Good afternoon, everyone, and welcome to TSMC's Q1 2024 Earnings Conference Call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials shortly. 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 Q1 2024, followed by our guidance for the Q2 2024. Afterwards, Mr. Huang and TSMC's CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open the lines for the question and answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. Now, I would like to turn the call over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with the financial highlights for the Q1, 2024. After that, I will provide the guidance for the Q2, 2024. Q1 revenue decreased 5.3% sequentially in NT dollars, or 3.8% in US dollars, as our business was impacted by smartphone seasonality, partially offset by continued HPC-related demand. Gross margin increased 0.1 percentage points sequentially to 53.1%, mainly reflecting product mix changes due to smartphone seasonality, partially offset by a less favorable foreign exchange rate. Total operating expenses accounted for 11.1% of net revenue, which is lower than the 12% implied in our Q1 guidance, mainly due to tighter expense controls. Thus, operating margin increased 0.4 percentage points sequentially to 42%. Overall, our Q1 EPS was 8.7 TWD, and ROE was 25.4%. Now, let's move on to revenue by technology. 3-nanometer process technology contributed 9% of wafer revenue in the Q1, while 5-nanometer and 7-nanometer accounted for 37% and 19%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 65% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 3% quarter-over-quarter to account for 46% of our Q1 revenue. Smartphone decreased 16% to account for 38%. IoT increased 5% to account for 6%. Automotive remained flat and accounted for 6%, and DCE increased 33% to account for 2%. Moving on to the balance sheet. We ended the Q1 with cash and marketable securities of 1.9 trillion TWD, or $60 billion. On the liability side, current liabilities increased by TWD 113 billion, mainly due to the increase of TWD 140 billion in accrued liabilities and others, partially offset by the decrease of TWD 44 billion in accounts payable. The increase in accrued liabilities and others was mainly due to the reclassification of the temporary receipts from customers from long-term liabilities. Our financial ratios, accounts receivable turnover days remain at 31 days, while days of inventory increased 5 days to 90 days, primarily due to ramp of 3-nanometer technologies. Regarding cash flow and CapEx, during the Q1, we generated about TWD 436 billion in cash from operations, spent TWD 181 billion in CapEx, and distributed TWD 78 billion for Q2 2023 cash dividend. In addition, we raised TWD 23 billion in cash from bond issuances. Overall, our cash balance increased 233 billion TWD to 1.7 trillion TWD at the end of the quarter. In US dollar terms, our Q1 capital expenditures totaled $5.77 billion. I have finished my financial summary. Now, let's turn to our current quarter guidance. We expect our business to be supported by strong demand for our industry-leading 3 nanometer and 5 -nanometer technologies, partially offset by continued smartphone seasonality. Based on the current business outlook, we expect our Q2 revenue to be between $19.6 billion and $20.4 billion, which represents a 6% sequential increase and 27.6% year-over-year increase at the midpoint. Based on the exchange rate assumption of 1 US dollar to 32.3 NT, gross margin is expected to be between 51% and 53%, operating margin between 40% and 42%. Also, in the Q2, we will need to accrue the tax on the undistributed retained earnings. As a result, our Q2 tax rate will be slightly above 19%. The tax rate will then fall back to 13%-14% level in the third and Q4, and the full year tax rate will be between 15% to 16%, compared to 14.5% in 2023. This concludes my financial presentation. Now, let me turn to our key messages. I will start by making some comments on the impact from the April third earthquake. On April third, an earthquake of 7.2 magnitude struck Taiwan, and the maximum magnitude of our fabs was 5. Safety systems and protocols at our fabs were initiated immediately, and all TSMC personnel are safe. Based on TSMC's deep experience and capabilities in earthquake response and damage prevention, as well as regular disaster drills, the overall tool recovery in our fabs reached more than 70% within the first 10 hours and were fully recovered by the end of the third day. There were no power outages, no structural damage to our fabs, and there is no damage to our critical tools, including all of our EUV lithography tools. That being said, a certain number of wafers in process were impacted and had to be scrapped, but we expect most of the lost production to be recovered in the Q2 and thus minimum impact to our Q2 revenue. We expect the total impact from the earthquake to reduce our Q2 gross margin by about 50 basis points, mainly due to the losses associated with wafer scraps and material loss. Next, let me talk about our Q1 2024 and Q2 2024 profitability. Compared to Q4 2023, our Q1 gross margin slightly increased by 10 basis points sequentially to 53.1%, primarily driven by product mix changes due to smartphone seasonality. We have just guided our Q2 gross margin to decline by 1.1 percentage points to 52% at the midpoint, primarily due to the impact from the earthquake on April third, as just discussed, and higher electricity cost in Taiwan. After last year's 17% electricity price increase from April first, TSMC's electricity price in Taiwan has increased by another 25% starting April first this year. This is expected to take out 70-80 basis points from our Q2 gross margin. Looking ahead to the H2 of the year, we expect the impact from higher electricity costs to continue and dilute our gross margin by 60-70 basis points. We also expect the higher electricity cost to indirectly lead to higher materials, chemical and gases, and other variable costs. In addition, we expect our overall business in the Q2 of the year to be stronger than the H1, and the revenue contribution from 3-nanometer technologies is expected to increase as well, which will dilute our gross margin by 3-4 percentage points in H2 of 2024, as compared to 2-3 percentage points in H1 of 2024. Finally, as we have said before, we have a strategy to convert some 5-nanometer tools to support 3-nanometer capacity, given the strong multi-year demand. We expect this conversion to dilute our gross margin by about 1-2 percentage points in the H2 of 2024. To manage our profitability in H2 2024, we will work diligently on internal cost improvement efforts while continuing to sell our value. Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margins of 53% and higher is achievable. Okay, sorry to interrupt, Wendell, because we have been informed that some of the audience are having difficulty linking through the website to the call. So let's pause a few minutes, and we'll continue once we've resolved the IT issue. Thank you, everyone, for your patience. [Foreign language] ... on the telephone call, sorry, we're having a little bit of IT issue. We should expect hopefully to resolve it very soon. So just please, hang on for a few more minutes, and thank you for your patience. Okay. Thank you, everyone, for your patience. Sorry about the technical issues. We believe the webcast, if you're through the TSMC website, you should be able to log back in and listen to the webcast. For those of you on the line or having difficulty with the telephone, I think try the webcast first, and the telephone line should be available shortly. Again, sorry for the inconvenience, and thank you for the patience. In light of the fact that we had these technical issues, I think we'll restart with Wendell Huang, our CFO, to give our guidance, and then we will go into our prepared remarks. Thank you. Thank you, Jeff. Sorry, everyone. Let me repeat the guidance for Q2 again. For the Q2 of 2024, we expect our business to be supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies, partially offset by continued smartphone seasonality. Based on the current business outlook, we expect our Q2 revenue to be between $19.6 billion and $20.4 billion, which represents a 6% sequential increase or a 27.6% year-over-year increase at the midpoint. Based on the exchange rate assumption of one US dollar to 32.3 NT, gross margin is expected to be between 51% and 53%, operating margin between 40% and 42%. Also, in the Q2, we will need to accrue the tax on the undistributed retained earnings. As a result, our Q2 tax rate will be slightly above 19%. The tax rate will then fall back to 13%-14% level in the third and Q4, and the full year tax rate will be between 15%-16%, compared to 14.5% in 2023. Now, that concludes the financial presentation. Let me now repeat our key messages. I will start by making some comments on the impact from the April third earthquake. On April third, an earthquake of 7.2 magnitude struck Taiwan, and the maximum magnitude at our fabs was 5. Safety systems and protocols at our fabs were initiated immediately, and all TSMC personnel are safe. Based on TSMC's deep experience and capabilities in earthquake response and damage prevention, as well as regular disaster drills, the overall tool recovery in our fabs reached more than 70% within the first 10 hours and were fully recovered by the end of the 3rd day. There were no power shortages, no structural damage to our fabs, and there is no damage to our critical tools, including all of our EUV lithography tools. That being said, a certain number of wafers in process were impacted and had to be scrapped, but we expect most of the lost production to be recovered in the Q2 and thus minimal impact to our Q2 revenue. We expect the total impact from the earthquake to reduce our Q2 gross margin by about 50 basis points, mainly due to the losses associated with wafer scraps and material loss. Next, let me talk about our Q1 2024 and Q2 2024 profitability. Compared to Q4 of 2023, our Q1 gross margin slightly increased by 10 basis points sequentially to 53.1%, primarily driven by product mix changes due to smartphone seasonality. We have just guided our Q2 gross margin to decline by 1.1 percentage points to 52% at the midpoint, primarily due to impact from the earthquake on April third, as just discussed, and higher electricity costs in Taiwan. After last year's 17% electricity price increase from April first, TSMC's electricity price in Taiwan has increased by another 25% starting April first this year. This is expected to take out 70-80 basis points from our Q2 gross margin. Looking ahead to the H2 of the year, we expect the impact from higher electricity costs to continue and dilute our gross margin by 60-70 basis points. We also expect the higher electricity costs to indirectly lead to higher materials, chemicals, and gases, and other variable costs. In addition, we expect our overall business in the H2 of the year to be stronger than the H1, and revenue contribution from 3-nanometer technologies is expected to increase as well, which will dilute our gross margin by 3-4 percentage points in H2 2024, as compared to 2-3 percentage points in H1 of 2024. Finally, as we have said before, we have a strategy to convert some 5-nanometer tools to support 3-nanometer capacity, given the strong multi-year demand. We expect this conversion to dilute our gross margin by about 1-2 percentage points in H2 of 2024. To manage our profitability in H2 of 2024, we will work diligently on internal cost improvement efforts while continuing to sell our value. Longer term, excluding the impact of foreign exchange rate and considering our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margin of 53% or higher is achievable. Finally, let me talk about our 2024 capital budget. Every year, our CapEx is spent in anticipation of the growth that will follow in future years. Our CapEx and capacity planning is always based on the long-term market demand profile. We reiterate our 2024 capital budget is expected to be between $28 billion and $32 billion as we continue to invest to support customers' growth. Out of the $28-$32 billion CapEx for 2024, between 70% and 80% of the capital budget will be allocated for advanced process technologies.... about 10%-20% will be spent for specialty technologies, and about 10% will be spent for advanced packaging, testing, mask making, and others. Now, let me turn the microphone over to C.C. Thank you, Wendell. Good afternoon, everyone. Before I start, I would like to take a moment and make a few remarks. On April 3, TSMC experienced a major scale earthquake of 7.2 magnitude. Our deepest sympathies and heart go out to all those who are affected by this tragedy. I also want to recognize and deeply thank all of our employees and our suppliers for their dedication and hard effort during this time. Although it was largest earthquake in Taiwan in the last 25 years, we worked together tirelessly and were able to resume full operation at all our fab within 3 days with minimal disruptions, demonstrating the resilience of our operation in Taiwan. Lastly, I would also like to extend our great appreciation to our customers for their understanding and support as we work to recover the lost production during the Q2. Now, let me start my prepared remarks with our