2330.TW - Earnings call transcript Q3 2022 | Taiwan Semiconductor Manufacturing Company Limited

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Jeff Su

Good afternoon, everyone, and welcome to TSMC's Third Quarter 2022 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.

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.

and President Vice TSMC's CFO, Mr. First, will XXXX, followed Huang, XXXX. summarize the our quarter third the in by quarter operations fourth Wendell our for guidance Mr. Afterwards, Huang and Dr. TSMC's CEO, C.C. company's Wei, provide key messages. will the jointly line Then we Q&A. for will the open

As risks discussions press notice that contain today's to everybody quarter harbor contained may materially of now which uncertainties that the would could usual, statements. to results Wendell safe forward-looking release. in the our turn over And the guidance. would significant from in call Huang, to to like TSMC's to like current differ I refer operations subject remind that and to summary are and statements I appears Please cause forward-looking Mr. actual for those the the CFO,

Wendell Huang

And will for third afternoon, for the us financial Thank joining My start I Good the the highlights quarter. presentation for you, that, provide Jeff. thank After you will with guidance fourth XXXX. everyone. quarter today.

XX.X% dollar, The supported revenue in our for strong quarter business technology. or dollars, US our third as demand increased XX.X% by leading was in X-nanometer third quarter sequentially industry NT

our sequentially Third compared we exchange EPS gross for a revenue guidance, quarter Slightly XX.X%. our points due margin XX.X%, to ahead Operating ROE favorable leverage. third percentage margin as as and to X.X operating of to X.X% mainly Overall, percentage net better XX% in quarter. improvement the increased was of increased previous was sequentially quarter points foreign to efforts. NT$XX.XX, operating cost rate XX.X%. accounted and more Total enjoyed X.X expenses

in for defined accounted X-nanometer Advanced contributed while process accounted technologies, which XX% of revenue below to on the by XX%. let's Now, X-nanometer technology. and XX% revenue. X-nanometre technology of quarter, revenue wafer third for are as wafer move

quarter for for Automotive increased by for to increased increased to Smartphone account account for X% HPC of for account XX% DCE contribution quarter-over-quarter XX%. decreased our XX% to account X%. XX%, account on XX% IoT to to X% revenue. and revenue third increased Moving platform. to XX%, X%

balance the trillion. quarter to and third on we NT$X.X of marketable sheet, the ended cash Moving with securities

decreased offset On mainly increase short partially raise the of others. the by billion of NT$XX the and mainly in decrease current debt accrual billion during quarter. the term NT$XX side, we NT$XXX interest of to billion by as loans, billion Long-term by increased liabilities liability due liabilities NT$XX corporate bonds bearing NT$XX billion, in

days higher days, -- decreased decreased Our Inventory financial wafer to to decrease days X XX turnover during primarily inventory due the shipment ratio, XX to days accounts days. quarter. receivable day five

make me let Now, a cash few flow and on comments CapEx.

current financial the balance During billion 'XX quarter we expected the to margin and to third billion cash rate billion gross from business expenditures of presentation. increased corporate NT$XXX the we the $XX.X Based XX%. margin and NT$XX.X our sequential exchange quarter Overall, represents let's quarter, increase XX% cash between to billion. now at revenue XX.X%, NT$XX our NT$XXX on outlook, assumption in billion summary, trillion to X.X% be This financial between which total cash spent distributed of by the $XX.X issuances. on bond billion raise quarter billion capital the NT$X.X US third midpoint. quarter end and CapEx, guidance. I quarter. our In finished from dividends current to between expect operations $X NT$XX our US, my is in in Based at terms, and have turn operating NT$X.XX be my fourth XX.X% dollar about generated NT$XX billion concludes fourth

our basis three inflationary months quarter was whereas This exchange our $X some difference as despite third improvement rate pressures. profitability. on Compared guide high third to foreign based quarter, actual continue versus by $X gross quarter I start quarter quarter basis original guidance, the to XX rate XX.X% second ago, cost favorable to by messages. our actual a third provided of the due end more quarter range fourth margin rate XXX assumption exchange our turn guidance. our efforts, exceeded me to margin on comments to to about the actual gross was making cost exchange to let in gross mainly the sequentially our NT$XX.X, created third Now, will and third Compared NT$XX.XX. points margin our key increased and of point quarter our

XX.X% be margin offset rate rates. to at We gross lower to by the be guided a have flattish quarter favorable as capacity a our midpoint, sequentially more exchange just fourth will assumption utilization

leadership As six capacity profitability, rate. cost TSMC's technology factors reduction, reminder, exchange and pricing, up, and determined utilization, foreign development technology ramp mix a

in Looking customers XXXX, our with higher inflationary we rising their we value. growth and closely semiconductor cost, increase ahead working to our and challenges strategically face XXXX, profitability cost our entry are to ramp manage continue and sell from depreciation dilution, in overseas fab To year-over-year to support expansions. consistently cyclicality

internal diligently working on also our cost are improvement. We

achievable. of rates over margin factors other XX% the term we consideration, the long five exchange which taking foreign into of of impact believe gross we and Excluding control and higher have a no is

about XXXX let talk Next, me our CapEx.

the NT$XX is to Three XXXX growth CapEx our our future ago, our billion stated before, in of be CapEx lower will months anticipation to years. the every that NT$XX said we follow range. end in As have of will I spent year closer

