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Taiwan Semiconductor Manufacturing Company Limited (TSM) Q4 2020 Earnings Call Transcript

TSM Earnings Call - Final Transcript

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) Q4 2020 earnings call dated Jan. 14, 2021

Corporate Participants:

Jeff Su — Director of Investor Relations

Wendell Huang — Vice President, Finance and Chief Financial Officer

C.C. Wei — Chief Executive Officer

Mark Liu — Chairman

Analysts:

Gokul Hariharan — J.P. Morgan — Analyst

Randy Abrams — Credit Suisse — Analyst

Sebastian Hou — CLSA — Analyst

Bruce Lu — Goldman Sachs — Analyst

Charlie Chan — Morgan Stanley — Analyst

Brett Simpson — Arete Research — Analyst

Roland Shu — Citigroup — Analyst

Sunny Lin — UBS — Analyst

Laura Chen — KGI Securities — Analyst

Robert Sanders — Deutsche Bank — Analyst

Rick Hsu — Daiwa Securities — Analyst

Andrew Lu — Sinolink Securities — Analyst

Mehdi Hosseini — Susquehanna International Group, LLP — Analyst

Krish Sankar — Cowen and Company — Analyst

Presentation:

Jeff Su — Director of Investor Relations

[Foreign Speech] Good afternoon, everyone, and welcome to TSMC’s Fourth Quarter 2020 Earnings Conference Call. This is Jeff Su, TSMC’s Director of Investor Relations and your host for today.

To prevent the spread of COVID-19, 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 fourth quarter 2020, followed by our guidance for the first quarter 2021. Afterwards, Mr. Huang and TSMC’s CEO, Dr. C.C. Wei, will jointly provide the Company’s key messages. Then TSMC’s Chairman, Dr. Mark Liu, will host the Q&A session, where all three executives will entertain your questions.

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 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 — Vice President, Finance and Chief Financial Officer

Thank you, Jeff. Happy New Year, everyone. Thank you for joining us today. My presentation will start with the financial highlights for the fourth quarter and a recap of full-year 2020. After that, I will provide the guidance for the first quarter of 2021.

Fourth quarter revenue increased 1.4% sequentially in NT terms or 4.4% in US dollar terms, as we saw strong demand for our 5-nanometer technology driven by 5G smartphone launches and HPC-related applications.

Gross margin increased 0.6 percentage points sequentially to 54%, mainly thanks to cost improvement, partially offset by the margin dilution from 5-nanometer ramp and an unfavorable exchange rate. Our utilization rate in the fourth quarter was at an extremely high-level, partially due to more production output, of which some of the wafers will be shipped in the first quarter.

Total operating expenses slightly decreased by TWD2.6 billion, therefore operating margins increased by 1.4 percentage points sequentially to 43.5%. Overall, our fourth quarter EPS was TWD5.51 and ROE was 31.4%.

Now, let’s move on to the revenue by technology. 5-nanometer process technology contributed 20% of wafer revenue in the fourth quarter, while 7-nanometer and 16-nanometer contributed 29% and 13%, respectively. Advanced technologies, which are defined as 16-nanometer and below, accounted for 62% of wafer revenue. On a full-year basis, 5-nanometer revenue contribution came in at 8% of 2020 wafer revenue. 7-nanometer was 33% and 16-nanometer was 17%. Advanced technologies accounted for 58% of total wafer revenue, up from 50% in 2019.

Now, moving on to the revenue contribution by platform. Smartphone increased 13% quarter-over-quarter to account for 51% of our fourth quarter revenue. HPC decreased 14% to account for 31%, IoT decreased 13% to account for 7%, automotive increased 27% to account for 3%, digital consumer electronics increased 29% to account for 4%. On a full-year basis, smartphone, HPC and IoT saw strong growth of 23%, 39%, and 28%, respectively. DCE also increased 2%, while auto decreased 7% in 2020. Overall, smartphone accounted for 48% of our 2020 revenue, HPC accounted for 33% and IoT accounted for 8%.

Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of TWD791 billion. On the liability side, current liabilities increased by TWD29 billion, mainly to — due to the increase of TWD57 billion in accounts payable and the increase of TWD38 billion in accrued liabilities and others, offset by the decrease of TWD69 billion in short-term loan.

Long-term interest-bearing debt increased by TWD28 billion, mainly as we raised TWD30.5 billion of corporate bonds during the quarter.

On financial ratios, accounts receivable turnover days decreased 1 day to 39 days. Days of inventory increased 15 days to 73 days, primarily due to the ramp of leading nodes.

Now, let me make a few comments on cash flow and capex. During the fourth quarter, we generated about TWD259 billion in cash from operations, spent TWD89 billion in capex and distributed TWD65 billion for first quarter ’20 cash dividend. Short-term loans decreased by TWD67 billion while bonds payable increased by TWD30.5 billion due to the bond issuances. Overall, our cash balance increased TWD56 billion to TWD660 billion at the end of the quarter. In US dollar terms, our fourth quarter capital expenditures totaled $3.2 billion.

Now, let’s look at the recap of our performance in 2020. We saw a strong growth in 2020 as our technology leadership position enabled us to capture the industry megatrends of 5G and HPC. Our revenue increased 31.4% in US dollar terms and 25.2% in NT dollar terms to reach TWD1.34 trillion.

Gross margin increased 7.1 percentage points to 53.1%, primarily due to a higher level of capacity utilization and cost improvement. Operating margin increased 7.5 percentage points to 42.3%. Overall, full-year EPS increased 50% to TWD19.97.

On cash flow, we spent TWD507 billion in capex while we generated TWD823 billion in operating cash flow and TWD315 billion in free cash flow. We also paid TWD259 billion in cash dividends in 2020.

I have finished my financial summary. Now, let’s turn to our first quarter guidance. Based on the current business outlook, we expect our first quarter revenue to be between $12.7 billion and $13 billion, which represents a 1.3% sequential increase at the midpoint. Based on the exchange rate assumption of $1 to TWD27.95, gross margin is expected to be between 50.5% and 52.5%, operating margin between 39.5% and 41.5%. The sequential decline in first quarter gross margin is mainly due to a slightly lower utilization rate in the first quarter, albeit it is still staying at the high-level, as well as an unfavorable foreign exchange rate.

Now, I would like to talk about the tax rate. We expect our 2020 tax rate to be in the range of 10% to 11%, and this will be equally applied to all four quarters of the year. This concludes my financial presentation.

Now, I would like to start with the key messages for the quarter. I will start by making some comments on our capital budget in 2020 and 2021. Every year, our capex is invested in anticipation of the growth that will follow in the next few years. Our capital investment decisions are based on four disciplines: technology leadership, flexible and responsive manufacturing, retaining customers’ trust, and earning the proper return. In 2020, we spent $17.2 billion to capture the strong demand for our advanced technologies and support our customers’ capacity needs. In order to meet the increasing demand for our advanced and specialty technologies and further support of customers’ capacity needs, our 2021 capital budget is expected to be between $25 billion and $28 billion. Out of the $25 billion to $28 billion capex for 2021, about 80% of the capital budget will be allocated for advanced process technologies, including 3-nanometer, 5-nanometer and 7-nanometer. About 10% will be spent for advanced packaging and mask making and about 10% will be spent for specialty technologies.

Next, let me talk about our capital intensity outlook. As we have said previously, our long-term capital intensity is in the mid-30s percentage range. However, when we enter a period of higher growth, our capex needs to be spent ahead of the revenue growth that will follow, so our capital intensity will be higher. For example, during 2010 to 2014, our capex spending increased threefold as compared to the previous few years and our capital intensity range between 38% to 50%. Because of the increased investment, we were able to capture the growth opportunities and deliver above 15% growth CAGR from 2010 to 2015. Today, as we enter another period of higher growth, we believe a higher level of capacity — capital intensity is appropriate to capture the future growth opportunities. We now expect a higher growth CAGR in the next few years, driven by the industry megatrends of 5G and HPC-related applications, which C.C. will discuss in more detail.

