Taiwan Semiconductor Q1 beats expectations across the board! Net profit hits record high
台積電2026Q1業績直播
Key Takeaways (AI-Generated)
财务表现
- 第一季度营收359亿美元，环比增长6.4%，略高于指引
- 毛利率66.2%，环比增长3.9个百分点，主要受成本改善和高产能利用率推动
- 营业利润率58.1%，环比增长4.1个百分点
- 先进制程占晶圆营收74%，其中3纳米占25%，5纳米占36%
业务进展
- N2制程已于2025年第四季度进入量产，在新竹二厂和高雄厂成功爬坡
- 全球3纳米产能扩张：台湾新厂2027年上半年量产，亚利桑那第二厂2027年下半年量产
- A14制程开发顺利，采用第二代纳米片晶体管，预计2028年量产
- 计划关闭6英寸Fab 2和8英寸Fab 5，专注高价值特殊技术产能
下一季度业绩指引
- 第二季度营收指引390-402亿美元，环比增长10%，同比增长32%
- 毛利率指引65.5%-67.5%，中位数66.5%
- 2026年资本支出预计接近520-560亿美元区间高端
- 维持2026年全年营收增长超过30%的预期
机会
- AI从生成式AI向代理式AI转变，推动更多计算需求和先进芯片需求
- AI相关需求持续强劲，客户和云服务提供商给出积极展望
- 通过制造卓越提升晶圆产出，优化跨节点产能配置
- 与设备供应商密切合作加速产能建设
风险
- 中东局势带来宏观经济不确定性，化学品和气体价格可能上涨
- 面临Intel、Tesla等竞争对手的挑战
- 存储器价格上涨对消费和价格敏感市场造成影响
- 化学品和气体价格上涨可能影响盈利能力，但影响程度尚难量化
Full Transcript (AI-Generated)
Operator
大家午安，我是台积电法人关系处的苏志凯，欢迎您参加台积公司2026年第一季的法人说明会。由於本法说会是向全球投资人同时连线转播，所以我们会全程使用英文，请您见谅。
Jeff Su
Good afternoon, everyone, and welcome to TSMC's first quarter 2026 earnings conference call. This is Jeff Su, TSMC's Director of Investor Relations and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com or you can also download the earnings release materials.
If you're 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 first quarter 2026, followed by our guidance for the second quarter 2026.
Afterwards, Mr. Huang and TSMC's Chairman and CEO Doctor CC Wei will jointly provide the company's key messages. Then we will open the line for the Q&A session. 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 will cause actual results to differ materially from those contained in the forward-looking statements.
So 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 CFO, Mr. Wendell Huang for the summary of operations and the current quarter guidance.
Wendell Huang
Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the first quarter 2026. After that, I will provide the guidance for the second quarter 2026.
First quarter revenue increased 8.4% sequentially in NT, supported by strong demand for our leading edge process technologies. In U.S. dollar terms, revenue increased 6.4% sequentially to $35.9 billion, slightly ahead of our first quarter guidance.
Gross margin increased 3.9 percentage points sequentially to 66.2%, primarily due to cost improvement efforts, a high capacity utilization rate and a more favorable foreign exchange rate. Operating margin improved 4.1 percentage points sequentially to 58.1% due to operating leverage. Overall, our first quarter EPS was $2.2 NT and ROE was 40.5%.
Now let's move on to revenue by technology. 3 nanometer process technology contributed 25% of wafer revenue in the first quarter, while five nanometer and seven nanometer accounted for 36% and 13% respectively. Advanced technologies defined as 7 nanometer and below accounted for 74% of wafer revenue.
Moving on to revenue contribution by platform, HPC increased 20% quarter over quarter to account for 61% of our first quarter revenue. Smartphone decreased 11% to account for 26%, IoT increased 12% to account for 6%, Automotive decreased 7% and accounted for 4%, and DCE increased 28% to account for 1%.
Moving on to the balance sheet, we ended the first quarter with cash and marketable securities of $3.4 trillion NT or $106 billion U.S. dollars. On the liability side, current liabilities increased by $256 billion NT quarter over quarter, mainly due to the increase of $129 billion in accrual liabilities and others and the increase of $82 billion in accounts payable.
On financial ratios, accounts receivable turnover days was flat at 26 days. Days of inventory increased 6 days to 80 days, reflecting the ramp up of our two nanometer technology and strong demand for our three nanometer technology.
Regarding cash flow and CapEx, during the first quarter, we generated about $639 billion NT in cash from operations, spent $351 billion in CapEx and distributed $130 billion for second quarter 2025 cash dividend. Overall, our cash balance increased $268 billion NT to $3 trillion at the end of the quarter. In U.S. dollar terms, our first quarter capital expenditures total $11.1 billion.
I have finished my financial summary. Now let's turn to our current quarter guidance. Based on the current business outlook, we expect our second quarter revenue to be between $39.0 billion and $40.2 billion U.S. dollars, which represents a 10% sequential increase or a 32% year over year increase at the midpoint.