near-term demand outlook. We concluded our Q1 with revenue of $18.9 billion, slightly above our guidance in U.S. dollar terms. Our business in the Q1 was impacted by smartphone seasonality, partially offset by continued HPC-related demand. Moving into Q2 2024, we expect our business to be supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies, partially offset by continuous smartphone seasonality. Looking at the full year 2024, macroeconomic and geopolitical uncertainty persists, potentially further weighing on consumer sentiment and end market demand. We thus expect the overall semiconductor market, excluding memory, to experience a more mild and gradual recovery in 2024. We lower our forecast for the 2024 overall semiconductor market, excluding memory, to increase by approximately 10% year-over-year, while foundry industry growth is now forecast to be mid- to high-teens%. Both are coming off the steep inventory correction and low base of 2023. Having said that, we continue to expect 2024 to be a healthy growth year for TSMC. Supported by our technology leadership and broader customer base, we expect our business to grow quarter-over-quarter throughout 2024, and we are to increase by low- to mid-twenties% in U.S. dollar terms. Next, I will talk about the strong AI-related demand outlook. The continuous surge in AI-related demand supports our already strong conviction that structured demand for energy-efficient computing is accelerating in an intelligent and connected world. TSMC is a key enabler of AI applications. AI technology is evolving to use ever increasingly complex AI models, which needs to be supported by more powerful semiconductor hardware. No matter which approach is taken, it require use of the most advanced semiconductor process technologies. Thus, the value of our technology position is increasing as customers rely on TSMC to provide the most advanced process and packaging technology at scale, with a dependable and predictable cadence of technology offering. In summary, our technology leadership enable TSMC to win business and enables our customer to win business in their end market. Almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing power. We forecast the revenue contribution from server AI processor to more than double this year and account for low teens% of our total revenue in 2024. For the next 5 years, we forecast it to grow at 50% CAGR and increase to higher than 20% of our revenue by 2028. Server AI processors are narrowly defined as GPUs, AI accelerators, and CPUs performing training and inference functions, including networking, edge, or on-device AI. We expect several AI processors to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. Now, let me talk about our global manufacturing footprint. TSMC's mission is to be the trusted technology and capacity provider of the global IC logic IC industry for years to come... Given the strong HPC and AI-related demand, it is strategically important for TSMC to expand our global manufacturing footprint to continue to support our U.S. customers' trust and expand our future growth potential. In Arizona, we have received a strong commitment and support from our U.S. customers and plan to build three fabs, which help to create greater economies of scale. Each of our fab in Arizona will have a clean room area that is approximately double the size of a typical logic fab. We have made significant progress in our first fab, which has already entered engineering wafer production in April with the N4 process technology. We are well on track for volume production in H1 2025. Our second fab has been upgraded to utilize 2-nanometer technologies to support the strong AI-related demand, in addition to the previously announced 3-nanometer. We recently completed the topping off, in which the last steel construction beam was raised into place, and volume production is scheduled to begin in 2028. We also recently announced plans to build a third fab in Arizona using 2-nanometer or more advanced technologies, with production beginning by the end of the decade. We are confident that once we begin volume production, we will be able to deliver the same level of manufacturing quality and reliability in each of our fabs in Arizona as from our fab in Taiwan. In Japan, we held an opening ceremony in February in Kumamoto for our first specialty technology fab. This fab will utilize the 12-, 16-, 22-, and 28-nanometer process technologies and is on track for volume production in the Q1 of this year. Together with our JV partners, we also announced a plan to build a second specialty fab in Japan with 40-, 12-, 16-, and 6-, 7-nanometer process technologies to support a strategic customer for consumer, automotive, industrial, and HPC-related applications. Construction is scheduled to begin in H2 2024, with production targeted by the end of 2027. In Europe, we plan to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial applications with our JV partners. Fab construction is scheduled to begin in Q4 this year. Our overseas decisions are based on our customers' need and the necessary level of government support. This is to maximize the value for our shareholders. In today's fragmented globalization environment, costs will be higher for everyone, including TSMC, our customers, our competitors, and the entire semiconductor industry. We plan to manage and minimize the overseas cost gap. First, pricing strategically to reflect the value of geographic flexibility. Second, working closely with government to secure their support. And third, leveraging our fundamental advantage of manufacturing technology leadership and our large-scale manufacturing base, which no other manufacturer in this industry can match. Thus, even after factoring the higher cost of overseas fab, we are confident to deliver a long-term gross margin of 53% and higher, and sustainable ROE of greater than 25% that we have committed to our shareholder. At the same time, TSMC will be the most efficient and cost-effective manufacturer in the region that we operate. We are continuing to provide our customer with the most advanced technology and scale to support their growth. Finally, I will talk about our N2 status. Our N2 technology leads the industry in addressing the insatiable need for energy-efficient computing, and almost all AI innovators are working with TSMC. We are observing a high level of customer interest and engagement at N2 and expect the number of the new tape outs from 2-nanometer technology in its first 2 years to be higher than both 3-nanometer and 5-nanometer in their first 2 years. Our 2-nanometer technology will adopt nanosheet transistor structure, I'm sorry, and be the most advanced semiconductor industry technology in both density and energy efficiency. N2 technology development is progressing well, with device performance and yield on track or ahead of plan. N2 is on track for volume production in 2025 with a ramp profile similar to our strategy of continuous enhancement and its derivative will further extend our technology leadership position and enable TSMC to capture the AI-related growth opportunities well into future. This conclude our key message, and thank you for your attention. Okay, thank you, C.C. This concludes our prepared remarks. Again, thank you everyone for your patience. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question. For those of you on the call, if you would like to ask a question, please press the star, then one on your telephone keypad now. And if at any time you'd like to remove yourself from the questioning queue, please press star and then two. Now let's begin the Q&A session. Operator, can we please proceed with the first caller on the line? Thank you. Yes. The first one to ask questions is Gokul Hariharan, JP Morgan. Yeah, hi, good afternoon, and thanks for taking my question. My first questions are on demand. C.C., you kind of reduced the expectation for the overall semiconductor industry growth. Could you talk a little bit about where is the area where you have seen that slower pickup in demand? I think you talk about smartphone a couple of times in the call. Is it primarily the smartphone area where you've seen a slower pickup in terms of demand? And previously, a couple of quarters back, you talked about cannibalization or decline in regular data center demand due to the crowding out of AI and being a drag for TSMC. Do you see that the regular compute, regular data center, networking kind of demand is coming back? Or is it still remaining muted and most of the demand uptick is still focused on AI? Okay. So Gokul, thank you. So Gokul's first question is, a little bit two parts. So he notes that we have lowered our overall semiconductor ex memory growth forecast for this year, to approximately 10%, and foundry now to mid- to high teens. So Gokul wants to understand, in what segments or applications or areas are we seeing a slower pickup in demand? And then also in terms of specifically AI versus traditional servers, how are we seeing that demand, shape out, and what is the impact to TSMC? Is that generally correct, Gokul? Yeah. I think maybe since you called out Smartphone, just maybe, mention how you see the Smartphone demand compared to maybe three months back as well. Thank you. Well, Gokul, this is C.C. Wei. Let me answer your questions and some of your comments also. Yes, smartphone end market demand is seeing gradual recovery, but not a steep recovery, of course. PC has been bottomed out, and the recovery is slower. However, AI-related data center demand is very, very strong, and traditional server demand is slow, lukewarm. IoT and consumer remains sluggish. Automotive inventory continue to correct. Okay, what does that mean to TSMC? You know, the budget for each hyperscale player, their wallet share shift from traditional server to AI server is favorable for TSMC, and we are able to capture most of the semiconductor content in an AI server system area, as we define the GPU, ASIC, networking processor, et cetera. Well, we have a lower presence in those CPU-only, CPU-centric traditional server. So we expect our growth will be very healthy. Do I answer your question, Gokul? Okay. So yeah, I just wanted to ask, is it smartphone the main change compared to, let's say, back in January, when you had more than 10% growth for semi, or is it across the board, you're seeing a slower recovery? So, Gokul is asking sort of, versus three months ago, where have we seen the major shift in the overall end market? Is there a particular area that we have seen? Yeah, Gokul, three months ago, we project that one of the platforms, automotive platform, was will increase this year, but then now we're expecting it to decrease. So I think that is the the one areas that we saw was different. Okay. Thank you. My second question, just wanted to understand gross margin trends. We talked about 3-4 percentage point gross margin dilution from N3 ramp in H2 of the year. Should we think that the N3-related gross margin drag is more severe than usual for what we have seen for leading-edge nodes in the past, or is it largely similar to what we've seen in N5 or N7? And when you go to N2, do you think that this will kind of be the similar pattern, or do you think that the gross margin dilution will be lower when we go to, like, future process nodes? Given that, N3 seems to be, at least compared to previous cycles, seems to be dragging a little bit more compared to, like, N5 or N7 in the past few years. Okay. Thank you, Gokul. So let me summarize your second question. Basically, it's on gross margin. Gokul notes that, you know, N3, as Wendell said, will dilute our margin by 3-4 percentage points in the H2. So his question is, it seems that N3, the gross margin dilution or drag, is more severe than past nodes such as N5 and N7. Is that the case? And also, of course, with N2 upcoming, will we face a similar pattern, or what is the margin profile for N2? Which I think Wendell can address. Yeah. Sure. Yes, Gokul, it is true that N3 is taking longer time to reach the corporate margin than the other nodes, like N5 or N7. N5 or N7 before, it was like 8-10 quarters to reach the corporate. But for N3, we think it will take about 10-12 quarters. And this is partly because N3 process complex. And also our corporate average gross margin also increased during the period. But another reason is that we set the pricing of N3 very early, several years ahead of production. However, we experienced a lot of cost inflation pressures in the following years. So as a result, N3 will take a longer time than N5 and N7 to reach the corporate average gross margin. For N2, based on what we can see so far, is that we are doing a better job in cost and selling our value, and we expect N2 to have a better margin profile than N3. Okay, that's very clear. Thank you. Thank you. Okay. Thank you, Gokul. Operator, can we move on to the next participant, please? The next one to ask a question, Brett Simpson, Arete. Yeah, thanks very much. I had a question on the AI returns at TSMC. So I think it's clear that AI is producing a large profit pool at your customers, and the HBM is also driving supernormal returns for memory players. So my question is, does TSMC believe they're getting their fair share of the returns in the AI value chain today? And is there scope for TSMC