We also expect this higher level of capital investment to continue to drive our technology leadership, enable flexible and responsive manufacturing and earn customers’ trust. While our leading those capital cost continues to increase due to increasing process complexities, it is expected to be compensated by continuing to sell our value, which includes the value of our technology, service, quality and capacity support and diligently working on cost improvement. With this level of capex spending in 2021, we reiterate that TSMC remains committed to a sustainable cash dividend on both an annual and quarterly basis.

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

C.C. Wei — Chief Executive Officer

Thank you, Wendell. Hi, everyone. This is C.C. Wei. Good afternoon. We hope everybody is staying safe and healthy during this time.

Now, let me start with our near-term demand and inventory. We concluded our fourth quarter with revenue of TWD361.5 billion or $12.7 billion, which was in line with our guidance, mainly due to strong demand for our 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications. Concluding 2020, the semiconductor industry, excluding memory recourse, was about 10%, while foundry industry increased about 20% year-over-year. TSMC’s revenue grew 31.4% year-over-year in US dollar terms.

Moving into first quarter 2021, our business continues to be shrunk, supported by HPC-related demand, recovery in the automotive segment, and a milder smartphone seasonality gained [Phonetic] in recent years.

On the inventory front, our fabless customers’ overall inventory was digested throughout the fourth quarter. We now expect it to approach the historical season exiting 2020 better than our forecast three months ago. We observe that the supply chains are changing their approaches to inventory management amidst the lingering macro uncertainties. Looking ahead, we expect the supply chain and our customer to prepare a higher level of inventory compared to the historical season level for a longer period of time, given the industry’s continued need to ensure supply security.

Next, let me talk about the automotive supply tightness. The automotive market has been soft since 2018. Entering 2020, COVID-19 further impacted the automotive market. The auto supply chain was affected throughout the year and our customers continued to decrease their demand in the third quarter. We only began to see sudden recovery in the fourth quarter. However, the automotive supply chain is long and complex, where many of our technology nodes has been tight throughout 2020 due to strong demand from our other customers. Therefore, in the near-term, as demand from the automotive supply chain is rebounding, the shortage in automotive supply has become more obvious. In TSMC, this is our top priority and we are working closely with our automotive customer to resolve the capacity support issue.

Now, I will talk about our 2021 outlook. For the full-year of 2021, we forecast the overall semiconductor market, excluding memory, to grow about 8%, while foundry industry growth is forecast to be about 10%. For TSMC, we are confident we can outperform the foundry revenue growth and grow by mid-teens percentage in 2021 in US dollar term. Our 2021 business will be supported by strong demand for our industry-leading advanced and specialty technologies, where we see strong interest from all four growth platforms, which are smartphone, HPC, automotive and IoT.

Next, let me talk about TSMC’s long-term growth outlook. We are entering a period of higher growth as the multi-year megatrend of 5G and HPC-related applications are expected to fuel strong demand for our advanced technologies in the next several years. We expect global smartphone units to grow 10% year-over-year in 2021. We forecast the penetration rate for 5G smartphone of the total smartphone market to rise from 18% in 2020 to more than 35% in 2021.

We expect the silicon content of a 5G smartphone to continue to increase as compared to a 4G smartphone. We continue to expect faster penetration of 5G smartphone as compared to 4G over the next several years as 5G smartphone benefit from the significant performance and with a latency improvement of 5G network to drive more AI applications and more cloud services. We believe 5G is a multi-year megatrend that will enable a world where digital computation is increasingly ubiquitous, which will fuel the growth of all four of our growth platforms in the next several years.

As we enter the 5G era, a smarter and more intelligent world will require massive increases in computation power and greater need for energy-efficient computing, and therefore, require leading-edge technologies. Thus, HPC is an increasingly important driver of TSMC’s long-term growth and the largest contributor in terms of our incremental revenue growth. With our technology leadership, we are well positioned to capture the growth from the favorable industry megatrend. We now expect our long-term revenue growth to be 10% to 15% CAGR from 2020 to 2025 in US dollar terms.

Now, I will talk about the N3 status. N3 will be another full node stride from our N5 with up to 70% logic density gain, up to 15% performance gain and up to 30% power reduction as compared with 5-nanometer. Our N3 technology will use FinFET transistor structure to deliver the best technology maturity, performance and cost for our customers. Our N3 technology development is on track with good progress. We are seeing a much higher level of customer engagement for both HPC and smartphone application at N3 as compared with N5 and N7 at a similar stage. Risk production is scheduled in 2021 and volume production is targeted in second half of 2022. Our 3-nanometer technology will be the most advanced foundry technology in both PPA and transistor technology when it is introduced. Thus, we are confident our 3-nanometer will be another large and long-lasting node for TSMC.

Finally, I will talk about TSMC’s 3D fabric. TSMC has developed an industry-leading and comprehensive wafer-level 3DIC technology roadmap to enhance system-level performance. Our differentiated chiplet and heterogeneous integration technologies drive better power efficiency, as smaller form factor benefit for our customer, while shortening their time to market. This technology, including CHIPS stake in solution, such as SoIC, as well as our advanced packaging solutions, such as InFO and CoWoS. We observe chiplets are becoming an industry trend. We are working with several customers on 3D fabric to enable chiplet architecture. SoIC’s full volume production is targeted in 2022. SoIC is expected to be first adopted by HPC applications, where bandwidth performance, power efficiency and form factor are aggressively pursued. We expect revenue from our back-end services, which include InFO’s advanced packaging and testing to grow at a rate higher than corporate average in the next few years.

This concluding our key message. Thank you for your attention.

Jeff Su — Director of Investor Relations

Thank you, C.C. This concludes our prepared statements. Before we start the Q&A session, 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. Should you raise to — wish to raise your question in Chinese, I will translate into English before our management answers your question.

[Operator Instructions] Now, let’s begin the Q&A session. Operator, please proceed with the first caller on the line.

Questions and Answers:

Operator

Yes. The first one to ask question, Gokul Hariharan from J.P. Morgan.

Gokul Hariharan — J.P. Morgan — Analyst

Thank you for taking my question. Happy New Year and fantastic results and guidance. So, let me ask a question first on 3-nanometer. Dr. Wei, how should we think about the size of 3-nanometer? What we have seen is, over the last two years, 28-nanometer was a very big node, 7-nanometer came out to be roughly 70% bigger, if you think about peak revenue, compared to 28-nanometer when you had new applications coming in. How — given the big capex plan that you are also outlining, should we think that 3-nanometer, once it ramps up fully, would be substantially bigger than 7-nanometer in terms of peak revenues? Just wondering, how we should kind of think about the size of this process node.

And could you also talk a little bit about the opportunities within HPC? Right now you are already engaged with multiple HPC customers, but could you talk a little bit about CPU — x86 CPU, obviously, which is something on everybody’s mind. Could you talk a little bit about how do you think it would be exposed to this market as well as we go into the 3-nanometer era?

Jeff Su — Director of Investor Relations

Okay. Gokul, sorry, this is Jeff. Let me please summarize your questions — two questions, we’ll take them in the — one by one. Gokul’s first question is with regards to 3-nanometer and about the size of our 3-nanometer. He notes that in the past we have had very big nodes, such as 28-nanometer and then 7-nanometer. So, Gokul wants to know in terms of the peak revenue contribution, do we expect or should N3 be substantially bigger than N7. That’s his first question. Correct?

