Taiwan Semiconductor (NYSE:TSM) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
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Access the full call at https://investor.tsmc.com/english/form/qr-audio-webcast-registration
Summary
Taiwan Semiconductor Manufacturing Co Ltd reported a strong second quarter with advanced technology nodes (7nm and below) contributing 77% of wafer revenue.
HPC platform revenue increased significantly by 20% quarter-over-quarter, while smartphone revenue decreased slightly.
The company ended the quarter with cash and marketable securities of $110 billion and expects third quarter revenue to rise 12% sequentially.
Gross margin improved to 67.7% in Q2 but is expected to decrease slightly in Q3 due to the ramp-up of the 2nm technology.
TSMC plans a significant capital investment in 2026, increasing its budget to $60-$64 billion, driven by strong demand in 5G, AI, and HPC sectors.
The company announced an additional $100 billion investment in Arizona for new fabs to meet strong demand from U.S. customers.
TSMC is maintaining a focus on capacity expansion in both advanced and mature nodes, with strategic investments in Taiwan, the U.S., and Japan.
Management expressed confidence in the strong multi-year demand driven by AI, emphasizing robust collaboration with customers.
Full Transcript
Jeff Hsu, Director of Investor Relations
Good afternoon everyone and welcome to TSMC's second quarter 2026 earnings conference. This is Jeff Hsu, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com where you can also download the earnings release materials. If you 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 Senior Vice President and CFO Mr. Wendell Huang will summarize our operations in the second quarter 2026, followed by our guidance for the third quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO Dr. C.C. Wei will jointly provide the company's key messages. Then we will open both the floor and the line for the question and answer session as usual. I'd like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements.
Please refer to the safe harbor notice that appears in our press release. And now I would like to turn the microphone over to TSMC CFO Mr. Wendell Huang for the summary of operations and the current quarter guidance.
Wendell Huang, Senior Vice President and CFO
Thank you, Jeff. Good afternoon everyone. Thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2026. After that, I will provide the guidance for the third quarter of 2026. Now let's move on to revenue by technology. 2 nanometer process technology contributed 3% of wafer revenue in the second quarter. 3 nanometers, 5 nanometers, and 7 nanometers accounted for 30%, 33%, and 11% respectively.
Advanced technology, defined as 7 nanometers and below, accounted for 77% of wafer revenue. Moving on to revenue contribution by platform. HPC increased 20% quarter over quarter to account for 66% of our second quarter revenue. Smartphone decreased 4% to account for 22%. IoT increased 4% to account for 5%. Automotive increased 15% to account for 4%. DCE increased 5% to account for 1%. Moving on to the balance sheet, we ended the second quarter with cash and marketable securities of 3.5 trillion NT or 110 billion US dollars.
On the liabilities side, current liabilities increased by 144 billion NT quarter over quarter, mainly due to the increase of 58 billion in accounts payable and the increase of 48 billion in accrued liabilities and others. In terms of financial ratios, accounts receivable days increased by 3 days to 29 days. Inventory days increased 7 days to 87 days primarily due to the ramp of N2 technology. Regarding cash flow and CapEx, during the second quarter we generated about 783 billion NT in cash from operations, spent 496 billion NT in CapEx, and distributed 156 billion NT for Q3 2025 cash dividend.
Overall, our cash balance increased 99 billion NT to 3.1 trillion at the end of the quarter. In US dollar terms, our second quarter capital expenditures totaled 15.7 billion dollars. I finished my financial summary. Now let's turn to the current quarter guidance. Based on the current business outlook, we expect our third quarter revenue to be between 44.6 billion and 45.8 billion US dollars, which represents a 12% sequential increase or a 37% year-over-year increase at the midpoint.
Based on the exchange rate assumption of US$1 to 32 NT, gross margin is expected to be between 65 and 67%, operating margin between 56 and 58%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our second quarter 26 and third quarter 26 profitability. Compared to the first quarter, our second quarter gross margin increased by 150 basis points sequentially to 67.7%, slightly ahead of our guidance primarily due to cost improvement efforts and the slightly higher overall capacity utilization rate partially offset by dilution from our overseas fabs.
We have just guided our third quarter gross margin to decrease by 1.7 percentage points to 66% at the midpoint primarily as we expect the steep ramp-up of our 2 nanometer technology to dilute our gross margin by about 3 to 4 percentage points. This dilution is expected to be partially offset by very strong demand for our leading-edge technologies and continued cost improvement efforts including productivity gains and across-node capacity optimization.
