Taiwan Semiconductor Manufacturing Co Ltd ($TSM) Q4 2024 Earnings Call

Thank you, Wendell. Good afternoon, everyone. First, let me start with conclusion of the 2024 and our 2025's outlook. 2024 was a mixed year of recovery for the global semiconductor industry. AI related demand was strong. While other applications saw only a very mild recovery. As macro economic conditions weigh on consumer sentiment and the end market demand. Concluding 2024, the foundry 2.0 industry, which we define as all logical wafer manufacturing, packaging, testing, mask making, and others increase 6% year over year. Slightly lower than our previous forecast. Supported by strong demand for our leading-edge process technologies, TSMC's revenue increased 30% year over year in US dollar term, outperforming the foundry industry growth. Entering 2025, we expect fabless semiconductor industry inventory to have returned to a healthier level exceeding 2024. We forecast the foundry total industry to grow 10% year over year in 2025, supported by robust AI-related demand and a mild recovery in other end market segments. Supported by our technology leadership and broad customer base, we are confident we can continue to outperform the industry growth. We expect 2025 to be another strong growth year for TSMC and forecast our full year revenue to increase by close to mid-20% in US dollar term. Now, I will talk about AI demand and TSMC's long-term growth outlook. We observe robust AI-related demand from our customers throughout 2024. Revenue from AI accelerators, which we now define as AI GPU, AI ASIC, and HBM controller for AI training and inference in the data center, accounted for close to 15% of our total revenue in 2024. Even after more than tripling in 2024, we forecast our revenue from AI accelerator to double in 2025. As the strong surging AI-related demand continues. As a key enabler of AI applications, the value of our technology platform is increasing as customers are relying on TSMC to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way. To address the structural increase in the long-term market demand profile, TSMC is working closely with our customer to plan our capacity and investing in leading-edge specialty and advanced packaging technologies to support their growth. As we have said before, TSMC employs a disciplined and thorough capacity planning system to evaluate and judge the market demand to determine the appropriate capacity to build. This is especially important when we have such high forecasted demand from AI-related business. At the same time, we are committed to earning a sustainable and healthy return that enables us to continue to invest to support our customers' growth while delivering profitable growth for our shareholders. Underpinned by our technology leadership and broad customer base, we now forecast the revenue growth from AI accelerators to approach a mid-40% CAGR for the 5-year period starting off the already higher base of 2024. We expect AI accelerators to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. Looking ahead, as the world's most reliable and effective capacity provider, TSMC is playing a critical and integral role in the global semiconductor industry. With our technology leadership, manufacturing excellence, and customer trust, we are well-positioned to address the growth from the industry mega trends of 5G, AI, and HPC with our differentiated technologies. For the 5-year period starting from 2024, we expect our long-term revenue growth to approach a 20% CAGR in US dollar term fueled by all four of our growth platforms which are smartphone, HPC, IoT, and automotive. Next, let me talk about our global manufacturing footprint update. All our overseas decisions are based on our customers' need as they value some geographic flexibility and the necessary level of government support. This is also to maximize the value for our shareholder. In the US, we have a long-standing good relationship with the US government dating back to even before our Arizona fab project announcement in May 2020. We have received a strong commitment and support from the US customers and the US federal, state, and city government and are making substantial progress. Building on the successful result of our earlier engineering wafer production, we were able to pull ahead the production schedule of our first fab in Arizona. Our first fab has already entered the high-volume production in 4Q '24 utilizing N4 process technology with a yield comparable to our fabs in Taiwan. We expect a smooth ramp-up process and with our strong manufacturing capability and execution, we are confident to deliver the same level of manufacturing quality and reliability from our fab in Arizona as from our fab in Taiwan. Our plans for second fab and third fab in Arizona are also on track. These fabs will utilize even more advanced technologies such as our N3, N2, and A16 based on our customers' need. There's TSMC will continue to play a critical and integral role in enabling our customers' success while remaining a key partner