XX% for billion about spent for of $XX XX% for for XXXX, between spent optimization due and to budget be further the continue the around the technologies, still we to be and the XX% of be year's delivery to to CapEx making of outlook. will Out spending XX% technologies. tightening $XX to advanced and process half challenges. term based current mask our will around XXXX this are half Now, on is other change allocated And billion. About to capital packaging CapEx medium capacity up expect capital will XX% specialty advanced the be is

support prudently And continue will and business and market spending remains capital commitment customer’s That growth term discipline our we capacity given CapEx tighten our and based our ahead, uncertainties the profile. demand structure the said, near manage on remains long-term unchanged. to to and planning appropriate. adjust up our where Looking

will long-term plan while in growth profitable We capacity and customers to to specialty our delivering growth work our our edge invest to shareholders. continue their closely and leading with technologies support to

turn the Now, to let me microphone C.C. over

C. C. Wei

Good afternoon everyone.

with more by technologies. or leading term me let billion, NT$XXX.X start concluded X-nanometer strong outlook. with our billion demand near First, quarter US of industry third dollar TSMC's supported our $XX.X for We revenue demand resilient

we inventory adjustment ramp customers ongoing is of business fourth into by our quarter by our continue expect balanced as Moving HPC XXXX, be technologies and up supported to X-nanometer applications. flattish, are smartphone

dollar We year terms. be expect XXXX XX% in mid to full our US gross in

demand But for related we and to observe the now side, On Other TSMC. remain softness continue see consumer such market in for of segment. automotive end end market steady the we to data center as possibility segments start unrolled. adjustment

to and continue On take the inventory. side, action chain supply their adjust the inventory customers to our

We year. and to in third pick expect chain inventory supply this year semiconductor the in start quarter reduce quarter fourth to this

level. to so take a expect rebalance it a half XXXX first quarters, will also to healthier few We

are than industry. our business more While the during period. will industry inventory cost by resilient raise foundry the this three we to be overall TSMC's in TSMC, correction ongoing volatile Supported less factors semiconductor affect the expect also that and key

as to win leadership years. doing TSMC enable stronger technology business and our much our high differentiation customer business and First, compared previous semiconductor This in today despite markets, is the enables to end cyclicality.

strong address able and to in optimize computing. portfolio comprehensive ecosystem the we Secondary, process capture computation and through increase structure are technologies, design for build our performance a in high demand and the

Third, capacity to continue our demand their work planning in and pricing and are with support long nature, closely and term development, strategical to our growth. customers long with customer technology relationships and our term we

our NX As demand a demand to result, and differentiated leading steady node. except mature node continue see specialty our technologies we and for for strong

to a increase affect XXXX There's the ramp product and addressable successful expand up our with of NXX upcoming ahead ongoing customer first NX, the continue portfolio utilization and other semiconductor our XXXX NX of will inventory one correction NXP, to half we're ramp market. rate. Looking

advanced year be expect XXXX our by be business and for TSMC. stronger for to specialty growth and to our leading and differentiated We a for supported demand technologies,

the talk weakness and NX our in PCs end high NX capacity NX, products me will customer’s the in as scheduled as been and X demand about market smartphone delay outlook. utilization, this years. be past year, Due to not and let Next, XQ has three it starting

are our expect continue semiconductor for be with a to develop demand will We and we structural up the TSMC. NX backfill cyclical wave through expect supply chain first XXXX to term, this rather our few a node is our our demand rebalance customers XXXX. quarters demand a and accordingly. structural level, NX, issue pick several over and We technology a the to of half believe as closely next Longer takes and continue to CapEx than second inventory NX X-nanometer the capacity we and to years. drive to NX, family work confident to have few persist to large additional adjusted we NX healthier half NX in for NX specialty long-lasting to more a The quarters NX differentiated

our Now status. and I talk NX NXE about will

Our with production this NX is quarter for volume year. good on track later

a smartphone in smooth ramp applications. driven both XXXX, We by expect HPC and

to ongoing ability due issues, our tool exceeds the we partially and entry in NX for be fully demand utilized customers' Our to XXXX. supply expect delivery to

XXXX NXE much We ahead and delivery NXE revenue development our family in of than applications. XXXX. further its scheduled revenue offer and ongoing wafer year to tape-outs plan, with and complete half observe more customers second support be higher now performance volume today for is to is of engagement with and NX XXXX, support and for second level of customer address X-nanometer are inventory working beyond. both we is at will larger a our and in NXE first revenue mid-single-digit first tool capacity in year. XXXX. the and Xx our Thus, we NX number smartphone extend of in NX XXXX, for XXXX production HPC expect strong power revenue and both prepare base and as correction, more XXXX in NXE our to high NX to demand with yield, overall the enhanced percentage supplier than closely its than that in in contribute towards progressing platform of our challenges NX than a with Despite

be transistor advanced technology introduced. when is in and technology will both semiconductor technology it X-nanometer PPA most Our the

We will are NX large for TSMC. be another confident that node long-lasting family and

of Finally, to come. let node global about TSMC's trusted the is to logic for future technology for provider be and adoption. me years the the leading capacity driver industry talk ambition IC

markets. help to greater end capture innovations customers unleash is value to their job and them Our our in win enable and their

scaling, shrink pursue rising to continues it is industry for due damage everyone the down challenging and true slowing becoming complexity. As more that is to process

an pervasive is it that technology scope value accelerating beyond as world also connected of chain becoming and in power is increasingly essential semiconductor efficiency. of in demand true platform energy-efficient increasing, technology people's geometry value and shrink for is lives. industry toward greater supply is intelligent However, and The alone the is in the the more computing expanding and

transistor cost. and As transistor performance industry's motivation in customers simply NX node node a while technologies. adopt our our development, result, become for advanced key has customer power closely and the and our customers performance working power offering will who full value By most benefits with and efficiency stride our deliver more leading than scaling. much NX technology System

in We to process the expect of terms. fuel TSMC's in technology to cadence XD HPC node U.S. smartphone our constant deliver solutions, to of dollar our technology With driven and and technology strong technologies, XX% platform. several our revenue both both applications XX% over growth long-term the next value years leadership for by demand remain leading-edge our CAGR leading

delivering our and you while market We thank your will customers predictable help key that cadence well our technology a attention. and into overall competitiveness grow to future. extend enhance competitiveness and This message, to continue our product technology concluding their for their the leadership