to raise pricing for AI chips in future? Thank you. Okay. Thank you, Brett. So Brett's first question is looking at the AI-related demand. He notes that AI customers are earning very good returns, HBM and other components as well. So his question is that whether TSMC, do we feel we are earning or capturing our fair value or right value of the returns? And I think on pricing, how would we price for AI, basically, I think. Brett, sorry, that's your question, right? Well, let me answer the question. Like that. Thank you, Jeff. You know, we always say that we want to sell our value, but it is a continuous process for TSMC, and let me tell you that we are working on it. We are happy that our customer are doing well, and if customer do well, TSMC does well. So, let me summarize in one word, we are working on it, and we hopefully that we can sell our value. Brett, does- Thank you- Yeah. C.C. For my follow-up question, I wanted... Yeah, that's, that's great, Jeff. Thank you. Thanks, C.C. And my follow-up question was on the lagging edge nodes at TSMC. And looking at Q1 sales for 12-nanometer and above, your overall revenues for these nodes collectively was off 20% year-on-year, and it's only 35% of your overall sales. Can you maybe share with us whether you see a recovery at all this year at these nodes? And we're seeing a lot of government support in building out new fabs in the U.S. and China around lagging edge nodes. So are you concerned at all about structural overcapacity for the older nodes this cycle? Thank you. Okay. Thank you, Brett. So Brett's second question is more on the mature nodes. He notes that the demand for our mature nodes, 12 nanometer and, you know, older, are down year-over-year. So he wonders sort of what is the outlook for the recovery of mature nodes in the H2 of the year? I think that's the first part of his question. Okay, Brett, let me answer this question. First, the mature node, the demand remains sluggish because of, you know, as we just announced it, that the whole semiconductor industry, it's gradually recover, but not fast enough. So we expect to gradually improve in the H2 of 2024. ... As you mentioned, do we have a concern on the overcapacity because of some of the companies, they continue to build a lot of mature node capacity? For us, actually, our strategy at a mature node is work closely with our strategic specialty technology solution to meet their requirement. And we create a differentiated and long-lasting value to customer. So, we have less exposed to this possible overcapacity environment. And we believe that our utilization and profitability on mature node can be well protected. Does that answer your second question, Brett? That's clear. Thank you. Okay, thank you, Brett. Yep, that's great. Thank you, Jeff. All right. Thanks, man. Thank you. Operator, can we move on to the next participant, please? Next one, we have Randy Abrams, UBS. Yes, I am. Thank you. I wanted to ask a question, following up on CC's comment about a ramp profile similar to 3 nanometer for 2 nanometer. Could you clarify for the timing of the meaningful revenue ramp, for that node? Is the expectation that would be starting early 2026 and ramping up, steep through 2026, or any potential to pull that in? And then just a, a second question on that is, you noted the tape outs are higher. Would there be potential, with higher tape outs than 3 and 5 for, either steeper or, or ramps to be larger than the prior nodes, once underway or, or looking out a couple of years? Okay. So Randy's first question is around 2-nanometer. So his first question is to CC. With that, we said that the N2 ramp profile will be similar to N3. We also said, of course, the production begins in 2025. So his question partly is: when do we expect to see the revenue contribution, meaningful revenue contribution from N2? And then also that with N2, the tape outs being higher, what is the multiyear opportunity or contribution from N2, maybe in terms of the revenue as compared to N3 or other nodes? Randy, the N2's ramp profile, we say, is very similar to N3 because of... Look at the cycle time. We started N2 production in the H2 of 2025, actually in the last quarter of 2025. And because of the cycle time and all the kind of backend process, and so we expect the meaningful revenue will start from the end of the Q1 or beginning of the Q2 of 2026. That's what is the profile very similar to N3. Now, your second question is, there have been a lot of engagement and the tape out will be higher, and do we see a very steep kind of production? Well, we do expect that, but let me say again, N2 is a very complicated work or very complex technology node. So my customer, they also take a little bit longer time to prepare for the tape out, so that's why they all engage with TSMC in the early stage. But for their product ramp up, they will have their own product roadmap and their own business consideration. However, we still say that N2 will be a very, very big node for TSMC. Randy, does that answer your question? Okay, great. That's helpful color. Yes, it does. And my second question is just relating to the upward expectations you gave for the AI accelerators. Curious how that ties to how you're looking at the CapEx. If you see that we're entering either higher growth or investment cycle, where capital intensity could need to rise up above that mid-thirties range that you set, or at least in absolute dollars from the $30 billion this year, we should start growing or thinking about CapEx at least growing with revenue. Okay. So Randy's second question is, basically, I think with such strong AI-related demand, what does this mean for our CapEx and capacity planning, and also, what does this mean for our capital intensity outlook? Yeah. Hi, Randy. For TSMC, a higher level of capital expenditures is always correlated with higher growth opportunity in the following years. We work with our customers closely, and our CapEx and capacity planning are always based on the long-term structural market demand profile that is underpinned by the multiyear megatrends. We always review our CapEx plan on ongoing basis, and as a key enabler of AI, we will work with our customers closely to plan the appropriate level of capacity to support their needs. ... And then in terms of the capital intensity and CapEx dollar outlook? Yeah. Yeah. The capital intensity in the past few years, it was high as we invested heavily to meet the strong customer demand. Now, the increase, the rate of increase for the CapEx, is leveling off. So this year and the next several years, we are expecting that the capital intensity is somewhere at the mid-thirties level. But as I just