Happy New Year to everyone and welcome to TSMC's 4th Quarter 2015 earnings conference and conference call. This is Elizabeth Sun, TSMC's Director of Corporate Communications and your host for today. Today's event is webcast live through TSMC's website at www.tsmc.com. If you are joining us via 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: First, TSMC's Senior Vice President and CFO, Ms. Laura Ho, will summarize our operations in the Q4 of 2015, followed by our guidance for the Q1 of 2016. Afterwards, TSMC's 2 co CEOs, Doctor. Mark Liu and Doctor. C.
C. Wei and CFO, Laura Ho will jointly provide our key messages. After that, TSMC's Chairman, Doctor. Morris Chang will host the Q and A session. For those participants on the call, if you do not have a copy of the press release, you may download it from TSMC's website at www.tsmc.com.
Please also download the summary slides in relation to today's earnings conference presentation. 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 on our press release. And now, I would like to turn the podium to TSMC's CFO, Ms. Laura Ho, for the summary of operations and current quarter guidance.
Thank you, Elizabeth. Good afternoon, everyone. Welcome to join us today. My presentation will start with the financial highlights for the Q4 and a recap of the whole year 2015 followed by the guidance of the current quarter. In the 4th quarter, customers continued to carefully manage their inventory and our revenue declined by 4.2 percent sequentially, which is in line with our guidance.
Despite lower revenue, gross margin rose slightly to 48.6%, cost reduction efforts and a favorable foreign exchange rate more than helped to offset impact of lower utilization. Operating margin of 38.3 percent reached the higher end of our guidance as we were able to keep a similar level of operating efficiency as the Q3 despite a drop in revenue. In non operating items, we recognized NT724 million dollars or $0.02 in EPS from ASML share disposal gains. Overall, our 4th quarter EPS reached
$2.81
Now let's take a look at revenue contribution by application. During the Q4, communication remained flat sequentially. Consumer and industrial standard decreased 23% and 12%, respectively, while computer increased 5%. On a full year basis, revenue from communication increased 16% year over year and represented 61% of our total wafer revenue. Industrial and standard also saw 22% year over year growth, driven by increasing usage of MCU, flash controller and the power management IC.
Now let's take a look at revenue by technology. As we have said before, we saw a strong ramp of 16 nanometer in the 4th quarter and together 16 nanometer and 20 nanometer contributed 24% of our total wafer revenue in the 4th quarter. On a full year basis 20 nanometer and 16 nanometer accounted for 20% of our total wafer revenue in 2015 versus 9% in 2014. And we remain confident that the combined revenue contribution from these two technologies will continue to grow meaningfully in 2016. 28 nanometer also helped us very well and accounted for 28% of our total wafer revenue in 2015.
Moving into the balance sheet. We ended the 4th quarter with cash and marketable securities of NT586 1,000,000,000, an increase of NT61 1,000,000,000. On the liability side, current liabilities increased NT11 1,000,000,000. On financial ratios, accounts receivable turnover days decreased one day to 41 days, while days of inventory increased by 3 days to 62 days, reflecting higher working process inventory at advanced nodes. Now let me make a few comments on cash flow and CapEx.
During the Q4, we generated about NT145,000,000,000 cash from operations and spent NT85 1,000,000,000 in capital expenditures. As a result, we generated free cash flow of NT 60,000,000,000 this quarter and our overall cash balance increased NT47,000,000,000 to NT563 billion dollars at the end of the quarter. In U. S. Dollar terms, our 4th quarter CapEx was $2,600,000,000 and reached $8,100,000,000 for the full year 2015.
Now I would like to give you a recap of our performance in 2015. Despite a challenging year as the inventory corrections of fabless customers occurred continuously, we managed to grow our revenue 10.6 percent year over year to reach NT844 billion dollars or $26,600,000,000 in U. S. Dollar terms. Gross margin saw an 80 basis point decline from 2014 as the decline in capacity utilization overweight a more favorable foreign exchange rate.
Despite a drop in actual gross margin, continued improvement in our manufacturing efficiency led to a structural improvement in profitability. Our operating margin also declined 0.9%, mainly due to higher R and D expense for 10 nanometer development as well as NT2.3 billion impairment loss related to our solar operations. In 2015, gains from share disposal totaled TWD24.7 billion or $0.84 EPS compared to TWD2.4 billion or $0.08 EPS in 2014. Our effective tax rate in 2015 was 13.5% and the full year earnings per share was NT11.82 dollars On cash flow, we spent TWD258 1,000,000,000 in capital expenditure, while we generated TWD 530 1,000,000,000 in operating cash flow. Accordingly, our free cash flow more than doubled in 2015 to TWD272 1,000,000,000, which is the 2nd year in a row it has more than doubled.