Based on the exchange rate assumption of one U.S. dollar to 31.7 NT, gross margin is expected to be between 65.5% and 67.5%, operating margin between 56.5% and 58.5%. Also in the second quarter, we will need to accrue the tax on the undistributed retained earnings. As a result, our second quarter tax rate will be around 20%. We continue to expect the full year tax rate to be between 17 and 18%.
This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our first quarter 2026 and second quarter 2026 profitability. Compared to fourth quarter, first quarter gross margin increased by 390 basis points sequentially to 66.2%, primarily due to cost improvement efforts, a higher overall capacity utilization rate and a more favorable foreign exchange rate.
Compared to our first quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 120 basis points, mainly due to a higher than expected overall capacity utilization rate and better cost improvement efforts.
We have just guided our second quarter gross margin to increase by 30 basis points to 66.5% at the midpoint, primarily driven by a higher overall utilization rate and continued cost improvement efforts including productivity gains, partially offset by dilution from our overseas fab.
Looking ahead to the second-half of the year, given the six factors that determine our profitability, there are a few puts and takes I would like to share. As we have said before, the initial ramp up of our two nanometer technology will start to dilute our gross margin in the second-half of this year and we expect between 2 and 3% dilution for the full year of 2026.
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.
In addition, given the recent situation in the Middle East, prices for certain chemicals and gases are likely to increase. Based on our current assessment, there may be impact to our profitability, but it is too early to quantify the impact.
On the other hand, we will 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. Also, N3 gross margin is expected to crossover to the corporate average in second-half 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor.
Next, let me talk about the materials and energy supply update. Given the recent situation in the Middle East, TSMC operates a well established enterprise risk management system to identify and assess all relevant risks and proactively implement risk mitigation strategies.
In terms of material supply, TSMC strategy is to continuously develop multi source supply solutions to build a well diversified global supplier base and to improve the local supply chain for specialty chemicals and gases including helium and hydrogen. We source from multiple suppliers in different regions and we have prepared safety stock inventory on hand.
We are also working closely with our suppliers to further strengthen the resiliency and sustainability of our supply chain. Thus, we do not expect any near term impact on our operations from material supply.
In terms of energy, TSMC work closely with Taipower and the Taiwan government to ensure a stable and sufficient energy supply. With the recent situation in the Middle East, the Taiwan government has announced it has secured sufficient LNG supply through at least May. The government has also said it is actively working on securing further LNG supply, diversifying sourcing to other regions and other power backup plans. Therefore, we do not expect any near term disruption or impact to our operations.
Finally, let me talk about our 2026 capital budget at TSMC. Higher level of capital expenditures is always correlated with 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 mega trends of 5G and HPC.
We now expect our 2026 capital budget to be towards the high end of our range of between $52 and $56 billion U.S. dollars as we continue to invest heavily to support our customers growth. Even as we invest for the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividend per share on both annual and quarterly basis.
Now let me turn the microphone over to CC.
CC Wei
Thank you, Wendell. Good afternoon everyone. First let me start with our near term demand outlook. We concluded our first quarter with revenue of U.S. dollars $35.9 billion, slightly above our guidance in U.S. dollar terms, driven by strong demand for our leading edge process technologies.
Moving into second quarter 2026, we expect our business to be supported by continued strong demand for our leading edge process technologies. Looking ahead, we are very mindful of the impact of rising component prices, especially in consumer and price sensitive market segments. In addition, the recent situation in the Middle East also brings further 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 shift from generative AI in the query mode to agentic AI in command and action mode is leading to another step up in the amount of tokens being consumed.
This is driving the need for more and more computation which supports the robust demand for leading edge silicon. Our customers and customers' customers who are mainly the cloud service providers continue to provide us with their very strong signals and positive outlook. Thus, our conviction in the multi year AI mega trend remains high and we believe the demand for semiconductors will continue to be very fundamentally supported by our robust technology differentiation and broader customer base.
We maintain strong confidence for our full year 2026 revenue to grow by above 30% in U.S. dollar terms.
Next, let me talk about our N2 capacity expansion plan. Our practice is to prioritize the land in Taiwan to support the first ramp of our newest node due to the need for tight integration with R&D operations. Today, our new node N2 has already entered high volume manufacturing in the fourth quarter of 2025 with good yield.
N2 is ramping successfully in multiple phases at both Shin 2 and Kaohsiung sites, supported by strong demand from both smartphone and HPC AI applications. With our strategy of continuously enhancing such as 2P and A16, we have spared our N2 family to be another large and long lasting node for TSMC.
Now let me talk about TSMC's global N3 expansion plan. Historically, we do not add additional capacity to a node once it reaches target capacity. However, as a foundry, our first responsibility is to provide our customers with the most advanced technologies and necessary capacity to unleash their innovations.
