Taiwan Semiconductor Manufacturing Company Ltd.

Good afternoon, everyone, and welcome to TSMC's fourth quarter 2020 earnings conference call. This is Jeff Hsu, 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. Cici 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 CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.

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 U.S. 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 2.6 billion NT. Therefore, operating margins increased by 1.4 percentage points, sequentially to 43.5%. Overall, our fourth quarter EPS was 5.51 NT, 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 envelope, accounted for 60% 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 Alto 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 $791 billion NT. On the liability side, current liabilities increased by $29 billion NT. mainly due to the increase of $57 billion in accounts payable and the increase of $38 billion in accrual liabilities and others, offset by the decrease of $69 billion in short-term loan. Long-term interest-bearing debt increased by $28 billion NT, mainly as we raised $30.5 billion of corporate bonds during the quarter. On financial ratios, Accounts receivable turnover days decreased one 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 in CAPEX. During the fourth quarter, we generated about $259 billion NT in cash from operations, spent $89 billion in CAPEX and distributed $65 billion for first quarter 20 cash dividend. Short-term loans decreased by $67 billion, while bonds payable increased by $30.5 billion due to the bond issuances. Overall, our cash balance increased $56 billion to $660 billion at the end of the quarter. In U.S. dollar terms, Our fourth quarter capital expenditures total $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 U.S. dollar terms, and 25.2% in NT dollar terms to reach 1.34 trillion NT. 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 19.97 NT. On cash flow, we spent 507 billion NT in CAPEX while we generated 823 billion in operating cash flow and 315 billion in free cash flow. We also paid 259 billion NT 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 U.S. dollars, which represents a 1.3 percent sequential increase at the midpoint. Based on the exchange rate assumption of 1 U.S. dollar to 27.95 NT, 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 US dollars 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 and 28 billion US dollars. Out of the 25 to 28 billion KPACs 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 ranged between 38% to 50%. Because of the increased investment, we were able to capture the growth opportunities and deliver about 15% growth category from 2010 to 2015. Today, as we enter another period of higher growth, We believe a higher level of capital intensity is appropriate to capture the future growth opportunities. We now expect a higher growth category in the next few years, driven by the industry megatrends of 5G and HPC-related applications, which CC 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 nodes' capital costs continue 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 improvements. With this level of CAPEX spending in 2021, we reiterate that TSNC remains committed to a sustainable cash dividends on both an annual and quarterly basis. Now let me turn the microphone over to CC.

Thank you, Wendell. Hi, everyone. This is CC 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 NT $361.5 billion, or U.S. dollar $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 cores, was about 10%, while foundry industry increased about 20% year-over-year. TSMC's revenue grew 31.4% year-over-year in U.S. dollar term. Moving into fourth quarter 2021, our business continues to be strong, supported by HPC-related demand, recovery in the automotive segment, and a milder smartphone seasonality than in recent years. On the inventory front, our fabulous customers' overall inventory was digested throughout the fourth quarter. We now expect it to approach the historical season exceeding 2020, better than our forecast three months ago. We observe that the supply chain are changing their approaches to inventory management amidst lingering macro uncertainties. Looking ahead, we expect the supply chain and our customers to prepare a higher level of inventory compared to the historical season level for a longer period of time given the industries that continue the 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 automotive supply chain was affected throughout the year, and our customers continue to decrease their demand in the third quarter. We only begin to see sudden recovery in the fourth quarter. However, the automotive supply chain is long and complex, while many of our technology nodes has been tied 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 customers to resolve the capacity support issues. 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 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 smartphones 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 smartphones benefit from the significant performance, bandwidth, and latency improvement of 5G networks 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% caker from 2020 to 2025 in U.S. dollar terms. Now I will talk about the N3 status. N3 will be another four-node stride form of N5 with up to 70% logic density gain, up to 15% performance gain, and up to 30% power reduction as compared with 5 nanometer. N3 technology will use FinFET transistor structure to deliver the best technology maturity, performance, and cost for our customers. 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 the similar stage. Reproduction is scheduled in 2021. and volume production is targeting second half of 2022. Our three nanometer technology will be the most advanced foundry technology in both PPA and transistor technology when it is introduced. Thus, we are confident our three nanometer will be another large and long lasting node for TSMC. Finally, I will talk about TSMC 3D fabric. TSMC has developed an industry-leading and comprehensive wave-level 3D IC technology roadmap to enhance system-level performance. Our differentiated chiplet and heterogeneous integration technology drive better power efficiency and smaller form factor benefit for our customers who are shortening their time to market. These technologies include chip-staking solutions such as SOIC, as well as advanced packaging solutions such as Info and Coworks. We observe chiplets are becoming an industry trend. We are working with several customers on 3D Fabric to enable chiplet architecture. SOIC small 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 both R1 packaging and testing, to grow at a rate higher than corporate average in the next few years. This concludes our key message. Thank you for your attention.