Our 2015 whole year ROE also came out to be 27%. I have finished my financial summary. Now let's turn to the outlook for the Q1 2016. While the China smartphone market has shown some signal of recovery, customer remain cautious in general. Based on our current business outlook and the foreign exchange rate assumptions of U.
S. Dollar to NT32.50, we expect first quarter revenue to be between NT198 $201,000,000,000 and NT201 billion, which represents 1.3% to 2.7% sequential decline. Gross profit margin to be between 47% 49% and operating margin to be between 36.5% 38.5%. This concludes my remarks. Now I would like to turn the podium to Mark Liu for his comments.
Good afternoon, everyone. I will start with demand outlook messages. As the semiconductor supply chain went through a very severe inventory reduction during the Q4 2015, Our fast 16 nanometer shipment ramp up during that quarter somewhat mitigated the inventory management impact to our sales revenue. As Laura just reported, in the Q4 2015, we finished our revenue with quarter to quarter of minus 4.2 percent and TSMC concluded our 2015 full year with 10.6% revenue growth. This severe inventory reduction in the fabless industry during the Q4 brought fabless days of inventory to about or slightly below the seasonal level as we exit the 2015.
However, the strong U. S. Dollar environment and a volatile financial market that dampened the demand for overall semiconductor last year may continue for some time. Therefore, we expect our customers will likely remain cautious in their inventory control and keep inventory close to seasonal level. For our Q1 2016, this quarter, we see a reduction of high end smartphone demand.
On the other hand, demand for smartphones in China and other emerging markets show signs of recovery with an upward momentum. We thus forecast a mild revenue decline of minus 1.3 percent to minus 2.7% quarter to quarter for the Q1 2016. Beyond the Q1 2016, we expect to be back to a growth trajectory. For 2016, we forecast the world smartphone shipment unit growth rate to be +8 percent PC, minus 3 percent tablet minus 7% and the digital consumer electronics minus 5%. Smartphones will continue to be a major driver for TSMC Business in 2016.
TSMC silicon content in an average high end and mid end smartphone are increasing significantly, while TSMC silicon content in an average low end smartphone remains approximately the same. Therefore, TSMC will participate broadly in this overall 8% smartphone unit growth. From the process technology perspective, we had a very successful ramp up of 16 nanometer customer products with yield performance ahead of our plan in 2015. This demand continue to be strong and the ramp up will continue through this year. Given this current macroeconomic environment, we now estimate the 2015 growth rate of World Semiconductor to be about 2% year on year and 2016 growth rate of world foundries to be about 5% year on year.
And TSMC growth rate is expected to be between 5% 10%. Now I would like to give you deliver messages on our leading edge technologies. Our 10 nanometer technology development is on track. We are currently in intensive yield learning mode in our technology development. Our 256 megabit SRAM is yielding well.
We expect to complete process and the product qualification and begin customer product tape outs this quarter. Our 7 nanometer technology development progress is on schedule as well. TSMC's 7 nanometer technology development leverage our 10 nanometer development very effectively. At the same time, TSMC's 7 nanometer offers a substantial density improvement, performance improvement and power reduction from 10 nanometer. These two technologies, 10 nanometer and 7 nanometer will cover a very wide range of application, including application processors for smartphone, high end networking, advanced graphics, few programmable Gatorade, game console, wearables and other consumer products.
We see major product advancement in 3 major product sectors in the next 2 years from 2015 to 2017. 1st sector is high end smartphone. We expect to see between now and 2017 a more than 1.5 times of transmission speed increase and greater than 2.2 times of visual experience in high end smartphones. Meanwhile, data sensing will move towards context awareness sensing. All those advances will be supported by TSMC's 10 nanometer and TSMC's 7 nanometer technologies.
2nd sector is high performance computing. We expect to have a 2 times of CPU cores in a processor unit to carry the needed data processing. The computing network infrastructure will need 1.6 times bandwidth for higher data rate. Again, all those advances will be supported by our 10 nanometer and 7 nanometer technologies. 3rd sector is on emerging applications, such as virtual reality, gaming and automotive.
For example, the advanced driver assistance system, ADAS, on cars can greatly enhance the safety on the road. For the overall automotive industry, The processors typically will need 20 times of computing power from today's level to serve that purpose. These applications were also supported by TSMC's 10 nanometer and 7 nanometer technologies. And we are looking forward to that. I also would like to update you on the development progress beyond our 7 nanometer.