Looking at the second half of the year, given the six factors that determine our profitability, there are a few puts and takes that I would like to share. First, we expect a steep ramp-up of our 2nm to dilute our gross margin by about 3 to 4 percentage points in the second half of the year. Furthermore, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2 to 3% in the early stages and widen to 3 to 4% in the latter stages.
On the other hand, demand for our leading-edge technologies is very strong. In addition, we continue to leverage our manufacturing excellence to generate more wafer output and drive greater across-node capacity optimization in our FAB operations to support our profitability. Finally, we have no control over the foreign exchange rate, but that may be another factor. Next, let me talk about our 2026 capital budget at TSMC, a higher level of capital expenditures is always correlated to higher growth opportunities in the following years.
With our strong technology leadership and differentiation, we are well positioned to capture the multi-year structural demand from the industry megatrends of 5G, AI, and HPC. Given the continued strong structural demand from our customers, including the newly emerging agentic AI market, we have decided to raise our full-year 2026 capital budget to be between 60 and 64 billion US dollars. As we continue to invest heavily to support our customers' growth, we always collaborate closely with the tool suppliers well in advance to prepare the capacity whether it is a strong upcycle or down cycle.
Just like our customers collaborate with us well in advance to plan our capacity. Thus we do not foresee any bottlenecks to our capacity expansion plans. About 70 to 80% of the 2026 capital budget will be allocated for advanced process technologies, about 10% will be spent for specialty technologies and about 10 to 20% will be spent for advanced packaging, testing, mask making, and others. Even as we invest for the future growth with this level of capital spending in 2026, we remain committed to delivering profitable growth to our shareholders.
We also remain committed to a sustainable and steadily increased cash dividend per share on both an annual and quarterly basis. In 2025 we paid 467 billion NT in cash dividends up 28.6% year over year. As TSMC shareholders receive a total of 18 NT cash dividend per share in 2026 they will receive 24 NT per share up another 33% year over year. And we expect continued and increasing cash dividends per share in 2027 as well. Now let me turn the microphone over to C.C.
C.C. Wei, CEO
Thank you, Window. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of $40.2 billion at the high end of our guidance in US dollar terms, driven by strong demand for our leading-edge process technologies. Moving into the third quarter, we expect our business to be supported by continued strong demand for our leading-edge process technologies, including the steep ramp of our 2-nanometer technology.
Looking ahead, we observe consumer and price-sensitive end market segments are being challenged due to the impact of rising component prices and macroeconomic uncertainties. As such, we are being prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competitive position. Having said that, AI-related demand continues to be extremely robust. The AI megatrend continues to drive the need for more and more computation, which supports the robust demand for leading-edge silicon.
Our customers and customers' customers, who are mainly in the cloud service provider sector, continue to provide us with their very strong signal and positive outlook. Thus, our conviction in the multi-year AI megatrend remains very high, supported by our robust technology differentiation and broad customer base. We now expect our full-year 2026 revenue growth to be slightly above 40% year-over-year in US dollar terms. Now let me talk about the acceleration of agentic AI.
The AI market continues to be very dynamic. The emergence of agentic AI is leading to a resurgence in the role of CPUs in AI data centers, which drive more silicon demand in addition to AI accelerators. We believe this is positive for TSMC as no matter what CPU approach is taken, whether it's x86, ARM-based, or RISC-V architecture, they are almost all TSMC customers. We are already collaborating closely with our CPU customers and working to support them with the most advanced technologies and necessary capacity so they can capture the agentic AI market opportunities.
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 five years to develop the technology and product, prepare the capacity, and ramp it up to high-volume production.
Internally, TSMC employs a disciplined capacity planning system to assess the market demand from both top-down and bottom-up approaches. 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 strong collaboration and support from our leading U.S. customers and the U.S. federal, state, and city government, we would like to announce an additional US$100 billion investment in Arizona.
This is to build several more semiconductor logic wafer fabs for 2-nanometer and below technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading U.S. customers. We believe this investment will help to further foster the development of the U.S. semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States. At the same time, we are building 13 leading-edge and advanced packaging fabs in Taiwan over the next several years, and we will continue to further invest in Taiwan.
Therefore, TSMC's semiconductor technology and manufacturing work 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 fabs in all locations to generate more wafer output. We are also focusing on capacity optimization across nodes, which includes flexible capacity support among N7, N5, and N3 nodes. In summary, we are using multiple levers to do everything we can, wherever we can, however we can, to maximize the support to all our customers.
Now let me talk about our mature node strategies. TSMC's strategy at mature nodes has not changed. Our first priority is to fully support our customers, and now 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 JASM51 in Japan for CMOS mini sensor applications and ESMC in Germany for automotive and industrial applications. In today's market, outside of specific areas such as power management IC and CMOS image sensor, the material 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 five to seven years. There are no shortcuts.
