$TSM TSMC Q2 2026 Earnings Conference Call

Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with a revenue of US 40.2 billion at the high end of our guidance in US 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-nanometer 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 mega trend 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 their very strong signal and positive outlook. Thus, our conviction in the multi-year AI mega trend remains very high. Supported by our robust technology differentiation and a broad customer base, we now expect our full-year 2026 revenue growth to be slightly above 40% year-over-year in US dollar terms. Now, let me talk about the acceleration of authentic AI. The AI market continues to be very dynamic. The emergence of authentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drives 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 is X86 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 gigantic AI market opportunities. Next, let me talk about TSMC's capacity expansion strategies. To address the structural increase in overall long-term semiconductor market demand profile, TSMC collaborates closely with our customers and our customers' customers to plan our capacity. Given the fundamental complexity of leading-edge technologies and the design-in and lead time involved, we also have a very good idea of their multi-year product roadmap and production plans. This is important because it takes more than 5 years to develop the technology and product, prepare the capacity, and ramp it up to high volume production. Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both a top-down and bottom-up approach. This is a continuous and ongoing process. Based on our assessment, we are stepping up our CapEx investment to increase our capacity to support our customers' future growth. Now, with the strong collaboration and support from our leading US customers and the US federal, state, and city government, we would like to announce an additional $100 billion US investment in Arizona. This is to build several more semiconductor logical wafer fabs for 2-nanometer and 0 technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading US customers. We believe this investment will help to further foster the development of the US 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. Now, let me talk about the current N3 capacity expansion. We are executing well on our global plan to add three additional 3-nanometer fabs, one in Taiwan, one in Arizona, and one in Japan to support the robust multi-year pipeline of demand for 3-nanometer technologies. In addition to all the new fabs, we continue to convert 5-nanometer tools to support 3-nanometer capacity in Taiwan. We are also leveraging our manufacturing excellence to drive greater productivity across our fab 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. Now, 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. And we continue to increase, not decrease, our mature node capacity in the higher value-added segment. For example, we are increasing our mature node capacity through JASM Fab 1 in Japan for CMOS image sensor 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 that strong. Thus, TSMC will continue to focus on the higher value-added and strategic segment by ensuring we have the necessary capacity to support our customers' growth. Finally, let me talk about our A14 status. As I mentioned a few minutes ago, the complexity of leading-edge technology continues to increase. The lead time to develop a new technology such as A14, building the capacity and then ramping it up, now takes 5 to 7 years. There are no shortcuts. Our A14 technology represents the second generation of nanosheet transistors and delivers another full node stride from N2 with performance and power benefit to address the insatiable need for high performance and energy efficient computing. Compared with our 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 like vehicle demonstrates close to 90% device performance and close to 90% 256 megapixel SRAM yield. We are observing a strong level of customer interest and engagement from both smartphone and HPC AI applications. And customer tape-out activity is ongoing and ahead of schedule. Production will start in 2027, and volume production is scheduled for 2028. With our strategy of continuous enhancement, we also introduced A13 and A12 as extensions of the A14 family. A13 represents a further advancement over A14, achieving an over 6% die area saving through an innovative 93 to 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 introduced 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 propel our A14 family to be an even larger and long-lasting node for TSMC than N2. Just like 2-nanometer technology is a larger and longer lasting node than 3-nanometer. And here we further extend our technology leadership position well into the future. This concludes our key messages and thank you for your attention.

Sunny, the schedule will depend on the market situation. You know that. And so, today's situation, the mega trend is so strong so that we announce additional 100 billion investment in Arizona. How many fabs? Many. So, actually, let me say that they probably additional four more fabs will be built.

Well, let me say that. Yes, one of my competitors in South Korea, they make a huge amount of money and I'm jealous about it. And then the other one in the US they got very strong US 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? Meaning that in this semiconductor industry, you have to go back to fundamentals. Government support is welcome, we appreciate that, and a lot of money is nice to have. But the most important thing as we continue to say is technology, manufacturing, and customer trust. These three fundamentals never change in my 30-some-40 years of career. It is always the most important thing. And that is always TSMC's secret recipe to win the business. So, from the competition point of view, choosing a technology and ramping it up is not like buying milk from 7-Eleven. I'm quoting that sentence from my customer anyway. It says that choosing a technology partner has no shortcut. You need to understand the technology, you need to really utilize it using test chips and so on, work together, prepare the capacity, and ramp it up. That takes about 4 or 5 years. It's not that today you see this milk is better and you go to the next store or 7-Eleven; you don't like it, you go to another store. No. So, that's my answer. Charlie, agree?

Charlie, if you read our message, we continue to invest more. We increase the capex, which is a good reason. So, if you are asking about the AI's CAGR, let me give you not a number, but it is stronger and stronger and stronger. So, we don't give you the number today because we continue to increase, so we don't know how to answer this question. But stronger than what we said before. Okay? Okay, great. Thank you.