Jeff Su

This C.C. statements. you, our Thank prepared concludes

Instructions]. to Chinese, like your all allow your in remind the translate Should two begin time we to to to you [Operator to questions wish to ask please questions. English the limit question our an at question. a it answers Management Q&A opportunity everybody session, would will I Before participants before raise I to your

Now session, let's participant with line. operator we proceed first the begin the on can please Q&A the

Operator

Yes, Jeff.

one Hariharan first ask The JPMorgan. please. questions Gokul from to ahead Go

Gokul Hariharan

Congrats question. results, my taking for thanks margins. and afternoon good great Yes, especially the the on on

this is is XX-nanometer, issue question first saw, half happening And much back detail little why is think and are that lasted second think this and pick year? the that this observing. last and we on longer we we short-lived, utilization a NX I So time. that we of utilization Could give we was the for NX, quarters of why bit period of on slack a more time the the a get a in in for but couple

areas back backfill are could going you what NX us kind happened give and maybe and to of first as the different? the NX. to smartphone and be more then bit what in also start high-end very for my is and to So on little NX XX-nanometer comparison with why HPC some move question. this demand on color And NX of That's processors a

Jeff Su

Okay, to Gokul, first me let your summarize me please question. allow

then NX and short-lived is and the on the is NX. pick utilization question why driving do NXX be a in backfilled, slack. will for first not Gokul's NX So And the demand and of believe understand to few it NX on second can outlook, wants years longer-term with is believe few what years little Why we can be up like the half? NX that bit underutilization. that and also ago it we a He

C. C. Wei

Well, demand Demand why market dropped. the your question becomes first of on because soft. Gokul, maybe answer dropped

our of the all quarter As year to in we big And put affected been a the that and in is And delay. all way fourth half also think said, weakness so has first in smartphone all, product together, all PCs. and the schedule factor utilization our in the XXXX. we this customers'

also to And say let this continue our cyclical customers. closely actually, we with a is me term, longer that issue. the For work

So customers specialty for it we our XXXX. NX in pick the And And second up we will half to wave to all other term, additional up pick the anyway. we of continue to will That’s longer of closely believe and technology NX, the application from for so next differentiated years. develop capacity backfill with and work our I… to consumer, and et structural demand cetera, connectivity, several drive RF,

Jeff Su

Gokul? question, first your answer that Does

Gokul Hariharan

Yes. My second CapEx question outlook. would be on the

the Now slightly little give terms Thank that the or we production? be CapEx if in coming Nanjing is us absolute down? for on a direction flattish XXXX Cauchon, numbers, bit going XXXX, is, also, these Second fabs, just Arizona? any direction? fabs to for schedule outlook change going bring it's also but you the update Are we could to down schedules talk Kumamoto, be what least, likely could at not there an new the and you in of for the into Is you. about

Jeff Su

Gokul. you, thank Okay,

So on Gokul's second question is CapEx and capacity.

up hear, So course, have first, of CapEx our he he tightened says wants to XXXX. we in that

Guosheng, he for So would is an Arizona also directionally, plans he there on in an asking our CapEx? like Kumamoto. update And then is XXXX Nanjing, expansion and of XXXX indication

Wendell Huang

me let you Gokul, answer the part. first Okay,

For XXXX too to CapEx, is comment. it early

specific a January. with you provide will guidance We in

delivery current said, we XXXX issues. two as our we to medium reflect tightened as However, as well have up the CapEx outlook,

uncertainties. Looking the near-term business continue our given to careful ahead manage we XXXX, and to will prudently be

tighten to and for we to to growth. market work our invest profile closely appropriate, customers continue long-term will their with adjust but up demand where structural our will We the support capital spending

C. C. Wei

Nanjing for progress you about Well, of And NX second let schedule. a no Arizona expansion. have me the the and work it There's very Nanjing our let strong our me one-year Gokul's answer family demand. Gokul, of part say because XX-nanometer get continue fab asked that we doubt question. this a will fab and for is which Arizona And fab, authorization Gaozong. still on about just the

is it also. schedule So on

NX. of XX-nanometer at fab planned Gaozong, and For initially, the the expansion X we beginning

Now been adjusted. NX has

continued and but schedule. is so And on XX-nanometer expansion

Jeff Su

also And Kumamoto.

C. C. Wei

schedule Japan the fab to demand. meet customer's is Okay. on Also the

Gokul Hariharan

much. Got it. very you Thank

Jeff Su

the move on please. to Alright, next participant Gokul. you, Operator, we thank can

Operator

one Goldman questions is to Sachs. please. Go from Bruce next ask The ahead,

Bruce Lu

my taking for you Thank questions.

first my HPC, is question for for a the coming the regarding So to TSMC is growth driver which key years.