Our A14 technology represents the second generation of nanosheet transistors and delivers another four-node stride from N2 with performance and power benefits to address the insatiable need for high-performance and energy-efficient computing. Compared with N2, A14 will provide 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 light vehicle demonstrates close to 90% device performance and close to 90% 256Mbps 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. Pre-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 further advancement over A14, achieving an over 6% die area saving through an innovative 97% optical shrink through continuous design technological 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 benefits.
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 longer-lasting node for TSMC than N2, just like 2-nanometer technology is a larger and longer-lasting node than 3-nanometer, and here further extend our technology leadership position into the future. This concludes our key messages, and thank you for your attention.
Jeff Hsu, Director of Investor Relations
Thank you, C.C. So this does conclude our prepared statements. Before we begin the Q&A session, again, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Questions will be taken both from the floor and from the call online. Should you wish to raise your question in Chinese, I will translate it to English before our management answers the question. So for those of you on the call, if you'd like to ask a question, please press star then one on your telephone keypad.
Now, if at any time you'd like to remove yourself from the questioning queue, please press star 2. Please note that we will try to conclude today's meeting at around 3:10 or so, so we will try to get in as many participants' questions as possible. But if we're not able to, we do apologize in advance and thank you, everyone, for your patience. So, operator, let's begin the Q&A session. We'll take the first few questions from the floor and then we'll go online.
Maybe again left, center, right. Maybe we'll take the first question. Sunny Lin from UPS, please.
Sunny Lin, Analyst at UPS
Thank you very much. Congrats on the very strong performance and outlook. So, number one, I'll do a double click on the CapEx. So, very encouraging CapEx outlook, and I do think it's essential that TSMC showcase a stronger determination in capacity expansion given the stronger demand and the very tight supply. And so, beyond 2026, I think every large client also wonders how aggressive TSMC is planning for CapEx. Back in the COVID super cycle, TSMC did provide a three-year CapEx outlook by then, and so I wonder at this point, will it be possible for you to share any color maybe for the coming three years CapEx?
Thank you.
Jeff Hsu, Director of Investor Relations
Okay, so Sunny's first question is regarding CapEx. She does believe it's important, essential to show our determination to support our customers with these large CapEx investments. So she wants to know, do we have a three-year CapEx guidance for 2026, 2027, 2028, similar to what we did back in 2021?
C.C. Wei, CEO
Hey Sunny, we do not have a number to share with you, but as you know, we invest CapEx this year for the future business opportunity, and as long as there are business opportunities, we will not hesitate to invest. As you can hear from our prepared remarks, our conviction in the AI megatrend multi-year is very strong, and we are stepping up the CapEx, including increasing this year's CapEx. Last time we said our CapEx in the next three years will be significantly higher than the CapEx in the past three years.
Now, the CapEx in the next three years will be even more significantly higher than the past three years.
Sunny Lin, Analyst at UPS
Yeah, sorry, maybe let me follow up on CapEx. Oh yeah, sure. So you just announced an additional $100 billion CapEx in the US, and I think that's pretty important for you to secure the business in the US as well. And so now with a total of $265 billion CapEx in Arizona, what's your current plan to bring out the capacities in Arizona in the coming few years?
Jeff Hsu, Director of Investor Relations
Okay, so Sunny's second question is on, you know, C.C. said investing an additional $100 billion in Arizona based on the strong demand from our customers. So the total investment now is $265 billion. What is the schedule, time frame, or the plan for these investments? Is that correct, Sunny?
C.C. Wei, CEO
Okay, Sunny, the schedule depends on the market situation, you know that. So today's situation, the megatrend is so strong that we announce an additional $100 billion investment in Arizona. How many fabs? Many. So actually, let me say that it probably additional four or more fabs will be built and that's combining front end, back end.
Jeff Hsu, Director of Investor Relations
Okay, thank you. Let's go to the middle. We have Charlie Chan from Morgan Stanley. We'll go left, middle, right from where I said thank you.
Charlie Chan
Thanks for taking my question. Good afternoon. So first of all, congrats on a very strong outlook. My first question is really about the foundry competition. I understand that there's no shortcut for a newcomer like Terafet, but how about Samsung Foundry? They got a huge profit from the memory business. Intel got US policy support. So I'm not sure how TSMC is going to address this competition because apparently several US companies are engaging with those industry peers.
And recently, actually yesterday, ASML just announced to expand the EUV capacity for 2028. Is TSMC worried that your competitors will take more slots and build large capacity in the future to compete with your leading-edge business? Thank you.