Based on our assessment to meet the strong demand in AI applications, we are stepping up our CapEx investment to increase our N3 capacity. Thus, we are now executing a global capacity plan to support the robust multi year pipeline of demand for three nanometer technologies which are used by smartphone, HPC AI including HPM based, automotive and IoT customers.
In Taiwan, we are adding a new 3 nanometer fab to our Gigafab cluster in Taiwan Science Park. Volume production is scheduled for the first half of 2027. In Arizona, our second fab will also utilize 3 nanometer technologies. Construction is already complete and volume production will begin in the second-half of 2027.
In Japan, we now plan to utilize 3 nanometer technology in our second fab and volume production is scheduled in 2028. 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 the N7, N5 and N3 nodes.
Thus, we are using multiple levers to do everything we can, wherever we can, however we can to maximize the support to all our customers across all platforms. Also, let me emphasize that while the capacity is tight, we do not pick and choose or play favorites among our customers.
Next, let me talk about our mature node strategies. TSMC's strategy is not changed. To build high value capacity for specialized technologies rather than just normal capacity. For example, we are increasing our mature node capacity for CMOS image sensor applications and ESMC in Germany for automotive and industrial applications.
Meanwhile, we have a plan to wind down our Fab 2 which is 6 inch fab and Fab 5 which is 8 inch fab. Focus on garden light choice and use available space to optimize the support for leading edge applications. Even without Fab 2 and Fab 5, we still have enough capacity to fully support our existing customers.
In summary, our strategy will be to continue to optimize our capacity. Capacity means we see mature nodes and focus on the higher value added and strategic segments while ensuring we have the necessary capacity to support our customers' growth.
Finally, let me talk about our A14 status featuring our second generation nanosheet transistor structure. A14 will deliver another full node stride from N2 with performance and power benefits across to address the insatiable need for high performance and energy efficient computing.
Here we expect 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. Our A14 technology development is on track and progressing well. We are observing a high level of customer interest and engagement from both smartphone and HPC applications. Volume production is scheduled for 2028.
Our A14 and A14 technology and its derivatives will further extend our technology leadership position and enable TSMC to capture the growth opportunities well into the future.
This concludes our key messages and thank you for your attention.
Jeff Su
Thank you CC. This concludes our prepared statements. Before we begin the question and answer 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 wish to raise your question in Chinese, I will translate it to English before our management answers your question.
For those of you on the call, if you would like to ask a question, please press the star, then one on your telephone keypad. If at any time you'd like to remove yourself from the questioning queue, please press *2. Now let's begin the Q&A session. Operator, can we proceed with the first participant on the line please?
Operator
Thank you. The first one to have a question is from Bank of America.
Haas Liu
Yes, good afternoon. Good afternoon, CC, Wendell and Jeff. Congratulations on the solid results and guidance and thanks for taking my questions. I would like to start with your 3 nanometer gross margins outlook. You just mentioned the node is going to cross the corporate average gross margin in second-half this year, which is now at mid 60 percentage levels.
And we understand the technology is in severe under supply backed by strong AI demand. And you already forecasted the capacity expansion through conversion and greenfield through 2028. Would you be able to discuss more in detail on what kind of applications are driving such strong business for you and convince you to extend more?
And the other thing on three nanometer as well is just the node started to ramp from fourth quarter 2022, which means some of your equipment will be fully depreciated by 2027. Should we expect the node margins to be trending even higher with very solid utilization and also pricing trend? Thank you.
Jeff Su
OK. So the first question from Haas Liu, Bank of America is 2 parts on three nanometer. First, CC described we are executing a plan for expanding 3 nanometer capacity. So he wants to understand what are the applications to drive such a strong multi year looking ahead pipeline of demand for three nanometer since it's already been around in volume production since late 22. That's the first part of his question.
CC Wei
Well, let me answer that. I think the application is simple. It's still the HPC AI applications. Does that answer your question?
Jeff Su
OK, yes, that is the first part. And the second part of this question is on the gross margin for three nanometer. His question is really what is the gross margin outlook for three nanometer? Will it crossover in the second-half of this year to what level? And then once it becomes fully depreciated, what happens to the margin?
Wendell Huang
OK, this is Wendell. We expect the N3 gross margin to reach and cross the corporate gross margin level in the second-half this year. And we don't have a number to share with you, but after the full depreciation as our previous nodes, the gross margins are generally very high.
Jeff Su
OK, Haas, that's I'll take that as 1.5 questions. So if you have a quick follow up for your second question.
Haas Liu
Yes, yes, thanks so much. And the other, I think just a 0.5 follow up is probably just on the CapEx. You revised up to the high end of your guidance for 52 to 56 billion U.S. dollars for this year compared to three months ago. What gives you the incremental confidence when you discuss with your customers and also customers' customers regarding the demand outlook to support your stronger or the upper half of your guidance for the CapEx this year?
