Welcome to CSMP's 3rd Quarter 2013 Earnings Conference Call. This is Elizabeth Huang, CSMP's Director of Corporate Communications and your host for today. The event is webcast live via TSMC's website at www.tfmc.com. If you are joining us through the conference call, your dialing lines are in listen only mode. As this conference is being viewed by investors around the world, we will conduct this event in English only.
The format for today's event will be as follows: 1st, TSMC's SEC and CFO, Ms. Laura Ho, will summarize our operations in the Q3, followed by our guidance for the current quarter. Afterwards, TSMC's Chairman and CEO, Doctor. Morris Chang, will provide his general remarks and a couple of key messages. Then we will open the floor to questions.
The best participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC's website at www.psmc.com. Please also download the company's slides in relation to today's earnings conference presentation. Before we begin, I would like to remind everybody that today's discussion 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 on our press release. And now, I would like to turn the podium to TSMC's CFO, Ms.
Laura Ho. Thank you, Elizabeth. Good afternoon, everyone. Thank you for joining us today. I will start the presentation with financial highlights for the Q3, and I will follow that by providing the guidance for the Q4.
In the Q3, TSMC set another record in both revenue and net income, thanks to our leadership in leading edge technology. In the Q3, revenue increased 4.3 percent to reach TWD163 1,000,000,000. Gross margin was 48.5%, down 0.5 percentage points sequentially due to the lower capacity utilization offset by terrible inventory valuation adjustment. Total operating expenses was NT19.3 million dollars slightly increased from the 2nd quarter, mainly due to higher R and D expense for 20 SoC and 15 FinFET Technology Development. The operating margin was 36.7%, down from 3 percentage points from the Q2.
Non operating items was a loss of CNY300 1,000,000,000 in the 3rd quarter, then reduced the RMB1.35 billion impairment charges associated with our investment of SCION. SCION is a U. S.-based solar company, which was invested in 2010. The EPS impact for these events is about $0.05 Overall, EPS was $2 in the 3rd quarter and ROE was 26.8%. Let's take a look at revenue by application.
After 5 consecutive quarters of growth, communication segment declined by 3% in the 3rd quarter as consumer customers start to manage down their inventory. Computer segment declined 18%. Consumer segment grew significantly in the 3rd quarter, thanks to the strong demand from the game consoles. Meanwhile, industrial and standard related revenues grew by 5% from the 2nd quarter. Despite the volatility across different applications, our 28 nanometer continues to grow and contributed 32% of total wafer revenue in the 3rd quarter, up from 29% in the 2nd quarter.
Combined with 40 millimeter, the advanced technology represented 52% of our total wafer revenue. Now moving to the balance sheet. We ended the Q3 with cash and marketable securities of TWD218 billion. Current liability decreased by $95,000,000,000 as we paid out 78,000,000,000 dollars of cash dividends in July. On the financial ratios, account receivable turnover days increased 2 days to 45 days.
Sales of inventory further decreased by 2 days to 45 days as we had less work in process inventory in the 3rd quarter. On the cash flow side, during the Q3, we generated NT6 billion dollars from operations. Invested TWD65 1,000,000,000 in capital expenditures, distributed TWD78 1,000,000,000 cash dividend, repaid TWD 13,000,000,000 to bank loans and raised NT 41,000,000,000 of corporate bonds. Overall, our cash balance decreased NT9 1,000,000,000 to RMB217 billion. Free cash flow was an inflow of RMB41 billion.
In the U. S. Dollar term, we spent $1,800,000,000 in tractor expenditure in the 3rd quarter. This adds to the total of RMB7.2 billion for the 1st 3 quarters, which is about 74% of our total year to date tax, which is about US9.7 billion dollars Lastly, I would like to make a few comments on our capacity plan. Our total capacity grew 6.5% to around 4,300,000 8 inches equivalent wafers in the Q3.
And we will increase another 1% in the 4th quarter. For the full year, our 12 inches capacity is expected to grow 17% year over year and our total annual capacity will increase 11% to 16,400,000
8 inches distributor motors.
I have finished my financial report. Now let me provide you our 4th quarter guidance. Based on current business expectations and the forecast exchange rate of 29.5, we expect our revenue to be between TWD144 1,000,000,000 and TWD147 1,000,000,000. In the U. S.
Dollar terms, this will translate to around 10% quarter over quarter decline. On the margin side, we expect the 4th quarter gross margin to be between 44% 46% and operating margin to be between 32% 34%. This concludes my remarks. Let me turn the podium to Chairman.
