Prepared remarks
Good afternoon, everyone, and welcome to TSMC's second quarter 2026 earnings conference and conference call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. If you're joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the second quarter 2026, followed by our guidance for the third quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. We will open both the floor and the line for the question and answer session. As usual, I'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. Now, I would like to turn the microphone over to TSMC CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.
Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2026. After that, I will provide the guidance for the third quarter of 2026. Let's move on to revenue by technology. 2 nm process technology contributed 3% of wafer revenue in the second quarter. 3 nm, 5 nm, and 7 nm accounted for 30%, 33%, and 11% respectively. Advanced technology, defined as 7 nm and below, accounted for 77% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 20% quarter-over-quarter to account for 66% of our second quarter revenue. Smartphone decreased 4% to account for 22%. IoT increased 4% to account for 5%. Automotive increased 15% to account for 4%. DCE increased 5% to account for 1%. Moving on to the balance sheet. We ended the second quarter with cash and marketable securities of TWD 3.5 trillion, or $110 billion. On the liability side, current liabilities increased by TWD 144 billion quarter-over-quarter, mainly due to the increase of TWD 58 billion in accounts payable and the increase of TWD 48 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable days increased by three days to 29 days. Inventory days increased seven days to 87 days, primarily due to the ramp of N2 technology. Regarding cash flow and CapEx, during the second quarter, we generated about TWD 783 billion in cash from operations, spent TWD 496 billion in CapEx, and distributed TWD 156 billion for third quarter 2025 cash dividends. Overall, our cash balance increased TWD 99 billion to TWD 3.1 trillion at the end of the quarter. In U.S. dollar terms, our second quarter capital expenditures total $15.7 billion. I finished my financial summary. Let's turn to the current quarter guidance. Based on the current business outlook, we expect our third quarter revenue to be between $44.6 billion and $45.8 billion, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint. Based on the exchange rate assumption of $1 to TWD 32, gross margin is expected to be between 65% and 67%. Operating margin between 56% and 58%. This concludes my financial presentation. Let me turn to our key messages. I will start by talking about our second quarter 2026 and third quarter 2026 profitability. Compared to the first quarter, our second quarter gross margin increased by 150 basis points sequentially to 67.7%, slightly ahead of our guidance, primarily due to cost improvement efforts and a slightly higher overall capacity utilization rate, partially offset by dilution from our overseas fabs. We have just guided our third quarter gross margin to decrease by 1.7 percentage point to 66% at the midpoint, primarily as we expect the steep ramp-up of our 2 nm technology to dilute our gross margin by about 3 to 4 percentage points. This dilution is expected to be partially offset by very strong demand for our leading-edge technologies and continued cost improvement efforts, including productivity gains and across-node capacity optimization. Looking at the second half of the year, given the six factors that determine our profitability, there are a few puts and takes that I would like to share. First, we expect the steep ramp-up of our 2 nm to dilute our gross margin by about 3 to 4 percentage points in the second half of the year. As the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. On the other hand, demand for our leading-edge technologies is very strong. In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater across-node capacity optimization in our fab operations to support our profitability. Finally, we have no control over the foreign exchange rate, but that may be another factor. Let me talk about our 2026 capital budget. At TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years. With our strong technology leadership and differentiation, we are well-positioned to capture the multi-year structural demand from the industry megatrends of 5G, AI, and HPC. Given the continued strong structural demand from our customers, including the newly emerging agentic AI market, we have decided to raise our full year 2026 capital budget to be between $60 billion and $64 billion as we continue to invest heavily to support our customers' growth. We always collaborate closely with the tool suppliers well in advance to prepare the capacity, whether it is a strong upcycle or downcycle, just like our customers collaborate with us well in advance to plan our capacity. We do not foresee any bottlenecks to our capacity expansion plans. About 70% to 80% of the 2026 capital budget will be allocated for advanced process technologies. About 10% will be spent for specialty technologies, and about 10% to 20% will be spent for advanced packaging, testing, mask making, and others. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. In 2025, we paid TWD 467 billion in cash dividends, up 28.6% year-over-year, as TSMC shareholders receive a total of TWD 18 cash dividend per share. In 2026, they will receive TWD 24 per share, up another 33% year-over-year. We expect a continued and increasing cash dividends per share in 2027 as well. Now let me turn the microphone over to C.C.
Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of $40.2 billion at the high end of our guidance in U.S. dollar terms, driven by strong demand for our leading-edge process technologies. Moving into third quarter, we expect our business to be supported by continuous strong demand for our leading-edge process technologies, including the steep ramp of our 2 nm technology. Looking ahead, we observe consumer and the price-sensitive end market segment are being challenged due to the impact of rising component prices and macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust. The AI megatrend continues to drive the need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers and customers' customers, who are mainly the cloud service providers, continue to provide us with very strong signals and positive outlooks. Thus, our conviction in the multi-year AI megatrend remains very high. Supported by our robust technology differentiation and broad customer base, we now expect our full year 2026 revenue growth to be slightly above 40% year-over-year in U.S. dollar terms. Let me talk about the acceleration of agentic AI. The AI market continues to be very dynamic. The emergence of agentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drive more silicon demand in addition to AI accelerators. We believe this is positive for TSMC, as no matter what CPU approach is taken, whether it's an x86, Arm-based, or RISC-V architecture, they are almost all TSMC's customers. We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity so they can capture the agentic AI market opportunities. Let me talk about TSMC's capacity expansion strategies. To address the structural increase in overall long-term semiconductor market demand profile, TSMC collaborates closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies and the design-in and lead time involved, we also have a very good idea of their multi-year product roadmaps and production plans. This is important because it takes more than five years to develop the technology and product, prepare the capacity, and ramp it up to high volume production. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach. This is a continuous and ongoing process. Based on our assessment, we are stepping up our CapEx investment to increase our capacity to support our customers' future growth. With the strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city government, we would like to announce an additional $100 billion investment in Arizona. This is to build several more semiconductor logic wafer fabs for 2 nm and below technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading U.S. customers. We believe this investment will help to further foster the development of the U.S. semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States. At the same time, we are building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years, and we will continue to further invest in Taiwan. Therefore, TSMC's semiconductor technology and manufacturing will continue to play a pivotal role in supporting the global semiconductor industry while unleashing our customers' innovations. Let me talk about the current N3 capacity expansion. We are executing well on our global plan to add three additional 3 nm fabs, one in Taiwan, one in Arizona, and one in Japan to support the robust multi-year pipeline of demand for 3 nm technologies. In addition to all the new fabs, we continue to convert 5 nm tools to support 3 nm capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fabs in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, which includes flexible capacity support among N7, N5, and N3 nodes. In summary, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers. Let me talk about our mature node strategies. TSMC's strategy at mature node has not changed. Our first priority is to fully support our customers. We continue to increase, not decrease, our mature node capacity in the higher value-added segments. For example, we are increasing our mature node capacity through JASM Fab 1 in Japan for CMOS image sensor applications and ESMC in Germany for automotive and industrial applications. In today's market, outside of specific areas such as power management IC and CMOS image sensor, the mature node demand in other commodity areas is not as strong. Thus, TSMC will continue to focus on the higher value-added and strategic segments by ensuring we have the necessary capacity to support our customers' growth. Let me talk about our A14 status. As I mentioned a few minutes ago, the complexity of leading-edge technology continues to increase. The lead time to develop a new technology such as A14, build the capacity, and then ramp it up now takes five to seven years. There are no shortcuts. Our A14 technology, representing the second generation of nanosheet transistors, delivers another full node stride from N2 with performance and power benefits to address the incessant need for high-performance and energy-efficient computing. Compared with N2, A14 will provide a 10% to 15% speed improvement at the same power, or 25% to 30% power improvement at the same speed and close to 20% chip density gain. A14 technology development is on track and progressing well. Internal product line vehicles demonstrate close to 90% device performance and close to 90% 256 Mb SRAM yield. We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications. Customer tape-out activity is ongoing and ahead of schedule. Pre-production will start in 2027, and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduce the A13 and A12 as an extension of the A14 family. A13 represents a further advancement over A14, achieving an over 6% die area saving through an innovative 97% optical shrink. Through continuous design technology co-optimization, A13 also drives further performance and power efficiency improvement. A13 design rules are backward compatible with A14 to ensure smooth IP migration. We also introduce A12, which will bring our innovative Super Power Rail technology to the A14 platform for superior performance, power, and area benefit. Both A13 and A12 are scheduled for volume production in 2029. We believe A14 and its derivative technologies will prepare our A14 family to be an even larger and longer-lasting node for TSMC than N2. Just like 2 nm technology is a larger and longer-lasting node than 3 nm, this further extends our technology leadership position well into the future. This concludes our key messages, and thank you for your attention.