Jeff Su
OK, thank you, Haas. So his second question is he notes that indeed we have this time guided to the high end of our CapEx range versus January. So what incrementally is driving this revision to the CapEx, what gives us the confidence to go to the high end of the 52 to 56 billion range? Thank you.
CC Wei
Well, again this is CC. Let me answer this question. A simple, a very simple answer is the demand are very robust especially from the HPC and AI applications. And also we try very hard to speed it up and pour in all the equipment as we can. Still, our supply is very tight, demand needs continue to increase and so we continue to work with our suppliers to speed it up and that's why we are toward the high end of our CapEx forecast.
Jeff Su
OK, Haas, does that answer your question?
Haas Liu
Yes, thank you so much. I'll be back in the queue.
Jeff Su
Sure, thank you. Operator, can we move on to the next participant please?
Operator
Next one to have question, Gokul Hariharan, JP Morgan.
Gokul Hariharan
Hi, good afternoon. And Jeff, my first question on your comments on demand, clearly demand is even better than what you predicted back in January and you've also raised the CapEx. Now all your customers seem to be telling everybody they can tell that chips remain the biggest constraint.
So given your expanded 3 nanometer capacity plan and faster CapEx, CC, what is your expectation that how long the supply constraint is likely to last? Do you have any visibility of when you can kind of bring some kind of balance here based on what you hear from customers and as a strategy, do you also plan to build out more clean room space because that seems to be a little bit of a constraint right now to bring on the capacity quickly, that's my first question.
Jeff Su
OK, Gokul. Please allow me to summarize your first question. So his questions directed for CC. He notes that the demand seems to be even stronger than our forecast in January. We have also raised the CapEx and customers continue to say they need more chip supply. So with our capacity plan, do we have a forecast or expectation of how long the constraint can last and do we have a strategy to build up clean room space first. Is that correct, Gokul?
Gokul Hariharan
That's right. Yes.
CC Wei
OK, Gokul, let me answer the question again. It's very simple because demand continues to be robust and the number continues to be increased and we double check with our customers, customers' customers or those CSPs, they give us a very positive outlook, right. And so we have to speed it up with our build up of clean room and buying the tools. And so we are working with construction and we are working with our equipment suppliers. And so we want to pull in forward forecasted schedule. That's a simple answer because AI is so strong.
Gokul Hariharan
Any read on when we can kind of meet these demands or you think the next couple of years we're still going to be very challenging to meet that supply is still going to be running below demand into 27 also?
Jeff Su
So Gokul would like to know when the supply can meet the demand. Do we have a forecast or a time frame?
CC Wei
Gokul, you know we are, it takes two to three years to build a new fab and with the current schedule. We believe that 27, but we are, I'll announce it anyway when we enter 27, but let me say that it takes time to build a new fab, it takes time to ramp it up. And so we expect continue to be very tight. So you know, so that's why we just announced that we try to build 3 new N3 fabs to meet the demand.
Gokul Hariharan
OK, that's very clear. My second question on competition, so everything have the traditional competitors, but one of your customers, Elon Musk also announced Tesla's fab initiative recently. What is TSMC's perspective on this initiative? They have also been a customer of yours and they recently signed a deal with Samsung a few months back. What is TSMC's response here now that they are also trying to kind of build chips on their own? How are you trying to win back with customer like Tesla? What is your perspective here?
Jeff Su
OK, So Gokul, second question is on competition. He notes that we have competition and then recently a competitor or he notes that this Tesla fab. So he wants to know what is our perspective on this initiative. This customer has also been a customer of TSMC, but has also signed a deal with one of our other competitors, Samsung. So Gokul would also like to know what is our perspective on the Tesla fab and what is our view on winning back this customer's business?
CC Wei
Well, Gokul actually both Intel and Tesla, TSMC is a customer so, but again, they are our competitors and we view Intel as a formidable competitor and do not underestimate them. But having said that there are no shortcuts. The fundamental rule of the foundry game never changes. They need technology leadership, manufacturing excellence and customer trust, and most of all the service which has been mentioned by Jensen.
Well, thank you for his wording. Again, let me say that it takes two to three years to build a new fab, no shortcuts. And it takes another one to two years to ramp it up again. That's a fundamental of foundry industry and whether we try to win them back actually they are still our customers and we are very confident in our technology position and we work very hard to capture every piece of business possible.
Gokul Hariharan
Gokul, did I answer your question?
Gokul Hariharan
OK, that is that's good here. So do you think your faster ramp up of capacity can kind of win some of these customers back because the reason seems to be mostly about capacity tightness rather than any other kind of big reasons, right, so. Is that is that your evaluation that this is probably the most important thing to win customers back?
Jeff Su
OK, so Gokul's final question is then in winning customers back, his concern is because our capacity is tight, is that the reason we're losing customers? And so can we win customers back?