Well, let me say that. Our packaging capacity is so tight that now a little bit of my customers are cross. So, we welcome that additional flexibility in the market. And so that we have TSMC's long-term wafer business growth, which is the majority part of TSMC's business. The technology looks good according to the newspaper. And we hope they will be successful so that they share some of the load from TSMC. Today we are working very hard to shorten the gap between demand and capacity. And so as I said, we welcome at least an additional alternative and the flexibility for my customers.

Let me answer the question. Our number one is to support our customers' success. So whatever we can do to help our customers' business, we will do it. Does that answer your question? Okay.

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

You want me to give you a guarantee, right? Let me say that I believe from the stay on all the way to probably 2029, 2030, the demand is very strong. Whether in between there's a deep or not, I'm not very sure. But the trend is so robust that I believe we are witnessing a kind of a new industry. I would like to say the new industry called AI industry, which is so common in our daily life because it is going to affect our automotive, affected the human noise, robot, and also impact to all the industry. So by the amount of money we put in, I mean, including all the CSPs, this is a very important new industry to the world. And so, the demand will be there. And the fundamental thing is semiconductor chips. And most of them in TSMC.

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

No, that's not our concern. Besides, what do you say the customers are growing bigger and bigger? We are very happy about it. And some of the customers are growing very fast. So, it's not as you said that the bigger customer is growing bigger and bigger. No, I mean, there's a lot of new player in the AI industry.

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

We do have a plan, but let me share with you actually the progress or the schedule. Most of the time depend on the market situation and our customers' demand. So, if you ask me to give you a firm schedule now, we don't have it today. But we do have a plan. And we speed it up, we try to speed it up as fast as possible.

Yeah. We also moving the new fabs and the facilities in Taiwan as fast as possible. And the same thing we try to bring up a new fab in Japan as fast as possible. Because the situation today is the demand and the supply gap is so big. So, we are working very hard to narrow the gap.

We start the production right now. It will be ramped up. As time goes by, I think the AI data center need to lower down the power consumption and increase the bandwidth of the communication channel. So, I believe the CoAP will continue to increase the demand and then will become a very important technology in the next few years.

Laura, I don't think I can give you a very specific number. But let me share with you all of them are in TSMC. And they're also using the same kind of leading edge technologies. We're working with our customer to allocate the wafer supply to balance the CPU, GPU, XPUs ratio. Okay.

We are, let me say that. Today a majority is still CoWoS, right? And we are developing that alternative to try to lower down the cost. And we also work with substrate vendor so that our customer can have their product be in the market. The progress we're building a pilot line that I announced a few quarters ago. And you know what? It takes about another 1 year to be mature, so we can put into production with our customer. Okay.

Okay, let me answer that question because of the revenue corresponding to our investment, right? Because we know we forecast our demand and then we make an assessment and then we do the CapEx. Next few years is going to be a very good business for TSMC. That's what I can say.

It's all AI related, everything.

Let me answer that. The front end's wafer business and the back end's business are two different things. Right? If they are the same, then you can expect ASC become the front end competitor, also. It's two different things. And I also say that since our capacity in the back end is still in shortage mode, the gap is bigger. And so, I welcome that the competitor offer some of the flexibility to my customer, so that their front end wafer can be put into the package and that helps TSMC's front end wafer business. That's our attitude.

You got a very detailed understanding of the high NA. Today the field size is only 1/2. And we put that into our consideration of the manufacturing cost and something. Again, let me answer this question quickly. We, whether we use a high NA or not, actually one high NA is a very good tool. Let's assume that, all right? We understand it's a very high performance. But then TSMC made it clear that we work with ASML and try to make it more suitable for manufacturing in terms of the cost and in terms of the maturity. So, we always consider that technology maturity and the cost and whether we use it or not. Okay?

No, we don't have a number to share because the gap is really big. I'm sorry, I don't want to make a comment on the memory, but a very big gap.

We say that in technology symposium we show the chart. Okay. Now it is a bigger. That's all I say.

Evelyn, let me say that we are trying very hard to make sure that our CapEx the number is correct but with a flexibility between the front end and the back end. Sometimes we have a bottleneck so we put more money to buy the bottleneck tools and sometimes it's in the front end, sometimes it's in the back. But in both parts the percentage is just like a window share with everybody. For long term, the back end is about 10% to 20%. That's a big range anyway. So that's what I can say is still 10% to 20%. Because as I said, actually I'm very honest to tell you that as time goes by, some of the customers' products need more tester. You cannot believe that. I mean, so the tester is in shortage so we have to put more CapEx in the tester or in the packaging or in other area. So, that's why we cannot specifically say which area we put how much of the CapEx. That's too specific.

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

Actually, the mature node covers a lot of different segments. Only the ones which are related to AI are in shortage. The most important one is the power management IC. Because all the AI data center needs a lot of power management. And those are the mature node technology like 0.18 micron, 19 nanometer, or something like that. Those are in shortage, definitely. And also the sensor portion because you need a lot of sensors to detect the environmental information and put it into the AI data center to analyze it. Other than that, other areas just like you pointed out, the consumer product is not in high demand, so other segments are not so strong. And as I pointed out in my statement, other areas are not in shortage. Not at all.