in enabling of the US semiconductor industry. Next, in Japan, thanks to the strong support from the Japan central, prefecture, and local government, our progress is also very good. Our first specialty technology fab in Kumamoto has started volume production at the end of 2024 with regular yield. Construction of our second fab, specialty fab, is scheduled to begin this year. In Europe, we have received strong commitment from the European Commission and German federal, state, and city government. We are progressing smoothly with our plans to build a specialty technology fab in Dresden, Germany, focusing on automotive and industrial application. In Taiwan, we continue to receive support from Taiwan government, and we are investing in and expanding our advanced technology and packaging capacities. Given the robust multiyear demand for our 3 nanometer technology, we continue to expand our 3 nanometer capacity in Tainan Science Park. We are also preparing for multiple phases of 2 nanometer fabs in both Hsinchu and Kaohsiung Science Park to support the strong structural demand from our customers. We are also expanding our advanced packaging facilities across several locations in Taiwan. As we have said before, under today's fragmented globalization environment, overseas fab costs are higher for everyone, including TSMC and all other semiconductor manufacturers. We are leveraging our fundamental competitive advantage of manufacturing technology leadership and large-scale manufacturing base to be the most efficient and cost-effective manufacturer in the region that we operate. By supporting our customers' growth, Finally, I will talk about the N2 and the A16 introduction. Our 2 nanometer and A16 technologies leads the industry in addressing the insatiable need for energy-efficient computing. And almost all the innovators are working with TSMC. We expect the number of the new tape out for 2 nanometer technology in the first 2 years to be higher than both 3 nanometer and 5 nanometer in their first 2 years. Fueled by both smartphone and HPC applications. N2 will deliver full node performance and power benefit with 10 to 15% speed improvement at the same power or 20 to 30% power improvement at the same speed. And a more than 15% chip density increase as compared with the N3E. N2 is well on track for volume production in second half of 2025 as scheduled with a ramp profile similar to N3. With our strategy of continuous enhancement, we also introduce N2P as an extension of N2 family. N2P features further performance and power benefit on top of N2. N2P will support both smartphone and HPC applications. And volume production is scheduled for second half 2026. We will also introduce A16 featuring super power rail or SPR as separate offering. TSMC's SPR is an innovative, best-in-class backside power delivery solution that is first in the industry to incorporate a novel backside metal scheme that preserves gate density and device width flexibility to maximize the product benefit. Compared with the N2P, A16 provides a further 8 to 10% speed improvement at the same power or 15 to 20% power improvement at the same speed and additional 7 to 10% chip density gain. A16 is the best suitable for specific HPC product with a complex signal route and dense power delivery network. Volume production is scheduled for second half 2026. We believe N2, N2P, A16 and its derivative will further extend our technology leadership position and enable TSMC to capture the growth opportunity well into the future. This concludes our key message and thank you for your attention.

I almost forgot your question already. Okay. First one. The technology node. Actually, it's not that we don't want to ramp up the same technology as in Taiwan. But if you look at it, the one we ramping up, introduce a new technology into manufacturing. The fab is a process so complicated. So it has to be very close to the R&D people. So the initial phase of the ramping up always come from the fab close to R&D. So in that sense, we want to ramp up the same kind of technology in US. But that practically is a little bit difficult. So Taiwan will always be first. Did that answer your question? It's not because of my N or N-1 limitation. No. It's practically we just have to ramp up a new node in Taiwan. Okay. And the second, do we change our strategy to expand faster or something. Again, this is a we always say that we build a capacity overseas is due to customers' need. If my customer has a very high demand, what should I do? I build a more fab, right? With the necessary governments' support, by the way. Okay, talking about the government, let me assure you that we have a very frank and open communication with the current government and with the future one, also. I cannot say anything more than that. Okay. What is the... IDM fab? That's my customer. And now that we again, our strategy is not based on my IDM competitors' status. They are our very good customers. I like them, and they are very important to TSMC's business, also. That's all I can say. Thank you.