CC Wei
Well, again, let me emphasize, it takes two to three years to build a new fab. So you know, in this time, we are also building a new fab to meet our customers' stronger demand, no shortcuts. So anyway, the capacity is very tight, as I said, but we're working hard to make sure that we can meet customers' demand.
Gokul Hariharan
Got it, thanks. No shortcuts. Got it.
Jeff Su
All right, thank you. Operator, can we move on to the next participant please?
Operator
Next one we have Charlie Chang from Morgan Stanley.
Charlie Chang
Hi, good afternoon, CC, Wendell and Jeff. Thanks for taking my question and also congratulations for a very, very strong result again. So I think I would also address the competition topic from a little bit different angle. As you can see that those AI customers that they are developing much larger reticle size chips and some customers are considering to use the EMIB because it's a kind of substrate based more suitable for circular larger size chip design.
So I'm not sure what the TSMC strategy to address this is a competition and more strategically is TSMC comfortable to open up your front end die to your competitors, for example, Intel to do the packaging? What's the process behind? Thank you.
Jeff Su
All right, Charlie, thank you. So Charlie's first question is also related to competition. He notes that you know, AI customers are seeking for larger and larger reticle sizes. So he wants to know what is our assessment of the competitive threat from solutions such as like EMIB and what's our strategy to address this competition? Will we be willing to open up our front end wafer and let someone else do the packaging basically?
CC Wei
Well, Charlie, you know today TSMC is supplying the largest reticle size packaging and yes, we understand that our competitors also offer very attractive technology, but we welcome that. So our customers can have more choices and then we can do more business with our customers. That's our attitude and that, but seeing that we don't leave any business on the table, we are working very hard to meet all our customers' demand.
We also are developing a very large reticle size packaging technologies and we are working with all the customers. So far so good.
Charlie Chang
Thanks, CC. So follow up on this. When you mentioned about larger reticle size, are you referring to CoWoS or cross L 3.5D? Do you think chip stacking can resolve this kind of planar expansion problem?
Jeff Su
So Charlie is asking follow up. So he wants us to comment on for larger reticle size. Is it CoWoS, is it panel level? What exact detailed solutions are we doing?
CC Wei
Charlie? So far today we have a very large reticle size CoWoS. Of course, we are also working on CoWoS and together we try to make sure that we give enough capacity to support our customers with reasonable cost. So that's why we build a CoWoS panel line right now and expect the production a couple years later.
But today the main, the main approach or the main supplier still a large size CoWoS and together with a system and wafer technology, we think TSMC give our customers the best options for their product in the market. So yeah, I would take, we don't need to worry too much about this the competition.
Charlie Chang
So my second question is actually about your long term CapEx plan. CC, as you said that it takes two or three years to build a new fab. So you definitely have that visibility, right? So enable beginning 2021 management also for about 3 year CapEx guidance, $100 billion US dollars given very strong demand. I'm not sure if the TSMC can provide a little bit longer term CapEx guidance because as you said those the equipment supply is also pretty tight. Yesterday ASML reported very, very strong results. So you said the EUV supply an issue and secondly with the management provide kind of kind of long term guidance to investors. Thank you.
Jeff Su
All right, Charlie, that's a lot of questions. But the second one then on CapEx and building capacity, again Charlie notes CC's comment capacity is not born overnight, it takes time. So he would like to know besides this year's CapEx, which we have already said at the high end, can we provide a guidance for the next three years CapEx like we did back in 2021 in terms of the dollar amount?
Wendell Huang
OK, Charlie, we don't have a number to share with you, but look at it this way. In the past three years, our total CapEx was $101 billion. This year we're already saying CapEx is towards the high end, which is $56 billion, which is already over 50% of the past three years in total. So we have a strong conviction in the AI megatrend. So we expect the CapEx in the next few years, in the next three years will be significantly higher than the past three years.
Jeff Su
And then the final part of Charlie's question, with such a long lead time, do we, are we concerned about tools, securing tools or bottlenecks and such?
CC Wei
Well, Charlie, we always TSMC's culture, we always work with our suppliers because we view them as our partners. So we continue to work with them especially for those ASML, Applied Materials and Lam Research etcetera. So, so far we are very happy that their support that all. I can hear you.
Charlie Chang
OK. Thank you, Wendell. Thank you.
Jeff Su
All right, thank you, Charlie. Operator, can we move on to the next participant please?
Operator
Next one, we have Sunny Lin from UBS.
Sunny Lin
Good afternoon. Thank you very much for taking my questions and congrats on the strong results. So my first question is again to follow up on CapEx. So if you look at from 2024 to 2026, so in this core AI cycle, TSMC have been able to keep capital intensity at healthy level of 30% plus given very strong leadership and operating leverage.
Other than the company doesn't really have a specific target on capital intensity. But for the coming few years, given the very strong revenue ramp of leading edge, how should we think about the revenue growth compare with CapEx growth? Should we think top line remains steady and therefore CapEx could grow in line or even below? What's the best, best way for us to think about it?
