Company Name: Taiwan Semiconductor Manufacturing Co Ltd

Company Ticker: 2330 TT Equity

Date: 2023-10-19

Q3 2023 Earnings Call

Company Participants
C.C. Wei, Chief Executive Officer
Jeff Su, Director of Investor Relations
FINAL

Wendell Huang, Vice President, Finance and Chief Financial Officer

Other Participants
Brad Lin
Brett Simpson
Bruce Lu
Charles Shi
Charlie Chan
Gokul Hariharan
Krish Sankar
Laura Chen
Mehdi Hosseini
Sunny Lin

Presentation
Bloomberg Transcript

Jeff Su {BIO 19785914 <GO>}

(Foreign Language) Good afternoon, everyone and welcome to TSMC's Third Quarter
2023 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.

First, TSMC's Vice President and CFO, Mr.Wendell Huang, will summarize our operations in
the third quarter 2023, followed by our guidance for the fourth quarter 2023. Afterwards,
Mr.Huang and TSMC's CEO, Dr.C.C. Wei, will jointly provide the company's key messages.
Then we will open the line for the Q&A.

As usual, I would like to remind everybody that today's discussions may contain forward-
looking statements that are subject to significant risks and uncertainties, which could

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

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.

And now, I would like to turn the call over to TSMC's CFO, Mr.Wendell Huang, for the
summary of operations and the current quarter guidance.

Wendell Huang {BIO 18242139 <GO>}

FINAL

Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My
presentation will start with financial highlights for the third quarter of 2023. After that, I will
provide the guidance for the fourth quarter of 2023.

Third quarter revenue increased 13.7% sequentially in NT dollars, or 10.2% in U.S. dollars,
as our third quarter business was supported by the strong ramp of our industry-leading 3-
nanometer technology and higher demand for 5-nanometer technologies, partially offset
by customers' ongoing inventory adjustment.

Gross margin increased 0.2 percentage points sequentially to 54.3%, mainly reflecting
higher capacity utilization, partially offset by the margin dilution from N3 ramp.

Total operating expenses accounted for 12.6% of net revenue as compared to 12.1% in the
second quarter, mainly due to higher R&D expenses to support our 3-nanometer and 2-
nanometer development.

Operating margin was 41.7%, down 0.3 percentage point from the previous quarter.
Overall, our third quarter EPS was TWD8.14 and ROE was 25.8%.
Bloomberg Transcript

Now let's move on to the revenue by technology. 3-nanometer process technology

contributed 6% of wafer revenue in the third quarter, while 5-nanometer and 7-nanometer
accounted for 37% and 16%, respectively. Advanced technologies, defined as 7-nanometer
and below, accounted for 59% of wafer revenue.

Moving on to revenue contribution by platform. HPC increased 6% quarter-over-quarter to

account for 42% of our third quarter revenue. Smartphone increased 33% to account for
39%. IoT increased 24% to account for 9%. Automotive decreased 24% to account for 5%
and DCE decreased 1% to account for 2%.

Moving on to the balance sheet. We ended the third quarter with cash and marketable
securities of TWD1.55 trillion, or USD48 billion. On the liability side, current liabilities
increased by TWD159 billion mainly due to the increase of TWD95 billion in accounts
payable and the increase of TWD59 billion in accrued liabilities and others. Long-term
interest bearing debt increased by TWD30 billion of which TWD10 billion from new
issuance and TWD20 billion from foreign exchange rate movement.

On financial ratio, accounts receivable turnover days increased three days to 35 days while
days of inventory decreased three days to 96 days.

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

Regarding cash flow and CapEx. During the third quarter, we generated about TWD295
billion in cash from operations, spent TWD227 billion in CapEx, and distributed TWD71
billion for fourth quarter '22 cash dividend. Overall, our cash balance increased TWD35
billion to TWD1.31 trillion at the end of the quarter. In U.S. dollar terms, our third quarter
capital expenditures totaled TWD7.1 billion.

I have finished my financial summary. Now let's turn to our current quarter guidance.
Based on current business outlook, we expect our fourth quarter revenue to be between
FINAL

USD18.8 billion and USD19.6 billion which represents a 11.1% sequential increase at the
midpoint. Based on the exchange rate assumption of USD1 to TWD32, gross margin is
expected to be between 51.5% and 53.5%, operating margin between 39.5% and 41.5%.
This concludes my financial presentation.

Now let me turn to our key messages. I will start by making some comments on our third
quarter '23 and fourth quarter '23 profitability. Compared to second quarter, our third
quarter gross margin increased by 20 basis points sequentially to 54.3%, primarily due to
a higher capacity utilization rate and a more favorable foreign exchange rate, partially
offset by the margin dilution from the initial ramp-up of our 3-nanometer technology.

Compared to our third quarter guidance, our actual gross margin exceeded the high end
of the range provided three months ago by 80 basis points, mainly due to a more
favorable foreign exchange rate. We have just guided our fourth quarter gross margin to
decline by 1.8 percentage points to 52.5% at the midpoint, primarily due to the continual
margin dilution from this steep ramp of our 3-nanometer technology. As a reminder, six
factors determine TSMC's profitability: leadership, technology development and ramp up;
pricing; cost reduction; capacity utilization; technology mix, and foreign exchange rate.
Bloomberg Transcript

To manage our profitability in the next several years, we will work diligently on our internal
cost improvement while continuing to strategically sell our value.

Excluding the impact of foreign exchange rate, of which we have no control over, we
continue to forecast a long-term gross margin of 53% and higher is achievable.

Next, let me talk about our 2023 CapEx and depreciation. Every year, our CapEx is spent
in anticipation of the growth that will follow in future years. Given the near-term
uncertainties, we continue to manage our business prudently and have tightened up our
capital spending throughout the year where appropriate.

We now expect our 2023 CapEx to be approximately USD32 billion. Out of the
approximately $32 billion CapEx for 2023, about 70% of the capital budget will be
allocated for advanced process technologies, about 20% will be spent for specialty
technologies, and about 10% will be spent for advanced packaging, testing, mask making,
and others.

Our depreciation expense is now expected to increase by low 20s percentage year-over-
year in 2023, as compared to our January forecast of approximately 30% year-over-year
increase.

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

Despite the near-term inventory cycle, our commitment to support customers' growth
remains unchanged, and our disciplined CapEx and capacity planning remains based on
the long-term structure market demand profile. We will continue to work closely with our
customers to plan our long-term capacity and invest in leading-edge specialty and
advanced packaging technologies to support their growth while delivering profitable
growth to our shareholders.