Thank you, CC. 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 wish to raise your question in Chinese, I will translate into 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 0, then 1 on your telephone keypad now. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press 02. Now, let's begin the Q&A session. Operator, please proceed with the first caller on the line.

Yes, the first one to ask question, Goku Harihalan from JP Morgan.

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 past few 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 your application coming in. Given the big capex plan that you're also applying, 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, CPU, obviously, which is something on everybody's mind. Could you talk a little bit about how TSMC would be exposed to this market as well as we go into the pre-monitor era?

Okay, go cool. Sorry, this is Jeff. Let me please summarize your questions, two questions. We'll take them one by one. Goku'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 Goku 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?

Yes, yes, so he can bring the setup and gap back as well. Thank you.

Well, Goku, let me answer your question by saying that we do expect the 3 nanometer WAPI 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 WAPI eager, certainly. There's no doubt about it. So what is the next question?

And then, Goku, I think the second part of your question is looking at what are our opportunities in high-performance computing. Goku 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.

We don't specifically name one of our HPC applications such as a CPU to say that what is the course rate. But let me tell you that CPU networking and AI accelerator will be the main course area in the HPC applications. Did that answer your question?

Could you be a little bit more specific on x86? I mean, you've already had good success in 7 nanometers in creating the x86 market. Should we think that the x86 market share continues to move up a lot as we get into 3 nanometers?

Okay. So, Gokul, I guess your question is really on the x86 and looking at, you know, 7 nanometers done well as we get into 3 nanometer, will our exposure change?

uh... to x eighty-six continue to increase again we don't know if they see if you could come in and uh... very specific area uh... we walk with our customer continuously and to uh... supply the brewery good technology to support your piece okay thank you i'll go back to you all right thank you cool cool operator can we move on to the next uh...

person on the line, please.

Next one to ask question, Randy Abrams, Quetus Waste.

Okay, yes, thank you. I have two questions to ask. First, 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 within 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 8S?

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?

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

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?

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

Okay, great. And my second question, it's often two parts. I just want to ask on gross margin and inventory. The gross margins, you've improved four points year over year. Part of that utilization, but depreciation also was up 45%. NT dollar moved against you six 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 just want to ask a quick on inventory. With it up 15 days, historically you draw down with it the fourth quarter, but maybe the trend-wide inventory was rising into early in the year.

Okay, Randy, let me summarize your questions in 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?

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.

Okay. I was looking Q4 to Q4. I think just the fourth quarter over fourth quarter.

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 profitability. The ramp of leading-edge technology, price, cost, mix, utilization, and for-exchange rate. Take foreign exchange rate, for example. In 2020, the average dollar against NT rate was 29.43. It is now trading between 27.90 to 28. That is already a 5% appreciation of NT. So every 1% of appreciation of NT will affect our gross margin by 40 basis points. 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 it is still at a very high level. Now, every point of utilization rate change will impact the gross margin by 40 basis points. A third example will be the ramp in our leading edge technologies. We mentioned last time that we expect M5 ramp in 2021 to affect our margins by two to three 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.

And then Randy had also asked about our days of inventory increasing in fourth quarter.

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

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

Next one, we have Sebastian Ho from CLSA.