Or slowdown U.S. from reason you do forward. kind new see impact the with to demand to is China, from the to HPC collaboration a moving the think side? going China? what going see However, non-China What the restriction you of are about

Jeff Su

driver Okay, Bruce, regulations, the engine profile. will or main on years. the overall is that key repeatedly, to HPC. believe, the know, demand we I and growth next be notes in so HPC, said TSMC's does U.S. Bruce's impact question affect that overall the the of He He first Is correct? have HPC wants few recent

Bruce Lu

new and Yes, what's TSMC the overall impact from to industry? restriction this

C. C. Wei

Okay, specification, to primarily used let which control me applications. or answer is that. very the supercomputing at Bruce, on regulation high-end initial customers. AI it's limited for our our from The feedback based called assessment and new reading the manageable. is and impact Therefore, TSMC was our initial is set

we situation to monitor regulation. are the with We compliance and you give earnings really for it's all update term, will rules or but that to And the influence, the will full true we the too to the call. assess all ensure longer in closely impact the all continue in early following

Bruce Lu

Okay, understand that. Thank you.

least much cyclical? between X-nanometer. to the the so maybe have level question nodes? is regarding at So is X-nanometers high because cyclical you better still what next of is nodes, and a is capacity too other rate or are as for management my very, big, nature But utilization also your industry guys noticed most your to the X-nanometers your other X-nanometer that we mentioned. the difference or than at very Why Because you

Jeff Su

specifically. Okay, well. utilization up be the so second He our still other wants seem Bruce's question to holding to NX looking seems is at nodes -- know

Is So as correct, not as why utilization more been. it high NX has that is is specifically Bruce? cyclical and

Bruce Lu

Yes.

C. C. Wei

rate same all, customers utilization that's delay, the node. schedule happening product using that compared all and the in PCs PC becomes happened it as time. And other in lower node. other are the weakness with why market NX smartphone it happened, It and Okay. or most NX just just smartphone and at customer also of And my

with compare the are very market very orders NX to and a share. is will still to high the continue enjoy -- compare or the want you XX-nanometer, higher with demand, at If our we

Bruce Lu

to it like dig out as good with nodes? in and have customers' used cannot TSMC some a overall make product this someone want can tape-out your I time with X-nanometer, anything even outlook as bit we because you to else. with that manage will get your But different you other

Jeff Su

as wants is X-nanometer if other cannot to nodes with be understand customers, closely planned. we the as utilization and the Bruce still So why high work well

C. C. Wei

closely work a one, downturn. customers and Well, of with year, probably inventory again, the this didn't this very believe know give But their They the But before few probably beginning but us this our number this we forecast. of quarters high our happened, happened. pick is customers, issue. caught correction it it And as And it And take a we a cyclical two Bruce, just that, quarters. in still will market get they we before. it will said, will at up. just

Bruce Lu

We get TSMC to you. expect Thank used too much to see, always deliver I be understand. just like to a -- result. it better

C. C. Wei

understand. I

Jeff Su

Thank we Bruce. to please. Operator, caller Okay. next move you, can the on

Operator

from Next, Randy Suisse. Abrams Credit we have

Randy Abrams

question. wanted two-part okay. question. first Thanks to my Yes, taking a ask for I

about mentioned and auto the to to prepared HPC may in continue You signal remarks change. but it be stable, seem

I you trough, for quarter? versus trend half the And do you the see And first that could give we see inventory you how on how or to bottom, then you demand your get first if second towards those from be see expect part, visibility want just areas. quarter, could some forward normal and of better it If see the do the the outlook we do bit could the be view first quarter you a second could levels seasonal?

Jeff Su

levels? And can be industry. we also seasonality can inventory TSMC at we outlook then the does Okay, automotive, Data the the demand if some what for is about wants see steady for what first and so whether bottom quarter from that to think the quarter Randy? to remaining really is though, for looking Randy's first the say segment. that understand Is are correct, now. and provide more secondly outlook he He wants we the and again end center granularity down is at mean road, question versus

Randy Abrams

Yes, that's correct.

C. C. Wei

let answer me one. this Okay,

not customers a XXXX. conservative our now don't still correction Of course, out we solved also, and we now, for in related their forecast And why demand frank automotive possibility. we say in will be we take our the with right so some -- data is you. have and it planning say that the inventory see we that more give And the want way for say to the that. They us so might far, that's rule But to market but center XXXX, did all like steady. correction are becomes

likely not will say the XXXX longer-term is enable industry XXXX, And expect portfolio than decline. technology with in But strong industry. we our in business probably and were probably overall for to TSMC growth TSMC a immune, to be and relationship decline. why customers We HPC semiconductor believe the strategic our also the more will industry resilient year overall still semiconductor that's we position,

Randy Abrams

Okay. question. a seeing Again, I ask and declined quarter, XX%. the firm sense years into XXXX like some quarter, XX%. very in because you're quick fourth over if a first falloff just a then guess second meaningful it's and I'll pretty still follow-up,

on trying some the Wendell, to a question, think, just of second feel type just content to of get lot a of And gaining gross of That's decline you the fell share. margin about. factoring the talked So then because I actually, and headwinds, first. you're rough

give revenue, end loaded costs a on you. if how much could similar given recent up then also of you you dilution back factoring ramp. whether for couple the smaller half for the expect just or from and given If how percent of the much NX? start-up more these -- to front And X-nanometer CapEx, depreciation Thank NX, it's NX

Jeff Su

Randy. Okay,

So me summarize. let

on not picture will can we next make but in sort the quarter, So I year. comment looking the we in overall of just into quick, comment Randy, some inventory of think first think I terms

C. C. Wei

and a you ask if picture actually, on specific opinion to inventory provide number. Well, inventory too correction, the early my the it's

sometimes half XXXX. However, its likely the see impact inventory biggest the were first in correction

Jeff Su

Wendell X-nanometer related is to we maybe part ramps and for And of address of year, type what from the as next it also it loaded? what the -- then gross outlook expect second depreciation the the then or some XXXX. margin, in front is can back-end and Okay, dilution

Wendell Huang

Okay, Randy.