My message is outlined here on the screen. 1st, a few comments on 3rd 4th quarters of this year. 3rd quarter was another record quarter for TSMC, both in revenue and in EPS. In the period, the sales of certain mobile products were slowing to improve our 3rd quarter results. As David demonstrated once again, ESM sees strong conditions in the leading edge technologies, particularly in the 28th nanometer nodes.
As I said 3 months ago, the 4th quarter may be a down quarter, lower than the 3rd quarter because we expect the supply chain to take serious actions to manage the inventory in the second half of this year. That has happened and it's still happening. As the CFO has just indicated in the guidance, our 4th quarter revenue will decline by about 10.5% from the 3rd quarter. This decline is mainly attributable to the softer demand for certain high end smartphones and the inventory correction. Is it easy to decline in short term.
Meanwhile, PSMC's structural profitability, our technological strength and our close customers' volumes remain intact. And we are optimistic about 2014. Next, if you comment on industry outlook, supply chain inventory and mobile products market. For the full year 2013, we estimate the semiconductor market, the world semiconductor market will grow 4%. This is a bit higher than the 3% that we estimated for the last year last quarter, mainly due to the strength of the memory segment of the semiconductor industry.
We again estimate that the traffic industry will grow 9%. That's unchanged from our last quarter guidance. We estimate that the foundry industry will grow 11%, unchanged from last quarter. And we now estimate that PSMC this year will grow between 17% 18%, which of course is much higher than the foundry industry product. Now it's inventory.
In the
Q3, due to slower sales of certain high end smartphone models, We estimate that the supply chain, VOI, in the 3rd quarter went up and was above seasonal. That was higher than we forecasted 3 months ago. In the Q4, we expect the supply chain EOI to decline significantly and to approach seasonal level by the end of the Q4. On mobile products, the smartphone, 205, 707,000,000 units. 2013, we estimate 987,000,000 units, a 35% growth.
2014, we estimate about 1,200,000,000 units, a 26% growth over 2013. Tablets. In 2012, 155,000,000 units. This year, we estimate 255,000,000 units, a 54% growth. And next year, we estimate 310,000,000 units, a 22% growth.
Next, I'll talk about 28 nanometers. 28 nanometers is now in our 3rd year of volume production. We are still our competitors in yield and performance. Since the Q2 of this year, our quarterly revenue from 28 nanometers has exceeded the US1 $1,000,000,000 mark, and we expect to continue to grow our 28 nanometer business further in the next year. ESMC's 28 nanometer market share in our served available market is about 84%, which is higher than our 45 nanometer watt in its 3rd year of ramp.
It is also higher than the market share of our 65 nanometer, our 90 nanometer and our 0.13 micron in their respective 3rd year's run. In 28 nanometer octa nitride solution, we have a couple of comparables. But TSMC delivers higher performance, better yield and shorter cycle time, which help mitigate customers' inventory risk. Our market share of the oximeter solution is about 75% this year. In 28 nanometer high k metal gate solution, we have little competition.
Today, our market share of 28 high key metal gate is above 90%. As some of our customers begin to migrate to more advanced modes, 20 nanometer and 16 pinpoints. We will have second rate customers who come in to fill our 28 nanometer capacity. As a result, we expect to maintain a high level of capacity utilization for 28 nanometer in the next years. Because of our substantial need in yield, speed, power and our customers trusting us, which we make a hard effort to earn every month, every year, every day.
And because we have a multitude of second wave customers adopting 28 nanometer in future years. We expect to keep our 28 nanometer market here strong for a long time. Indeed, leaving a high market share in every one of our more mature technologies that's been part of our corporate strategy all along. As the leader in the founding deal, we usually started with a very high share at the leading edge. Then as competitors began to appear, they captured some large issues.
But our share in every mature technology up to 45 nanometer, a number of 1 below 50%. Now a few comments quarter 2014. That's mandate 10 months. 15 nanometer will follow 20 nanometer in 1 year. We view both 20 nanometers and 60 nanometers as virtually 1 node.
Specifically on 20 nanometers, we have received 5 product takeouts and scheduled more than 38 hours in this year and next year from mobile computing, CPU and PRD segment. And all those data represent fixed values. The ZAR ecosystem on 20 nanometer has been validated in new products and is ready to support customers. New learning is in line or better than the only 8 nanometer path. We expect a fast ramp of 20 nanometer next year with revenue from 20 nanometer in 2014 bigger than that 28 nanometer in 2012.
You see, coming on in there will be starting next year. And Aetna actually started in the Q4 3rd Q4 of 2018. So the corresponding point for 28 nanometer was 2012, right? Our ramp in 20 nanometer in 2014, it can be faster than the While 28 nanometer ramp was a record for 3 SMs, 20 nanometer ramp will be even faster by about 30%. On 1610, technological development is progressing well.