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

FINAL

C.C. Wei
Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term
demand and inventory. We concluded our third quarter with revenue of USD17.3 billion in
line with our guidance in U.S. dollar terms. Our business in the third quarter was
supported by the strong ramp of our industry-leading 3-nanometer technology and
higher demand for 5-nanometer technologies, partially offset by customers' ongoing
inventory adjustment.

Moving into fourth quarter 2023. While AI-related demand continues to be strong, it is not
enough to offset the overall cyclicality of our business. We expect our business in the
fourth quarter to be supported by the continuous strong ramp of our 3-nanometer
technology, partially offset by customers' continual inventory adjustment.

On the inventory side, we expect the fabless semiconductor inventory to have

continuously reduced in the third quarter. However, due to the persistent weaker overall
macroeconomic conditions and slow demand recovery in China, customers remain
cautious in their inventory control. Thus, we expect the inventory digestion to continue in
Bloomberg Transcript

the fourth quarter. Having said that, we are observing some early sign of demand
stabilization in the PC and smartphone end market.

Together with such level of inventory control, we forecast the fabless semiconductor
inventory to further reduce and exit 4Q '23 at a healthier level.

Next, let me talk about our global manufacturing footprint update. TSMC's mission is to
be the trusted technology and capacity provider of the global logic IC industry for years to
come. As we have said before, our strategy is to expand our global manufacturing
footprint to increase customer trust, expand our future growth potential, and reach for
more global talents.

Our overseas decisions are based on our customers' need and the necessary level of
government support. This is to maximize the value for our shareholders.

In Europe, after conducting extensive due diligence, we announced our plan to build a
specialty technology fab in Dresden, Germany, focusing on automotive and industrial
applications. We have received a strong commitment to support this project from our JV
partners, the European Commission government, and German federal, state, and city
governments. This fab will utilize 22 and 28 nanometer and 12, 16 nanometer technologies

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

for semiconductor wafer fabrication. Fab construction is scheduled to begin in the second
half 2024 and production is targeted to begin in late 2027.

In Arizona, we are receiving strong support from the City of Phoenix, State of Arizona, and
U.S. Federal Government and continue to develop positive relationship and work closely
with our local trade and union partners. We are making good progress on the fab
infrastructure, utilities, and equipment installation issues in our first fab, and the situation is
improving.
FINAL

We have also begun early preparation for our Arizona fab operations and hired close to
1,100 local TSMC employees so far.

Many of them have been brought to Taiwan for extensive hands-on experience in our fab
so that they can further their technical skills while being immersed in TSMC's operations
environment and culture. We continue to target volume production of N4 process
technology in first half 2025 and are confident that once we begin operations, we will be
able to deliver the same level of manufacturing quality and reliability in Arizona as from
our fabs in Taiwan.

In Japan, we built a specialty technology fab, which will utilize 12 and 16 nanometer and 22
and 28 nanometer process technologies. We have hired approximately 800 local TSMC
employees so far, with the majority having similar being brought to Taiwan for hands-on
experience. Equipment moving has begun this month, and volume production is on track
for late 2024.

In China, we have recently received an extension from the U.S. Bureau of Industry and
Bloomberg Transcript

Security to continue our operation in Nanjing. We are currently in the process of applying
for validated end-user authorization and expect to receive a permanent authorization in
the near future.

From a cost perspective, the initial costs of overseas fabs are higher than TSMC fabs in
Taiwan due to, first, smaller fab scale; second, higher costs throughout the supply chain;
and third, the early stage of semiconductor ecosystem overseas as compared to a
matured ecosystem in Taiwan. TSMC's responsibility is to manage and minimize the cost
gap to maximize the return for our shareholders.

Our pricing will also remain strategic to reflect our value, which includes the value of
geographic flexibility. We also work closely with government to secure their support. At
the same time, we are leveraging our fundamental competitive advantage of
manufacturing technology leadership, large volume, economies of scale to continuously
drive our costs down. By taking such actions, TSMC will have the ability to absorb the
higher costs of overseas fares and still deliver the long-term gross margin of 53% and
higher and sustainable ROE of greater than 25%. We remain firm in our commitment to
maximize the value for our shareholders.

Now let me talk about the N3 and N3E ramp-up and progress. Our 3-nanometer
technology, the most advanced semiconductor technology in both PPA and transistor

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

technology. N3 is already in volume production with good yield, and we are seeing a
strong ramp in the second half of this year, supported by both HPC and smartphone
applications. We reaffirm N3 will contribute mid single-digit percentage of our total wafer
revenue in 2023, and we expect a much higher percentage in 2024, supported by robust
demand from multiple customers.

N3E will leverage the strong foundation of N3 to further extend our N3 family with
enhanced performance, power, and yield, and provide complete platform support for
FINAL

both HPC and the smartphone applications. N3E has passed qualification and achieved
performance and yield targets and will start volume production in fourth quarter of this
year. We also continue to provide further enhancement of N3 technology, including N3P
and N3X.

With our strategy of continuous enhancement of our 3-nanometer process technologies,

we expect strong multi-year demand from our customers and we are confident that our 3-
nanometer family will be another large and long-lasting node for TSMC.

Finally, I will talk about N2 status. The recent surge in AI-related demand supports our
already strong conviction that demand for energy-efficient computing will accelerate in an
intelligent and connected world. Thus, the value of a technology platform is expanding
beyond the scope of geometry shrink alone and increasing toward greater power
efficiency.

In addition, as process technology complexity increases, the lead time and engagement
with customer also start much earlier. As a result, we are observing a strong level of
customer interest and engagement at our N2, similar to or higher than N3 at a similar
Bloomberg Transcript

stage from both HPC and smartphone applications.

Our 2-nanometer technology will be the most advanced semiconductor technology in the
industry in both density and energy efficiency when it is introduced in 2025. Our N2
technology development is progressing well and on track for volume production in 2025.

Our N2 will adopt nanosheet transistor structure, which has demonstrated excellent power
efficiency. N2 will deliver four node performance and power benefit to address the
increasing need for energy-efficient computing.

As part of N2 technology platform, we'll also develop N2 with backside power rail
solution, which is the best suited for HPC applications.

We are targeting backside power rail to be available in the second half of 2025 to
customers with production in 2026. With our strategy of continuous enhancement, N2 and
its derivative will further extend our technology leadership well into the future.