said, if there are opportunities in the future years, then we will invest accordingly. Does that answer your second question, Randy? Yeah, sorry, I'll ask a quick follow-up. Is this, would this be viewed as a bit of a digestion year, since you ramped a lot of the 3-nanometer spending in the past couple years? So then, as you kick off, too, like, I mean, should we look at it as a lower, do you, or should we see this as kind of a normal in that trend? So I think Randy's question is with Randy, you're still asking about CapEx. So is that correct? Yeah, still. Yeah. Yeah, sorry, still on CapEx. If it's a CapEx digestion year, since you've ramped a lot of 3nm spending already, and the 2nm is still a lot of that's still in front of us. Yeah, Randy, I wouldn't call it a digestion year. I mean, every year we invest based on the forward-looking business opportunities, and we constantly review that. So, this is what we're seeing in the future, and that's why we're the funds that we're investing in. So, no, I wouldn't call it a digestion year. Okay? Okay, good. No, thank you. Thank you, Wendell. Thank you. All right, thank you, Randy. Operator, can we please move on to the next participant, please? The next one to ask questions, Charlie Chan from Morgan Stanley. Hi, C.C., Wendell, Jeff. Good afternoon. Thanks for taking my question. So my first question is about selling the value. I think another caller also addressed this topic, but I want to go a little bit deeper. Because given all the efforts you made, right? And also ongoing cost challenge, no matter the coming US fab, and electricity cost hike, I'm not sure if you can give investors a kind of range about a potential price adjustment or kind of the value you're going to sell to your customers. Based on our back testing, I think, you know, based on your revenue and shipments in 2022 and 2023, we calculate your price hike could be around 10% in 2022, and a price hike 5% in 2023. So, C.C., I'm not sure whether you're planning to hike price in this kind of range or magnitude for 2025, so we can be comfortable you can achieve the 53% gross margin in 2025. Thank you. Okay. So Charlie's first question is about TSMC's pricing strategy. He notes that TSMC, of course, makes a lot of efforts to deliver technology, leadership, and manufacturing excellence to our customers, but we also face a lot of cost challenges, whether from electricity price hikes or the higher costs of overseas fabs. So his question is, number one, I guess, what is our intention about our pricing strategy to sell our value? And then, number two, he would like to know what percentage range, if any. Okay, Charlie, this is C.C. Wei. First, I'd like to emphasize again, this kind of a pricing strategy is very confidential, and it's totally that between TSMC and the customer. However, let me explain a little bit. We do encounter some kind of higher cost because in the overseas, or even recently, the inflation and electricity. We expect our customer to share some of the higher costs with us, and we already started our discussion with our customer. And as I said, for the overseas fab, we want to share our value, which also includes the flexibility of geographical location or something like that. If my customer requests to be in some certain area, then definitely, TSMC and the customer have to share the incremental cost. Charlie, did I answer your question? Yes, I think that answers my question. I think passing through some costs or the incremental cost to customers should be fair, especially you are creating lots of value to your customers. Thank you. My second question is about AI. You know, I know your CoWoS capacity has been very tight, very strategic. But I'm wondering how you're going to judge the demand and allocate the capacity to all the different type of AI semi customers? customers? Because we're hearing your major customers are demanding for 2X. So I'm wondering how are you going to allocate, right? Meaning, will you still reserve a certain percentage for some smaller or strategic customers, no matter those ASIC or smaller GPU vendors? So what is the kind of you know, a benchmark you are going to allocate those capacity to customers? Are you okay with that, if your major customer's demand cannot be fulfilled by you, are you okay to give out or lose some market share to some your industry competitors? Thank you. Okay, so, Charlie, second question is around, I guess basically our advanced packaging, and more specifically CoWoS. And he, of course, notes that the CoWoS capacity, the demand is very strong, today, and also into 2025, so the capacity is very tight. So his question is: How does TSMC decide on how to allocate the capacity to customers? Will we have large customers, but will we reserve capacity to support smaller customers as well? And then lastly, you know, would we be okay if customers want to use somebody else, so to speak? So several parts to this question. Charlie, let me say it again, the demand is very, very strong, and we have done our best, or we put all the effort to increase the capacity. It probably more than double this year as compared with. It's still not enough to meet the customers' demand. And we leverage our outside partners that to complement of TSMC's capacity to fulfill customers' need. Still not enough, of course, but in my mind, my first priority is to make our customer to be successful, no matter which one. And of course, the long-term partners will have a better, you know, cooperation with TSMC in terms of technology and the processing complexity, so much easier to be ramp up. However, no matter what, let me say again, the demand is very high, extremely high, and we are do our best to increase the capacity to alleviate the shortage. We also leverage outside partners. We want to make sure that all our customer get supported. Probably not enough this year, but for next year, we try, we try very hard. And, you, you mentioned about giving up some market share. That's not my consideration. My consideration is to help our customer to be successful in their market. I see. So, since your major customer said, there's no room for, you know, other type of AI computing chips, but it seems like TSMC is happy to assist some smaller customers, right? Is that the right interpretation about your comment? Yes. Yeah. Yeah. C.C. said all customers. Okay, thank you. Yeah. Thank you, Charlie. Okay, thank you, Charlie. Operator, can we move on? Thank you. Yeah, thanks. Operator, can we move on to the next participant, please? Next one to ask questions, Bruce Lu from Goldman Sachs. Hi, thank you for taking my questions. I think the... Again, the questions are coming back