Risk production is on schedule by the end of this year. More than 25 customer product payoffs are planned in 2014, including mobile computing, CPU, GPU, PLD and networking applications. We are on track to begin volume production within 1 year of 20 Gamma Regions. On both 29 nanometer and 16 pinpoints, we are confident that we are competitive. We derive our confidence from our close working relationship with several large customers.
It is they, our large customers, who have to come out with products that will prevail over their competitors. It is then our large customers who ensure that our 20 nanometer and 16 sensor technology will enable them to prevail over their competitors. Next, let me talk about pay packages. We hope only visited in 2010 project. As Laura said, CapEx this year will be around $9,700,000,000 give or take a couple of $100,000,000 This year, our CapEx is partially for this year's growth, but primarily for next year.
We expect another double digit growth year for 2014. Now let's take a moment to revisit the 5 year plan we announced in 2010. In 2010, we set a target of 10% per annum PVT growth and ROE of equal or greater than 20% for the 5 year period of 2011 to 2015. We were dealt an immediate setback in 2011. Our PVG in 2011 actually retreated from the 2010 level.
But since then, we've been catching up. This year, the gap between our forecast and the trend line, the 10% per annum trend line is a very small one. In the meantime, we are still comfortably above our 100%. We expect on the profit forecast, we expect to more than catch up with the trend line, the trend line in 20142015. Next, I will make a few comments about the CEO succession and the Chairman's continuing hands on role.
I'll get to the bottom line first and then I'll offer a few words of comments. The bottom line is just as I said, we do plan to appoint a 2 co CEOs before June of next year. And let me say that before June of next year, it doesn't happen to be next year. It could be more of these things between now and June of next year. And the other part of the bottom line is the Chairman, mine, my continuing hands on role.
I think there's no news to you that I will continue to be Chairman. But Today, I want to emphasize, hands on, continuing hands on. Now you remember that I came back in June of 2009. Is this loud enough? In June of 2009, because to become the CEO.
I was always the Chairman and I will continue to be Chairman. But golden opportunity for TSMC and also huge challenges. My pride in handling the purpose, rally fire. Once more, come to the bridge, dear friends, once more. Now, unfortunately, the need of that sacrifice is lost on many people because not very many people saw either the opportunity or the challenge as I saw them.
As far as the challenges were concerned, many people thought that I was referring to an emerging company that style itself as a global company. But actually, even at that point, I look through that challenge and by getting voice already a pound, the 200 pound gorilla in the industry. Very few people saw very clearly the mobile product opportunity. Now, of course, it's clear. I also said back in 2009, June of 2009, But I would be I would be CEO for 3 to 5 years.
3 years because I felt that was the minimum amount of time I needed to shift the company's CRD and to execute. Next year. 5 years because I thought, well, by that time, I will have done my best. I will have really 4.5 years, almost 4.5 years have passed. And I just realized the shift and at least the much of the execution of a new strategy, which is sense.
So I tend to follow the initial intention that I've set on the 5 year mark. And that's what I said, 5 years, which is next June before then we will appoint CEO for co CEOs. Now the Chairman's role, I think that many people, but not everybody knows what the Chairman's role in a company is raising in Taiwan. And let me just turn out to your savings plan. Under both the Taiwan Company Board and under the Taiwan Customs.
The Chairman of a company is always, always the ultimate authority. There's no such thing as a non Executive Chairman in Taiwan. And as Fong Zhong Zhong, Executive Chairman even. The title Chairman does not require any modifier, any adjective nor does it even admit of a modifier. Chairman is Chairman and is the ultimate authority.
However, not every Chairman is hands on. Time frankly was not hands on between 'five and 'nine. And now I'm telling you that I will be transformed. Well, nobody comments that I wanted to make. I guess we are now ready for Q and A.
Yes. This concludes our prepared statements. Before we begin the Q and A session, I would like to remind everybody to limit the number of questions that you ask to 2 at a time to allow all participants an opportunity to ask their questions. Questions will be taken both from the floor and from the call. To do which we raise your question in Chinese, I will translate it in English before our CEO or CFO answers your questions.
For those of you on the call, if you would like to ask a question, Our first question comes from the floor and it will be Bank of America Merrill Lynch, Dan Hire.
Chairman, thanks for taking my question and we hope you'll come back to only participate in the quarterly. A couple of questions. First, on the 16 ms meeting, you have made an accurate prediction of your prediction in 28. In two respects, you had said that TSMC would expand your lease in 'twenty eight on several years ago and that has occurred. And you'd also indicated that that you would actually be with your partners more competitive than the 2 business founders who were 22.