This concludes our key message and thank you for your attention.

Jeff Su {BIO 19785914 <GO>}

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

Thank you, C.C. This concludes our prepared statements. Before we begin the Q&A
session, I would like to remind everybody to please limit your questions to two at a time to
allow all participants an opportunity to ask their questions. Should you wish to raise your
questions in Chinese, I will translate it to English before our management answers your
question. (Operator Instructions)

Now let's begin the Q&A session. Operator, can we please proceed with the first caller on
the line? Thank you.
FINAL

Questions And Answers

Operator
(Question And Answer)

Yes. The first one to ask question, Gokul Hariharan from JPMorgan.

Q - Gokul Hariharan {BIO 6332238 <GO>}

Yes, hi. Congratulations on the great result and thanks for the details on N3 and N2. My
first question is on the technology leadership. Given we are hearing a lot of competitive
messaging from your U.S. IDM competitor/customer in the last few months, Intel seems to
think that they will be getting into technology or process technology leadership in 2025.
Just wanted to hear what does TSMC think of Intel's claim. And when TSMC thinks about
customer engagement, do you feel you will lose market share to Intel, when it comes to
the N2 or the first generation of nanosheet transistors or you think your very high market
Bloomberg Transcript

share in N3 will continue into N2? That's my first question.

A - Jeff Su {BIO 19785914 <GO>}

Okay. Thank you, Gokul. Please allow me to summarize your first question. So Gokul's first
question is about technology leadership and competition with, I think particularly IDM. He
notes this IDM is very -- messaging about taking over process technology leadership from
TSMC. And so Gokul's question is, how do we see this? Are we concerned that we will lose
market share at nanosheet or N2 to this IDM given their claims of regaining process
technology leadership? Is that correct, Gokul?

Q - Gokul Hariharan {BIO 6332238 <GO>}

Yes. That's right. Thanks.

A - Jeff Su {BIO 19785914 <GO>}

Okay.

A - C.C. Wei
Okay. Well, Gokul, this is C.C. Wei. Let me answer your question with a very simple yes or
say no, but well I was still a little bit wrong, actually we do not underestimate any of our

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

competitors or take them lightly. Having said that, our internal assessment show that our
N3P, now I repeat again, N3P technology demonstrated comparable PPA to 18A, my
competitor's technology. But with an earlier time to market, better technology maturity,
and much better cost. In fact, let me repeat again, our 2-nanometer technology without
backside power is more advanced than both N3P and 18A. And what the semiconductor
industry is the most advanced technology when it is introduced in 2025. Does that answer
your question, Gokul?

Q - Gokul Hariharan
FINAL

{BIO 6332238 <GO>}

Okay. That's quite clear. Thank you very much. Could you talk -- also talk about -- my
second question is, could we talk a little bit about the AI related demand? You've seen a
pretty strong demand on the data center side and you talked about AI being about 6% of
revenues this year, mostly on the data center side.

Are we starting to see more engagement on AI demand on edge devices based on

TSMC's expectations? Is this going to be a big growth driver in the next one to two years
for TSMC's leading edge AI devices -- sorry, AI on edge devices? Do you think that, that is
a bigger driver for you?

A - Jeff Su {BIO 19785914 <GO>}

Okay. Thank you, Gokul. So Gokul's second question is on AI related demand. He notes of
course that we have talked last time also about our AI related demand outlook and
particularly focused on what we call server AI processors or Gokul referring to data
centers.

So his question is really more about on the edge devices. Are we starting to see AI related
Bloomberg Transcript

demand for edge devices? Do we expect this to be a big growth driver in the next one to
two years for our leading-edge technologies as well?

A - C.C. Wei
Well, the answer is also very simple. Yes, we do see some activities from customers who
add AI capability in end devices such as a smartphone and PCs through neural engine
and AI and PC, and we certainly hope that this one will add to the course, help TSMC
more strengthen under our AI's business.

Q - Gokul Hariharan {BIO 6332238 <GO>}

So do you see that happen in the next one year or is it something that will happen in a
more longer-term horizon? Just wanted to understand when to think about the cadence of
this growth.

A - C.C. Wei
Okay. Let me answer briefly. It started right now and we were expected that the more and
more customer will put that AI's capability into the end devices, into their product.

Q - Gokul Hariharan {BIO 6332238 <GO>}

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

Got it. Yes. Thank you very much.

A - Jeff Su {BIO 19785914 <GO>}

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

Operator
Next one to ask question, Charlie Chan from Morgan Stanley.
FINAL

Q - Charlie Chan {BIO 16164784 <GO>}

Hi. Good afternoon, C.C., Mark, and Jeff. So my first question is about the cycle recovery.
So much appreciate about -- your comments about end demand. So my question is about
when do you expect there will be an uptick of the fab utilization, assuming demand is
stabilizing and also inventory get back to the healthy level, because it's just very hard to
believe your fab utilization outside of leading edge will stay at only 70%, 80%. So first
question is about, do you see that overall fab utilization to pick up at any time soon? Thank
you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So, Charlie, I think your first question is sort of, if I'm correct, around the cycle, and
in terms of how do we see the cycle and the recovery? When do we see the fab utilization
picking up, which really is a function of, I guess, do we see the cycle bottoming out and
when do we expect the recovery? Is that correct?

Q - Charlie Chan {BIO 16164784 <GO>}

Bloomberg Transcript

Yes. Thank you.

A - C.C. Wei
Well, Charlie, this is C.C. Wei again. Let me answer your question. As I said, we do observe
some early signs of demand stabilization in PCs and smartphone end market. Those two
segments are the biggest segments for TSMC's business. We want to say that 2024 will be
a very healthy growth, but right now, did we see the bottom? Very close, very close. We
want to -- I cannot give you a number, but it's -- because it's too early to call it a sharp
rebound.

But even with the macro environment remain uncertain, weighing customers our inventory
control in the first half of 2024. Having said that, we already say that we are strong
technology leadership and the broad customer base, and those two are unique and
specific to TSMC, enable our customers to win business in their end market, and TSMC
continues to deliver healthy growth. And that's why we can do better than overall industry.
And that's why we have confidence that we will have a healthier growth next year.

Q - Charlie Chan {BIO 16164784 <GO>}

Okay. Thank you. Yes. So just I want to kind of verify because we do see some green
shoots and some rush orders to wafer foundry sector. Thank you. But second question is

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

also about AI. My question is about, over the past three months, do you see any upward
revision of forecast maybe from the GPU or the custom chip?