Hi. Thanks, gentlemen, for taking my questions. Happy New Year. First question is I want to follow up on the gross margin side. So if I look back in the past two quarters, your gross margin actual result turned out to be either at a high end or at a 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 appreciate it, second half of last year's, so which means that the margin turns out to be better than what you originally guided for two quarters consecutively. So my question is whether or not the 1Q outlook margin is too conservative again, and second to that is whether our structural probability will need to revise up just as our five-year revenue growth category has just been revised up officially. Thank you.

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's question is first, you know, 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?

Okay, Sebastian, if we compared fourth quarter to first quarter, 54% in fourth quarter, and the midterm of our guidance for first quarter is 51.5%. The 2.5 percentage point difference actually mainly comes from the utilization as well as the unfavorable foreign exchange rates. So at this moment, we're 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 world profitability in the long term.

Okay, Sebastian, do you have a second question?

Yes, I do. Thanks, Jeff, and thanks, Wendell. My second question is on your CapEx outlook. Apparently that's an upside surprise to me, and I think also to the consensus estimate. So the last time I've seen the income, they raised the CapEx from $10 billion to $12 billion level to the $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 that CAPEX will invest for the future growth. So whether or not it's another step of the CAPEX to 25 to 30 billion this year will represent an acceleration of the growth in 2022 or 3. Thank you.

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

Okay, Sebastian, it's too early to talk about specifically about 2022. But as CC 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 underpinned by the multi-year megatrends in the industry.

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

Okay. Thank you. Thank you, Sebastian.

Thank you.

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

Next one, we have Bruce Liu from Goldman Sachs.

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 indicators from 5% to 10% to 10% to 15%. can you tell us that you know what in terms of this kind of incremental changes how much the growth is coming from hpc and you know what are the other drivers for that and in terms of like smartphone growth i mean the 5g penetration is already like 30 something percent in 2021 moving forward how much growth for for you is coming from the dollar content growth or the human growth or you know can you can you provide more colors on the growth

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?

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?

Yes, thank you. Thank you. Okay, my next question is I want to ask about the structural profitability. I understand that, you know, all these six factors for the profitability, but that's based on the assumption that structural profitability may not change. So do we consider to move up the structural profitability because of the current structural growth for the company of a legacy technology node.

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, would we consider to move up the structural profitability target?

Yes. 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 just used an example in foreign exchange rate utilization and also the ramp of leading-edge notes. And for example, THE LEADING EDGE TECHNOLOGY IS THE COMPLEXITIES INCREASES, THE CAP EX PER K IS 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 WAIVER 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.

Okay. 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.

There are six factors, so you add all of them together. I understand. Yeah.

I understand.

Thank you.

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

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

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 this time, you almost double your, you know, capex level. Does it mean that there's a significant upside of the Intel CPU outsourcing? This is the first question. Thanks.

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.

Well, Charlie, let me answer the question. In fact, we don't comment on specific customer or specific area. Our KPS guidance is based on the current long-term demand profile underpinned by the industries of megatrends.

Okay, Charlie? Yeah. Do you have a second question?

Yes, I do. So just some feedback to CC. I think, you know, we all understand the Megatrend 5G and the 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 groups. But my next question, I think it should be more related to your because I think your existing customer, Intel, two days ago, they also commented about don't rule out the possibility of a licensed or foundry process. And actually, you know, 20 years ago, back in 2000, I think you also licensed the largest SEMI process to national SEMI. So I'm not sure if TSMC, after 20 years, do you still kind of consider this kind of option, meaning license your foundry process to your IDM customer, or even consider some option like a joint venture for the FAB operation with your IDM customer? Thanks.

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

Okay, okay. Gotcha. So I will be back to the queue. I have some follow-up things.

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

Next to ask a question, Brett Simpson from Arate Research.

Thanks very much. A question 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 typical seasonality this year? And then In terms of the capex guide for this year, obviously there's 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 will be higher than 2021? Thank you.

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, you know, second half will we see the typical seasonality, first half, second half split? That's his first question.

Yeah, from what we can see, no, second half is still higher than the first half.

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?