to AI still. I think currently, most of the AI accelerators are mostly in, 5 -nanometer, which is N - 1 compared to a smartphone for now. So when do we expect them to catch up or surpass in terms of technology node? Do we see them to be the technology driver in 2- nanometer or above? Okay, so Bruce's first question is about, again, looking at, AI accelerators. He notes that in his view, they're currently at 5- nanometer now. His question is: Do we expect them to catch up? How do we see AI accelerators and also maybe HPC as a whole being the driver or adopter of TSMC's technology node? Is that correct, Bruce? Yes, that's correct. Okay, Bruce, let me answer the question. Yes, your observation is right. Today, all the AI accelerators, most of them are in the 5- or 4-nanometer technology, but my customer are working with TSMC for the next node. Even for the next, next node, they have to move fast because, as I said, the power consumption has to be considered in the AI data center. So, the energy efficiency is fairly important, so our 3-nanometer is much better than the 5-nanometer. And again, it will be improved in the 2-nanometer. So, all I can say is, all my customer are working on this kind of trend, from 4-nanometer to 3- to 2-. Bruce? But if that is the case, yes, if that is the case, do we see a bigger revenue in the first two years of the 2nm? Because in the past, it's only smartphone, but in 2nm, it would be both the smartphone and HPC customers. ... So Bruce is asking then, well, then with such strong AI-related demand, should we see more revenue from 2-nanometer in its first 2 years compared to past nodes? Yeah. Yeah, Bruce, as we said, we believe our advanced technologies will be long-lasting nodes and larger nodes, N2 than N3 or N5. So the dollar value will certainly be larger. Yeah. I think, Bruce, we're looking at these opportunities in a multi-year period. So as Wendell and C.C. just said, certainly, with the demand that we're seeing, we do expect N2 revenue contribution to be even larger than N3, just like three is a larger contribution or larger node than five, et cetera, et cetera. I see. So my second question is for dividends. We do see very strong free cash flow in the Q1, and, you know, the capital intensity, as Wendell mentioned, is stabilizing. And we even started to pay a huge amount of return in tax. So, you know, do we... You know, can we turn more aggressive in terms of dividends? The current dividend level is much, much lower than 70% of free cash flow in the back-of-envelope calculations. So can we expect to see more dividends in the coming quarters? The second question is on the cash dividend policy. He notes that, you know, in the Q1, we're generating very, very strong free cash flow. As we have said, the capital intensity is beginning to stabilize, and also that we are paying a very high retained earnings tax. So his question, I think, is, you know, what is the outlook? Can we pay more dividends in the coming quarters, or what should investors expect? Yeah. Bruce, our dividend policy is, in principle, to pay 70% of a free cash flow in a year as cash dividends. So I would not just look at quarter and quarterly cash free cash flow to make a judgment. But indeed, as we said before, now that we're harvesting the heavy investment that we did in the past few years, we expect our dividend policy to stretch to steadily increasing from the sustainable in the past few years. Thank you. Okay, thank you, Bruce. Operator, can we move on to the next participant, please? Next one, we have Laura Chen from Citi. Hello. Hi, good afternoon. Thank you for taking my question. My question is about the edge AI. We know that C.C. mentioned that the smartphone and the PC recovery is still probably prolonged, yet we are also seeing that the AI PC or AI smartphone is getting quite topical. So I'm just wondering what's TSMC's view on this kind of edge AI device takeoff, maybe later or 2025, and what the implication to TSMC's? Yeah, that's my first question. Okay. Thank you, Laura. So Laura's first question is on AI, but more specifically, edge or what we call on-device AI. She notes that, there's AI being added, you know, to smartphones and also AI for PCs. It's quite topical, so she wants to know: How do we see this trend? More importantly, what is the implication to TSMC? Is that correct, Laura? Yes, thank you. Okay, Laura, let me answer the question. The edge AI or the on-device AI, the first order of magnitude is the die size. You know, without, without the AI, with the AI for neural processor inside, the die size will be increased, okay? That's the first we observe, and it's happening. And then for the future, I would think that replacement cycle for smartphone or for those, kind of a PC will be accelerated a little bit in the future, at least. It's not happening yet, but we do expect that it will happen soon. And all in all, I would say that, on-device AI will be very positive for TSMC because of we capture the larger share of the market. Did I answer the question, Laura? Yes, thank you. And so in that case... Yes, you're very helpful. So in that case, can we expect that our demand on N3? Because now it's still mostly on the smartphone or mobile. So, can we expect that the N3's revenue contribution in H2 or next year will be bigger, say, like, 20% plus in the H2 of this year? Okay, sorry. Well, Laura's follow-on to the first question is, then should we expect that N3 demand in the H2 or into 2025... Sorry, I didn't catch the exact percentage, but be a, a large percentage or significantly larger than it is today. Is that correct, Laura? Yes, thank you. Okay. Certainly, as I said, we expect to happen at, you know, a larger die size, as I said, we already observed that, and for the replacement cycle to be accelerated. It will happen, but I cannot give you a definite number because of, you know, it's too early to predict in 2025. But it's a upward trend, no doubt about it, and we expect we have a good business. Just to follow up on C.C.'s comments, last time we also said that this year, N3 revenue will be more than triple than the revenue in 2023. Okay, that's very clear. Thank you, C.C. and Wendell. My second question is about, again, advanced packaging. We know that TSMC is working on the 3D IC for many years. So I'm just wondering that, what's the current progress? Will we expect to see more meaningful takeoff with our N2 ramp up for, like a high-computing PC? And between different kind of technology, like hybrid bonding or TSV, what's TSMC's major consideration? Okay, so Laura, I guess second question, although... Yeah, fine. Second question is about our advanced packaging solutions