And I know it's a very, very recent, right? Just two days ago, the U.S. put some additional
export control on the AI shipment to China. Do you think that, that is going to have any
kind of near-term or long-term impact to your AI semi revenue growth assumption?
Thanks.
FINAL

A - Jeff Su {BIO 19785914 <GO>}

Okay. Thank you, Charlie. So, Charlie's second question is related to AI, two parter. First,
do we see over the last three months, I think his words were an upward revision in the
demand from AI in the last three months?

And then he wants to know, given the recent additional regulations announced, what
would the impact to the AI demand be to TSMC, both for the short term and the long
term?

A - C.C. Wei
Charlie, the AI demand continues to grow stronger and stronger. So, from TSMC's point of
view, now we have a capacity limitation to support them -- to support the demand. We are
working hard to increase the capacity to meet their demand. That's for one thing. Now
U.S. government put a new regulation for some of the products cannot be shipped to
mainland China.

However, it is just for a couple of days, we are still evaluating -- we are still doing our
assessment. But so far we can tell you that the impact to TSMC is limited and manageable,
Bloomberg Transcript

at least for the short term. For the long term, we are still evaluating what is the
consequence.

Q - Charlie Chan {BIO 16164784 <GO>}

Got it. So actually there was one embedded question about the custom chip. So may I
know your perspective about this custom chip long term may kind of gain share or
outgrow GPU products? So what was your assumption for this custom chip in terms of the
real contribution within AI or to TSMC? May I, as you said, follow up?

A - C.C. Wei
Okay. Let me answer it. Whether customer develop the CPU, GPU, AI accelerator or ASIC
for all the type of AI applications, the commonalities are they all require usage of leading-
edge technology with stable yield delivery to support larger die size and a strong foundry
design ecosystem. All of those are TSMC's strengths. So we are able to address and
capture a major portion of the market in terms of a semiconductor component in AI.

Q - Charlie Chan {BIO 16164784 <GO>}

Okay, okay. Thank you.

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

A - Jeff Su {BIO 19785914 <GO>}

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

Operator
Next one to ask question, Bruce Lu from Goldman Sachs.
FINAL

Q - Bruce Lu {BIO 20933876 <GO>}

Okay. Thank you for taking my question. I think the question is try to ask about the outlook
for next two years. I think I do recall that management mentioned about like 15% to 20%
revenue CAGRs from '21 to '26. The smartphone business supposed to be in line or
slightly below the corporate average in terms of the growth rate, but the smartphone
business was down meaningfully in 2023.

Do we expect to see a sharp rebound for the smartphone business to get back to the
corporate average in terms of growth rate? Also, the management also mentioned that
the back-end business will grow in line with the corporate average. Will we see a much
stronger growth from the back-end business in the coming two years?

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Bruce's question really is looking at, we have indeed -- you're right Bruce, we
have said we will grow between 15% to 20% revenue CAGR in U.S. dollar terms from 2021
to 2026.
Bloomberg Transcript

So Bruce's question, he wants to break down the components here to look at smartphone
in particular, given that it has been a slower going market these last few years. How do we
see the growth of the smartphone market the next one to two years in the context of this
CAGR?

And then also, I think Bruce is also asking about the back-end growth. We have said
previously, it will grow slightly faster than the corporate average. What is the current
expectation now also for the next one to two years? Is that correct, Bruce?

Q - Bruce Lu {BIO 20933876 <GO>}

Yes, thank you.

A - Wendell Huang {BIO 18242139 <GO>}

Right, Bruce, this is Wendell. Yes, in the next two to three years, backing up to '21 to '26,
we still expect that the smartphone as a whole will grow slightly slower than the corporate
average.

We still think that HPC will be the strongest one and will be the major growth contributor
to our multi-year growth. This is your first question.

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

As to the growth of back-end business, we still expect that the back-end business as a
whole will grow slightly faster than the corporate average in the five-year time period.

Q - Bruce Lu {BIO 20933876 <GO>}

I see. Thank you. So the next question is for the technology cadence. I mean, for TSMC, for
revenue contribution for 5-nanometer, we start to see the meaningful revenue
contribution for 5-nanometer starting in third quarter 2020, and 3-nanometer is third
quarter of 2023. So the cadence, it looks like is longer for 3-nanometer versus 5-
FINAL

nanometer and 7-nanometer. What is the technology cadence moving forward? Are we
able to see a meaningful revenue contribution of 2-nanometer in two years' time frame or
three years' time frame? I think the technology migration cadence is an important
indicator.

A - Jeff Su {BIO 19785914 <GO>}

Okay. Thank you, Bruce. So Bruce's second question, again, as he said, is around the
technology cadence. He notes that 5-nanometer started contributing revenue in 3Q '20,
but I think you're saying 3-nanometer revenue is contributing in 3Q '23. So the cadence is
growing longer to kind of three years between five and three. So what will be the
technology cadence in the future? And thus, for 2-nanometer, when should we expect
meaningful revenue as well? Is that correct, Bruce?

Q - Bruce Lu {BIO 20933876 <GO>}

That's correct.

A - Jeff Su {BIO 19785914 <GO>}

Bloomberg Transcript

Okay, thank you.

A - C.C. Wei
Okay. Bruce, let me answer the question. I think that we develop the technology to meet
the customer's demand. That's the first priority to us. But then different customer may
have a different product schedule consideration. And as time goes by, the technology
complexity actually become more and more complicated. And our customers design their
product and react to the market situation.

So let me answer the question that's in a very simple way. TSMC's technology cadence
remain constant and to support our customers' growth. But whether we got the same
amount or same percentage of the revenue, it will depend on customer's product
schedule.

Q - Bruce Lu {BIO 20933876 <GO>}

The follow-up question is that if the customer doesn't really need the advanced
technology as fast as before, maybe we slow it down a bit, which will make a better return.

A - Jeff Su {BIO 19785914 <GO>}

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

So Bruce's follow-up is, so if the customers do not need the leany node as fast or as soon
as before, then slow down the cadence, does that mean we will see better returns?

A - C.C. Wei
Well, we don't slow down our technology development per se. We might slow down our
capacity expansion according to customer's demand. Did I answer your question, Bruce?
That's what we are doing right now.
FINAL

Q - Bruce Lu {BIO 20933876 <GO>}

I understand. Thank you.