Brett, as I said, it's a bit too early to discuss 2022 in details. But Cici just mentioned, over the next five years, we're looking at a 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're looking at multiple years of growth opportunities.

Okay. And maybe just one for Cici 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 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 about 175 million transistors per mil squared 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.

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 squared. 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?

Well, as I said in my statement, that N3... still provide seventy percent of the not to get into the game in addition to all the problems can be and the power reductions quitter dot so edified nanometer you've got a one hundred fifty-five uh... meeting transistor per millimeter square that what depends on the you know what the number of you can see i think that what you can not customers at the time continue to say that uh... we offered to think that it because of uh... technology maturity the performance and the cost uh... the best accommodation uh... forty s m c to uh... so our customer thank you brett uh... operator thank you operator can we move on to the next uh... caller please next one we have roland she from city group

Hi, good afternoon. Congratulations on a very good result. My first question is also for the cap expanding, and there are two parts of my question. So with this sharply increased cap expanding, 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, It means that you have spent ahead in capex in EUV because the lower productivity for EUV when you first rent 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.

Okay, Roland. We'll 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?

Roland, signing a contract to guarantee the loading in the future is not a our common practice. We always work with our customer and continuous 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?

Okay, yeah, I take it.

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

Yes, exactly. Exactly. Thank you.

Well, let me answer that. We continue to improve the U visa productivity because we are working closely with suppliers. And so far, 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.

Okay. Okay. So it means going forward, even if you have higher EV productivity, the capital intensity probably will be still high next year or maybe in the near future.

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

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 the KPEC intensity coming from this technology advancement. Of course, EUV is a part of it, but it's not the only one reason.

Okay. Okay. Thank you. My second question.

Ronan, 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 to choose. Thank you. All right, operator, let's move on to the next caller on the line, please.

Yeah, the next one we have, Sonny Lin from PS.

Hi, good afternoon. Thank you for taking my question. 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.

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?

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

Sunny, do you have a second question?

Right. So just a very quick follow-up to my first question. I wonder if CCE will be able to provide any color regarding the ramp for three nanometers for second half of next year. Thank you very much.

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

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

Okay, so Sunny's second question is on the 2021 overall growth margin. With the 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?

SONNY, THE DEPRECIATION IN 2021 IS EXPECTED TO BE BETWEEN MID TO HIGH 20% HIGHER THAN 2020. AND THE IMPACT TO GROSS MARGINS, WELL, IT'S TOO EARLY TO TALK ABOUT THE REMAINING QUARTERS OF THE 2021, BUT AS A GENERAL feeling, you look at the capacity utilization that I just mentioned for exchange rate unfavorable and also the M5 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. Okay?

Got it. Thank you very much. Very helpful.

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

Right now we're having Lord Chang from KGI. Go ahead, please.

Hi. Thank you for taking my question, and congratulations for the good result and outlook. I also have the question about the CAPEX and the growth margin trend. I think given your strong position in the most advanced technology in an extremely high 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 will have probably more than 10 percent revenue? for the first year mass production? Can we expect that to happen? And also, on the growth margin side, given there might be some sweep factor of your major IDM clients for all sorts of opportunity, how would you management the iteration rate, which may impact your growth margin substantially? That's my first question. Thanks.

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 on major clients. Laura wants to know, 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?

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

Okay, got it. Thanks. And also, probably the factor of the iteration rate that may impact the growth margin potentially, and particularly for advanced nodes. how should we look at the trend, how you imagine that?

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's swings in utilization, how would we manage that and how would that impact the gross margins? Is that correct, Laura?

Yes, thank you. Laura, we don't comment on specific customers or business outlook. 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.

And as Wendell – yeah. 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, HPC also jumped on the wagons. And therefore, forward-looking, we see the traditional seasonality can be moderated with multiple big customers with multiple market segments. So that's our confidence. The other confidence is our CAPEX includes three nanometers, also five nanometers. Our five nanometers is also very strong, stronger than we expected three months ago. So those two combine to give us the confidence to increase our CAPEX.

Okay, Laura? That's very helpful. Yes, thank you very much. That's very helpful.