So could you offer us 2 forecasts of 2016 on both metrics? Number 1, where you're competitively relative to your competition? And number 2, where do you rest with your partners relative to the IBM on 2016? Thank you. On 20, very definitely, I think, on 20 16, I think the battle is still raging.
On 20, I believe that we will start with a very high market share, just like we did 28% and so on. And we'll keep that high market share for quite a while, several years. On 16, I believe that we're doing but my goodness, we intend to prevail. But I'm not going to tell you now that we have already won. I hope to tell you in, let's say, 1.5 years, I guess.
But we have all the 1, Could you also almost on that a little bit of color on 2016 because obviously it involves the KFC and 2,000,000 internally, it also involves ecosystem partners in achieving your advantage. Can you elaborate a bit on what more is going on at 16 to trigger given how competitive it is perhaps from intense alliances or closer collaboration with the ecosystem that perhaps more color than how you can go ahead? Well, I think that what's going on with our competitors, I think With I don't think I'm an expert on that. I'm not part of the ecosystem's off to go off and we do have in charge response to putting up product. Working with our ecosystem partners.
And as you know, it's a very important one. And but others And others in OEDA and IP providers are also very important. But more importantly, I think that our large customers don't need And that's why the volume of the large customers becomes very important. And we have really, I believe, work well off. I even 15 years ago, I strive to say that we have made the strongest technology, manufacturing and customer partnership.
Partnerships. And that's true today. Growth basically between the world partnership and the world customers trust. To us, it means the same thing. So the large companies are most important and they don't rely on the ecosystem as much as they do use them.
As they rely on because they have their own special stuff. Great. And second question for Laura would be on EPS growth comments that you may be getting probably back above back to trend, if not exceeding trend on EPS growth. Does that require that your gross profit structural profitability will actually increase next year to achieve that target? Or can you just say achieve that EPS growth with maintaining your current flexible profitability?
Thank you.
Hey, James. We are confident we can either maintain or slightly improve our structure capability. I know many analysts are concerned about our capital intensity being so high, how can we maintain our stock to profitability. I have waited a number myself. So let me explain to you this.
Our depreciation year over year increase so high. Now this year versus last year around 20%, next year, we're already 25%. So how can you sustain your stock of the property? The third is, when we invest in capital expenditure, actually we're adding the capability to do more business. So our company will also increase.
So we divided by the unit cost, the depreciation cost as you didn't increase that much. As we have seen in the past few years. In addition to that, with the continued productivity improvement for our operating people, we were able to drive the non depreciation cost go down on a per annual basis. That means we can maintain a stock of the business. So major simple, if we invest in CapEx All right.
Next question also comes from the floor and with the JP UBS,
What's your idea of a normal seasonal? Okay. My idea for normal is roughly It's a bit early to predict Q1, but I do want to say that with the introduction of our mobile products. The mobile products as you see now is having that's different from that you just find from our traditional normal. And so I would not rely on that normal season of cabin.
And as to what the Q1 will be, I think that it's really too early to what happens quarter to quarter. And I have said earlier that Now if the Q1 comes in a bit low, we will have surge in the second and third quarter that will let our peak. And in fact, the mobile product in the 4th quarter, this time, this year, for us, 4th quarter is a bit down, 10% down. But that's mainly because of the inventory adjustment and because, as I said, are slowing just a few. I am sorry.
I just want to use the same words I used before. I know what they are, but I just want to use the same words for the product. I'm mobile products. So that is not necessarily to reflect the normal type of mobile buckets. So I don't know.
I guess my answer to the jury summarized by the following sentiments. We cannot rely on the normal season of carbon and we are optimistic for the year, a year ago. And my second question is about
actually laying the CEO position.
Thank you for the invitation. And I will
Okay. All right. Next question comes from the floor again. It's George Bank, Michael Jones.
The question was what will 20 nanometer margin look like?
You're asking what the 20 nanometer gross margin as compared to 28 nanometer gross margin? As Kevin just talked about the ranging profile of 20 nanometer will be more aggressive than 28 nanometer. So we expect 20 nanometer will contribute a high significant revenue in 2014. In 28 nanometer if you compare to the 3rd tier versus 3rd. Michael, your question really is whether or not the gross margin will also impede faster for 20 nanometer than for 28 nanometer, exceed a gross margin improvement?
I think the answer is yes. I think actually I said earlier that up to this point, the 20 nanometer in 0 improvement has been on a faster path than the 28 nanometer. So there's no reason to expect that that will stop. I think it will continue to use the improvement page. That was the question.