A - Jeff Su {BIO 19785914 <GO>}

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

Operator
Yes. The next one, we have Laura Chen from Citi.

Q - Laura Chen {BIO 22650168 <GO>}

Hello, hi. Good afternoon. Thank you for taking my question. I think my question is also
similar to what Bruce mentioned about the capacity expansion plan. As we see that
healthier inventory situation right now, and at the same time, the most advanced process
now depends on customer's demand.
Bloomberg Transcript

So I just want to get your feeling about the overall the CapEx outlook or capacity outlook
into the next two years. Do you feel that will be better to resume the year-on-year CapEx
next year or later?

Considering there's still quite a strong demand on N3, N2 ramp-up, at the same time, the
most advanced now seems you will see maybe two times more expensive on N2 versus
N3. So my question is just about the future capacity expansion plan. Yes, thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Laura's first question, again, is on the capacity expansion plan. She notes that, of
course, the inventory, as we said, is becoming healthier, but also with N3 and N2, so she
really wants to know what is the CapEx and capacity outlook plan for the next one to two
years.

A - Wendell Huang {BIO 18242139 <GO>}

Right. Hi, Laura, this is Wendell. C.C. just mentioned our capacity plan will really depend
on the customers' product plan. Now in terms of CapEx, what we can see now is that we,
in the past few years, have invested very heavily to capture the growth in the next few
years, and as we begin to harvest those investments, we expect the increase of our CapEx
to be leveling off in the next few years. That doesn't mean the dollar amount is going to

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reduce, but the capital intensity is expected to decline in the next few years. That's what
we can see at this moment.

Q - Laura Chen {BIO 22650168 <GO>}

Thank you, Wendell. I recall that previously we mentioned about like we target longer
term to back to like mid-30s for our CapEx intensity. So is any possibility we see we
achieve that target next year?
FINAL

A - Wendell Huang {BIO 18242139 <GO>}

It's -- first of all, it's not a target. It's a forecast based on the customer's demand.

Q - Laura Chen {BIO 22650168 <GO>}

Okay.

A - Wendell Huang {BIO 18242139 <GO>}

And secondly, it's like three or five years out. It's not the immediate next year.

Q - Laura Chen {BIO 22650168 <GO>}

Okay. Thank you, very clear. And also my second question is about N2 progress. I
appreciate C.C.'s previous sharing on the progress. And also the backside power timeline.
I'm just wondering that what would be the most challenging part if we migrate to like a
backside power. And also since the transistor density will become a totally different
nanosheet, so I'm just wondering that the client's migration or intention to adapt the most
advanced node into the next two, three years. And what will be the most challenging in
Bloomberg Transcript

technology perspective? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Laura, let me make sure I got this right. So your second question is about N2.
And you want to know with the adoption of backside power rail, what is the most
challenging part from a technology perspective? And then how do we see the customer
adoption?

Q - Laura Chen {BIO 22650168 <GO>}

Yes, correct. Thank you.

A - C.C. Wei
Laura, I'll answer that. As technology moving to more and more advanced node, the
challenge is always there. Technology complexity increase dramatically, but we can do it,
no doubt about it. And we will still remain the technology leadership in this industry. If you
ask me what is the most challenging part, I would say it's cost. I mean, you look at it today,
inflation, everything, and the tool become more and more expensive. Although we can do
it on time to meet customers' requirement, our challenge right now, actually, I would say,
number one, cost.

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I want to reduce the cost, so more customer can afford it. But even with that, actually, we
have a lot of our customer interested and engaged with the TSMC today. Actually it's
probably higher than the N3 at a similar stage. Did I answer your question?

Q - Laura Chen {BIO 22650168 <GO>}

Yes, very clear. Thank you very much, C.C.

A - Jeff Su {BIO 19785914 <GO>}

FINAL

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

Operator
Right now we have Brett Simpson from Arete Research.

Q - Brett Simpson {BIO 3279126 <GO>}

Thanks very much. I had a question for C.C. regarding the hyperscalers. Major U.S.
hyperscalers are hiring a lot of chip designers at the moment and looking to make their
own AI silicon, going direct to TSMC, much like Apple has done over the years.

Are you -- is TSMC generally supportive of this trend or not? And can you give us your
perspective as to whether hyperscalers have the in-house IP and skills to cut out the ASIC
suppliers or not and go direct to TSMC? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Bloomberg Transcript

Okay. Brett, thank you. So Brett's first question is looking at his observation, U.S.
hyperscale companies are hiring a lot of people to do AI custom chips silicon and working
directly or coming directly to work with TSMC.

So his question is, is TSMC support such efforts and how do we see such type of
customers, I guess. Is that your question, Brett?

Q - Brett Simpson {BIO 3279126 <GO>}

Yes, and to generally just share your perspective on how you see this part of the business
developing at TSMC. Thank you.

A - C.C. Wei
Hi, Brett. Okay, those are hyperscalers. I don't comment on the specific customer, but all
we know or our fundamental rule is, where the customer develop the CPU, GPU, AI
accelerator, or ASIC for their own application, or for any purpose in the AI area, we will
support them, actually. And because of our technology leadership and our good
manufacturing, so we are able to address and capture a major portion of the market. And
so you are asking whether we support it or not, we support every customer all over the
world.

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Q - Brett Simpson {BIO 3279126 <GO>}

Okay. Thanks, that's very clear. And maybe just as a follow-up, I wanted to ask about some
of the areas in the quarter that were weaker than expected, namely 7-nanometer, I think
it's half year-on-year, and also automotive that saw a decline sequentially, a meaningful
decline sequentially. Can you just help us understand how you build back up 7-
nanometer, what led to the weakness, and what's happening in automotive, and how do
you assess prospects for automotive over the next six, nine months or so? Thank you.
FINAL

A - Jeff Su {BIO 19785914 <GO>}

Okay, so two parts to Brett's question. Maybe I'll start with the second, but anyway, looking
at automotive demand and the weakness in the past quarter, how do we see the
automotive demand? And then also his question is about 7-nanometer, also year-on-year
sharp revenue decrease. So how do we see the outlook for 7-nanometer as well?

A - C.C. Wei
Well, let me answer the question on automotive demand. In fact, in the past three years,
automotive demand has very strong. And we deliver whatever they ask. And today, I think
the automotive demand already entered the inventory adjustment mode in the second
half of 2023. However, we still expect automotive demand-wide increase again in 2024,
because the more and more EV, more and more functionality being added to automotive.
And that's what we saw.