Thank you, C.C. This does conclude our prepared statements. Before we begin the Q&A session, again, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Questions will be taken both from the floor and from the call online. Should you wish to raise your question in Chinese, I will translate it to English before our management answers the question. For those of you on the call, if you'd like to ask the question, please press star then one on your telephone keypad now. If at any time you'd like to remove yourself from the questioning queue, please press star two. Please note that we will try to conclude today's meeting at around 3:10 P.M. or so. We will try to get in as many participants' questions as possible. If we're not able to, we do apologize in advance. Thank you everyone for your patience. Operator, well, let's begin the Q&A session. We'll take the first few questions from the floor. Then we'll go online. Maybe again, left, center, right. Maybe we'll take the first question. Sunny Lin from UBS, please.
Questions and answers
We will now take the first question from the floor. Sunny Lin from UBS, please proceed.
Thank you very much. Congrats on the very strong performance and outlook. Number one, I'll do a double click on the CapEx. Very encouraging CapEx outlook. I do think it's essential that TSMC showcase a stronger determination in capacity expansion, given the stronger demand and the very tight supply. Beyond 2026, I think every large client also wonders how aggressive TSMC is planning for CapEx. Back in the COVID super cycle, TSMC did provide a three-year CapEx outlook back then. I wonder at this point, will it be possible for you to share any color, maybe for the coming three years' CapEx? Thank you.
Okay. Sunny's first question is regarding CapEx. She does believe it's important, essential, to show our determination to support our customers with these large CapEx investments. She wants to know, do we have a three-year CapEx guidance for 2026, 2027, 2028, similar to what we did back in 2021?
Okay, Sunny. We do not have a number to share with you, but as you know, we invest CapEx this year for the future business opportunity. As long as there are business opportunities, we will not hesitate to invest. As you can hear from our prepared remarks, our conviction in the AI megatrend is very strong, and we are stepping up the CapEx, including increasing this year's CapEx. Last time we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years. The CapEx in the next three years will be even more significantly higher than the past three years.
Yeah. Well, sorry, maybe let me follow up on CapEx from another—
Second question.
Oh, yeah, sure. You just announced an additional $100 billion CapEx in the U.S., I think that's pretty important for you to secure the business in the U.S. as well. Now with total TWD 265 billion CapEx in Arizona, what's your current plan to bring on the capacities in Arizona in the coming few years?
Sunny's second question is on the Arizona investment. C.C. said investing an additional $100 billion in Arizona based on the strong demand from our customers. The total investment now is TWD 265 billion. What is the schedule, time frame, or the plan for this investment?
Sunny, the schedule will depend on the market situation. Today's situation, the megatrend is so strong so that we announce additional $100 billion investment in Arizona. How many fabs? Many. Actually, let me say that. It is probably an additional four more fabs that will be built.
That's combining front and back-end?
Yes.
Okay, thank you.
Okay, thank you. Let's go to the middle. We have Charlie Chan from Morgan Stanley. We'll go left, middle, right from where I sit. Thank you.
Thanks for taking my question. Good afternoon. First of all, congrats for a very strong outlook. My first question is really about the foundry competition. I understand that there's no shortcut for a newcomer like TerraFirma, but how about Samsung Foundry, right? They got a huge profit from memory business. Intel got U.S. policy support. I'm not sure how TSMC is going to address those competitors, because apparently, several U.S. companies are engaging with those industry peers. Recently, actually yesterday, ASML announced plans to expand EUV capacity for 2028. Would TSMC worry that your competitors take more slots and build a large capacity in the future to compete with you in the leading-edge business? Thank you.
Charlie's question is about competition from two angles. One, he notes C.C. said foundry competition has no shortcuts, but he says several customers are engaging with our foundry competitors. One of them in Korea is making large profits, and another may have U.S. government policy support. How do we see the competition and the threat of customers moving to competitors?