We have a sizable third R and D team, developing our 5 nanometer technology for more than a year. Several innovative features and capability on transistor, contact and interconnect have been demonstrated. Our 5 nanometer technology is planned about 2 years after our 7 nanometer. We made significant progress on EUV to prepare for its insertion, likely in 5 nanometer for process simplification and cost effective density scaling. At the present time, we are installing the 3rd generation EUV tools in TSMC fabs.
We also have an extensive pipeline of technical innovation to extend the Moore's Law, including advanced patterning, high mobility channel materials, new nanowire transistor structures, low resistance and low capacitance contact and wires. Our goal is to further double the data processing throughput for application processor, graphic processor, few programmable gate array and other process at our every nodes. Bob is my message. Thank you very much. I'll turn the podium to C.
C. Wei.
Thank you, Mark. Good afternoon, ladies and gentlemen. Today, I will update you the status of our 28 nanometer, 16 nanometer info and followed by comments on our specialty technologies. First, 28 nanometer. The utilization rate of our 28 nanometer has recovered to a level close to 90% in Q1 this year and also the wafer demand increases.
We expect this utilization rate to remain above 90% for the remainder of this year. In addition to wafer demand increases, we also observed an increased number of tape outs in 2015. And those tape outs will mostly be produced in 2016. Most of the new tape outs are on TSMC's latest addition to 28 data miniature family, namely 28 HPC and 28 HPC plus. TSMC's 28 HPC, 28 HPC Plus offers higher performance and lower power consumption as compared with previous solutions.
It is suitable for application in smartphone, digital TV, consumer and networking products. In addition, due to the slow power characteristic, customer are able to design their product for low voltage applications, which are very important for the IoT devices. In summary, KSMV C 28 nanometer technologies are highly competitive in both technology and cost. We are confident that our 28 nanometer will contribute to significantly to 2016 revenue. And we expect to maintain or even expand our market segment share at this node.
Now 16 nanometer. We have successfully ramped up the production of 16 nanometer starting Q3 last year with very fast pace. Manufacturing indices such as yield and cycle time were achieved 3 to 4 months sooner than our 20 nanometer node and are ahead of plan. In addition to 16 FinFET products, in Q4 last year, we have completed the development of 16 FFC, the low power and low cost version for the 16 nanometer process. TSMC's 16 FFC incorporate process simplification and optional optical shrink for further die cost reduction.
It also shares the same design rule with 16FF plus so customer can directly transfer their product to 16 FFC. As a result, we expect 16 FFCY enter volume production in this quarter. As customer accelerated their technology migration into 16 nanometer node, we anticipate a significant demand drop in 20 nanometer in 2016. However, we also expect a continued ramp up of 16 nanometer this year and expect it to contribute more than 20% of wafer revenue in 20.60. We estimate our foundry market segment share of 16, 14 nanometer node increases from about 50% in 2015 to above 70% in 2016, exceeding the previous prediction we made in mid-twenty 14.
Now let me talk about the InFO. We have successfully completed InFO process installation in the new long term site and are in product qualification stage right now. We are on track to start infobodum production in Q2 2016. Because of the very custom nature of our current generation InFO technology, we do not expect adoption by a large number of customers. However, we do expect a few very large volume customers.
The majority of info application are for mobile devices, including IoT products. While we are ready for the 1st generation info volume production, we are also developing next generation inflow technologies for better performance and lower cost. In summary, we believe TSMC's InFO technology can enhance our customers' products in performance and lower the products of power consumption. Our expectation of Inflow contributing more than US100 $1,000,000 quarterly revenue in 4Q this year remain unchanged. Now let me talk about the specialty technology and IoT.
We believe IoT related application will be an important part of semiconductor growth in the future. In order to capture the opportunity of IoT business, TSMC has been developing technologies that fit IoT product requirements such as high speed computation, just mentioned by Mark, ultra low power transistors, sensors in many kinds, connectivity and etcetera. Some example I would like to share with you here. First, we are developing process to meet automotive standard for smart cars. We also developed the most advanced CMOS image sensor with multi meaning contact between the stack chips.
We have delivered the smallest footprint main sensor for various application. We have developed the ARCODO power Bluetooth solution for connectivities. Specialty technology are an important part to TSMC revenue. In 2015, more than 70% of TSMC's 8 inches wafer business was contributed by our specialty technologies. We have also observed increasing amount of our 12 inches wafer business has been contributed by specialty technology as well.
We expect the trend will continue in the future. Thank you for your attention. Now I turn the podium to Laura.