Gokul Hariharan — J.P. Morgan — Analyst

Yeah. Especially considering the step-up in capex as well. Thank you.

C.C. Wei — Chief Executive Officer

Well, Gokul, let me answer your question by saying that we do expect the 3-nanometer will be widely used in HPC-related applications in addition to the smartphones. So, with this kind of engagement with our customer, we do expect our revenue will be bigger, certainly. There’s no doubt about it.

So, what is the next question?

Jeff Su — Director of Investor Relations

And then, Gokul, I think the second part of your question is looking at what are our opportunities in high-performance computing. Gokul notes that we have multiple customers engaged. But in particular, he is asking about the progress or the status of CPU opportunity and what do we see as the drivers of HPC?

C.C. Wei — Chief Executive Officer

Gokul, we don’t specifically name one of our HPC’s applications, such as CPU to say that what is the growth rate. But let me tell you that, CPU, networking and AI accelerator will be the main growth area in the HPC applications. Did that answer your question?

Gokul Hariharan — J.P. Morgan — Analyst

Could you be a little bit more specific on x86? I mean, you already had good success in 7-nanometer penetrating the x86 market. Should we say — should we think that the x86 market share continues to move up a lot as we get into 3-nanometer?

Jeff Su — Director of Investor Relations

Okay. So, Gokul, I guess, the — your question is really on the x86. And looking at 7-nanometer has done well, as we get into 3-nanometer, will our exposure to x86 continue to increase?

C.C. Wei — Chief Executive Officer

Again, we don’t specifically comment on very specific area. We work with our customer continuously and to supply the very good technology to support their business.

Jeff Su — Director of Investor Relations

Okay?

Gokul Hariharan — J.P. Morgan — Analyst

Thank you. I’ll go back into the queue. Thank you.

Jeff Su — Director of Investor Relations

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

Operator

Next one to ask question, Randy Abrams, Credit Suisse.

Randy Abrams — Credit Suisse — Analyst

Okay. Yes. Thank you. I have — I got two questions to ask. First on the — you talked about the automotive and I assume also your mature nodes are very tight. You traditionally haven’t added that much capacity on mature nodes and 8-inch. Could you discuss what’s in that because you have some mix of that, how you’re seeing a strategy to add capacity for those nodes? And could you also look at — auto has been only about 3% of revenue, should we expect a meaningful pickup in this vertical, both the mature applications and also from new areas like EV and ADAS?

Jeff Su — Director of Investor Relations

Okay. Randy, let me summarize your question. You’re asking first on the automotive side. He notes our comments that automotive supply is tight. Do we expect a pickup in the automotive vertical? And then, also in looking at the mature nodes, will auto benefit our mature nodes? And then ADAS and other trends in automotive, how do we see?

C.C. Wei — Chief Executive Officer

Well, let me say that, now we see the automotive industry need a lot of semiconductor component, and that’s including the leading-edge technology for the ADAS system and also some of the mature technology for a lot of applications like sensor, like power management IC. We do see right now a little bit shortage on the automotive, the mature technology supply and we are working with customer to mitigate to show this impact.

Jeff Su — Director of Investor Relations

And then Randy is also asking second part on our mature nodes. Given the tightness, will we consider to add capacity for the mature nodes?

C.C. Wei — Chief Executive Officer

We always work with our customer to plan [Phonetic] our technologies, capacity, all those kind of thing. For mature node, we used to convert some of the large capacity into specialties. Right now, the trend stays the same.

Randy Abrams — Credit Suisse — Analyst

Okay. Great. And my second question, it’s two parts. Just want to ask on gross margin and inventory. The gross margins you’ve improved 4 points year-over-year. Part of that utilization, but depreciation also was up 45% NT dollar to get you 6 points. So, could you discuss if you’ve had a breakthrough on the cost reduction side? And if — now, I think last quarter you said about 50%. But given what you’ve seen on cost reduction and coming off 54%, if you could have better confidence on margin, could continue to do better?

And then I’ll just ask a quick on inventory. Was it up 15 days? Historically, you draw down within the fourth quarter, but maybe the trend-wise inventory was rising into early in the year.

Jeff Su — Director of Investor Relations

Okay. Randy, let me summarize your questions, two parts. First is on the gross margin. He notes that our gross margin improved throughout the year. And Randy wants to know if there is a breakthrough on the cost side and therefore, the long-term outlook for our gross margin, is it still 50% or not?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right. Randy, this is Wendell. You just mentioned that our depreciation increased 45% year-over-year. I think the number should be 15% year-over-year.

Randy Abrams — Credit Suisse — Analyst

Okay. I was looking Q4 to Q4, I think that — just the fourth quarter-over-fourth quarter.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right, right. Now, in terms of gross margin in the long-term, we believe 50% gross margin is reasonable and achievable. There are six factors affecting our profitabilities: the ramp of leading-edge technology; price; cost; mix; utilization and foreign exchange rate. Take foreign exchange rate, for example, in 2020, the average dollar against NT rate was TWD29.43. It is now trading between TWD27.90 to TWD28. That is already a 5% appreciation of NT. So, every 1% of appreciation of NT will affect our gross margin by a 40 basis point.

The other thing is the — in the fourth quarter of last year, as we mentioned, the utilization rate was very high, extremely high, and that’s — the abnormal level of high utilization rate cannot sustain. Therefore, in this quarter, we believe the utilization rate will come down a little bit, albeit is still at a very high level. Now, every point of utilization rate change will impact the gross margin by 40 basis point.

A third example will be the ramp in our leading-edge technologies. We mentioned last time that we expect N5 ramp in 2021 to affect our margins by 2 percentage point to 3 percentage point. And we still think that will be the case. So, if you take all of those into considerations, we believe 50% gross margin is reasonable and achievable in the long-term.

Jeff Su — Director of Investor Relations

And then Randy had also asked about our days of inventory.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right.

Jeff Su — Director of Investor Relations

Increasing in fourth quarter.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right. And that’s partially because some — as — we have a very high utilization in the fourth quarter, but some of the wafers will be shipped in the first quarter as opposed to shipped in the fourth quarter.

Jeff Su — Director of Investor Relations

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

Operator

Next one we have Sebastian Hou from CLSA.

Sebastian Hou — CLSA — Analyst

Thanks gentlemen for taking my questions. Happy New Year. First question is, I want to follow on the gross margin side. So, you’ve alluded that in the past two quarters the — your gross margin, actual result turn out to be either at the high-end or at the surprise to the upside to your original guidance. While revenue is much on the high-end of the guidance, while the Taiwan dollars continue to appreciated second half of last year’s. So which means that the margin result to be better than what you originally guided for two quarters consecutively. So, my question is, whether or not the 1Q outlook, the margin is too conservative again? And second, that is whether our structural profitability will need to revise up just as our five-year revenue growth has just been revised up officially? Thank you.

Jeff Su — Director of Investor Relations

All right. Sebastian, let me summarize your first question. Your observation that in the past two quarters our gross margin has come in at the high-end or slightly above the high-end of our guidance. Revenue at the high-end and the currency appreciation is there. So, Sebastian is — question is, first, is the first quarter gross margin guidance too conservative? And what about the outlook for our longer-term structural profitability? Does it need to be revised up?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Okay. Sebastian, if we compare fourth quarter to first quarter, 54% in the fourth quarter and the mid-term of our guidance for first quarter is 51.5%. The 2.5 percentage point difference, actually mainly come from the utilization, as well as the unfavorable foreign exchange rates. So, at this moment, we are still sticking to this guidance, although obviously, we will work hard to continue to improve the gross margins.