Jeff Su
OK, Sunny, thank you for your question. So please allow me to summarize. Sunny's first question is on, well, I think CapEx and really capital intensity. She notes in the past few years we've been able to keep capital intensity around the 30 plus, you know 30 something percent level. She notes that we don't have a specific capital intensity target per se, but her specific question looking ahead the next several years, how do we see revenue growth versus CapEx growth? Is it likely to be higher, flat, lower and therefore, what type of intensity does that imply? Is that correct, Sunny?
Sunny Lin
Yeah, Thank you very much, Jeff.
Wendell Huang
OK, Sunny. So in the past few years, as you correctly pointed out, the revenue growth outpaced the CapEx growth. That's because we if we do our job right then we will continue to see that happen in the next several years. The revenue growth outpaced the CapEx growth. Therefore, we do not expect in the next several years a sudden surge in capital intensity.
Sunny Lin
I see maybe a very quick follow up. A lot of questions on competitions already. But also from competition point of view, even a very tight supply actually as I decide in recent years would definitely actually consider maybe spending CapEx a bit more so that clients will need to diversify given a tight supply.
Jeff Su
All right. So Sunny's 1.5 question is, will in terms of the CapEx, will we consider accelerating or spending more given the competitive threat from the competitors? If there's not enough capacity, then our customers will go to competitors. That's your question, correct?
Sunny Lin
Yeah, thank you, Jeff.
CC Wei
Well, Sunny, we repeatedly saying that we prepare the capacity to meet customers' demand, not because of our competitors or not because of our other consideration. The most important one is our customers' demand and they work with TSMC and so that we plan our capacity and so our capital expense.
Sunny Lin
Sunny, did I answer your question?
Sunny Lin
Yeah, yeah, very clear. Thank you. So maybe my 0.5 question. And so if we look at the share earlier, you just guided the higher the 30% growth for top line, but indeed, there's ongoing supply tightness. And so for 2026, how much upside could you realize for top line? And at this point, have you started to see some impact of consumer and demand and therefore on your demand coming from smartphone and PC?
Jeff Su
OK. So Sunny's second question is regarding 2026 full year outlook. She notes now that we have increased the guidance to above 30%, how much more upside can there be or maybe the first part also, how much how do we see the impact from the memory price hike to the end market and how do we see with above 30%, is there more upside?
CC Wei
Well, Sunny memory price hike definitely has some impact to price sensitive end market especially in PC and smartphone market. But we did see a little bit softer market. But to share with you all the high end smartphone continue to do better and this is to TSMC's advantage and as you asking about how much higher than you know above 30% year over year. Of course, we will share with you in July. How about that? Do I have a more accurate or a more precise number to share with everybody?
Sunny Lin
No problem. Thank you very much, CC.
Jeff Su
OK, thank you, Sunny. Operator, can we move on to the next participant on the line?
Operator
Yes, next one, Jim Fontanelli.
Jim Fontanelli
Yeah, Thank you. Thanks for taking the question. So my first question is, is to do with with demand. So, so you commented earlier in the call that you know demand continues to outstrip supply for leading edge capacity and and obviously you've just delivered a very strong print and guide for gross margins. So against this backdrop, how the management thinking changed about the the sustainable margin structure and and what appropriate longer term returns might be for the business?
Jeff Su
OK. So Jim's first question is looking asking on the margin structure. He notes as we said that demand continues to be extremely robust and very strong. So how does this change? I think your question is our margin, our view on the long term margin profile and the return profile, is that correct?
Jim Fontanelli
That's correct.
Wendell Huang
OK, Jim, as we said in the last earnings call, we've revised up our long term margin targets and ROE targets from 2024 to 2029. We're now saying the gross margins will be 56% and higher through the cycle and we're looking at ROE of a high 20% through the cycle. That's what we're currently looking at. That's already higher than before.
Jim Fontanelli
Thank you. And and that thinking is, is not changing against the backdrop where other parts of the AI supply chain are clearly starting to print super normal returns that doesn't impact how you think about margin structure for the next two or three years.
Wendell Huang
Yeah, Jim, this is a the long term planning is an ongoing and continuous process. So we do that all the time and we will update you when there is a change.
Jim Fontanelli
OK, thank you. And my second question is it, it looks like the Arizona site is becoming more strategic in terms of leading edge commitment for TSMC. You know particularly with the recently added certain parcel of land. Could you you talk about how you see mid to long term capacity opportunity and also how confident you are that the US fab economics will match Taiwan produced leases?
Jeff Su
OK. So Jim, second question is on our Arizona fab expansion plans. He notes that it is becoming more and more strategic. We have recently as we said acquired a second large piece of land. So what is the plan or the purpose behind this and then what is the profitability of margin outlook as well?