I have few comments to make. Let me start with CapEx. Our CapEx for 2016 is expected to be between US9 $1,000,000,000 to US10 $1,000,000,000 representing a 10% to 20% increase year over year. About 70% of the capital budget will be used for capacity buildup for the leading edge technology, majority 10 nanometer and R and D CapEx. Of the RMB9 1,000,000,000 to RMB10 1,000,000,000 number, about 10% will be used for back end, mainly InFO and 5% for China fab.
With this CapEx, our 2016 capacity will increase by about 10%. I'll talk about TSMC's structural profitability. TSMC's structural profitability is measured by its standard gross margin rate, SGM, which refers to a gross margin calculated at 85% utilization rate. In the past few years, TSMC has been able to steadily increase our SGM from the mid-40s level to a high-40s level despite higher CapEx, which led to a substantial increase in depreciation expenses. The improvement of our structure profitability is mainly due to the following: 1st, very careful planning and build out of capacity 2nd, intensive cost reduction through productivity improvement and better access effectiveness.
We are confident that we will be able to continue increasing our SGM in 2016. Now a few comments about China investment. On December 7 last year, we submitted the application to the Investment Commission of Taiwan's Ministry of Economic Affairs for an investment project to build a wholly owned 12 inches wafer manufacturing facility and a design service center in Nanjing, China. The main purpose for this investment project is to enhance our access to business opportunities in China market. With the establishment of a 12 inches wafer fab and a design service center in China, TSMC will be able to provide closer support to our customer in China and to extend our ecosystem to that market.
We will commence the investment project upon receiving the approval from the investment commission. My last comment is about the dividend. As you remember, our dividend policy is sustainable and trending to increase cash dividend per share. With our healthy free cash flow, we are considering an increase of cash dividend in 2016. This concludes my remark.
Thank you.
All right. This concludes our prepared statements. Before we begin the Q and A session, I would like to remind everybody to limit your questions to 2 at a time to allow all participants an opportunity to ask questions. Questions will be taken both from the floor and from the call. Should you wish to raise your questions in Chinese, I will translate that to English before our management answers your question.
Please press the pound or hash key. Today's Q and A session is hosted by our Chairman, Doctor. Morris Chang. The Chairman will answer some of your questions and will pass the rest to the co CEOs or the CFO. So we will begin the Q and A.
All right. I think we'll let Credit Suisse Randy Abrams to ask the first question.
Yes. Thank you. The first question, congratulations first on last year and also a good outlook for the coming year. The Q1, it seems like it's holding up relatively well, factoring in some of the high end smartphone weakness. I guess if you can go through just what's driving the strength, how much is TSMC specific as far as share gains or how much is coming from end markets or from other end markets outside of smartphone?
And off this higher Q1, what's your expectation for continued improvement in Q2? Because last year Q1 held up well, but then we saw a slowdown after that, If you think there's any inventory build again in Q1 this year?
You are asking, Randy, why is the Q1 holding up for us?
Why the Q1 is holding up? And then if you fear with the strength, how you expect the next couple of quarters if it could be the start of another build?
Well, actually, I wasn't surprised by our first quarter. You seem to be saying that it's holding up while the market is not holding up. I really think that if we have gained any share in the Q1, if we gain any share in the Q1, I think it will not be significant. I think that's the way the foundry market will be in the Q1, at least as far as I can see now. I don't think we have any nor will we be losing any share.
I suspect that we may be gaining a little share in the Q1, but I don't think it's significant. As to what sectors, well, the same sectors that we do business in. Communication, of course, is the big one. Mobile products, I think, is a big one. And then I think Laura has told you, consumer and then I don't see anything unusual.
Well, actually, Mark has talked about the end of inventory of surplus inventory. We think that at the end of the Q4, although the numbers are not out yet, but we think that the end of the Q4, inventory is supply chain inventory is already what about 2 days below seasonal. So because of that, I really, for a while, expected the Q1 to be stronger than what we are forecasting now. But the way we are forecasting it now is pretty normal seasonally. If you look at our past couple of 3 years record, I think the Q1 was always has always been a bit a few percentage points below the Q4.
I don't know. I saw like I can see him. I think we're managing the company well, but I don't think that's unusual.
Okay. I'll ask the follow-up on 2 Technologies. I think there's some change. 16 FFC, which is a lower cost. I think you mentioned it's actually in production this quarter, if I heard right.
And if you could talk about how meaningful because that will lower cost on 'sixteen in getting customers to migrate from 'twenty eight to 'sixteen if you see a more meaningful ramp of that node through this year. But the other side, info, it felt like last quarter you were talking about more customers beyond the high volume application. If you're seeing some delays or change in other customers or additional customers adopting info?
About the info on the 16?
Yes, it was a 2 part question. I know.