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

Next one we have Robert Sanders from Deutsche Bank.

Yeah, hi. I 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 out are you essentially booked out at some of these nodes And do you think there's wafer upside to wafer pricing at these nodes? Thank you.

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, 90 nanometer, 0.13, how short it is and how long it will last?

Robert? Most of the shortage actually is in the mature node. is not in the three, not in the five or seven nanometer per se, but in all the mature nodes, especially in point 1D micron in 40 nanometer and 55 nanometer in those area.

Okay.

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

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?

Well, actually, we are working with customers closely and moving some of the mature nodes to more advanced nodes 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.

Okay? Thanks a lot. Thank you. Operator, let's move on to the next caller, please.

Next one, we have Rick Shi from Daiwa Securities.

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 uncertainty such as COVID-19. So I wonder, if your customer would still be happy living with a high inventory than the normal historical pattern if the virus, if COVID-19 is contained? So this is my first question.

Okay, thank you, Rick. So your question is, are, you know, the higher level of inventory that we're seeing partly is attributable to COVID-19. What if COVID-19 is no longer, you know, everyone has vaccine and it's no longer an issue? Will this continue?

Well, yeah, first they say that we really hope that the vaccine will work. But even if it is working, it takes time. And then also our customers still, 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 supply.

anything you're seeing today such situation so we don't think the time is really to revert back to the historical level of the inventory 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 high 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 bill for 2022 NBL, not for this year. So can you share your idea with us?

Okay, so Rick, your question is on our CapEx. About 80% is for the advanced notes. He wants to know how much of this spending for the advanced notes is in preparation for capacity for 2022 NBL.

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 I THINK THAT'S SOMETHING THAT I'D LIKE TO SHARE WITH YOU.

OKAY.

OKAY. THAT'S HELPFUL. THANK YOU SO MUCH. NO PROBLEM. THANK YOU, RICK. OKAY, OPERATOR, LET'S MOVE ON TO THE NEXT CALLER.

Next one we have Andrew Lu from Sandlink Securities.

Good morning, good afternoon. Thank you for taking my question. Can you hear me? Yes, we can hear you. Okay, my first question is if your customer has its own design rule, knows with the different metal and poly pitch spec from TSMC's one, Can this customer use an in-house manufacturing and TSMC foundry based on the same design, or it needs to redesign the chip based on TSMC 5 nanometer, 3 nanometer design rule?

Okay. Andrew, let me try to summarize your question. Your question is about customer's 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, you know, use their in-house manufacturing, or do they need to use TSMC's design rules, basically?

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

So customer doesn't need to change its own design.

Okay. I cannot answer this question because it's a two-party cooperation. And as I said, we work closely with them to support their design. Understood.

My second question is that Since our 3nm, 4nm nodes will be renting out next year, what about second half this year? Will we have something like a 5nm plot or revision 5nm process node for second half this year? Thank you.

Okay, so Andrew's second question is looking at second half of this year, noting that next year we'll have, for example, N3 and N4, then second half of this year. Do we have any new node or continuous improvement, enhancement?

Andrew, we always continue to improve the technologies. Last year, we introduced a 5 nanometer to the market. This year, we continue to improve it. And next year, we'll improve further. So we never stop.

Okay? So something like a 5 nanometer plus?

Yes. That's what your name means. Yes. Okay. Thank you.

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

Next one, we have Matei Husseini from SIG.

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.

Okay, so Maddy wants to know for the first quarter, revenue by technology and revenue by platform.

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

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

Yes, just a quick follow-up on CapEx. Does your 25 to 28 billion CapEx guide include investment for infrastructure in the U.S.? ?

So, Madi's question is, does our CAPEX guidance this year include any investment for the U.S. FAB infrastructure?

Yes, it does. The U.S. FAB starts construction this year. Okay.

Can you elaborate on how much of the CAPEX is for U.S.?

Not at this point, Bradley.

Okay. Thank you, Madi. Thank you. Thanks. Operator, let's move on to the next caller.

Next one, Chris Asanka from Cohen and Company.