Well, let me say that. Yes. One of my competitors in South Korea makes a huge amount of money, and I'm jealous about it. The other one in the U.S. got very strong U.S. government support. We also got government support, by the way, although we don't announce it. However, let me share with you, as we said, there are no shortcuts. What does that mean? In this semiconductor industry, you have to go back to fundamentals. Government help is welcome and appreciated. A lot of money, of course, that's nice to have. The most important thing, as we continue to say, is technology, manufacturing, and customer trust. These three fundamentals never change. For my 30-some, 40 years career, it has always been the most important thing. That is TSMC's secret recipe to win business. From the competition point of view, choosing a technology and ramping it up is not buying milk from a convenience store. You're choosing a technology partner. There is no shortcut. You need to understand the technology, you need to utilize it with test chips, work together, and prepare the capacity and ramp it up. That's why it takes about five years. It's not that today you think one offering is better and you switch instantly. That's my answer, Charlie. Do you agree?
Yeah. Hope you can buy more milk so other people can get it. Thank you. Yeah. Let me switch gear to a more exciting side. C.C. just said you see a very strong signal from customers. You also revised up the full-year revenue guide. Are you ready to revise up the five-year revenue CAGR, especially this AI semiconductor CAGR? I remember it was high 50%. That generative AI demand is so strong, CPU is a great opportunity for TSMC, but how about those memory cost increases? This big chunk of AI CapEx — what's the update on the AI semiconductor CAGR, and how should we look at the content of this AI semiconductor related to TSMC's growth? Thank you.
Okay. Charlie's second question is regarding AI-related demand. We continue to see very strong and positive signals from our customers. We've revised up our full year. His question is around our AI CAGR guidance that we gave in January for a five-year period, mid to high 50% CAGR growth. He's wondering if there's any update to that. Agentic AI is a new opportunity; what is our definition of AI accelerator and does that change the CAGR?
Charlie, if you read our message, we continue to invest more. We increased the CapEx with a good reason. If you ask about the AI CAGR, let me not give you a specific number, but it is stronger and stronger. We don't provide an updated figure today because it continues to increase, so we don't have a precise number to share. It is stronger than what we said before.
Okay. Thank you, Charlie. All right. Let's move to this side. Maybe we'll take the question from Arthur from Macquarie.
Hi. First, congrats on the strong execution and performance. My question is regarding the new advanced packaging technology. We noticed that especially EMIB-T is gaining traction. How will TSMC react to this request?
Arthur's first question is on advanced packaging and competition. Very simply put, EMIB-T is gaining traction. How do we see the competitive threat from this?
Well, let me say that our packaging capacity is so tight that it is limiting our customers' growth. We welcome additional flexibility in the market. That will help TSMC's front-end wafer business growth, which is the majority part of TSMC's business. The technology looks promising. We hope it will be successful and share some of the loading from TSMC. Today, we're working very hard to shorten the gap between demand and capacity. As I said, we welcome additional alternatives and flexibility for our customers.
Thank you. That makes a lot of sense. A follow-up: as this is a new technology, if your clients ask for your support, and our value is to support our customers' success, how will TSMC handle this special request?
If these technologies have some small problem and then ask our company to support them, how would our company accommodate it?
Let me answer the question. Our number one priority is to support our customers' success. Whatever we can do to help our customers' business, we want to do. We want our customers to win.
Let's come back. We'll take one more here, and then we'll go online and then back to the room. All right. Go ahead.
Hi. Thanks, C.C., Wendell, and Jeff. First question: since you're not wanting to give longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity? Obviously, customers' feedback is important. Do you also consider competitive pressure? As an outright market leader, having undersupply for a very long period of time is not really desirable for TSMC, right? You probably want a market which is more balanced. When you think about your capacity expansion, how long do you think it takes to fulfill the demand as you see right now? That's one. Second, chips obviously face current shortage, but there is also a lot of discussion about data center delay and power capacity being available. Could you also share some thoughts on how you are layering in those kinds of concerns? You don't want your chips to be available but have to wait for data center deployment to happen. Just to understand how that goes into your planning framework as well.