Now talking about the N7, the 7-nanometer technology, why we have such a low utilization
or the revenue decrease. It's a goal beyond our initial -- our original plan, because we
expect the N7 to be very fully utilized even now, but it is not. Let me answer the question.
Bloomberg Transcript

Because of -- we suddenly have a -- in 10 years, the smartphone demand dropped

dramatically from about 1.4 billion units to about 1.1 billion now. So that exactly in this time
frame, the N7's utilization has been impacted and followed by one major customer who
delayed their product introduction. And so that's why we have a low utilization.

But seeing that, we are confident to backfill our 7, 6-nanometer capacity with additional
wave of specialty demand from consumer, RF, connectivity, and other applications and we
will return to a healthy level of utilization over the next several years. This is very similar to
a situation that we have a 28-nanometer back in 2018 and 2019 timeframe. Okay.

In the beginning, it was underutilized for a period of time, and we work hard with our
customer and then for developing some specialty technologies, and then now we have to
expand 28 nanometers specialty capacity.

That's the same kind of a story. Brett, did I answer your question?

Q - Brett Simpson {BIO 3279126 <GO>}

Yes. Thanks a lot. Thanks very much.

A - Jeff Su {BIO 19785914 <GO>}

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All right, Brett. Thank you. Operator, can we move on to the next participant, please?

Operator
Next one to ask questions, Brad Lin from Bank of America.

Q - Brad Lin {BIO 18304074 <GO>}

FINAL

Thank you for taking my question. So first of all, congrats on the strong result and then
also the impressive gross margin.

So I have two questions. One is on the end device AI, edge AI, and the other is on the
CPO. So appreciate the management's constructive comments on growth outlook on the
edge AI.

So besides the, well, interesting engagement with the clients, what are the implications for
the wafer consumption for the firm?

And also, eyeing on the computing power and energy consumption angle on the end
device with additional AI functions, should we expect it to re-accelerate the node
migration for the end devices? That's my first question, thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Brad's first question is about edge and end device AI. He wants to know what is
the implications for wafer consumption and then with the increasing need for energy
efficiency and power, he is wondering, does this re-accelerate or increase the node for -- I
Bloomberg Transcript

guess, his words is, node migration or adoption of leading-edge technologies?

A - C.C. Wei
Well, the edge device start to -- that's including smartphone and PCs, start to incorporate
AI functionality inside. We observed some of the neural engines has been added
increasingly. So the die size was increased, even the unit did not increase dramatically, but
the die size is in mid-teens -- no, not, I mean mid-single-digit is the die size increase so far
and I expect this kind of trend will continue.

And so more and more application of the -- on the AI side will be incorporated into those
kind of edge device and that one did have very power efficient chips to put into the edge
device, especially when it is a mobile. So I do expect -- from my own perspective, I do
expect that my customer will move into the leading-edge node more and more quickly to
compete in the market.

Q - Brad Lin {BIO 18304074 <GO>}

Thank you very much, C.C. so well, so a bit of a follow-up is that is that, well, now it
accounts for some or mid-single digit of the die size incremental for a chip. So does that --
or are we seeing that to enlarge to something like mid-teens or, well, even bigger in the,
well, mid to long term?

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A - Jeff Su {BIO 19785914 <GO>}

So Brad's quick follow-up is if the AI portion is kind of mid-single digit now, how should
we expect -- can we expect mid-teens or what type of percentage in a few years' time?

A - C.C. Wei
Well, I want to answer the question. Actually, we see the increase on the die size, but we
cannot nail down the, we say the mid-single digit, but I expect it to start to increase. And
FINAL

whether that will increase our forecast and our growth or something, it's still too early to
say at this moment.

A - Jeff Su {BIO 19785914 <GO>}

Yes. Brad, we're still quantifying the impact from this development. So we're maintaining
the previous statement that we expected to grow to about -- in five years, about mid-
single digit, I'm sorry, mid-teens of our revenue.

A - Wendell Huang {BIO 18242139 <GO>}

Yes. I think, Brad, probably just very simply, as we said, edge AI, we do see some activity. It
will drive silicon content, but this will occur over time. Okay. And we don't have any
quantitative number to share, right?

Q - Brad Lin {BIO 18304074 <GO>}

Got it. Thank you.
Bloomberg Transcript

A - Wendell Huang {BIO 18242139 <GO>}

Okay. What is your second question?

Q - Brad Lin {BIO 18304074 <GO>}

Okay. So the second question is on CPO. So, basically, we have learned that TSMC is
doing quite well, and also leading the industry in CPO, or so-called silicon photonics, and
has introduced a platform to clients with the technologies.

So may we learn that the opportunities and implications of the new technology for the
industry and for our firm, and also should we expect this platform to offer additional
competitive advantage for TSMC in the mid to long run? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

So, Brad, your second question is on silicon photonics. Is that correct?

Q - Brad Lin {BIO 18304074 <GO>}

Yes.

A - Jeff Su {BIO 19785914 <GO>}

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So, he wants to know our positioning or progress on silicon photonics. How important is
this, and will this be a competitive advantage for TSMC going forward in the future?

A - C.C. Wei
Okay. Let me answer that question. Silicon photonics actually is growing its importance
because of just a larger amount of data need to be collected, processed, and transferred
in an energy-efficient manner.
FINAL

Silicon photonics tends to be the best fit that role. And TSMC has been working on silicon
photonics for years, and most importantly, we're collaborating with multiple leading
customers to support their innovations in this field.

It takes a lot of time to develop the technology and to build the capacity. And when we
increase the volume production, we believe that TSMC's silicon photonics will be the best
technology and when customers roll out all their innovations. But as I said, it's gradually
increasing in their activity and gradually increasing their demand as of today.

Q - Brad Lin {BIO 18304074 <GO>}

Got it. Thank you very much.

A - Jeff Su {BIO 19785914 <GO>}

All right. Thank you. Operator, can we move on to the next caller, please?

Operator
Bloomberg Transcript

Next one, we have Sunny Lin from UBS.

Q - Sunny Lin {BIO 22583442 <GO>}

Good afternoon. Thank you very much for taking my questions. So my first question is on
advanced packaging. Incrementally, we are hearing more customer interest in the
adoption to achieve better heterogeneous integrations. But I want to get your thoughts on
what could be the potential impact of customers relying a bit more on packaging to
improve the system performance and perhaps less on the process migrations given cost
considerations?