Jeff Hsu, Director of Investor Relations
Okay, so Charlie's question is competition from two angles. One, he notes foundry competition, no shortcuts. But he says according to the news, many of our customers are engaging with our foundry competitors. One of them in Korea is making huge amounts of money these days. Another one may have the US government policy support. So the first part of his question, how do we see the competition and threat of customers moving to our competitors?
C.C. Wei, CEO
Well, let me say that yes, one of my competitors in South Korea makes a huge amount of money, and I'm jealous about it. And then the other one in the U.S. got very strong U.S. government support. We also got government support, by the way, although we don't announce it. However, let me share with you. As we said, there is no shortcut. What does that mean? Meaning that in this semiconductor industry, you have to go back to fundamentals. Governments are welcome, really.
We also appreciate that a lot of money, of course, that's nice to have. But the most important thing, as we continue to say, is technology, manufacturing, and customer trust. These three fundamentals never changed. For my 30-some 40 years of career, it has always been 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 a sentence from my customer. Anyway, choosing a technology partner is no shortcut. You need to understand the technology, you need to really utilize it, using the tech chip, and then work together, prepare the capacity, and ramp it up. That's why I say it takes about five years. It's not like today you think this milk is better, you go to the next door. So 7-Eleven. You don't like it, you go to another store. So that's my answer, Charlie.
Sunny Lin, Analyst at UPS
Yeah. So hope you can buy more milk so other people can get it. Thank you. Yeah, so let me switch gears to a more exciting side. CC just said you see a very strong signal from customers. You also revised up the full-year guide. Are you ready to revise up the 5-year renewal CAGR, especially the AI semi-CAGR? I remember it was like high 50%, but here comes the question, right? That agenda AI demand is so strong, CPU is a great opportunity for TSMC.
But how about those memory cost increases, right? It's kind of a big chunk of this AI capacity. So what's the update on the AI semi, and how should we look at the contents of this AI semi related to TSMC's growth?
Jeff Hsu, Director of Investor Relations
Okay, so Charlie, the second question is regarding the AI-related demand. We do continue to see very strong and positive signals from our customers. Customers revised up our full-year. So his question is around our AI CAGR guidance that we gave in January on a five-year period, mid to high 50s CAGR growth. He's wondering if there's any update to that agenda, AI as a new opportunity. What is our definition of AI accelerator? Do we include that, and what is the CAGR?
C.C. Wei, CEO
Charlie, if you read our message that we continue to invest more, we increase the capex with a good reason. So if you're asking about the AI's CAGR, let me give you not a number, but it's stronger and stronger and stronger. So we don't give you the number today because it continues to increase. So we don't know how to answer this question, but stronger than what we said before.
Jeff Hsu, Director of Investor Relations
Thank you, Charlie. All right, let's move to this side. Maybe we'll take the question from Arthur from Macquarie.
Arthur
Hi, first congrats on the strong execution and performance. My question is regarding the new advanced packaging technology. We noticed that especially the EMIBT is gaining traction. So how would TSMC react to this request?
Jeff Hsu, Director of Investor Relations
Okay, sorry. So Arthur's first question is on advanced packaging and competition. I guess very simply put, EMIBT in his view is gaining traction. So how do we see the competitive threat from this?
C.C. Wei, CEO
Well, let me say that our packaging capacity is so tight that now it is limited by customers' growth. So we welcome that additional flexibility in the market, and so that we are here for TSMC's frontier wafer business growth, which is a majority part of TSMC's business. The technology looks good according to the newspaper, and we hope they will be successful. And so that shares some of the loading from TSMC. Today we're working very hard to shorten the gap between the demand and the capacity.
And so, as I said, we welcome having these additional alternatives and so the flexibility for my customer.
Arthur
So as this is a new technology, right. So if your clients ask for your support, our value is to support our customer's success. How will TSMC handle this special request? Sorry, your question is if this technology has some small problem and then asks our company to support. So how will our company accommodate?
Jeff Hsu, Director of Investor Relations
So Arthur's question is if there are some issues with this technology, do we have an alternative plan?
C.C. Wei, CEO
Let me answer the question. Our number one is to support our customer's success. So whatever we can do to hear about customers' business, we want to win. Does that answer your question?
Jeff Hsu, Director of Investor Relations
Let's come back. We'll take one more here and then we'll go online and then back to the room.