Gokul's first question is how we plan capacity and determine expansion. Certainly, we take into consideration multi-year demand from our customers and customers' customers. Do we also consider competitive pressures from competitors building capacity? Is that part of our calculus? What about external factors like data center delays or power constraints?
Gokul, that's a good question. Definitely, every time when we think about the business, we consider the competition. We do a bottom-up and top-down assessment of demand. We talk to customers and customers' customers, the cloud service providers, and collect their input. We make judgments. Remember that I believe every customer tries to tell the truth, but when you put all the inputs together, you still need to make judgment — customers tend to be aggressive. That's a CEO's job: to judge. This year we increased CapEx from TWD 52-56 billion to TWD 60-64 billion. You bet that could continue to increase. It's a big investment, so we do it carefully. Regarding your second point, we are checking AI data center progress, the building, locations and demand. We check all that to make sure TSMC's chips will not be put into inventory unnecessarily. Does that answer your question?
Yeah. That's clear. C.C., do you still believe even by the end of next year we will still be running short of supply even with this elevated capacity build-out plan?
You want me to guarantee it? Let me say that I believe from today on all the way to probably 2029 or 2030, the demand is very strong. Whether there's a dip in between, I'm not very sure. The trend is so robust that we are witnessing a kind of new industry — the AI industry — which will affect automotive, humanoids, robots, and many other industries. Given the amount of investment, including from cloud service providers, this is a major new industry for the world. The demand will be there, and many of the chips will come from TSMC.
Thanks, C.C. My second question is on profitability. C.C., you joked that you are jealous of your memory competitor on their margins. It seems like longer-term foundry, especially leading-edge foundry, should be higher than memory. As you are investing for many of your customers, how is that discussion going? Because you are no longer the most profitable semiconductor manufacturing company now. You probably have less pressure to pass on value to customers and could capture more value than a year ago.
Gokul, your question is simple: what is TSMC's wafer pricing strategy, and what kind of gross margin should we expect? The higher the better, of course. We are a partner — our customers must be successful. We don't want to squeeze them out of the market. We are a trustworthy company; we don't suddenly increase prices dramatically. We earn our value, and we make sure our gross margin is enough for long-term sustainable expansion, which benefits both our customers and TSMC. We are honest and trustworthy. Yes, I am jealous of memory companies with extremely high margins, but our philosophy is to earn fair value and sustain long-term growth.
Okay, thank you. Operator, can we take the next two questions from participants on the line, please?
Yes. Now it's Jim Fontanelli from Arete.
Thank you. Could I ask about the risk that you see around customer concentration, as AI demand continues to significantly outgrow other end markets? I think your exposure to your top five customers is becoming meaningfully larger than at any point in your history. I'd just like to understand how you see that risk.
Jim's first question is about customer concentration. We have large customers that are getting larger. Are we worried about having too much concentration among top customers?
No, that's not our concern. While some customers are growing larger, we are very happy about it. There are also many new players in the AI industry, so the ecosystem is expanding. Customer concentration alone is not our primary concern.
Do you have a second question?
Thank you. Yes. We're seeing your direct customers put capital into both financing and investing in AI demand. Is that something that TSMC is considering?
Jim's second question: some of our customers are investing in their customers. Is this something TSMC would consider, such as financing or strategic investments in end customers?
Every company has different considerations and strategies. So far, no — TSMC does not engage in that kind of financial arrangement. We believe our current model with customers works smoothly and successfully.
Okay. Operator, can we move on to the next participant on the line, then we'll come back to the floor.
Next to ask a question is Mehdi Hosseini from SIG.
Yes. Thanks for taking my question. I want to go back to the $100 billion investment in the U.S. Is there any way you can give us some timeline? Is it over the next three years, five years? How should we think about the progression of this $100 billion investment in the U.S.? I have a follow-up.
Mehdi's first question is around the additional $100 billion U.S. investment. Is there a timeframe, such as three years or five years, for this investment?
We do have a plan, but the timeline depends on market conditions and our customers' demand. If you ask me for a firm schedule, we don't have a fixed one to announce today, but we do plan and we will try to speed up the timeline as fast as possible.
Okay. The message is you're flexible, but also expediting the investment in the U.S. Is that correct?