As for the long-term gross margin, as I just reported earlier that we are maintaining the 50% gross margin to be reasonable, achievable based on the elements — the six factors that I just talked about. Each of those factors will affect our profitability in long-term.

Jeff Su — Director of Investor Relations

Okay. Sebastian, do you have a second question?

Sebastian Hou — CLSA — Analyst

Yes, I do. Thanks, Jeff. And thanks, Wendell. My second question is on your capex outlook. Apparently that — at least that’s a significant upside surprise to me and I think also to the consensus estimate. So, the last time I think when the Company raised the capex from $10 billion to $12 billion level to the — like a $15 billion to $17 billion level, then that resulted in a 30% revenue growth in 2020. And then — so my question is that, I think the capex we invest for the future growth, so whether or not this — another step-up with the capex to like — to $25 billion to $30 billion this year’s, will represent an acceleration of the growth in 2022 or 2023? Thank you.

Jeff Su — Director of Investor Relations

Okay. So Sebastian’s question is, looking at our capex guidance for this year, $25 billion to $28 billion, it is above his expectations. So he is looking at the last time, we have an increase in acceleration to capex from $10 billion to $12 billion to $15 billion to $17 billion resulted in us growing 30% this year — 31% this year. So what is the outlook for our growth in 2022 or the future years?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Okay. Sebastian, it’s too early to talk about — specifically about 2022. But as C.C. mentioned, in the next five years our target CAGR is between 10% to 15%. So that’s already higher than the original target of 5% to 10% CAGR that we used to have before the last conference call. And that’s also because of the higher capital investment that we are ready to make to capture the higher growth opportunities underpin that by the multi-year megatrends in the industry.

C.C. Wei — Chief Executive Officer

Well, let me add something. This is C.C. Wei. This 10% to 15% CAGR is based on a very high number of 2020. So, we still forecast a 10% to 15% CAGR. That will tell you that how much of capex we need to invest.

Jeff Su — Director of Investor Relations

Okay. Thank you. Thank you, Sebastian.

Sebastian Hou — CLSA — Analyst

Thank you.

Jeff Su — Director of Investor Relations

Operator, can we move on to the next caller, please?

Operator

Next one we have Bruce Lu from Goldman Sachs.

Bruce Lu — Goldman Sachs — Analyst

Hi. Thank you for taking my question. Great result and great guidance. I think the big difference is, this time is that, you raised the long-term revenue CAGRs from 5% to 10% to 10% to 15%. Can you tell us that in terms of this kind of incremental changes, how much the growth is coming from HPC and what are the other drivers for that?

And in terms of that smartphone growth, I think the 5G penetration is already like 30-something-percent in 2021. Moving forward, how much growth for you is coming from the dollar content growth or the shipment growth, or can you provide more color on the growth?

Jeff Su — Director of Investor Relations

Okay, Bruce. So your question is really about our long-term growth outlook, with our growth target CAGR of 10% to 15%. Your question basically is by the different platforms such as HPC, what is the growth contribution and in looking at smartphone, how much is dollar content, how much is unit contribution?

C.C. Wei — Chief Executive Officer

Well, let me answer the question by — actually, the growth rate from the HPC application is higher than the corporate average. And smartphone is very close to the corporate and also automotive is higher than the corporate average. IoT close to that corporate average. Did that answer your question?

Bruce Lu — Goldman Sachs — Analyst

Yes. Thank you. Thank you. Okay. My next question is — I want to ask about structural profitability. I understand that all these six factors for the profitability but that’s based on the assumption that structural profitability remain unchanged. So, do we consider to move up the structural profitability because of the current supply — structural growth for the Company or the structural tightness, especially with legacy technology node?

Jeff Su — Director of Investor Relations

Okay. Bruce, your second question is on the structural profitability. Given the higher growth outlook, and also the tightness in supply at legacy nodes or legacy technologies. Will we consider to move up the structural profitability target?

Bruce Lu — Goldman Sachs — Analyst

Yes.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Bruce, as I just mentioned, we are maintaining the financial objective, i.e., the structural profitability goal of 50% gross margin. And of those six factors, every one of them can affect the profitability. For example — I’ll just use an example in foreign exchange rate, utilization and also the ramp of leading-edge nodes. And, for example, the leading-edge technologies, the complexities increases the capex per K. It’s more expensive than before. So we are working very hard with the customer to sell our value, the service value, the technology value and also the capacity value and firm up the wafer pricing. At the same time, we also work very closely with our suppliers to continue to improve our cost, so that altogether we can maintain and earn a proper return in the leading nodes compared to those of the previous few nodes. As a result, we are maintaining our structural profitability goal as 50% of gross margin.

Jeff Su — Director of Investor Relations

Okay.

Bruce Lu — Goldman Sachs — Analyst

So, understand. Let me clarify that, whatever you gain in terms of your cost saving you will still return it to your customer and maintain your 50% profitability target?

Wendell Huang — Vice President, Finance and Chief Financial Officer

It’s — there are six factors, so all — you add all of them together, it’s…

Bruce Lu — Goldman Sachs — Analyst

Understand.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Yeah. Yeah.

Bruce Lu — Goldman Sachs — Analyst

I understand. Thank you.

Jeff Su — Director of Investor Relations

Okay. Thank you, Bruce. Operator, can we move on to the next caller on the line, please? Thank you.

Operator

Next one to ask question, Charlie Chan, Morgan Stanley. You’re on now.

Charlie Chan — Morgan Stanley — Analyst

Thanks for taking my question. Happy New Year. So, first question is also about the capex. So in the past for you to spend huge capex on leading-edge is usually for the smartphone application given that the key user is Apple. So, at this time you almost doubled your capex level, does it means that there is a significant upside to the Intel CPU outsourcing? This is the first question. Thanks.

Jeff Su — Director of Investor Relations

Okay, Charlie. So your question is on our capex basically. Charlie notes that in the past our large capex on leading-edge historically has been for smartphone platform, this year, of course, our capex number is much higher. So, therefore, he is wondering whether it’s intended for a particular customer on the CPU side.

C.C. Wei — Chief Executive Officer

Well, Charlie, let me answer the question. In fact, we don’t comment on specific customer or specific area. Our capex guidance is based on the current long-term demand profile underpinned by the industry’s megatrend.

Jeff Su — Director of Investor Relations

Okay, Charlie?

Charlie Chan — Morgan Stanley — Analyst

Yeah.

Jeff Su — Director of Investor Relations

Do you have a second question?

Charlie Chan — Morgan Stanley — Analyst

Yes, I do. So, just some feedback to C.C. I think we all understand the megatrend of 5G and HPC. So the last question was just to understand whether there is additional kind of growth driver, for example, IDM outsourcing on top of the organic growth. But my next question, I think it should be more related to your strategy because I think your existing customer Intel two days ago, they also commented about, don’t rule out the possibility of licensing their foundry process. And actually 20 years ago, back in 2000, I think you also licensed the largest semi process to National Semi. And so, I’m not sure if TSMC, after 20 years, do you still kind of consider this kind of option? Does that mean, the license your foundry process to your IDM customer or even consider some option like a joint venture for this type [Phonetic] operation with your IDM customer? Thanks.

C.C. Wei — Chief Executive Officer

Well, again, we don’t comment on the specific topics or specific customer. But let me tell you that we are working with our customer continuously and — to expand the TSMC’s business and to support our customers’ demand.

Charlie Chan — Morgan Stanley — Analyst

Okay. Okay. Got you. So, I will get back to the queue. I have some follow-up. Thanks.

Jeff Su — Director of Investor Relations

Thanks, Charlie. All right. Operator, let’s move on to the next person on the line, please.

