do we see the MatureNode supply demand situation.

Actually, the mature node covers a lot of different segments. Only the one which is related to AI is in shortage, which is the most important one. Number one is power management IT, because all the AI data centers need a lot of power management. And those are the mature node technologies, like 0.18 microns, 19 nanometers, Those are in shortage, definitely. And also, the sensor portion, because you need a lot of sensors to detect the environmental information and put it into the AI data center to analyze it. Other than that, other area, just like you pointed out, the consumer product is not in a high demand, and so Other segment is not so strong demand. And as I pointed out in my statement, other area, no, it's not so much of a say in a lot of shortage. Not at all.

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.