That was the question? I'm sorry. I don't see any there. That was the question, right? So the answer is yes.
Thank you. Second question is regarding the long term, let's say, the your profit before tax and the policy of 10% growth.
PBT growth rate bigger than 10%. Given the growth driver, which is the mobile product, the rate of growth is growing. Can we still achieve or how can we still achieve GBP growth dividend?
Well, actually, you noticed that in the past 2 years, in 2000, 2013, our PBT growth has been higher than 10%. We had a setback in 2011 and we have to make up The dotted line the upper dotted line is the 10% growth line. And we had a setback in 2011. And so in 2025, we had to grow faster than 10%. EBT had to grow faster than 10%.
And the day in 2014, they'd be faster than 10% again. And now in 2014, I drew a kind of hazy. 80 ellipses to show where it might fall. And my expectation is that it's going to be more than catch up in 20 14 and we're going to do it. By the time 2015 comes, I think we'll be above that.
But now we're going to grow double digits, I think, comfortably double digit next year, not just barely double digit, but comfortably double digit next year. Okay. And it's our intention to grow our PBT proportion. So you say how can we do that? Well, that's complicated.
You can't it's a mistake to try to analyze our company 1,000,000 at a time or one customer at a time. I run a company as a whole. And parts of the company may be down, but parts are going up. And I just want to be sure that's the hands on that the up parts more than balance the down parts, okay? So just to try to say that the mobile product growth is slowing down and that's why maybe our revenue growth next year will be a good best time this year.
This year, it's 70% to 18% and next year maybe a bit lower. But it will still be comfortably as I said, double digit
If I need some comment on the smartphone growth. You were concerned about the high end smartphone growing and it's slowing down. We still believe smartphone is
still going to grow at
least for the 10% for this next year and the year after next. So overall smartphone will have very high penetration on
mid to low end. We believe
the overall smartphone will grow 35% this year and 25% next year. So all the market position on the smartphone field would be
a very big driver for our CXM business growth.
Okay. All right. I think it's about time that we should take our next question from the call. Operator, please proceed with the first caller in the line.
The next question comes from the line of Stephen Pelleo from HSBC. Great.
Thank you. Two questions, one very near term and one much longer term. More color, if you could provide some more color on your guidance for the Q4, revenues down about 10% or 11%. I'm curious, is that all segments declining? Can 28 nanometer maybe still grow in dollars?
Will all segments be down? Which one would relatively outperform? Can you give us some more color and detail on both by segment as well as technology nodes relative to your overall guidance of down about 10% to 11%.
Stephen, your first question is to provide additional color on the 4th quarter's 10.5% decline, whether or not the decline is all from the decline of the 28 nanometer. That's your first question. Is that right?
No. Actually, my question was can 28 nanometer still continue to grow in the Q4? Or alternatively, will all segments be down? Can you provide us a little bit more detail by both technology node as well as by communications, computing, consumer, will all those segments be down or any of them relatively outperformed? So I'm looking for just more general color by technology and by segment on the 4th quarter guidance.
Okay. Stephen, you're asking about the segment changes on the 4th quarter. Of the 10% growth decline for TSMC, we will see most decline in consumer segments, kind of both followed by the computer and followed by the communication. We just expand the SGU is slightly down or flattish. And even we do not give you any guidance on a particular note, Bali.
And then what is your second part of the question?
My next question is just much longer term for Chairman there. You obviously have a much better crystal ball than all of us having seen the mobile opportunity in 2,009. You just shared some forecasts for smartphones and tablet growth rates, falling from the 35% 50% growth rates to the 20% to 25% next year. And I think IDC is talking about 10% to 15% in 2015. So I'm curious as you're looking out beyond 2014, what are going to be those next big opportunities to drive growth?
And perhaps just as important, will TFNC need to spend the greater than 40% CapEx to sales that they had to over the last few years to capture whatever those opportunities you see?
All right. So, what's happening Before
I ask you to repeat Steven's second question, I want to add to Laura's answer to his first question. All right. The first question was whether the kind of environment will decline in the Q4. And well, I didn't really answer that. Well, you said no.
I don't mind answering it. Well, remember, we said that one of the main reasons for the 4th quarter decline is the high end mobile products, slowing them. And the economy environment, our economy environment will decline just a little bit, all right, not 10%. Just a little bit. So that's, yes.
Okay.
All right. The second part of Steven's question is how does Chairman sees our growth drivers beyond 2014? What will be the other growth drivers beyond the mobile products for us? And then how much CapEx you'll be spending to capture those type of growth beyond 20 13?