Operator

Next to ask question, Brett Simpson from Arete Research.

Brett Simpson — Arete Research — Analyst

Yeah. Thanks very much. Questions maybe first for Wendell. So, on the revenue guide, I guess, you’re starting the year with a far better than seasonal Q1. But I just wondered, how do you see the year playing out. Should we expect in the second half a typical seasonality this year?

And then, in terms of the capex guide for this year, obviously, there is a big step-up. And spending this year is normally a reflection of how you think about future capacity growth beyond 2021. So, can we assume from the big increase in capex this year that your implied revenue growth in 2022 would be — will be higher than 2021? Thank you.

Jeff Su — Director of Investor Relations

Okay. So, Brett has two questions, one on the revenue guidance. We guided for mid-teens for the full-year — growth for 2021. So he wants to know how does it play out throughout the year? Is there — second half, will we see the typical seasonality first half, second half split? That’s his first question.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Yeah. From what we can see, second half is still higher than the first half.

Jeff Su — Director of Investor Relations

And then the second part is also capex and growth. Looking at the increase in our capex investment in 2021, noting that we typically spend capex in advance of the growth that will follow. Brett wants to know then should we expect a big year or a large growth year in 2022, sorry?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Brett, it’s — as I said, it’s a bit too early to discuss 2022 in details. But C.C. just mentioned, over the next five years, we’re looking at the higher range of CAGR. And also, the capex spend this year means future opportunity in growth, not just for the next year, but also the years after that. So, we are looking at multiple years of growth opportunities.

Jeff Su — Director of Investor Relations

Okay?

Brett Simpson — Arete Research — Analyst

And maybe just one for C.C. Wei on N3. You mentioned N3 would have the best PPA and we’re seeing a lot of transistor innovation at Intel and Samsung in the next couple of years, but you’re planning to stick with FinFET at 3-nanometer. And I’m just wondering how you see the transistor density at 3-nanometer. I think at N5 you’ve talked about 175 million transistors per mill square is the potential of N5. How should we think about N3 in that regard, and relative to some of the transistor innovation we’re seeing at Intel and Samsung, are you happy with the FinFET roadmap? Thank you.

Jeff Su — Director of Investor Relations

Okay, Brett. So your second question is regards to our N3 and our decision to continue to use FinFET transistor structure at 3-nanometer. You note that at 5-nanometer we can deliver about 175 million transistors per millimeter square. So you want to know how this falls out at N3, or maybe in terms of our 3-nanometer in comparison to Samsung or others, how does it compare?

C.C. Wei — Chief Executive Officer

Well, as I said in my statement, that N3 still provide 70% of the logic density gain in addition to all the performance gain, and the power reductions. Whether that’s at 5-nanometer you got 175 million transistor per millimeter square, that’s a lot depends on what the number in N3. I think that a lot depend on customers design. We continue to say that we offer the FinFET because of the technology maturity, the performance and the cost, are the best combination for TSMC to serve our customer.

Jeff Su — Director of Investor Relations

Okay. Thank you, Brett.

Brett Simpson — Arete Research — Analyst

Thank you.

Jeff Su — Director of Investor Relations

Thanks. Operator, can we move on to the next caller, please?

Operator

Next one we have Roland Shu from Citigroup.

Roland Shu — Citigroup — Analyst

Hi. Good afternoon. Congrats on a very good result. My first question is also for the capex spending. And there are two parts of my question. So, based on your sharply increased capex spending, are you considering to sign long-term contracts with customers, especially to those customers who are new to adopt your most leading-edge technology to ensure a proper return of your investment?

And second part of the question is, if this let you have spend ahead in capex EUV because on your — the lower productivity for EUV when you first ran EUV? So I would like to know how much capex downside you expect after you have improved EUV productivity to the optimized level? Thank you.

Jeff Su — Director of Investor Relations

Okay. Roland, we will take your questions one by one. Both of them relate to capex. First one is that, with the higher level of capex that we have in 2021, Roland wants to know that would we consider signing long-term contracts with customers, especially with customers that are new to TSMC, to ensure that we are making a proper return?

C.C. Wei — Chief Executive Officer

Roland, sign a contract to guarantee the loading in the future is not our common practice. We always work with our customer and continuously work with customer to serve their demand. And we also put our capex or expanding our capacity according to our current long-term demand forecast, all right? And did that answer your question?

Roland Shu — Citigroup — Analyst

Okay. Yeah. Yeah. I think it did.

Jeff Su — Director of Investor Relations

Okay, Roland. And then your second question is also related to capex. Roland, let me summarize. I think you’re saying that in our capex guidance, your assumption that the lower productivity of EUV means leading to a higher capex level for TSMC. So your question is that, if the productivity — as the productivity of EUV improves, then will — how much reduction in capex could we see? Is that your question? Am I summering that correctly?

Roland Shu — Citigroup — Analyst

Yes, exactly. Yeah. Exactly. Thanks.

C.C. Wei — Chief Executive Officer

Well, let me answer that. We continue to improve the EUV’s productivity because we are working closely with suppliers. And so far we — the improvement is obvious, but it’s still not up to our expectation yet. As for the capex will be decreased because of improved productivity, this is in our capex plan already.

Jeff Su — Director of Investor Relations

Okay?

Roland Shu — Citigroup — Analyst

Okay. So, means for going forward, I mean, even you have higher EUV productivity, the capex spending or capex — capital intensity probably will be still high this year, or in the near future?

Jeff Su — Director of Investor Relations

Okay. So, Roland, his question is that, even with EUV productivity and factoring into our capex that our capital intensity could remain high even into next year.

C.C. Wei — Chief Executive Officer

Well, the capex remained high or the capex intensity remained high is because of technology complexity. It’s actually that N5 is much more complicated than N7, N3 much more complicated than N5. So, most of that capex intensity coming from this technology advancement. Of course, EUV is a part of it, but it’s not the only one reason.

Roland Shu — Citigroup — Analyst

Okay. Okay. Then my second question [Speech Overlap]

Jeff Su — Director of Investor Relations

Thank you. Roland, I think that’s two questions already, sorry, because we still have several people in the queue. I would kindly ask you to get back into the queue, so we can allow everyone a chance. Thank you.

Roland Shu — Citigroup — Analyst

Okay. Thank you.

Jeff Su — Director of Investor Relations

All right. Operator, let’s move on to the next caller on the line, please.

Operator

Yeah. The next one we have Sunny Lin from UBS.

Sunny Lin — UBS — Analyst

Hi. Good afternoon. Thank you for taking my questions. My first question is that, I want to follow-up on 3-nanometer. I think — just want to get a bit of color on your current visibility for the customer adoption into second half of next year. How does it compare with the historical ramp of 5-nanometer and 7-nanometer? And also the cost per transistor for 3-nanometer versus 5? Thank you.

Jeff Su — Director of Investor Relations

Okay, Sunny. So your first question is on 3-nanometer, you want to know the visibility into customer adoption of 3-nanometer into second half 2022 and how does it compare to 5-nanometer or prior nodes, and also the cost per transistor at 3-nanometer, is it still declining?

C.C. Wei — Chief Executive Officer

Let me answer that. The cost per transistor actually start continue to decrease. But for your question about engagement, we said the customer — we see a lot of customer, especially from the HPC field, they are engaged with their activity with TSMC.

Jeff Su — Director of Investor Relations

Okay? Sunny, do you have a second question?

Sunny Lin — UBS — Analyst

Right. So just a very quick follow-up to my first question. Wonder if C.C. would be able to provide any color regarding the ramp for 3-nanometer for second half of next year. Thank you very much.

C.C. Wei — Chief Executive Officer

It’s early adoption from our customer is both in the smartphone and HPC-related applications. That’s all I can say.