For But depreciation is to likely this next we But year increase year, to year, next meaningfully for it's be early talk expect mid-single-digit will higher. about full year too that. year-on-year. it

the We January. you in will guidance give

the to NX, be it on to a percentage dilution As from X will basis X gross our year whole margins. on between points

Randy Abrams

and you coming very inventory Okay, actually, even think with follow-up. expect first single do XX you level a inventory Do a correction, on correction? keep through one the to quarter the that were and half above from factoring high

Jeff Su

early too higher. margin we is and and about even be It our deliver long-term believe profitability challenges, with cost including talk all gross Right. XXXX, to maintained, margin can are structural to XX% gross quarter-over-quarter. a But of confident we these

Okay.

Randy Abrams

thanks. great, Okay,

Jeff Su

participant, Operator on move you, Randy. Thank the please. we next can to

Operator

Next Charlie from Stanley. ask Morgan one to questions, Chan

Charlie Chan

questions. afternoon, and Good thanks for taking my

very correction seems shareholders' share So value, because right, the recent a on just long-term the is long company share company And also comes think to whether you're my a I still inventory first the price question revealed really suggest the consider about to value. buyback positive is cyclical, management term.

sure So company buyback do if returns? cash share wants I'm not a or to

Jeff Su

Okay.

the doing question a although first consider there's that appears long-term outlook buyback? the Would good. Charlie's is cyclicality, company So share

Wendell Huang

shareholders. of cash the Charlie, different Yes, returning to all review we options constantly

our in our buyback, share it. moment, be capital a return on expenditure our this considering for For not to We shareholders. make better cash to are better think invest hand we at kept will

Charlie Chan

company about these the U.S. you. question be events? my sanction is your about as the strategic also -- second I but market also, is remains know my to right, that after Thank NPAs as the said is understood. before seen, question that TSMC, And impact? to China limited and impact the long-term Okay,

Jeff Su

so regulations second a for he China that strategic market the the question, market? Okay, impact, to correct, see recent Charlie? U.S. we still Is TSMC? know how it with Charlie, Is wants the and do

Charlie Chan

-- TSMC's think whether Yes, how this is how about picture, company to important China China going forward? it meaning long-term for

C. C. Wei

is TSMC. that important to say like Charlie, region to I would every

However, position. me with That's that, work world. to TSMC the all condition and let the the compliance all rules under all say continue our over of the will serve customer regulations,

Charlie Chan

including China? Okay,

C. C. Wei

customers. the All

Charlie Chan

Thank you. Okay, Thank got you. questions. it. my Those are

Jeff Su

move can onto Operator we next Charlie. you, the Thank please. participant

Operator

Next from one questions, Sunny to ask UBS. Lin

Sunny Lin

My Congrats longer-term given from Hi, you geopolitical impact issues, diversifying you the regarding taking are you some from the the customers the foundries? a of is performance. considerations tensions. Asian my on thank for you. potentially how first would And on question geopolitical I risk? questions. evaluate how steady wonder, managing the Thank

Jeff Su

Okay, Sunny's and customers how Is given foundries? do geopolitical the long-term so of is Sunny? question the correct, first using that that risk tensions, we other the impact evaluate

Sunny Lin

you. Correct. Thank

C. C. Wei

important Sunny, is leadership, trust. we still most in believe the is technology and a manufacturing our customer

so different that think in we technology thing. still most the locations, or whatever, And important manufacturing is leadership

simple, trust. that's make it the so and And technology, strategy. our manufacturing We customer

Sunny Lin

Got it.

i.e., if fab could overseas to diversify the And site, so expansions there should a quick your of a Europe? be follow-up. Is that going forward, built production we assume in acceleration an just

Jeff Su

then, Europe? can to second overseas in we also particularly -- increase Okay, the footprint global question that and we expansion so that continue assume Sunny's does will

C. C. Wei

overseas we and based also based opportunity portion Well, in the will economics. in fact, on need, the and continue efficiency operations on our customers' increase manufacturing on business to based

to Again, Europe, And to business preliminary and in not so cost are in evaluation on efficiency going I economics. whether out be the based customers' we to are any and opportunities, rule decision we say would were the operational possibility. need, like

Sunny Lin

it, second I actually on question HPC. thank you. Got have a

and have very the production made issues increasing the in much. the foundries case other are dies you TSMC production risk and that some with chiplets, at the the Thank usage how that at impacting So manage you therefore, would of as well?

Jeff Su

usage risk we think would do manage Sunny -- issues, the of of in at shipments how and impacting have that increasing places with you're would manage risk the it how dies or is adoption sorry, question saying case companies we second Sunny, other So HPC, TSMC? production I chiplets in

C. C. Wei

some our would right and But all customers every by. goes will dies, customer Sunny, is with have use doing for that other they sure. the manufacturing like companies' fact, chip work TSMC we inside now. minimize we in are there risk if we what to our case closely That's that a

Sunny Lin

helpful. it. you, that's Thank Got very you. Thank

Jeff Su

to we Thank Operator, you, next can participant on the Sunny. please. move

Operator

have we now, Right Laura Citi. Chen from

Laura Chen

appreciate share in Nanjing for with Thank mentioned, if the I fab. latest for your Nanjing. my taking you, plan the your in you you license XX-nanometer question. that can got C.C. Like already

just wondering forward, license in question. a your my going for what's first XX-nanometer So do China? the of the that also That's your also Nanjing in need And I'm fab? Thank operation trend you. you

Jeff Su

plans. received Nanjing first Laura's so notes we about the our have She question Okay, that is one-year and fab authorization.

we Her need that do Nanjing? in also So question her the as then XX-nanometer in license is is, our XX-nanometer we continues a plans our future long-term for also -- also China. And expansion planned. what expansion have

Wendell Huang

let me part. the answer first Sunny,

Jeff Su

Laura.