I see. Very difficult question. On the outlook for beyond 2015, we had a 5 year plan. And I thought that was pretty far reaching back in 2010. And nobody even remembered it until today while we're out here, okay?
So now I said in my autobiography that As far as semiconductors are concerned, I am an internal optimist. I believe that people will keep finding new applications for semiconductors. Now with the mobile product. Now the next one may now be something even more miniature and something even more convenient and like the wearables like the watches. But I think it could well be something even beyond that.
But I don't think one can foretell what the future holds for us in semiconductors. I know that it will be good because it's a fundamental component. It's indispensable to the world as almost food is, I would say. So, of course, you can never talk about food. But in this information technology world and information technology was what drove the economic progress in the last 30 years.
And in the information technology, semiconductors are indispensable and people will keep thinking about new applications. So I'm optimistic about years beyond 2015, but I cannot tell you what the exact application where the exact application is working.
Thank you. The next question comes from the floor of Credit Suisse, Randy Aboom.
I wanted to ask, you talked about the double digit profit before tax growth. Could you talk about now your expectation on CapEx? And also there's some talk about EUV continuing to be a bit slower. So just how that affects capital intensity and timing for the U. S?
Can you repeat that?
All right. When we asked Chairman to share your view about our future CapEx and given CEV appears to be a bit slower, we are
I don't want to ask you where is the information paid off. But let me first talk about CapEx. Next year's CapEx will still be high, But if you want me to specifically ballpark, I would say the ballpark is around $10,000,000,000 okay? But earlier, I said that this year, it's 9.7 $1,000,000,000 give or take a couple of 100,000,000. So I give you $10,000,000,000 I have to say, give I think a couple of 1,000,000,000, okay?
So now it highly depends on what we see. The growth opportunities of 20 15, all right? But I do think that this capital intensity has really peaked this year. This year, the capital intensity was about 50%. We have $200,000,000 of revenue and about $2,000,000,000 up on free cash.
So I do think that 50% is above the YP. Then, well, actually, I just met with our ASML partners yesterday. And they've only just the reverse of what you just said. It's slowed or something. No, I think that the EUV policy is good.
And we are obviously tracking it very, very carefully. And remember, we are a significant investor in here, Sena. And we also joined in the new R and D program. And so we're on track and in the future. The reason I mentioned ASML, I think, at their investor conference, perception was throughput was improving a little bit slower, the fewer tools were coming out in the next year.
So the perception of it gets a little bit slower path in terms of improving productivity and throughput. It sounds like by 10 nanometer, you expect EUV to start for some of your process steps? EUV progress itself has not slowed. Well, it had a breakthrough about, I guess, the early machine SME. And before that, it was a bit disappointing.
And
but they had a breakthrough early this year and since then their progress has been on track.
Next question comes from the floor from
Well, until about 3 or 4 years ago, our first wave customers at any leading edge were graphics and baseband and PRD and so on. But then, you know, the first wave was taken over by the IC makers, IC suppliers for the mobile products. And the second way now is that we should be there are some users that are later than the first, let's say. For instance, the providers, the buyers to China home market, it's amount and royalty in market. Okay.
Thank you. So as you said, since the original first
All right. William, it's making a prediction that our secondary customers filling our 28 nanometer capacity will be the ones that require high k metal gate instead of the oxynitide. And therefore, our All right. Yohann is also making a prediction. Judging by just easily announced, Intel pushing out their 30 nanometer by 1 quarter to next year, so that's just been to 2014.
Mass production follows in 2 years of 2016. So, Yolong said, since we start with production of our 10 nanometer in 2015, is there a chance that we will be ahead of Initel? I will now reverse my question.
I am not going to comment on that. And I never, never underestimate anybody. I will not underestimate Intel. I didn't even underestimate how do I expect for the weak capacity the company will do? Well, that can be shorter than it traditionally was.
That could be shorter than it traditionally was.
Okay. We really have quite a few people on the team. I know that there are several people waiting a long time. All right, Andy comes first. Okay, Andy first.
Thank you, Doctor. Chen. I have two questions. First one is regarding earlier you mentioned Q1 next year, we'll start with a nice production, 29,000,000 and Q1 year 'fifteen, nice production. This nice production is a really good start.
Is that correct? Yes. The cycle time is given. Back. So we have about 3 to 4 months basis back working target time.
So we are going to see a lot of inventory in Q1. In Q1. Now you're looking into these into our accounts. Sure. That's a standard accounting procedure.
Thank you. The second question is, I remember 2 years ago, TSMC provide 28 nanometer for 1,000 acre investment for US120 $1,000,000,000 Can we have rough color for 20 nanometer investment for 1,000 lasers and 15 nanometer investment of 1,000 liter. I haven't reviewed the numbers lately. So I don't I can't give you an exact number. Design, design, is that right?