CC Wei
Well, Jim, let me answer the question. We acquired the second land because we need it. We want to build more fabs in Arizona and this is actually to meet the multi year demand from our leading edge US customers. And again let me emphasize again that we are working very hard to speed it up. We already gained a lot of experience in Arizona and so now we have much more confidence than last year that we can make it a good progress and moving aggressively forward and with we expect we can improve the cost structure of course.
Jim Fontanelli
OK, Jim, thank you.
Jeff Su
All right, thank you. Operator, can we move on to the next participant please?
Operator
Next one, Bruce Lu from Goldman Sachs.
Bruce Lu
Thank you for taking my question. I think I want to follow up on Jim's question for the profitability. I think earlier last year when I asked why TSMC did not raise the profitability target when TSMC continued to solve the value, I think CC told me that to focus on the, you know, the birth version of 53% and above. I think last quarter, you know, we raised to 56% and above.
So the question is that do you believe the current profitability fully reflect value? So I'm guessing you might be, you know, ask me to focus on the higher portion of the profitability target again. So the real question is that given the uniqueness of the dominant position for TSMC, it's not easy to find the perfect benchmark for TSMC profitability. So can you how we should think the profitability benchmark for TSMC or what is the best way to see TSMC value should be reflect fully reflected into the gross margin and operating margins?
Jeff Su
OK. Bruce, his first question is what property he wants to know what profitability benchmark he should be looking at and whether we believe our current profitability level fully reflects TSMC's true value.
CC Wei
Bruce? Actually, you ask about our pricing strategy. Let me say that we always view our customers as our partners. Of course we know that our value, of course we know our position, but we also view that our partners as a very important business partners so that we don't we don't change our pricing dramatically or something like that. We just try to make sure that our customers can be successful in their market.
And at the same time, we grow together and we also earn our value so that we can continue to expand our capacity to support them. That fundamentally is number one. Our customers got to be successful. That's our consideration #1 and we grow together. And again there is a keyword, please pay attention to customers is our partners, OK.
Bruce Lu
So if your company continue to be successful, maybe in couple of quarters we can feed the, you know higher profit to be a target again. Bruce, what's your second question?
Bruce Lu
OK. My second question is that management has been guiding the AI accelerator revenue to grow, but like mid to high 50s CAGRs in 2024 and 29. So how does TSMC plan and forecast AI related demand? I mean, does TSMC incorporate metrics such as token consumption growth in your assumption because you know the recent token consumption in the first quarter is definitely accelerated and faster than earlier expectation that even changes for the accelerator revenue growth in the in the coming years.
Jeff Su
OK. So Bruce's second question is on our AI accelerator long term CAGR guidance, which yes, we have guided mid to high 50s he notes with the strong token growth and demand for tokens. Do we have any changes to this long term guidance,
CC Wei
Bruce? Actually I see what I say now that it's a very strong demand and we continue to receive the very positive signal from our customers and customers' customers. And So what do you say is whether we change our figure on the AI accelerator, it's actually we continue to see strong demand. But again, let me say that is toward higher 30s of our CAGR that we observe.
Bruce Lu
OK, thank you, CC
Jeff Su
Thank you, Bruce. Operator, can we move on to the next caller please?
Operator
Next one to ask question, Laura Chen from Citi.
Laura Chen
Oh, hi, good afternoon CC, Wendell. And Jeff, may I take more details on TSMC strategy in advanced packaging and what will be the business model working with your OSAT partners? We see that they are various different solutions provided by your peers and also the OSAT makers. The TSMC is also expanding more in the advanced packaging. So how would TSMC work with your customers planning on their advanced node wafer demand but also aligned with their advanced packaging demand at TSMC?
Jeff Su
OK, So thank you, Laura. Laura's first question is on our advanced packaging. She would like to know we work with customers, collaborate with customers to plan our front end wafer capacity. How do we work with the customers to plan the advanced packaging capacity? Is what she would like to understand and also in the context of working with our OSAT partners on the advanced packaging businesses.
CC Wei
Well, Laura, our priority actually again is to support our customers, right. And whenever we can or wherever we can, we want to make sure that their product can be their demand of their product can be met by TSMC's wafer and high packaging so we. Certainly let me say that our advanced packaging capacity is very tight also. So we have to work with our OSAT partners. We hope that we can increase the capacity to support our customers. That's a, again, let me emphasize again, we support our customers. So, so we try very hard to increase our own capacity also, but certainly it's just I have been very tight. And so that's what our situation today.
Laura Chen
Sure, sure understood. My, my second question is also about advanced packaging. As CC highlighted before many times that AI chips are growing into a super chips with a very large die size and TSMC now working at the biggest reticle in the world. But at the same time, there's a potential technical challenges such as warpage. So do you think that the following road map like SOIC or like CoWoS can solve this kind of technical issue? And based on TSMC's technology road map, do we see any like technology like SOIC or CoWoS will be a bigger round in couple years can solve this problem?