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 give me an investment in EUVs also up this year relative to last year? I'm going to add a follow-up.

Okay, so Chris's first question is that with our increase in CapEx that we guided for in 2021 versus 2020 being an increase,

uh... does that also mean increase in the capex we spend on you uh... now we do not disclose that got it uh... follow-up uh... pb mentioned that how capital intensity is going to be high all the way to three nanometers uh... but he also said long-term capital to be should be in the mid thirties so just trying to square that by what do you mean by long-term because it's like If 3 nanometers is still going to be high, the next few years, capital intensity might be higher than mid-30s. At what point should we expect it to get to mid-30s?

Okay, so Chris's second question is in terms of capital intensity with the capital intensity or capex per K at 3 nanometers being higher, and then we're having a 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, Chris?

Yes.

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%. maintain at high 40s for a couple of years and came down afterwards. Something like that should be a reference.

Okay. Thank you. All right. Thanks, Krish. Operator, let's move on to the next caller, please.

Next one. Hi.

Thanks for taking my follow-up question. One question on capex and depreciation. Are we having to spend capex a little bit ahead of what we used to spend in the past in the EUV era? Is that a 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 the jump in capex? Can you give us a little bit of guidance on how we should think about depreciation for this year and going ahead as well given the higher level of capex?

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?

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

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

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

Okay, and maybe just add, yeah, even with that, we are comfortable with 50% structural gross margin.

So even with the higher growth and depreciation, Goko is asking, are we still comfortable with a 50% growth margin?

Yeah, 50% growth margin as a long-term target, we think it's reasonable and achievable.

Thank you.

Thank you. 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?

Okay, the next caller is Randy Evans, Credit Suisse.

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

Okay, so Randy, your first question is regards to capacity and fab expansion overseas. So Randy is asking in the U.S., in Arizona, we target 20K. 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?

Yeah, that's a question. Just the outlook to rebound China just post-high silicon where it's down to mid-single-digit contribution.

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 face one production talking 2024 20,000 per month and we'll going forward we'll see according to the market condition and cost economics provided by the government support to men 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 of the leading edge does have a reset, but we do expect the demand in China will continue, and we will gradually, accordingly, increase our capacity in Nanjing.

Okay, great. 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, CoAS, SOIC, and growth outlook for back end?

Okay, so Randy is asking about 2021 growth, first growth outlook by platform. and then growth outlook by the back end, and then, you know, between the back end in vocal segment.

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

Okay? Okay, thanks a lot. All right, thanks, Frank. Okay, thank you. Okay, operator, can we move on to, in the interest of time, the last caller then?

Okay, the next one we have, Sebastian Ho from Lafayette.

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 previously said that the company has noted 5 nanometer demand also stronger than you thought three months ago. So we're curious about if you can give us more details about which applications are you seeing a stronger than expected demand.

high-performance computing?

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

Sorry, we didn't hear the last part.

Sebastian, you're... Yeah, sorry. I think that for the HPC part, is it more related to your existing customers or more related to the blockchain-related product?

Oh, let me add a little bit of 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 hyper-bus computing architectures, as you know, from different customers, everybody is striving to get the best performance with different architectures. So many, many, many more players getting into this field. So we see a stronger innovation is coming our way. On N3 as well as on N5, yeah.

Okay. Okay. That's good. Thank you.

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

Okay. Yeah, that's fair. The second follow-up is follow-up to Wendell's comments on that. I think that this year, 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 – would be pretty small or even flat. It depends on how things go, but definitely not as strong as the past few years. So my question is, is the company still sticking to the dividend policy that is 70% of free cash flow?

Okay. So, Sebastian, your question is then in looking at the CapEx, looking at our revenue guidance, the capital intensity this year being about, you know, 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?

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 investments, the focus will be more on sustainable. And as we harvest the growth, the focus will be on steadily increasing.

Okay. So thanks, Wendell. So given that you're paying the investors getting the dividend in this quarter, which is the 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 get him a $2.50 per quarter. Is that a fair calculation assumption?

At least. At least.

Okay?

Okay.

All right. Thanks, Sebastian.

Thank you.

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.