Gokul
Hi, thanks Cece and Wendell and Jeff. First question on maybe since you are not wanting to give a longer-term numerical guidance, could you talk a little bit about the philosophy of how you are expanding capacity? Obviously, customer feedback is important. Do you also consider competitive pressure? Because as an outright market leader, having under supply for a very long period of time is not really desirable for TSMC. You probably want a market that is more balanced.
So when you think about your capacity expansion, how long do you think it takes to fulfill the demand as you see right now? That's one. And second, chips obviously are the current shortage. But there is also a lot of discussion about data center delay power capacity being available. So could you also share some thoughts on how you are layering in that kind of concerns? Because you don't want your chips to be available but having to wait for that data center deployment to happen.
So just understand how that goes into your planning framework as well.
Jeff Hsu, Director of Investor Relations
Thank you. So Gokul's first question is again, how do we plan our capacity and determine the capacity expansion plan? Certainly, we take into consideration the demand, multi-year demand from our customers and customers' customers. But do we also consider the competitive pressures from competitors building capacity? Is that part of our calculus to expand the capacity? And then also, what about things outside of chips like data center delays or power, these types of deals?
C.C. Wei, CEO
Gokul, that's a good question. Definitely. Every time when we think about the business, we consider the competition. That's number one. And then we look at where we are and then we decide a bottom-up and then top-down assessment of those demands. Those are the typical things in our daily life. So we make a lot of judgment and then we are more careful. We talk to customers and customers' customers, 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 tells me the truth, everyone. You put all the tools together, it's not the truth. So we have to make some of the judgment, you know what I mean? Because all the customers are very aggressive, right? That's a CEO's job. CEO's 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 truth together is not the truth.
Mark down that word. So yes, we do a very careful judgment. Might not be correct, might not be correct. But we did it carefully. And because this is big money, right? This year we say we increase the CapEx from 52 to 56, now 60 to 64, and you bet that will continue to increase. It's big money. So we do it carefully. So we did all the assessment and that leads to your second question. Are we sure that we deliver the chips to our customer and they will not be put into inventory?
So we actually are checking the AI data center's progress. The building, the location, the demand, the racks. We are checking all that to make sure that TSMC's chips will not be put in inventory. Does that answer your question?
Gokul
Yeah, that's clear. So CC, do you still believe even at the end of next year we are still going to be running short of supply even with this elevated capacity build-out plans?
C.C. Wei, CEO
You want me to give you a guarantee, right? Let me say that I believe from this day on all the way to probably 2029, 2030, the demand is very strong. Whether in between there's a dip 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's going to affect our automotive, affect the humanoid robots, and also impact all the industries.
So by the amount of money we put in, I mean including all the CSPs, this alone 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.
Gokul
Thanks CC. My second question is on your profitability. So CC, you joke that you are definitely jealous of your memory competitor on their margins. But it definitely feels like profitability-wise longer term, foundry, especially leading-edge foundry, should be higher than memory looking at the number of competitors out there. So as you are investing for a lot of your customers, how is that discussion going? Because you are no longer the most profitable semiconductor manufacturing company at this point in time.
So you probably have less pressure in terms of passing on your value and capturing your value right now compared to maybe one year back.
Jeff Hsu, Director of Investor Relations
Okay, so Gokul's second question is on profitability and pricing to a certain extent. Of course, some of the memory makers are making very good profitability and margins today. But he notes the role of foundry could be even more valuable in TSMC's role as well. So what should be the right way to think about the long-term profitability for a foundry? Should it be better and then I guess really pricing into this. What type of pricing approach do we want to take?
C.C. Wei, CEO
Yeah, Gokul, your question actually is simple. You know, what is the wafer 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 from the market. And besides, we are a very trustable company with our customers, so we don't suddenly increase our price by which I like to have 4x or 5x.
You know, you cannot survive for that kind of, 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 in TSMC also, that's our philosophy. So yes, I'm really generous about memory companies. 86% gross margin. 86, 68. I'll be happy. But all right. Anyway, so I answered the question.
We are very trustable.
Gokul
Thank you.
Jeff Hsu, Director of Investor Relations
Okay, thank you, operator. Can we take the next two questions from participants on the line, please?
Jim Fontanelli
Yes, now it's Jim Fontanelli from Arity. Yeah, thank you. Thank you. So, could I ask about the risk that you see around customer concentration as AI demand continues to significantly outgrow other end markets? You know, I think your exposure to your top five customers is becoming meaningfully larger than at any point in your history. So I just like to understand how you see that risk.
C.C. Wei, CEO
So Jim's first question is risk around customer concentration. We have large customers that are getting larger. Are we worried that we have too many big customers or the customer concentration? No, that's not our concern. Besides what you say, the customers have grown bigger and bigger. We are very happy about it. And some of the customers also growing very fast. So it's not, Jim, it's not what you said, that the bigger customer is going bigger and bigger?