Sunny Lin — UBS — Analyst

Got it. Thank you. And then my second question is for your 2021 gross margin. So, with capex going up significantly, how should we think about your depreciation growth for this year and also the impact on gross margin? Thank you.

Jeff Su — Director of Investor Relations

Okay. So, Sunny’s second question is on the 2021 overall gross margin. With a higher level of capex spending, she wants to know what will be the year-on-year increase in depreciation and what’s the impact to the overall 2021 gross margin?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Sunny, the depreciation in 2021 is expected to be between mid- to high-20s higher than 2020. And the impact of — to gross margins, well, it’s too early to talk about the remaining quarters of 2021. But as a general feeling, you look at the capacity utilization that I just mentioned, foreign exchange rate are favorable and also the N5 ramp negative impact on our profitability, those are the factors that may affect our all year 2021 gross margins. But as I said, it’s too early to talk about details on the remaining quarters.

Jeff Su — Director of Investor Relations

Okay?

Sunny Lin — UBS — Analyst

Got it. Thank you very much. Very helpful.

Jeff Su — Director of Investor Relations

Sure. Thank you, Sunny. All right. Operator, let’s move on to the next caller, please.

Operator

Right now we are having Laura Chen from KGI. Go ahead, please.

Laura Chen — KGI Securities — Analyst

Hi. Thank you for taking my question and congratulations for the good result and outlook. I also have a question about the capex and the gross margin trend. I think given your strong position in the most advanced technology nodes and extremely high capex in recent years, I believe there must be some strong conviction on the outlook with your major clients. So, can you share with us your view that for the N3 first year contribution will be similar to N5 that we’ll have probably more than 10% revenue for the first year mass production? Can we expect that to happen?

And also on the gross margin side, given there might be some swing factor of your major IDM clients for outsourcing opportunity, how would you manage the deterioration rate, which may impact your gross margin substantially? That’s my first question. Thanks.

Jeff Su — Director of Investor Relations

Okay, Laura, I think that’s two questions. But your first question is on the N3, sort of noting our strong position in the advanced nodes, and also the higher capex as an indication of the strong conviction of major clients. Laura wants to know what — will the revenue contribution of 3-nanometer in its first year be similar to — or how does it compare to 5-nanometer in the first year?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Okay. Laura, it’s really too early to talk about that at this moment. But as C.C. said, we believe N3 when it’s out, it’s going to be another large and lasting nodes for TSMC.

Laura Chen — KGI Securities — Analyst

Okay. Got it. Thanks. And also on the — probably the swing factor of the utilization rate that may impact the gross margin potentially on the — and particularly for advanced node, how should we look at the trend? How will you manage that?

Jeff Su — Director of Investor Relations

Okay. So, Laura’s second question is looking at our gross margin and then also looking at opportunities, for example, in a particular IDM, if there are swings in utilization, how would we manage that and how would that impact the gross margin? Is that correct, Laura?

Laura Chen — KGI Securities — Analyst

Yes. Thank you.

Wendell Huang — Vice President, Finance and Chief Financial Officer

We don’t — Laura, we don’t comment on specific customers or business outlook. The — what we can say is, we continue to work with our customers closely and to ensure that we provide this proper capacity to them and we also maintain a good utilization out of it.

Jeff Su — Director of Investor Relations

And as Wendell –. Yeah.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Laura, let me add some colors. I think our business has been driven in the past few years by smartphones. Starting from this year on, the HPC also jump on the wagons. And therefore, we looking — forward looking, we see the traditional seasonality can be moderated with multiple big customer in multiple market segments. So that’s our confidence. The other confidence is, our capex includes 3-nanometer, also 5-nanometer. Our 5-nanometer is also very strong, stronger than we expected three months ago. So those two combined to give us the confidence to increase our capex.

Jeff Su — Director of Investor Relations

Okay, Laura?

Laura Chen — KGI Securities — Analyst

That’s very helpful. Yeah. Thank you very much. That’s very helpful.

Jeff Su — Director of Investor Relations

Great. Thank you, Laura. Operator, can we move on to the next caller, please?

Operator

Next one we have Robert Sanders from Deutsche Bank.

Robert Sanders — Deutsche Bank — Analyst

Yeah, hi. I’ve just got one question actually. Just could you please comment more on the wafer shortage situation and how severe it is at present? Which nodes are you seeing the shortage most acute? Is it 65, 90-nanometer, 0.11, 0.13, whatever it is? And how far are you essentially booked out at some of these nodes? And do you think there is — upside to wafer pricing of these nodes? Thank you.

Jeff Su — Director of Investor Relations

Okay. So, Robert, your question is on the tightness or shortage in the wafer. He is asking, is it at particular nodes such as 65-nanometer and 90-nanometer, 0.13, how short it is and how long it will last?

C.C. Wei — Chief Executive Officer

Robert, most of the shortage actually is in the mature node. It’s not in the 3 — not in the 5 or 7-nanometer per se. But in all the mature node, especially in 0.13 [Phonetic] micron, 40-nanometer, and 55-nanometer, in those areas.

Jeff Su — Director of Investor Relations

Okay?

Robert Sanders — Deutsche Bank — Analyst

Can I just follow-up with — one follow-up, which is just — you haven’t traditionally built capacity there, but they could become part dependencies for the industry if they are continuing to be short. So, would you actually consider building greenfield to help the industry or you think that other foundries will handle that?

Jeff Su — Director of Investor Relations

So, Robert, your follow-up question is then, given the shortage or tightness on some of these mature nodes, will we consider to expand, build new capacity at these mature nodes to alleviate any potential bottleneck risk?

C.C. Wei — Chief Executive Officer

Well, actually, we are working with customer closely and moving some of their mature node to more advanced node where we have better capacity to support them. In addition to that, we also try to manage this shortage condition, try to mitigate the impact from this shortage.

Jeff Su — Director of Investor Relations

Okay?

Robert Sanders — Deutsche Bank — Analyst

Thanks a lot.

Jeff Su — Director of Investor Relations

Thank you. Operator, let’s move on to the next caller, please.

Operator

Next one we have Rick Hsu from Daiwa Securities.

Rick Hsu — Daiwa Securities — Analyst

Yeah. Hi, Happy New Year, guys. This is Rick. My first question is, I guess, you guys mentioned that now your customers are happy living with a higher inventory than the historical pattern because of the macro uncertainties with COVID-19. So, I wonder if your customers would still be happy living with a higher inventory than the normal historical patterns, if the virus — if COVID-19 is contained. This is my first question.

Jeff Su — Director of Investor Relations

Okay. Thank you, Rick. So your question is, our — the higher level of inventory that we are seeing partly is attributable to COVID-19. What if COVID-19 is no longer — everyone has vaccine and is no longer an issue, will this continue?

Rick Hsu — Daiwa Securities — Analyst

That is correct.

C.C. Wei — Chief Executive Officer

Yeah. First, they say that we really hope that the vaccine will work, and — but even it is working, it takes time and then also our customers still at this — today, they still have a different approach for the inventory management as we said, because of the secure of the supply is more important than anything else in today’s situation. So we don’t think it’s really to revert back to the historical level of the inventory.

Rick Hsu — Daiwa Securities — Analyst

Okay. Thank you. That’s helpful. My second question is also regarding your capex because the number this year is really high. So, about 80% of your Tai capex this year is going to be spent for leading-edge. So, I wonder how much of that portion is actually for preparation of the capacity built for 2022 and be — not for this year. So, can you share your idea with us?