Jeff Su
OK. So Laura, second question is also related to advanced packaging. AI and larger reticle sizes pose potential technical challenges such as warpage. So she would like to know how do we see SOIC or panel level packaging? What's the key to solving these issues and what is it outlook in the next several years?
CC Wei
Well, Laura, you're good. Actually. That's all the challenges that we have in advanced packaging technology, mechanical stress, which is a very tough challenge to the electrical engineering like I am. However, we accumulated a lot of experience already today because we have supplied most of the leading edge or and in packaging area and we continue to increase the die size and continue to meet all those challenges from the mechanical stress like you said actually is a warpage or the thermal limitation.
A good challenge and we like here. The harder the better because of TSMC's strength in technical engineering and we have a confidence that we can work with our customers to solve all the issues and continue the roadmap.
Laura Chen
So, so should we expect that SOIC, TSMC may introduce that earlier than to solve this kind of a challenge? Because we already have the learning curve and already have the products in production. So that should be go faster than other technologies. I suggest
Jeff Su
again the sorry, so Laura's question is very specific. I don't even yeah, on SOIC, what is, how do we see that developing, I guess,
CC Wei
Well, we work with our customers and we meet their demand and that's all I can tell you.
Laura Chen
Spirit of was wrote down. No, no, no, no, no. We work with our customers. To meet their demand.
Jeff Su
OK, Laura, thank you.
Laura Chen
Very clear. Yes, Sir. Thank you.
Jeff Su
Operator, in the interest of time, can we take the questions from the last participant, please?
Operator
Next one to ask question, Charles Shi from Needham.
Charles Shi
Hi, thanks for taking my question. TSMC's definition of AI. Revenue includes ASICs and the GPU accelerator HPM based on. Maybe I left out a few others, but it does specifically excludes data and the CPU I think. You made that the definition very clear for a couple of years now, but with the CPU, there's more and more conversation about CPU now becoming part of the AI.
Infrastructure, especially for agentic workloads. Any chance for TSMC to maybe provide us a revised numbers for AI revenue and the major AI revenue growth? Take the projection going into 2029, 2030. And maybe hopefully give us some sense about the historical AI webbing numbers would would have been from some of the data kind of CPU numbers especially for. AI workloads are included there. That's my first question.
Jeff Su
OK, thank you, Charles. So Charles, first question please let me summarize is regarding our definition of AI accelerator, which is of course we have said GPU, ASIC and HPM controllers for training inference in the data center. He notes now with agentic AI, he wants to know will we start to include CPU's in this definition? If so, can we provide the historical data with CPU included? And what would be the AI accelerator guidance be if it includes CPU
CC Wei
Charles? Certainly CPU is because more and more important in today's AI data center. But actually, let me share with you. This is a good question, by the way, but let me share with you that we are not. We're not able to identify which CPU goes to where, right? It's a PC or desktop or is AI data center. So today we still not include the CPUs in our AI HPC calculation. Someday later we might consider.
Jeff Su
OK. Charles, do you have a second question?
Charles Shi
Yes, maybe it's kind of also tied to the recent development in overall AI infrastructure, how things have been evolving. So NVIDIA, of course, they recently added more CPU content to the overall very Ruben Superpod. But but I think that that most people are focusing on that brand new LPU. They recently added, we understand, appreciate that the TSMC very strong in CPU and will definitely participate in that upside in CPU.
But the, the LPU business, the acquire business, well it for historical reasons, it's still at your competitor's Samsung Foundry. And I think investors are looking at that and the theme that maybe look looks like Samsung Foundry finally made the 1st 2 inroads into AI. So any thoughts from TSMC side, how should we think about whether and how TSMC will win back that LPU business or any future difference to business coming from your customers? And yeah, they give us some thoughts there. We, we, we appreciate that. Thank you.
Jeff Su
OK. Charles, second question is a very specific question about a very specific customer and very specific product which is we typically do not comment on, but he wants to know for this customer's LPU product which he notes is made at one of our competitors, how do we see this business going to the competitor? You know, do we have plans to win this LPU business back in the future?
CC Wei
Charles, I think Jeff already give me a number 1. He said very specific and very specific customer, very specific area. Now let me answer your question. We are working with our customers for their next generation inside your LPU anyway and we are very confident in our technology position and we will work hard to capture every piece of business possible. How about that?
Charles Shi
Very good. Thank you, CC, That's very good color. Thank you. Appreciate that.
Jeff Su
OK, Thank you, Charles. Thank you, CC. Thank you, Wendell. This concludes our prepared statements. Oh, sorry, I should say this concludes our Q&A session. Before we can conclude today's conference. Please be advised that the replay of the conference will be accessible within 30 minutes from now and the transcript will become available 24 hours from now. Both are going to be available through TSMC's website at www.tsmc.com.
So again, thank you everyone for taking the time to join us today. We hope you continue to stay well and we'll hope you join us again next quarter. Goodbye and have a good day.
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