Meanwhile, SOIC has been introduced for quite a while, whereas the customer adoption
still seems to be limited at this point. And so when should we expect a more meaningful
pickup of SOIC and what could be the major catalyst? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Sunny, sorry, I may have missed a little bit of the first part, but I think her question
is on overall advanced packaging, looking at this trend and the move to a more, of course,
heterogeneous integration. What are the cost implications and how does this advanced
packaging work and go together with the process technology standpoint? And then also a
question about the update or progress of SOIC. Is that correct, Sunny?

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Q - Sunny Lin {BIO 22583442 <GO>}

Well, so maybe if I may clarify a bit. So for the first part, I wonder, if customers may
consider relying a bit more on packaging, whereas slowing down a bit on the process
migration, because of increasing cost.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So she's asking, will customers -- because of the increasing cost of the process
FINAL

technologies, will customers rely more on advanced packaging as a result?

A - C.C. Wei
Let me answer that. It's not because of increasing of the cost in the more advanced node.
It actually, they try to -- our customer try to maximize the system performance. That's the
major portion. That including the kind of speed improvement or the power consumption
decrease, all those kind of thing, put all together. And maybe cost is also part of the
consideration, which we notice about.

And so more and more customer are moving into the very advanced technology node,
and they start to adopt the chipless approaches. And so -- but no matter what, TSMC
provide the industry-leading solution in both very leading technology and also very
advanced packaging technology. And to work with a customer for their product and have
the best system performance.

And the other one is you are asking about the SOIC, when it will become a high volume
and more substantial revenue for TSMC. It's coming. It's coming. Actually, the customer
already ready to announce their new product, which widely adopt. And I expect starting
Bloomberg Transcript

from now and next year, the SOIC will generate revenue and become one of the faster-
growing advanced packaging solution in the next few years.

Q - Sunny Lin {BIO 22583442 <GO>}

Got it. Thank you very much. If I may, a quick follow-up. Three months ago, you had a
target to double your CoWoS capacity. And just now you mentioned AI demand
continued to surprise on the upside. So I wonder if there's any update on your CoWoS
capacity expansion?

A - Jeff Su {BIO 19785914 <GO>}

Okay. So, I will take this as your second question, Sunny. But as she's asking about CoWoS
expansion, we had said that we will double the capacity three months ago. Can we
provide an update on the overall CoWoS capacity? And I guess CapEx and capacity go
hand in hand. What is our plan?

A - C.C. Wei
Well, Sunny, the last time we say that we will double our CoWoS capacity, we are working
very hard again to increase the capacity more than double. But today is limited by my
supplier's capability or their capacity.

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So we still maintain that we will double our CoWoS capacity by the end of 2024, but the
total output actually is more than double from 2023 to 2024 because of a very high
demand from our customer. So extend this kind of a trend, we will continue to increase
our CoWoS capacity to support our customer even into 2025.

A - Jeff Su {BIO 19785914 <GO>}

Okay. Sunny, does that answer your question?
FINAL

Q - Sunny Lin {BIO 22583442 <GO>}

Okay, got it. Thank you very much.

A - Jeff Su {BIO 19785914 <GO>}

Okay, thank you. Operator, can we move on to the next caller, please?

Operator
Next one, please welcome, Mehdi Hosseini from SIG.

Q - Mehdi Hosseini {BIO 4362002 <GO>}

Yes. Thanks for taking my question. I understand there are a number of new products that
you're ramping into year-end and into first half of '24 in various -- for various end markets.
And I wanted to understand how the ramp of these new products are to impact the
seasonality. Could we see a scenario where in the first half, the ramp of these new
products, especially at the leading edge, to somewhat offset the seasonal factors? And
any thoughts there? And I have a follow-up.
Bloomberg Transcript

A - Jeff Su {BIO 19785914 <GO>}

All right, Mehdi. Well, Mehdi's first question is, in terms of new products, which, of course,
customer products we don't comment on, but he said we're ramping products into the
second half. And so how will this ramp of new products go into as we go into first half '24?
And can this offset or mitigate some of the seasonality?

Q - Mehdi Hosseini {BIO 4362002 <GO>}

Let me rephrase that. Contribution of customers' new products and how would that
impact -- or how could that offset seasonal factors?

A - C.C. Wei
Yes. Mehdi, I don't think we can comment on specific customer products, but I can tell you
that we're not seeing any dramatic change in the seasonality as of now.

Q - Mehdi Hosseini {BIO 4362002 <GO>}

Okay. Because I was looking at your calendar year '23, and given your Q4 guide, you're
actually doing better than what you guided three months ago. You possibly said revenues
could be down 10% U.S. dollar, and now it could actually be down by a single digit. Is that

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a combination of a stronger new product ramp and better pricing? Is that a fair
assessment?

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Mehdi is really looking at, he rightly notes that three months ago, we said this
year we will decline around 10% in U.S. dollar term, now with the fourth quarter implied
guidance is slightly better. So he wants to know what is the implication or behind this?
FINAL

A - C.C. Wei
Well, let me give you one simple reason, because our ramp up of N3 because of the
demand of N3 is strong, so ramp up quickly to meet customers' demand. So the final
result is better than we expected three months ago.

A - Wendell Huang {BIO 18242139 <GO>}

Yes. And we have also said that strong ramp of N3 will continue in next year. Okay, that's
about all the seasonality color we can give.

Q - Mehdi Hosseini {BIO 4362002 <GO>}

Got you. Okay. And then perhaps if I were to ask a second question, I just want to better
understand your view on your customers' inventory correction. We're reaching the
bottom, but we don't have any visibility on how quickly they are going to refresh inventory.
The slope of the recovery is still not clear. Did I understand you correctly?

A - Jeff Su {BIO 19785914 <GO>}

Bloomberg Transcript

So Mehdi's second question, he would like to clarify. So are we saying that customer's
inventory is reaching or approaching a bottom, but the slope of the inventory is not clear?
Is that what we are saying?

A - C.C. Wei
Okay, I'll answer the question. Actually, in these couple of months, we started to see the
demand stabilized in the PC and smartphone end market. And, in fact, we see some kind
of an urgent PO asking for more devices to be shifted to their place to meet the demand.
That gave us a hint of their inventory control already become more healthier than we
thought.

So in terms of uncertain macro, it probably will continue, but our expectation is very close
to a healthy condition. So that's why we say we can expect 2024 to be a healthy growth
year for TSMC.