Are you talking about the design? CapEx. CapEx. So you're asking what the CapEx per 1,000 wafer for 20 nanometer and 59 nanometer, okay? It's around, approximately 20% higher than 28.
So, 20 And it's true on me, nothing is. It's a key parameter for us. Capital expenditure per volume, May 1st per month capacity. This is very, very good deployment of course. And it's also something that we would love to know about our competitors.
So we've tried our hard. We have standing programs, standing projects that we're using. And so when we told you, what the 28% down into CapEx for a k per month was what do we value? About 15%. 30%.
30%. We got them almost as 1 note. Okay. Good. Thank you, sir.
It's about 20%, but it's about 20% above the 120 or whatever because the 120 has been reduced, okay?
The
next question comes from Mehdi Hosseini from Susquehanna.
My first question for Doctor. Chen. Have you seen any changes to your Q1 growing forecast, particularly from some of your customers that have exposure to China and specifically post holidays, post early October holidays?
Your first question is, do we see any change in our rolling forecast for 1Q2014 given our Chinese customers' business after the Golden Week? That's right? Yes. Okay. It's partly linked up to Chinese Lunar New Year, but there are 4Q, 1Q forecast constantly changing.
And also the Q4 is changing, so you want to say versus 4th quarter, remember it's kind of big. So we don't see much changes there. That's a simple answer to your question.
Great. Do you
still have another question?
Yes. And then actually for Laura, you were talking about the unit cost at 20 nanometer, pretty competitive to 28 percent even though depreciation is going up by 20% -plus, but unit cost is competitive. What about 16 nanometer? Would the unit cost actually go down because 16 nanometer is a true shrink compared to 20 nanometer?
I think Matthew's question is, he wants us to comment on the unit cost between 20 nanometer and 16 nanometer?
Well, unit cost of 16 nanometer is projected to be higher than unit cost of 20 nanometer. Cost right now, yes, is still projected to be higher than the current management.
Okay. Let's come back to the floor. The next question, I think it comes from Morgan Stanley.
Hi, Doctor. King. I hope we could start with a very broad question. You said earlier, you came back as CEO and it requires different strategies for TF and T. Now that we are here, in the next 3, 3, 5 years, do you see any changes that you need to implement as far as few years.
Any change is more? Any change. Yes, I think not a different direction, but I think we modify our tactics almost all the time. The general direction, I think, is still the same. General direction is, but this is a technology.
Ours is a technology business and we want to need new technology. Now, however, to allow that, we have to generate enough income from the existing products, the use of technologies. And therefore, we need a good structural profitability. Now all right. So once we have good structured activity, we push R and D, we push R and D expenses, We push our R and D expand our R and D to the very to the limit.
And of course, to realize all the benefits that technology leadership brings in, we also expand our capacity, our manufacturing capability. We've done this. That has to be in our direction. And at the same time, in order to make sure that we have customers, large customers all the time. As I said, we work every day to earn the customers' trust.
So I mean, all this is going to integrate the whole. So that general direction has not changed. Now, I saw the prospects are concerned. They change quite often. How much emphasis could we put on one 5 gs versus another, typically the specialty technologies, how much do you put on them versus another, how much we can afford to expand and how much emphasis we could put on one customer versus a male.
Those change a lot of time. But the general direction doesn't change. The general direction is like always described it. 1st, we have to have good structural profitability. Then you push, you expand, you strengthen R and D to the limit of your affordability.
And then to realize the benefits that that value leadership brings you, you expand manufacturing. So I mean, just then if you have listened to what I said, you begin to understand why our R and D expenses are going up, why we have emphasized so much technology leadership and why our capital expenditures have gone up so much. Okay. Yes. There is a very quick one.
The Scion write off, can you talk about whether that means a change in strategy in the solar business or what exactly you're talking with? So what about a startup? I'm sorry that it happened. What was the question? I just wondered what it means to see if you saw the business overall.
I can take that one, Jeremy. Starting with the technology investment we did in 2010, the purpose to go to license the CITF technology. And we do that. So we have as the core technology is developed ourselves and it has been quite successful. There's no change in that front.
The rundown is just because the company has decided not to continue the operation. They have to take out from our book. But since we have their technology and its protection, there's no impact to our solar strategy and business. All right. I know there are still people waiting on the queue from the call.
So operator, please proceed to the next caller.
The next question comes from Brett Simpson from Arete Research.