I think C.C. said we're trying to move as fast as we can, but everything is based on our customer needs.
We're also moving new fabs and facilities in Taiwan and Japan as fast as possible. The situation today is that the demand-supply gap is large, and we are working very hard to narrow the gap.
Thank you. I want to follow up. I want to dive into the compute part of the HPC, and I want to ask you about networking switches. In that context, when should we expect the COUPE platform to have a material contribution to your top line?
Mehdi's second question is very specific. He wants to know when the COUPE platform will have a material contribution to revenue.
We have started production and it will ramp up. As time goes by, AI data centers will need to lower power consumption and increase communication bandwidth. I believe COUPE will continue to increase in demand and will become a very important technology over the next few years.
Okay. Thank you. Let's come back to the floor. We'll take the next question from Citibank, Laura Chen.
Thank you very much for taking my questions. My first question is about the promising outlook as TSMC raised CapEx and the growth outlook for this year. Particularly, C.C., you mentioned agentic AI and the CPU growth potential. Can you give us more update among AI different chip types: GPU, accelerators, or CPUs? What do you see in terms of growth potential and visibility? Thank you.
Laura's first question is about the breakdown within AI: agentic AI, CPUs versus GPUs and accelerators, and the visibility on those segments.
Laura, I can't give a very specific number, but let me share: all of them are customers of TSMC and use leading-edge technologies. We work with customers to allocate wafers and balance the CPU, GPU, and XPU ratios.
Okay. That makes sense. My second question is about advanced packaging. During the symposium, TSMC announced a 14x reticle CoWoS roadmap to enable larger AI packaging. Also, last month in Japan, you showed substrate developments for CoWoS and glass technology. Can you give us an update on glass core or glass substrate progress at TSMC?
Laura's second question is on advanced packaging glass substrates and pilot lines.
Today, the majority is still CoWoS. We are developing alternatives to lower cost. We work with substrate vendors to enable products for our customers. We are building a pilot line, announced a few quarters ago, and it will take about another year to mature before we put it into production with customers.
Thank you. Let's move to this side of the room. Bank of America, Haas Liu.
Yes. Thanks, C.C., Wendell, and Jeff for taking my questions, and congrats on the great results. My first question is regarding your CapEx and sales. You gave a solid CapEx outlook for this year and said CapEx outlook in the next couple of years will continue to be significant. You also raised this year to 40%+. Would you be able to provide your next couple of years' sales growth outlook? Relatedly, could you break down which part of the demand you see as the key driver for raising CapEx and for this year's demand? Is this still mostly driven by cloud computing, or is it proliferating to edge computing? To some extent, is it also related to equipment supply chain price increases? Thank you.
That's several questions. Haas is asking whether we can provide next couple of years' sales growth outlook and what is driving demand: cloud, edge, or equipment price increases.
Because of the revenue corresponding to our investment, we forecast demand, assess, and then do CapEx. Next few years should be very good business for TSMC. Regarding the driver, it's all AI-related. Everything ties back to AI demand.
Okay. My follow-up: as back-end competition rises, especially coming from alternatives like EMIB-T, are you worried that your overall foundry value add from front-end manufacturing to back-end packaging could be cannibalized and that this could impact your business?
The front-end wafer business and back-end packaging are different. If they were the same, then outsourced assembly companies could become front-end competitors. Because our back-end capacity is tight, we welcome alternatives that give customers flexibility so their front-end wafers can be packaged more quickly. That supports TSMC's front-end wafer business.
Okay. Thank you. Operator, let's take one more from the online, and then we'll wrap up with the floor.
Next to ask a question is Robert Sanders from Deutsche Bank.
Thanks for taking my question. You recently stated that High-NA tools were too expensive, but could you please discuss how your customers are considering the impact of die stitching challenges from a smaller field size with High-NA? Could that actually slow the adoption of High-NA even if the tech improves or the tech gets more productive? I have a follow-up. Thanks.
Rob's question is about High-NA adoption. He wants to know if die stitching challenges from a smaller field size could slow adoption, even if the tool productivity improves.
You have a detailed understanding of High-NA. Today, the field size is roughly half, and we factor that into manufacturing cost and other considerations. High-NA is a very good technology. TSMC is working with ASML to make it more suitable for manufacturing in terms of cost and maturity. We always consider technology maturity and cost when deciding whether to adopt it.