Wendell Huang

it's Laura. Sorry,

The cover Let me Nanjing that answer received one-year the facility. first part. the we authorization

So the and it's XX both XX.

Laura Chen

you. great. Okay, Thank

Jeff Su

And what plans second is part China? for our is long-term expansion then the

Wendell Huang

Okay.

C.C. said, fully will customers all all will we -- serving be regulations. follow and As we in compliance the the with the that rules operating under condition

Laura Chen

second overseas will operational clear. fab cost. the they term. have is very much Okay, higher usually, know a that's question that We the My in longer also about globally operation, in

different of long-term So how the some can give cost us your difference to our trend the about region estimate would the TSMC's you margin view, in of comparing percentage that margin the in impact or Taiwan? information or maybe

Jeff Su

U.S. of so that our versus impact difference and know overseas higher there profitability breakdown long-term much Laura's with higher? if how the our are Do Japan, And we in She to margin? have expansion fabs, a cost footprint. our expansion how question and Taiwan? costs overall, costs, this second is is manufacturing around the Okay, then global are wants does overseas

Wendell Huang

labor of indeed cost because in And different me Laura, layers costs than this are of in chain. fab initial Okay, let question. supply the it's fabs mainly TSMC's of answer higher higher The Taiwan. overseas

U.S. customers our work with as to as chain the closely supply cost government, with manage continue the partner We and to well minimize and gap.

these XX% can through Now the continue margin deliver we proper believe efforts, and to gross long-term earn and return higher. we the of

Laura Chen

clear. Thank much. Okay, you that's very very

Jeff Su

participant, you, next Thank to please. on can Operator, we Laura. the move

Operator

Bulk Next Research. to one from New ask Rolf is Street questions

Rolf Bulk

related, EUV and that lithography, you context Thank the more X-nanometer that segments? I do you. hoping you see specifically give tool around primarily or you shortages was question. Thank some you mentioned. for tool other taking the Is in also shortages could then

Jeff Su

Okay.

wants and -- specific X-nanometer lithography Rolf's guess, first tools is EUV more around if this and or specifically, to is it So to broad-based? shortages. very is the know tool question I He just

C. C. Wei

demand more because Actually, lithography of -- it's certainly, the is and is tool important of included the broad answer the me photo our based high Let question. and one one. most

Rolf Bulk

Thank you. reasonable. That's

yields great As on visibility of be you NX and still you timing-wise of share NX an the get development? NX to can it's your anything stage track my versus notes, think follow-up which NX is same is update current it question, your now on at and about how there would on

Jeff Su

timing if at second NX? NX so He Okay, Rolf's and question as still is And for the is similar NX What NX. like any Are yields on we also update. compared to would track? on on an update stage. there's

C. C. Wei

production introduced the to Okay, that, a have we very very our it's so said in before, XXXX. I ahead. say Actually, to -- is far, going also with And NX. customers' And a so quarter progress mass is little are NX and comparable deep far NX. good. engagement but one, are a today our NX the let And NX, the me status very comparable bit so

progress see So so are to far. happy our that we

Jeff Su

answer question, that Does your Rolf?

Rolf Bulk

you much. Thank very

Jeff Su

you, Thank Rolf.

let’s operator participant move please. the next on Okay, to

Operator

we Company. one, Charles Needham Next from have & Shi

Charles Shi

I both Good afternoon. two, on taking CapEx. for you have Thank my questions.

CapEx XX ago, is to of understand some to is long-term not I long-term CAGR. The XXXX and first guidance long-term -- really provide going think think when CAGR here you're XX%. did billion question X% to I to you that range CapEx, your you CapEx XX But a support few CapEx. guide was years And a

to you similar long-term Do CapEx for to term? CapEx of just of have range about not I'm about be CAGR think XX% long your kind XX%. a you us to 'XX reiterated think you Again, asking I year. over

Jeff Su

asking growth. first so I question think, about Charles, with Okay, about CapEx is really, -- correlation Charles' you're

So would we he be notes that. past, XX%. X% said In have the long-term our to growth

spend would to we period, billion billion. So said NT$XX NT$XX between during that we

to without range that next years. wants grow So the know, he that Charles or XX% assume? we should believe CAGR XXXX in few type between asking correct, about to What of Charles? we now imply does specifically, XX% will Is CapEx

Charles Shi

Yes, correct.

Wendell Huang

When invest let capital the this year. growth we high the intensity to become capture intensity and like think may the question view. I Okay, the last from slows -- me be heavily will point But the will it year this answer capital be capital try growth, down, of intensity if to Charles, future lower.

Now longer between that normal term longer-term-wise. we a wise, mid to XX percentages think may reasonable capital intensity somewhere high be

Charles Shi

trying XXXX issues. the is what half Thank kind like mean CapEx, the by tool are to capacity attributed of The a capacity just a it CapEx, reducing about billion. said of reduction here slashed one next equipment clarify X reduction question that the half, If that you basically and X can you. correctly, spending, you guided a about mostly be other you delivery optimization. term ago to improve about because quarter quarter hear capital is of else second the the of little you I from I in something can or kind bit, billion it's optimization you Is the your here? into is because But near very

Jeff Su

Charles' the second now XX is guided on around so time. we question is asking CapEx to billion close versus XX billion he and have Okay, to last

other half capacity half said delivery and it demand is tool midterm have for related of the is to optimization We outlook. the

is capacity is correct, optimization also that tools, mainly with right? a in So his question other reduction some this issue the Is Charles? or is there

Charles Shi

you. Thank correct. Yes,

Wendell Huang

that half right think I Charles, difference delivery the from the that of issue. -- you're comes tool Okay.

the uncertainty by optimization The market capacity conditions. in is because half current other that, that's and the of

mainly So including within other and tools, it's we're stuff to our It's whole tightening CapEx. capital the the up including Yes, it the NX. And budget. relates capacity.