Thank you very much. Doctor. Chang, if we go back to Q4 2012, I think you said back then after the 1st year of ramping 28 nanometer that the gross margins were at or above corporate average. Can you just give us your impression how do you see 20 nanometer playing out? Should we expect we get the same gross margin level, so atorabovecorporateaverage by the end of 2014.
What will the 20 nanometer gross margin be at the end of 2014?
That's right.
Our 20 nanometer is a 7 or 8 quarter, so the gross margin is to the total average and it has happened in the Q1 of this year. We believe the 20 nanometer will follow the same pattern.
Okay, great. Quarters. And she's saying that 20 nanometer will follow the same pattern. I think she thinks that 29 years ago will reach the corporate average So I think that that will continue. And in fact, I think it's almost necessary for 20 millimeters to learn faster because the ramp up is very fast.
The ramp up is faster than 28 nanometers. So in time, it will have to take shorter time of 20 nanometers to reach corporate average. So I think it will I cannot answer you exactly what the quarter will be by the end of next year because the end of next year will only be the 3rd or 4th quarter. So I do say that the gross margin will be higher than the 28 nanometer was at its 3rd or 4th quarter.
Got it. And just a follow-up. I think you talked earlier about unit cost. And we can all see at 20 nanometer, this is the 1st node you start multi patterning and thin set will be expensive. If you're expecting to maintain your structural profitability and the costs arising, what do you think the impact
of this is going to
have on the mobile value chain? Do you think the mobile market can absorb a cost increase? Or do you think that chip prices are structurally going to start rising? How do you see the ripple effect from the inflation at leading edge that's coming?
Okay. Rex has a very profound question. Saying that 20 nanometer will be CSAT, both are expensive, which will have an impact to the mobile value chain. And so how will the mobile product back towards these higher prices or costs? What would happen to the value chain?
Well, the actually, I can talk for hours about this. But I believe that the supply chain value price to end price, the end price to consumers It's a pretty elastic one. That means that the lower the price, the more you sell. And now if you are constrained by the cost, your products will have to be at the shipping level and you sell less. Now of course, everybody wants to push it to a lower price so that they can sell more.
But it's not a simple matter of being able to afford it and not being able to afford it. Thank you very much.
All right. I think we will Yes. It is
a another competition. We just want to be our cost to be lower than competition. I mean, I come back to the story of 2 people in the camp and a bear, a good bear is approaching. And the first person quickly on his money shoes. And the second person says, what's the use of the debt is going to business?
I'll run you anyway. So run faster than you anyway. And the first person then starts to run and or he departs, he says to the 2nd person, all I have to do is to run faster than you, not the biggest. So on this price and costing, all we have to do is to run faster than the competitor.
Okay. From the board, there are a couple of media people in the back and they are raising their hands. So we'll give you the microphone that you please identify yourself. This is the last question. Okay.
I enjoyed this, but I think that every business, every piece comes to an end. Good afternoon. I'm from the reporter from EDU. I just have 2 questions for you. Concerned with the current economy and with the competition in the Q4 and Q1 in the next year.
But people are so concerned with the current economy and with the competition in the U. S. And would you like to share your wisdom on maybe the next year's time outlook And if it has been fixed, what would it affect your expectation of GMP to GMP in the next year? Go over at Cabanitalo for next year. I am I don't know what our company official forecast is.
Our company forecast, But for this year, it's 2.5% global GDP. And next year it's 2.8% global GDP growth. I think that things are slowly improving. I think the U. S, I think that in spite of the short term problem, which I think probably faces a pretty quick resolution.
It's in the U. S. I recovered that. I look at the job creation, I look at the housing prices and I look at the those are the 2 main things that I look at, new job creation and housing prices, housing market. So those things tell me that the U.
S. Is on a recovery, continues to be on a recovery plan. Europe, I think, actually, it's not being any worse anyway. And Japan, I think, is doing better. And China, I think, is very successful in a whole soft branding, you might say.
So I think I'm not a mistake. So intuitively, I think that the 2.5, 2.8 forecast, which means that next year will be somewhat better than this year. And clearly, I think that's about right. Okay. Thank you.
My second question is being that, of course, the Chairman has just talked about when the CEO of the session will be announced, but people are quite curious about who would be in line with that the current operating Chief Operating Officer in the company? Or can we expect someone else from outside of the company? Well, the logical candidates are the 2 And I think those are the logical candidates. And what was the another question? Thank you.
Okay. As Jimmy said, all the questions must come to an end, so you will end here. But before we conclude today's conference, please be advised that this delay of conference will be acceptable 3 hours from now. Transcript will be available within 24 hours from now, both of which will be available through CFMP's Web site at www.cfmp.com. Thank you for joining us today.
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