Just a quick follow-up. I think many on this call assume unconstrained demand for 3 nm and below is roughly 30% to 50% above your ability to supply. Is it in fact much larger than 30% to 50%? It feels like it might be based on what you are saying here, because I think many assume it is solvable over the next three to four years. It sounds like the number could be much larger. Thanks.
Those are your numbers. Robert asks whether the demand gap above supply is larger than 30% to 50%, and whether it could be much larger.
No, we don't have an exact number to share. Let me say the gap is very big. I don't want to comment on memory, but the gap for leading-edge is substantial.
We have about nine minutes left. We'll come back to the floor with any remaining questions. Let's take one from here. Evelyn Yu from Goldman.
Thank you for taking my question. We mentioned stepping up capacity growth. I noticed during your symposium that you mentioned 2 nm family capacity growth will be growing at around 70% CAGR from 2026 to 2028, and N3 plus and N5 to grow by 25% CAGR from 2022 to 2027. Are those numbers still the right assumptions today? Have you seen any changes over the past quarter? How should we compare that with the unmet demand?
Evelyn's first question is about capacity growth assumptions from the symposium, such as 2 nm family growth at ~70% CAGR and N3/N5 growth at ~25% CAGR. Are those still accurate?
We showed those charts at the Technology Symposium. Today, the expected growth is even bigger. That's all I will say.
Okay, thank you. My other question touches advanced packaging. You bundle advanced packaging CapEx together with testing, mask making, and others at around 10% to 20% of total CapEx. How much of that actually goes to advanced packaging alone? Given packaging is capital intensive, how should we think about the gap between its price and revenue share and its CapEx share over the next few years? As it becomes more important, should you consider breaking it out as a separate CapEx item going forward?
Evelyn asks for a breakdown of the 10% to 20% bucket and whether we should separate packaging CapEx reporting.
We try to ensure our CapEx numbers are accurate with flexibility between front-end and back-end. Sometimes a bottleneck tool is in packaging; sometimes it's in the front end. The long-term ballpark for back-end CapEx is about 10% to 20%. It is a broad range, and as time goes by, the specific allocation between testing, packaging, and other areas can change. That's why we cannot be very specific on exact allocation today.
That's quite specific. Okay. With the last participant, KGI, Felix Pan. Thank you for being patient.
Hello, good afternoon. Thank you for taking my question. My first question regards the CapEx revision. Year-to-date, TSMC raised the CapEx guidance by almost $10 billion. Can you give some color on where the upside came from compared to six months ago? Is it from CPU accelerators, memory components, or back-end CoWoS expansion? How should we see the change from six months ago?
Felix notes we raised the CapEx from earlier guidance to now $60 to $64 billion. He's asking what drove the upside compared to six months ago: CPUs, accelerators, memory, packaging?
Simply put, the most important reason is that demand continued to increase and we feel pressure from customers to increase capacity. The second reason is inflation — tool prices have increased. Those are the major reasons.
Okay. Thank you. My second question is about mature nodes. People often focus on leading-edge AI nodes, but mature nodes are also seeing a demand recovery and supply issues. How do you see the demand-supply dynamic and pricing for mature nodes? It seems AI is crowding out some capacity, but mature nodes still depend on consumer demand, which is weak. How do you view the dynamic for mature nodes?
Felix's second question is on mature nodes: demand, supply, and pricing dynamics, and whether shortages are specific to certain mature node segments.
Mature nodes cover many segments. The ones related to AI that are in shortage are primarily power management ICs, because AI data centers require a lot of power management devices, and certain process nodes used in those areas are in tight supply. CMOS image sensors are another example with strong demand. Other commodity mature-node areas related to consumer products are not seeing strong demand and are weaker. So shortages are specific to certain higher value-add mature segments, not the entire mature node space.
Okay. Thank you, C.C. Thank you, Wendell. Thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, both are going to be available through our website at www.tsmc.com. If some of you were not able to ask your question, please feel free to reach out to TSMC IR, and we will follow up with you. Thank you, everyone, for joining us today. We hope everyone continues to stay well. Have a good summer, and we hope you'll join us again next quarter. Thank you and have a good day.