Charles Shi

Thank you very much.

Jeff Su

we the as Yes, our tools the CapEx Thanks. also Wendell aforementioned NX some adjustments and it's NX of have due mentioned, and capacity to reasons. made and to and C.C.

Charles. you thank on Okay, Operator can we the next participant. move to

Operator

BoA Next please. Lin Go we one, Securities. ahead have Brad from

Brad Lin

for questions. you much Thank taking my very

question costs the TSMC which chipset is from all, business on broad earnings, there of theory, sure China, U.S. however, on that Thank of strong chips it, or wish of is question. and if at in supercomputing. regulations variety wide the make my congratulations pages the with the be with really in course, the well, some on the and first the and new wider But compliant by -- with difficult isn't overhead notice loan and first to will given future? you about, the costs extra that look First makes, we application the the key my the be also of identify regulation, and you. That's it can

Jeff Su

Okay.

regulations, the very and first is it's U.S. he scope. So very wide knows in question with Brad's long new

to So he in it's we and hard is very wondering to with therefore, continue and result are if greater ensure for compliant regulations. fully all the interpret be cost will overhead to that this TSMC

C. C. Wei

although region XXX it's control the be regulation but more like actually, from our switch rule simple actually, is very than understood a Well, feedback is customer, initial pages, about specification. to hold and high-end at very

comply For example, to like per sure and we those regulation. second make customers our with things, to kind work the bit of to easily very we with bandwidth XXX fully understood, it's or be continue that

Jeff Su

a we to know, also cost Wendell, so Brad standpoint, more like And incur financial as result? overhead would will a from

Wendell Huang

moment, think At don't so. we this

Brad Lin

I much. see, thank you very

still regulation but supercomputer, the in the aiming follow-up at definitely, know slight are some supercomputing, chips Just because inside. I low-end -- first just is there a some a used

make So trouble is not or if that, some some confusion there are we will we produce to that cause to those, that happen and it going with sure us? when we them bring

Jeff Su

a may but cause restrictions, question issue? companion is us used. So an Would there's chips, Brad's chips that specific computer, be in other very there also super high-end second

C. C. Wei

The is regulation no at company restriction achieved, all. there no or

their that a our product. kind own on reran we So to of work for customer customer with

Brad Lin

like if domestic to question their own or their foundry clearly, Thank many it. be own supply will And much. you second Got build very chain. then may, maybe, I countries would

cost We will learned the major be downside. a that have

of in all question my we by a you pricing clients, based or if also, the utilize right? questions. can that's want different on from be basically be demanded the if they would if charge higher pricing buy So opportunities strengthen So can side, we costs, Europe, U.S. please will kind well to charge my long how with the our we share would TSMC our that's buy higher to run? That could And think these bright node? competitiveness about from

Jeff Su

question about many Brad's like are, and expanding increasing manufacturing he have C.C. footprint. semiconductor TSMC, to global would So second manufacturing. we also our said, domestic as notes is countries that

higher with charge cost, question. So is I to essentially higher a able guess will we his price? be that

C. C. Wei

our we say -- see we can or values value. Actually, come with TSMC's The I also manufacturing, relationship it to say would continue to is is a pricing our different is country technology customers, see the all our and Again, strategic will strategic. we'll our value that is to from and and not I it's in consistent, whether place, a and like continue our in pricing different our consideration.

Okay?

Jeff Su

Operator can Okay. Thank to participant the please. next move Brad. you, we on

Operator

Next we Susquehanna one, have International. Mehdi from Hosseini

Mehdi Hosseini

it half, I'm at high. a weakened. thanks that first multipart of days for demand looking your has at also a first the questions. especially are Yes, my customers' forecast, are seems at have question. inventories my And just XX-year inventory based the that taking on your looking I commentary on

QX. inventory and QX sequentially seems would it QX correction and to to sustain is your going to So in me slightly, shipment the be that declining more

realistic half. the to highlighted that Just looking correction guide, also your just a of first you And inventory And have fact not at half? your that the customers' view first we're trying inventory, reconcile for going with customers' your is asking to I'm throughout Because a is follow-up. the comment. inventory I sustain better a

Jeff Su

Okay, levels is inventory so Mehdi's He inventory. high. notes first on very customers' question are

about consumer segment. softening industry our observation is in We from that level an demand talked have

more I into the do correction, to we first that the correct, so notable Mehdi? question we 'XX. go guess, what And Is half his expect be as is inventory and is outlook

Mehdi Hosseini

probably be And I how Yes, decline. could 'XX and think I particularly, you've and QX, shipment an but explained up always your my could in had that's wafer it question. exception,

So the for decline many many, in QX years. in is shipment wafer the first could time question

C. C. Wei

the the biggest quarter in see we third ready to current and The the expect quarter something Well, last to of first not reduce yet first year. work we will inventory this actually, inventory you their impact of to will quarter chain understand actually, start our quarter Mehdi, And year. demand. of that this of supply -- share our in half, the because we -- And to half with detail that, we second forecast, will like our in we XXXX. first quarter, customer or with observed the continue peak are fourth