A - Jeff Su {BIO 19785914 <GO>}

Okay.

A - C.C. Wei
Mehdi, did I answer your question?

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Q - Mehdi Hosseini {BIO 4362002 <GO>}

Great. Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. In the interest of time -- thank you, Mehdi. In the interest of time, we'll take
questions from the last two participants, please.
FINAL

Operator
Next one to ask question is Krish Sankar from TD Cowen.

Q - Krish Sankar {BIO 16151788 <GO>}

Yes. Hi, thanks for taking my question. I have two of them. First one is on gross margin.
When do you expect N3 to reach corporate average gross margin?

And as you look into next year, as more mature node capacity comes online across the
industry, how do you think about mature node gross margins also? And I have a follow-up
after that.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Krish's first question is on gross margin. When do we expect 3-nanometer or N3,
I should say, to reach the corporate average gross margin? And how do we see the gross
margin trend for the more mature nodes?
Bloomberg Transcript

A - C.C. Wei
Yes. Krish, in the past, our leading nodes normally reached gross margins -- corporate
margin in about eight quarters. But as we progress with more and more leading nodes, it
will become more and more challenging because of several reasons.

First of all, our corporate margin is higher than before. And secondly, the leading node, as
I just said, is becoming more and more complex. And also, in the past few years, the
inflation pressure that was not expected also contribute the higher cost in the N3. So it's
going to be pretty challenging for future leading nodes to reach corporate margin as in
before -- like before in the same time frame.

The mature nodes, I can tell you that our mature nodes are -- the gross margins are really
congregated around the corporate average in a pretty narrow band, because we focus on
specialty technology, it's not a commodity capacity. Yes.

Q - Krish Sankar {BIO 16151788 <GO>}

Got it. That's very helpful. Thank you for that. And then as a follow-up, on Arizona, you
mentioned that you'd hired about 1,100 local employees. I'm kind of curious, is that critical
mass enough for you to start 4-nanometer production, or do you have another target level

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of employees before you can actually start getting this production since you're still
maintaining the output to be in first half of 2025? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So thank you, Krish. So Krish's second question is about our first fab in Arizona. He
notes that we have said we hired 1,100 local employees. So his question is, is this enough
critical mass or enough people basically to support the ramp of the first fab as we plan, as
we said today, in first half of 2025?
FINAL

A - C.C. Wei
Of course. We continue to hire the local talent to join the TSMC's fab in Arizona. So when
we start to have a volume production, we are confident that we will have enough
resources to support our ramp-up in Arizona.

Q - Krish Sankar {BIO 16151788 <GO>}

Okay. Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Thank you, Krish. Operator, can we move on to the last participant, please?

Operator
Yes. The last one to ask question, Charles Shi from Needham.
Bloomberg Transcript

Q - Charles Shi {BIO 22238518 <GO>}

Hi. Thank you for squeezing me in. First off, I really want to congratulate the TSMC for
delivering good results for Q3 and very good guidance for Q4. But I want to really call out
the reported revenue for 5-nanometer in the third quarter. It looks like you are showing
some really good counter-cyclical strength and probably the record high. I want to
understand the rebound in the 5-nanometer business in Q3. Is that going to be more in
the following quarters? And what's behind that?

And the relative, let's say, your expectation like three to six months ago when you were
reducing your '23 outlook, is 5-nanometer doing better than expected? And how has the
demand trended in the last two, three months for 5-nanometer? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

Okay. So Charles' first question is about 5-nanometer. He's asking in the very near term,
he notes that he saw a very strong sequential revenue increase in the third quarter. So he's
wondering what is driving this.

And then he's asking about what is the outlook for the next three to six months for 5-
nanometer specifically?

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A - Wendell Huang {BIO 18242139 <GO>}

Yes. Charles, I can share with you the increase in revenue in N5, in the third quarter, mainly
comes from two platforms, HPC and smartphone.

HPC also includes the AI-related demand. Smartphone, basically, some customers'
product seasonalities. Now, forward-looking wise, I'm not going to share with you, but we
will tell you in January what actual the next quarter N5 revenue will be.
FINAL

A - Jeff Su {BIO 19785914 <GO>}

The overall revenue.

A - Wendell Huang {BIO 18242139 <GO>}

Yes.

A - Jeff Su {BIO 19785914 <GO>}

We don't provide revenue by process node. Okay. What's your second question, Charles?

Q - Charles Shi {BIO 22238518 <GO>}

Yes. Thanks, Jeff. The other question is about CapEx. It sounds like you're expecting CapEx
on the absolute dollar may still grow going forward. I know that's a long-term comment,
but I look at the near term, TSMC CapEx seems to be running at USD7 billion per quarter
in the second half of '23, which kind of is at $28 billion annualized run rate.
Bloomberg Transcript

But if we are expecting total CapEx for '24 to grow in dollar term over '23, it seems like
you are expecting a CapEx ramp in 2024. Maybe that's your planning for some of the
CapEx ramp in '24. Is that the right way to think about the CapEx, is $7 billion really like a
bottom level run rate for TSMC CapEx at this point? Thank you.

A - Jeff Su {BIO 19785914 <GO>}

All right. So Charles' second question is also -- is on CapEx. Basically he's saying, given the
guidance, he's looking at our CapEx as running at about USD7 billion run rate. So he's
assuming --although we do not comment on '24, he's assuming if next year's CapEx dollar
amount is going to increase, but if we're running at $7 billion run rate, does that imply $28
billion? How should he reconcile this?

A - C.C. Wei
Charles, every year, the CapEx is invested based on the future opportunity to growth and
we invested to capture those future opportunities. Too early to talk about 2024 really. We'll
share the guidance with you in January quarterly release.

A - Jeff Su {BIO 19785914 <GO>}

Okay. All right. Thank you, Charles. Thank you, everyone. This concludes our Q&A session.
Before we conclude today's conference, please be advised that the replay of the

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 Company Name: Taiwan Semiconductor Manufacturing Co Ltd
Company Ticker: 2330 TT Equity
Date: 2023-10-19

conference will be accessible within 30 minutes from now. The transcript will become
available 24 hours from now. Both of these you will -- are available and you can find
through TSMC's website at www.tsmc.com.

So thank you, everyone for taking the time to join us today. We hope everyone continues
to be well and we hope to see you join us again in January. Goodbye, and have a good
day. Thank you.
FINAL

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