No, I mean there's a lot of new players in the AI industry.
Jeff Hsu, Director of Investor Relations
Do you have a second question?
Jim Fontanelli
Thank you. Yes. So we're seeing your direct customers put capital into both financing, investing, and investing in AI demand. Is that something that TSMC is considering?
C.C. Wei, CEO
So Jim's second question, he knows some of our customers are, you know, helping to invest in their customers. Jim, if I understand you right correctly, you're asking if TSMC, if this is an approach we would take to invest in our customers, is that correct? Or financing and investing. Right. So in customers, customers as well. 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 current customers, with the current model smoothly and also successfully.
Jeff Hsu, Director of Investor Relations
Okay, thank you, operator. Can we move on to the next participant on the line? Then we'll come back to the floor.
Mateo Hussaini
Next one to ask questions. Mateo Hussaini from SIG. Yes, thanks for taking my question from my end. I want to go back to the 100 million investment in the US. Is there any way you can give us some timeline over the next three years, five years, how should we think about the progression of these 100 million investment in the US? And I have a follow-up.
C.C. Wei, CEO
So Medi's first question is around the announcement today, additional 100 billion investment in the US in terms of the CAPEX timeframe, is it in the next three years? In the five years, do we have any schedule or timeframe to share about this additional hundred billion? We do have a plan but let me share with you. Actually, the progress or the schedule most of the time depends on the market situation and our customers' demand. So if you ask me to give you a firm schedule, no, 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.
Mateo Hussaini
Okay, so the message is you're flexible but also you're expediting the investment, is that correct?
C.C. Wei, CEO
So his. Well, I think CC said we're trying to move as fast as we can, but everything is based on our customer needs. Yeah, we are also moving the new fabs and 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 of the situation today is the demand and the supply, the gap is so big. So we are working very hard to narrow the gap.
Mateo Hussaini
Do you have a. Yeah, thank you. Actually, I want to dive into the compute part of HPC and want to ask you about networking switches and in that context, when should we expect the Kube platform to have a material contribution to your top clock?
C.C. Wei, CEO
Madhee's second question, very specific. He wants to know for our Kube platform, when will it have a very meaningful contribution to the business? We start the production right now and it will be ramped up as time goes by. I think the AI data center needs to lower down the power consumption and increase the bandwidth of the communication channel. So I believe the Kube will continue to increase the demand and then will become a fairly important technology in the next few years.
Jeff Hsu, Director of Investor Relations
Okay, thank you. Let's come back to the floor. We'll take the next question from Citibank. Laura Chen.
Laura Chen
Thank you. Thank you very much for taking my questions. And my first question is also about a very promising outlook as TSMC raised the CAPEX and also the growth outlook for this year in particular. I think CC, you mentioned about the agentic AI and the CPU growth potential, but can you give us more update among that AI, different kind of chips between GPU accelerators or CPU? What you see the growth potential and your visibility. Thank you.
C.C. Wei, CEO
So Laura's first question is around sort of the outlook. We obviously raised a CAPEX and growth outlook for this year. She wants to know within the AI, the outlook for, you know, agentic AI and CPUs versus AI accelerators, GPUs, et cetera. How do we see these segments? 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 are working with our customer to allocate the wafer, the supply to balance the CPU, GPU, XPU ratio.
Laura Chen
Okay, okay, thank you. Yeah, that makes sense. And then my second question is also about the advanced packaging. We know that during the symposium TSMC previously already announced 14 times reticle COAS roadmap to enable larger AI packaging. But at the same time, we also noted that TSMC maybe last month in Japan you showed the substrate developments for COAS to enable some of the glass technology. So I'm just wondering if you can give us more like technologies progress update on the different kind of technology for glass core or glass substrates or glass carrier.
What's the progress at TSMC right now? Thank you.
C.C. Wei, CEO
So Laura's second question is on advanced packaging. She notes as we said, we roadmap to even larger than 14x reticle size with COAS. But she also wants to know the technology process in newer areas like glass substrates, glass cores. What is the progress and stages we are. Let me say that today the majority is still COAS. And we are developing that alternative try to lower down the cost. And we also work with substrate vendors so that our customer can have their product be in the market.
The progress we're building a pipeline that I announced a few quarters ago and it takes about another one year to be mature so we can put into the production with our customer.
Jeff Hsu, Director of Investor Relations
Thank you. Let's move to this side of the room. Bank of America. Hosloo.