Jeff Su — Director of Investor Relations

Okay. So, Rick, your question is on our capex. 80% — about 80% is for the advanced nodes. He wants to know how much of this spending for the advanced nodes is in preparation for capacity for 2000 — sorry, 2022.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Rick, we invest this year actually for future year primarily. So, it’s not only for 2022. It may also be for the years following that. So that’s — I think that’s something that I would like to share with you.

Jeff Su — Director of Investor Relations

Okay?

Rick Hsu — Daiwa Securities — Analyst

Okay. That’s helpful. Thank you. Yeah. Thank you so much.

Jeff Su — Director of Investor Relations

No problem. Thank you, Rick. Okay. Operator, let’s move on to the next caller.

Operator

Next one we have Andrew Lu from Sinolink Securities.

Andrew Lu — Sinolink Securities — Analyst

Good morning. Good afternoon. Thank you for taking my question. Can you hear me?

Jeff Su — Director of Investor Relations

Yes. We can hear you.

Andrew Lu — Sinolink Securities — Analyst

Okay. My first question is, if your customer has its own design rule nodes with different metal and poly pitch spec from TSMCs one. Can this customer use a in-house manufacturing in TSMC foundry based on the same design or it needs to redesign the chip-based on TSMC 5-nanometer, 3-nanometer design rule?

Jeff Su — Director of Investor Relations

Okay. Andrew, let me try to summarize your question. Your question is about our customers’ design rules. If the customer has their own design rules, but with different metal and different poly pitch from TSMCs, could this customer use TSMC foundry or use the in-house manufacturing, or do they need to use TSMCs design rules basically?

C.C. Wei — Chief Executive Officer

Andrew, we always work closely with our customer to support their design into TSMC’s process technologies. So, we can manufacture inside TSMC.

Andrew Lu — Sinolink Securities — Analyst

So customer doesn’t need to change its own design?

C.C. Wei — Chief Executive Officer

Okay. I cannot answer this question because of — it’s two parties cooperation. And as I said, we work closely with them to support their design.

Jeff Su — Director of Investor Relations

Okay?

Andrew Lu — Sinolink Securities — Analyst

Understood. My second question is, since our 3-nanometer, 4-nanometer nodes work you’re ramping out next year. What about second half this year? Will we have something like 5-nanometer plus or revision in 5-nanometer process node for second half this year? Thank you.

Jeff Su — Director of Investor Relations

Okay. So, Andrew, second question is looking at second half of this year, noting that next year will have, for example, N3 and N4, then second half of this year, do we have any new node or continuous improvement — enhancement?

C.C. Wei — Chief Executive Officer

Andrew, we always continue to improve the technologies. Last year, we introduced our 5-nanometer to the market. This year, we continue to improve it and next year we will improve further. So we never stop.

Jeff Su — Director of Investor Relations

Okay?

Andrew Lu — Sinolink Securities — Analyst

So something like a 5-nanometer plus.

C.C. Wei — Chief Executive Officer

That’s what you are naming, Yes.

Andrew Lu — Sinolink Securities — Analyst

Okay. Thank you.

Jeff Su — Director of Investor Relations

Okay. Thank you, Andrew. Let’s move on to the next caller, please.

Operator

Next one we have Mehdi Hosseini from SIG.

Mehdi Hosseini — Susquehanna International Group, LLP — Analyst

Yes. Thanks for taking my question. First question has to do with the revenue mix forecast for Q1 by technology and platform. It would be great if you could provide some color. And I have a follow-up.

Jeff Su — Director of Investor Relations

Okay. So, Mehdi wants to know for the first quarter, revenue by technology and revenue by platform.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Okay. Mehdi, in the first quarter, HPC, automotive, and IoT will increase sequentially, while smartphone will experience a milder seasonal decline compared to its recent seasonalities.

Jeff Su — Director of Investor Relations

And we do not provide a breakdown guidance of revenue by technology, Mehdi. Okay? So, do you have a second question?

Mehdi Hosseini — Susquehanna International Group, LLP — Analyst

Yes. Just a quick follow-up on capex. Does your $25 billion to $28 billion capex guide include investment for infrastructure in US?

Jeff Su — Director of Investor Relations

So, Mehdi’s question is, does our capex guidance this year include any investment for the US fab infrastructure?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Yes, it does. The US fab starts construction this year.

Jeff Su — Director of Investor Relations

Okay?

Mehdi Hosseini — Susquehanna International Group, LLP — Analyst

Can you elaborate how much of the capex is for US?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Not at this point, right.

Jeff Su — Director of Investor Relations

Okay. Thank you, Mehdi.

Mehdi Hosseini — Susquehanna International Group, LLP — Analyst

All right. Thank you.

Jeff Su — Director of Investor Relations

Thanks. Operator, let’s move on to the next caller.

Operator

Next one, Krish Sankar from Cowen and Company.

Krish Sankar — Cowen and Company — Analyst

Yeah. Hi, thanks for taking my question. I also had two on capex. Number one, pretty nice step up in capex this year from last year. Is it fair to assume your investment in EUV is also up this year relative to last year? And then I had a follow-up.

Jeff Su — Director of Investor Relations

Okay. So Krish’s first question is that, with our increase in capex guidance — that we guided for in 2021 versus 2020 being an increase, does that also mean an increase in the capex we spend on EUV?

Wendell Huang — Vice President, Finance and Chief Financial Officer

No, we do not disclose that details.

Krish Sankar — Cowen and Company — Analyst

Got it. And then as a follow-up, C.C., you mentioned that how capital intensity is going to be high all the way through 3-nanometer, but you also said long-term capital intensity should be in the mid-30s. So I’m just trying to square that by — what do you mean by long-term? Because it looks like if the 3-nanometer is still going to be high in the next few years, capital intensity might be higher than mid-30s. So at what point should we expect it to get to mid-30s?

Jeff Su — Director of Investor Relations

Okay. So Krish’s second question is in terms of capital intensity, with the capital intensity or capex per K at 3-nanometer being higher, and then we have the long-term capital intensity returning to mid-30s. He wants to know when will we return to mid-30s capital intensity level? Is that correct, Krish?

Krish Sankar — Cowen and Company — Analyst

Yes. Thank you, Jeff. Yes.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Yeah. We mean long-term meaning three to five years. I think 2010 to 2014 can be an example. During that period of time, the capital intensity rose from 38% to 50%, maintaining at high-40s for a couple of years and came down afterwards. Something like that should be a reference.

Jeff Su — Director of Investor Relations

Okay?

Krish Sankar — Cowen and Company — Analyst

Thank you.

Jeff Su — Director of Investor Relations

All right. Thanks, Krish. Operator, let’s move on to the next caller, please.

Operator

Next one, Gokul Hariharan, J.P. Morgan.

Gokul Hariharan — J.P. Morgan — Analyst

Yeah. Hi. Thanks for taking my follow-up question. One question on capex and depreciation. Do we — are we having to spend capex a little bit ahead of what we used to spend in past in the EUV era? Is that all — is that the function of having to spend maybe six to nine months ahead compared to, let’s say, in the immersion era? That’s one.

And how should we think about depreciation with this jump in capex? Wendell, could you give us a little bit of guidance in terms of how we should think about depreciation for this year and going ahead as well given the heightened level of capex?

Jeff Su — Director of Investor Relations

Okay. Gokul, let me summarize. Your first question is in terms of the capex. He wants to know that, are we — with capex, are we having to spend capex earlier now and is this because of EUV that we need to spend more capex earlier?

C.C. Wei — Chief Executive Officer

Well, let me answer the question. The answer is yes, because of there is a long lead time for the EUV tools. The tools are very complicated and the supply chain for the EUV takes long time to prepare for it. And as a result, TSMC also had to plan in advance. That’s longer than the normal tools we used to have.