and 3D IC solutions. She's wondering, what is the outlook or take up for the demand for the next several years? And she also would like us to comment on the consideration of TSV versus hybrid bonding and such. Wow! You ask a very technical question about- Yes ... the TSV and the hybrid bonding. It's all together. You know, the 3D ICs packaging technology is very complicated, and our customers start to adopt it. Not a big volume yet, but we expect it to start to grow from this year. How big it will be is hard to say, but I think it is a trend. Whether it is micro bumping or it's a hybrid connection, that it depends on the customer's product requirement. Okay, Laura? So starting from later this year, we will see that 3D IC products from our customers, that's the current progress? So Laura is asking, will we start to see 3D IC products from our customers when? Now. Okay, thank you. I'm sorry. I thought- Thank you very much. I just say that, you know, the customers start- Yeah ... to adopt it from now, and you will expect that their product in the market- Okay ... soon. All right? Okay. Thank you. Thank you very much, C.C. Okay. Thank you. Thank you, Laura. Okay, in the interest of time, maybe we'll take questions from the last two participants on the call. Thank you. Operator? Next one, we have Rolf Bulk from New Street Research. Yes, thank you for taking my question. Earlier on the call, you mentioned the possibility of converting some of your N5 capacity to N3. But what I was wondering, considering the strong demand for AI chips and a recovery in smartphones, is there a scenario in which you would consider similar conversions from some of your older nodes, such as N7, given that utilization and revenues there are still well below peak levels? Thank you. Okay, so Rolf's first question is about tool commonality and conversion. He notes that we have already said we are converting some of the capacity, so using some of the N5 tools to support the strong multi-year demand for N3, for AI-related and such. His question is that, given our seven-nanometer is still underutilized, would we also consider converting seven-nanometer tools to support more leading-edge stronger demand? Well, let me answer this question. We can convert one technology node capacity to the next one. It's because of there is a physical advantage. That meaning, let me give you one example. 3-nanometer and 5-nanometer are adjacent to each other, the fabs, and they are all connected, so it match from 5 to 3. And that doesn't mean that every node can do the same. That's one. And your question about the N7 converted to N5, presumably. No, because we expect the N7, in next couple of years, it will pick up, the demand will pick up again, and it will repeat, probably repeat the same kind of experience we have in 28-nanometer. So today, no, we don't have any solid plan to convert the N7 into N5. Okay, Rolf, does that answer your first question? Understood. Thank you. Yeah. Really, a follow-up. Sure. Yes, it does. Thank you, Jeff. It's a follow-up to Laura's question, actually. On SoIC, given that the technology is now being adopted more broadly, do you see a beginning of interest of your smartphone customer base to also adopt the technology? Could you comment on the likely timeline of adoption of SoIC in smartphones? ... Thank you. Okay, so Rolf's second question is basically going back to SoIC adoption. His question really is pretty straightforward: Do we see a timeline, or can we give a timeline for adoption of SoIC by smartphone applications? Well, let me answer the question. This HPC product is the first one. HPC customer is the first one to adopt this 3D IC or SoICs advanced packaging technology. And on other area, let's wait and see. I cannot make any comment. We are working on it, but okay? Okay, Rolf? Thank you. Yeah, thank you very much. Okay, operator, then, we will go on to the last participant, please. Thank you. Yes, the last one to ask question, Mehdi Hosseini from SIG. Yes, thanks for taking my question. Two from my end. You had a very nice upside to revenue expectation for the H1 of 2024, but have kept the year-end unchanged. Is that a reflection of that, the slow recovery that you were highlighting, or would you prefer to wait to have more visibility before updating 2024 for the 2024 target? Okay, so Mehdi's first question is about our revenue outlook and guidance. His question is saying we have a nice upside to our revenue in the H1 of this year, but we have kept the full year guidance in to grow low- to mid-20s. So is that because we are more cautious on the H2, or is it because we will see how things go? But I'm not sure if you mean by upside to the H1, Mehdi. You're saying, of course, our Q1, as CC said, was slightly ahead of our guidance in U.S. dollar terms, but very minutely. But and, yeah. Yeah, Mehdi, our guidance for the quarterly profile did not change. Well, we always said that quarter-over-quarter, there will be growth. And also the full year guidance will stay the same. So, I don't think there's a so-called upside, as you just said. To the H1, yeah. Yes. Yeah. Okay. Thanks for the clarification. And then regarding the investment in U.S., especially for 2-nanometer, does that include advanced packaging, or would advanced packaging be mostly concentrated in Taiwan region? Okay, so Mehdi's second question is that, of course, the U.S., including 2-nanometer, given the strong AI-related demand. So his question is, then what about the advanced packaging side? Will we also build advanced packaging in Arizona, or yeah, what is our plan? Well, let me answer this question. It is always customers' decision, you know, for where the back-end services are done for their product. So in Arizona, we are happy to see that Amkor's recent announcement to build advanced packaging facility that's very close to our AZ fab. Actually, we are working with Amkor and try to support all our customer in AZ and for their, for their demand, for their need. Okay, Mehdi, does that address your second question? Thank you. Okay, great. All right, everyone, this concludes our Q- Thanks ... question and answer session. Again, we do apologize for the technical difficulties. If you have anything unclear or need to follow up, please contact TSMC's IR, and we'd be more than happy to help. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now, and the transcript will become available 24 hours from now, both of which are going to be available through TSMC's website at www.tsmc.com. So thank you again for joining us today. We hope everyone continues to stay safe and healthy, and we hope to see you again next quarter. Goodbye, and have a good day.