Hosloo
Yes, thanks CC, Wendell, and Jeff for taking my questions. And congrats on the great results. My first question is regarding your CapEx and sales. You gave a pretty solid CapEx outlook for this year and also said the CapEx outlook in the next couple of years will continue to be pretty significant. And you also raised this year at 40% plus. So we should be able to provide your next couple of years sales growth outlook. Try to quantify it. And relatedly, I think also on that topic is whether you can just try to break down which part of the demand you are seeing as the key driver for you to raise your CapEx.
And also for this year's demand, is it still mostly driven by cloud computing or is it proliferating to edge computing? Or to some extent, is it also related to your equipment supply chain is raising their price as well? Thank you.
C.C. Wei, CEO
Okay, that's several questions in one. So I'm going to take that as one and a half questions at least. But basically, Haas is asking with the CapEx increase and the revenue increase this year, I think he's trying to look at intensity but he wants to know what about the revenue guidance for the next several years. Yeah, I'll stop there. Okay, let me answer that question. Because of the revenue corresponding to our investment. 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 all I can say. And then the other part. So what's the key driver? Is it cloud AI? Is it edge AI? Is it because tool vendors are increasing the price? It's all AI related. Everything okay?
Hosloo
You have a quick follow-up? Yes. I think it is more on your long-term strategy because a lot of people have actually been asking about your CapEx and also competition on the front end. But I will actually say that if on the backend competition is rising, especially coming from Intel MMT, are you worried that your value add for your overall foundry business across front-end manufacturing to the back-end packaging business, the value add could actually be cannibalized with growing competition.
C.C. Wei, CEO
Okay, thank you. So Haas's second question is around the competition in advanced packaging. If our competitors are able to gain traction or business with things like EMIB, would that be the gateway or an entryway into more competitive threat on the front-end logic wafer side? So does advanced packaging lead to front-end wafers? Let me answer that. The front-end wafer business and the back-end business are two different things, right? If they are the same, then you can expect ASE to become the front-end competitor.
Also, it's two different things. And I also say that since our capacity in the back-end is so in shortage mode, the gap is bigger. And so I welcome that the competitor offers some of the flexibility to my customer so that the wrong wafer can be put into the package and that helps TSMC's front-end wafer business. That's our attitude.
Jeff Hsu, Director of Investor Relations
Thank you, operator. Let's take one more from the online and then we'll wrap up with back in person.
Robert Sanders
Next one to ask question. Robert Sanders from Deutsche Bank. Yeah, thanks for taking my question. You recently stated that high NA tools are too expensive. But could you please discuss how your customers are considering the impact of die stitching challenges from a smaller field size with high NA, could that actually slow the adoption of high NA even if the tech improves or the tech gets more productive? And I have a follow-up. Thanks.
C.C. Wei, CEO
Well, Rob's first question is very specific technology around high NA adoption. He wants to know the customer's feedback on the challenges with die stitching. Is this an impediment or barrier to high NA adoption in our view? You got a very detailed understanding of the high NA. Today the field size is only 1/2 and we put that one into our consideration of the manufacturing cost and something. Again, let me answer this question quickly. Whether we use a high NA or not?
Actually, one high NA is a very good tool. Let's assume that, right? We understand it's a very high performance. But then TSMC makes 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, thank you, Cece. Do you have a second question, Robert?
Robert Sanders
Yeah, just. Just a quick, just a quick follow-up. I think all of us on this call are assuming that the unconstrained demand for 3 nanometer and below is sort of 30 to 50% above your ability to supply. Is it, in fact, much larger than 30 to 50% above? Because it feels like it might be based on what you're saying. Because I think all of us are assuming it's sort of solvable over the next three, four years. But it's our vote. The number could be much larger.
C.C. Wei, CEO
Well, those are your numbers. But Robert is asking, you know, the demand in excess of supply, is it 30 to 50%? Is it something even larger? Do we have a number to share? No, we don't have a number to share because of. Let me say that the gap is really big. Sorry, I don't want to make a comment on the memory but.
Jeff Hsu, Director of Investor Relations
Okay, we have about nine minutes left. We'll come back to the floor with any question. Let's take one from here. Evelyn Yu from Goldman, thank you for taking my question because we mentioned a lot on that we're going to step up our capacity growth. But I just trying to quantify here because I noticed that during your symposium that you actually mentioned about 2 nanometer family capacity growth will be growing at around 70% CAGR from 26 to 28 and N3 N5 to grow by 25 CAGR from 22 to 27.
So I was wondering are those numbers still right assumptions today? Are we seeing actually any changes over the past quarter and how should we compare with the non-supporting demand out there?