Jeff Su — Director of Investor Relations

Okay. And then Gokul, second question is looking at with the higher capex, the depreciation outlook.

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right. For this year, Gokul, we expect the depreciation to increase by mid-20% to high-20% for 2021 over 2020.

Jeff Su — Director of Investor Relations

Okay, Gokul?

Gokul Hariharan — J.P. Morgan — Analyst

Okay. And maybe just add — yeah. So even with that, we are comfortable with the 50% structural gross margin?

Jeff Su — Director of Investor Relations

So, even with the higher growth in depreciation, Gokul is asking, are we still comfortable with the 50% gross margin?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Yeah. 50% gross margin as a long-term target we think it’s reasonable and achievable.

Gokul Hariharan — J.P. Morgan — Analyst

Thank you. Thank you.

Jeff Su — Director of Investor Relations

Okay? Operator, in the interest of time, I think we’ll take the last two callers. So, can we proceed with the next caller on the line?

Operator

Okay. The next caller is Randy Abrams, Credit Suisse.

Randy Abrams — Credit Suisse — Analyst

Okay. Yeah. Thank you. My first follow-up on US and China, your overseas sites. For the US site, you bought 1,100 acres. Do you have plans to build out a mega fab or potential to build out multi-phase of 20,000 wafers? And then for the China business for Huawei, where it’s down to single digits, how is your outlook for the China and also expansion of the China from 20,000?

Jeff Su — Director of Investor Relations

Okay. So, Randy, your first question is regards to capacity and fab expansion overseas. So, Randy is asking in the US, in Arizona, we target 20,000. Do we — will we continue to build it out into a mega fab-type of site? And he also wants to know in China, and I guess, you’re referring to Nanjing, do we have plans to further expand the capacity in Nanjing? Is that your question, correct, Randy?

Randy Abrams — Credit Suisse — Analyst

Yeah. That’s the question, just the outlook to rebound China just post-HiSilicon where it’s down to mid-single-digit contribution.

Mark Liu — Chairman

Yeah. This is Mark. Let me take your question. Yeah. We recently acquired a big piece of land in Phoenix, 1,100 acres. Definitely that was the long-term plan to have a mega-scale production sites. But currently our plan is only work on the Phase I production — I’m talking 2024 with 20,000 wafer per month. And we’ll — going forward we will see, according to the market condition and the cost economics provided by the government support to mend the cost differences to decide the next steps.

On China, yes, we do have plan to continue expand in China. But, of course, the business in China after leading-edge will — does have a reset, but we do expect the demand in China will continue and we will gradually, accordingly, increase our capacity in Nanjing.

Randy Abrams — Credit Suisse — Analyst

Okay. Okay, great. And my second question, if you could give — I think you gave first quarter, but the full-year growth for each of the platforms? And also for the back-end where you’re doubling capex, what’s leading that investment between the InFO, CoWoS, SoIC in growth outlook for back-end?

Jeff Su — Director of Investor Relations

Okay. So, Randy is asking about 2021 growth — first growth outlook by platform and then growth outlook by the back-end, and then, between the back-end InFO, CoWoS by segment.

C.C. Wei — Chief Executive Officer

Okay. Randy, for 2021 by platform, we think HPC and automotive growth will be higher than the corporate average growth. Smartphone and IoT will be similar to the corporate average growth in US dollar terms.

In terms of our back-end business, we expect it to grow slightly higher than the corporate in 2021. We do not disclose details within the back-end business.

Jeff Su — Director of Investor Relations

Okay?

Randy Abrams — Credit Suisse — Analyst

Okay. Thank a lot.

Jeff Su — Director of Investor Relations

All right. Thanks, Randy.

Randy Abrams — Credit Suisse — Analyst

Yeah. Thank you.

Jeff Su — Director of Investor Relations

Okay. Operator, can we move on to — in the interest of time the last caller then?

Operator

Okay. The next one we have Sebastian Hou from CLSA.

Sebastian Hou — CLSA — Analyst

Yeah. Thank you. I’m pretty lucky to be the last one and ask again. Thank you. Two follow-up. The first follow-up is, to follow on Mark’s comments that — I think Mark said that the Company has noted its 5-nanometer demand also stronger than you thought three months ago. So, any [Phonetic] value if you can give us more details about which applications are you seeing as stronger-than-expected demand?

C.C. Wei — Chief Executive Officer

High-performance computing.

Sebastian Hou — CLSA — Analyst

So for high-performance computing is the typical those — consumer electronics or is more typical HPC or blockchain-related?

C.C. Wei — Chief Executive Officer

Sorry, I didn’t hear the — we didn’t hear the last part, Sebastian. Your…

Sebastian Hou — CLSA — Analyst

Yeah. I’m sorry. I think that the — for the HPC part, is it more related to your existing customers or more related to the blockchain-related products?

Mark Liu — Chairman

Oh, let me just add a little bit color on this. High-performance computing as Wendell just said will be the major growth driver of our business. And this field is currently under exciting changes. The high-performance computing’s architectures, as you know, from different customers, everybody is striving to get the best performance with different architectures. So many, many — many more players is getting into this field. So, we see a stronger innovation is coming our way on N3, as well as on N5. Yeah.

Sebastian Hou — CLSA — Analyst

Okay. Okay. That’s great. Thank you.

Mark Liu — Chairman

It’s not on cryptocurrency, Sebastian. We don’t count on that, but we support that. Yeah.

Sebastian Hou — CLSA — Analyst

Okay. Yeah. That’s fair. And the second follow-up is for — to Wendell’s comment on that. I think this year’s — based on the guidance that we will see the capex intensity to go up to 50%. So, if we calculate — based on the revenue guidance, if we do some calculations, which means the free cash flow for this year could be — the growth will likely to be — will be pretty small or even flat, depends on how things go, but definitely not as strong as past few years. So, my question is that, is the Company still sticking to the dividend policy that 70% of free cash flow?

Jeff Su — Director of Investor Relations

Okay. So, Sebastian, your question is then in looking at the capex, looking at our revenue guidance, the capital intensity this year been about — around 50%, then the free cash flow growth may slow this year. So, what is the outlook for the dividend? Do we still use 70% of free cash flow as the cash dividend formula?

Wendell Huang — Vice President, Finance and Chief Financial Officer

Right. Sebastian, our dividend policy has two parts, 70% of free cash flow, but not to be lower than the previous periods. So we remain committed to a sustainable and steadily increasing cash dividend. During the periods of higher investment, the focus will be more on sustainable. And as we harvest the growth, the focus will be on steadily increasing.

Sebastian Hou — CLSA — Analyst

Okay. So thanks, Wendell. So, given that you’re paying the — investors getting the dividend in this quarter and — which is that earnings you made like three quarters earlier, so if we do the calculation simulation, which means that in the next 24 months the investor will probably still getting the TWD2.5 per quarter. Is that a fair calculation assumption?

Wendell Huang — Vice President, Finance and Chief Financial Officer

It’s at least, at least.

Jeff Su — Director of Investor Relations

Okay?

Sebastian Hou — CLSA — Analyst

Okay.

Jeff Su — Director of Investor Relations

All right. Thanks, Sebastian.

Sebastian Hou — CLSA — Analyst

Yeah, okay. Thank you.

Jeff Su — Director of Investor Relations

Okay. Thank you, everyone. This concludes our Q&A session. Before we conclude today’s conference, please be advised that the replay of the conference will be accessible within four hours from now. The transcript will become available 24 hours from now, both of which will be available through TSMC’s website at www.tsmc.com.

So, thank you for joining us today. We hope everyone continues to stay healthy and safe and we hope you join us again next quarter. Goodbye, and have a great day.

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

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