Mehdi Hosseini

if have pulse January that? to quick get we the that your may rapidly imply the final wait to so read first for on follow-up customer half? And changing a to that I focus have Does that

Jeff Su

Mehdi. No,

given the in we think that first with in talk conference, has always have the guide But more C.C. we resilient about and past, technology XXXX We already our is to our during will quarter leadership, or not second further January year okay? and said inventory will correction, the upturn down during be quarter. I comment outlook business we the think growth that I both quarter on expect and for right? XXXX TSMC, a for first XXXX

Mehdi Hosseini

is was question, in second tool fact QX, down question in year-over-year to to second extent, has and would of X-nanometer my do with And that despite you CapEx as the anything part the that converting Does And optimization? to up have X that this And depreciation that consider X? XX% and with down was to the Q-over-Q. XXXX. do

Jeff Su

capacity? So, Mehdi’s, first year-on-year. why is also, down would it depreciation, Q-on-Q converting is second then consider question and we And

Wendell Huang

we look year whole it point depreciation, the Mehdi, of view. a Okay. at from

we the going it are year-on-year be of depreciation table also higher, you expect but of with depreciation to January. will the this in and and mentioned, share year, off more for mid-single digits there will every -- newly year, meaningfully next year, coming as meaningfully For by that are understand up it depreciation there I table. we depreciation into be Please higher,

you're is the So net at result. looking what

issue capacity demand is as to cyclical NX structural. than converting earlier, mentioned NX, As NX rather to we

I think moment, we that of this at kind don't plan. So have

Jeff Su

-- can the from maybe the we Mehdi. you, time, take please? the questions interest Thank last two the participants, In last of operator,

Operator

Yes, sir.

one Chen Next question, please. ask Go CLSA. from ahead, a to Patrick

Patrick Chen

Thank you for taking my questions.

so, it You be much pretty Would what's talked compared to ago that say expected XXXX a same still you driving year. quarter a And is expectation? if or growth this growth you about the is lower? to what growth lower

Jeff Su

how XXXX. for what this? Okay, first see our about Patrick's is versus driving that for for X XXXX, months it growth question expectation And is Is does so ago XXXX? we compare the

Wendell Huang

I maintain it's okay? XXXX, XXXX, we early we still statement our too think to well, that much too about year, a the but as expect Yes, growth talk

Jeff Su

second you a question, Do have Patrick?

Patrick Chen

wafer that Okay. aside you Yes, orders? you outlook And from may, growth leading maybe that helpful. any us a that’s very monitoring could clients' indicators help I the monitoring are the follow-up. help If determine or

Jeff Su

can so indicators Okay, wants the is Patrick's inventory second question when to there's that any at look indication to leading at looking we see if or is that He with correction. bottoming. he know cycle should look

C. C. Wei

at That's question. really Actually, is major and your answer from our one that the quarterly the from one PCs, smartphone hard can read if the up to look to you report player, and you whole you go all downturn. that's industry, the change and

and So have way for we taking share we planning. all conservative today, our a are we do with That's you. very analysis, definitely I the can information. Internally, some

Patrick Chen

you I taking But And we don’t you. Well questions. Thank well. guess that's have don't obviously, for a I have doing what question. any further ball. been Thank my crystal we've as

Jeff Su

Okay, can please? Operator, last participant, we thank you. the take

Operator

one is Go to last Frank ahead, HSBC. the Yes, ask please. question Lee from

Frank Lee

time, same going Thank NXE. to going or to question you. on scheduling? be Is I your nodes there be ramp NX, wanted the the some a I guess, ask, for to in difference both around is

Jeff Su

first at Frank's ramp it the NX versus the is is NXE, question time. Okay, same for so on

C. C. Wei

so And Okay. apart, now, of be or but a we Actually, might X so NXE are one-year the months, to little NX. because ramping that's time. in pull for by at the progress bit up all. it's X is we supposed not well, same Right

So at they the are same still not time.

Frank Lee

target comment have price or to any Is dropping. the change you the move in being half second question bit, with know some pricing I of is, know the my a you've specifically, see so. too months I strategy? currency guess are and already up potential seen going unchanged. gross long-term the through given -- -- can't utilization your next Okay, margin the in seeing related increases rates I first XX last year you're I gone headwinds now margin quite this But but you

the So unchanged strategy relatively forward, given the overall change from the environment? going pricing market still with be in

Jeff Su

related to some strategy this cost of any the with so correction correct Okay, correction. to the wants he be question second challenges, Frank? Is changes is there pricing will to Frank's know, pricing with and inventory during our that

Frank Lee

Yes.

C. C. Wei

is let and pricing actually frank, stress to me I strategic answer our want Again, Okay, consistent. question. a the that

it? and or consistent. with plan our not win So most that own be you customers help we importantly, any And cycle No, -- work opportunistic. any change their do we And will them our markets. to to actually on say based we to to end value it closely always provide have

Frank Lee

pricing, opportunistic more just change for same be some seen? has who still we've to no, -- not through a well? your market are be probably largely they get them I Right that I'm the difficult situation clients a there's but align going the as Would time. Or strides an suggesting with changed would policy help there to

C. C. Wei

the stay We same.

are consistent. We

Frank Lee

you. Thank Okay.

Jeff Su

All Thank you, Frank. This right. Q&A concludes session. our

again at good website TSMC's through available for will joining be a be hour join The www.tsmc.com. quarter. us and Goodbye, please become will from Before which within hours will conference, the be the transcript one Thank now, of advised accessible from of both have we conclude will we and us today's today, you next you now. replay available conference XX day. that hope

Taiwan Semiconductor Manufacturing Company Limited (TSM) 13 Oct 222022 Q3 Earnings call transcript