C.C. Wei, CEO
Okay, so Evelyn's first question is around capacity growth. She knows during the symposium we did share some 5-year CAGR growth numbers for 2 nanometer around 70% CAGR and then 3 nanometer around. I guess I can't remember the exact but 25%. So are those numbers still the same or has it changed now that our Capex and stuff? Did we say that in technology symposium? Oh, we show the chart. Okay, now is bigger. That's all I say.
Evelyn Yu
Okay, thank you. Very good direction. All right. My another questions touched based on the advanced packaging side because you always bundle the advanced packaging capex together with testing, mass making and others that's around 10 to 20% of total CAPEX. And so one thing I'm trying to figure out here is that how much of that actually goes to advanced packaging alone and because given that advanced packaging is capital intensive, less capital intensive versus front end so how should we think about a gap between its price in revenue share and its CAPEX share over the next few years and well I think finally is that as it becomes more important how should we think of maybe you should consider bringing it out as a separate Capex item going forward.
C.C. Wei, CEO
Okay, so Evelyn's question is around advanced packaging. She wants to know when we guide for the capex. Of course we guide it in a bucket of packaging, testing, matchmaking and others together. Why do we not separate out just into packaging? Specifically her suggestion is we should but I think more so that's part of it. Number one, the capex breakdown. Everin let me say that we try very hard to make sure that our capex 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 the ballpark the percentage is just like a window share with everybody for long term. I mean that's a big end is about 10 to 20 or that's a big range anyway so that we all I can say is still 10 to 20 because of as I said actually I'm very honest to tell you that as time goes by some of the customers of product need more tester.
You cannot believe that. I mean so the tester in shortage. So we had to put more CAPEX in the tester or in the packaging or in other areas. So that's why we cannot very specifically see which area we put how much of the capex.
Jeff Hsu, Director of Investor Relations
Okay, the last participant KGI Felix Pan. Thank you for being patient.
Felix Pan
Hello, good afternoon. Thanks for taking my question. So my first question is regarding to the CAPEX revision. So from year to date so TSMC raised the CapEx guidance by almost 10 bit. Yeah, US$10 billion so can you give me some color? Where is the upside from? How you guys see the difference from six months ago? Is that from like CPU accelerator or memory component or backend core was expansion just the upside? How we see things differently found six months months ago.
C.C. Wei, CEO
Okay, so Felix is noting in January we guided for 52 to 56 billion. In April we said closer to 56, now 60 to 64. So we have increased the CAPEX guidance. What is driving this? Is it agentic AI only? Is it packaging? Is it AI accelerator? Well, simply put, the most important reason is because of a demand continue to increase. And we feel the pressure from the customer to drive TSMC. Not drive, actually to cooperate with TSMC for the capacity increase.
That's one of the major reason. The second reason is inflation. Now we buy the tools with inflation price.
Felix Pan
Okay, thank you. So my second question is about the mature nodes. So people always focus on AI leading nodes. But it seems like mature nodes also seen the very strong demand recovery and also some supply issue as well. So how you guys see the demand supply dynamic and pricing for the mature node? Because apparently there's some impact from the AI counting out effect. But mature node still largely, you know, depends on the consumer demand. So customer demand is so weak.
So how. How you guys see the demand supply dynamic for mature node? Thanks.
C.C. Wei, CEO
Thank you. So Felix's second question is on mature node. He notes there's lots of talk that mature nodes are seeing a strong demand recovery and the supply is very tight. So mature node pricing is very favorable or strong. So he wants to know how do we see the mature node supply demand situation? Actually the mature node cover a lot of different segments. Only the one which are related to AI is in shortage. Which is the most important one is the number one is power management IC because of all the AI data center need a lot of power management.
And those are the mature known technology like 0.18 micron 90 nanometer or something like that. Those are in shortage. Definitely. And also the sensor portion because of you need a lot of sensor to detect the environmental information and put into the AI data center to analyze it. Other than that other area, just like you pointed out, the consumer product is not in a high demand and so other segment is not so strong demand. And as I pointed out in my statement, other area.
No, it's not so much of say in a lot of shortage. Not at all.
Jeff Hsu, Director of Investor Relations
Okay, thank you. Thank you, Cece. Thank you, Wendell. Thank you everyone. This does conclude our Q and A session before we conclude today's conference. Please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now and both are going to be available through our website again at www.tsmc.com. If some of you are not able to ask your question, please feel free to reach out to TSMC IR and we will follow up with you.
So thank you everyone for joining us today. We hope everyone continues to stay well, have a good summer, and we hope you'll join us again next quarter. Thank you and have a good day.
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