The first part I know is about the 16 16 FFC. And the second part is info, right? When you ask about whether more customers are using something. I will talk
about I've seen FX sorry, info for more customers.
Okay. C. C, would you answer the question?
16, the FFC first. Randy, you asked whether it is a meaningful cost reduction or something like that, low cost? Actually, a meaningful ramp.
If you expect a meaningful ramp, my question from 28% to 16%.
Yes, It's a meaningful rate. Through this year? Yes. This year. Okay.
Does that answer your question?
Suppose. Yes. Okay.
Now, Yif
I think his question was whether it's already in production, 16 FFC. Yes. Yes.
Okay. So it's a pull in by a few quarters.
And it is actually faster than we thought because of very successful technology introduction And using the same design rule, we don't have to change any design architecture or design ecosystem. So just a few minor categorization that's what's necessary, but it's okay. So it's a meaningful volume production. Now InFO, this is the last time I reported that we have a lot of customer working with us on the InFO application to their own to their product. The cooperation continues, but then it is the info at this stage is very customer specific.
Your layout, your die size, your application, your requirement on the total shipments, all different. So now we are focused on very large volume customers because we want to ramp it up quickly. And other application right now, we are going to introduce in the new generation with lower cost and better performance.
Okay. Timing for the new generation?
Next year.
Next year. Okay. Thank you.
Then the second well, we'll go to Deutsche Bank, Michael Zhou for the second question.
Thank you. The first question is regarding your 7 nanometer progress. It seems like you can enter 7 millimeter mesh production in the first half twenty eighteen. Is that correct?
Mark, We will
that's correct. Yes, that's correct.
So does that mean you will be ahead of all your competitors by at least 1 year in terms of mesh production schedule?
I do not well, each company's technology may be different. So each company have their own product roadmap. So we don't compare just by the date. It also depends on the content of those technologies. So but that's our schedule,
if and that fits to our customers' product development. Can we say your 7 nanometer performance will be ahead of all your competitors? Your 7 nanometer performance will be ahead of your competitor given that your timeframe will be
weaker? I wouldn't want to comment on this. We don't know the competitors'
specific numbers. Okay. Second question is regarding the EUV in fine millimeter. You highlight that it could be adapted UV could be adapted for UV for 5 nanometer mesh production. So would that help you explain your adjustment margin 5 nanometer versus 7 nanometer?
Would that be bigger for 5 nanometer adjustment 10 versus 7 nanometer tank if you can use EUV? You mean the demand? For demand. Since that's smaller, ICT and house can use UV, if you can I mean, if you can use EUV for 5 nanometer? Can we say that?
Your question is, will EUV improve the increased demand of our 5 nanometer? Yes, versus 7 nanometer. Given that 7 nanometer will not use EUV.
It's hard to compare because these two technology the purpose we use EUV to is to simplify the process flow. Therefore the yield can be higher. Secondly is to reduce the cost if the EUV's source development is according to that plan, the current plan. So for both factors, it will help our 5 nanometer, both yield and cost. And if you translate that into a demand, I think it's enabled more affordability of the 5 nanometer.
Anyway
you can disclose your average output for your EUV a day now? Okay. EUV, we are working on
the 2nd generation EUV tools and we are installing our 3rd generation EUV tools. And for the EUV, currently for the tool we have, we try to improve the reliability of the tools. And that is from the cost, we run several 100 wafers a day continuously
so that
we can debugging the tools. And that will prevail for quite some time to do that.
What kind of output do you expect that you can use a UV for the 5 nanometer mesh production? At what time, you mean? In one day, in average.
In one day, speed. Speed throughput.
Okay. At this time, we are we have demonstrated 500 wafer per day every day for over a period of time of a full month. So that was a demonstration. Then the rest we are working on we don't push to the extreme of the move, but rather we focus on the reliability of the tools. So the demonstrated is 500 wafer per day.
So does that mean if you can demonstrate that stably over the next 12 months, you will use that for 5 nanometer mesh production? Can we say that or Yes. Okay. Thank you.
All right. Next question comes from the floor and that will be from Citigroup's Roland Xu.
Xu. Thank you to take my question. Happy new Chairman and CEO. I think my first question Thank you. Thank you.
First question is for the you started your 28 nanometer with almost no competition in the market at that time. However, for last year, when you started the 16 nanometer, I think that we had a big competitor in the market. So question is, now we are moving to 10 nanometer. How do you think about the competition landscape will be? Will it be more like 28 nanometer or will it more like 60 nanometer last year?
Thank
you. The last part of your question, say it again.
I said, when you migrate, when we start 10 nanometer mass production by end of this year, how do you think about the competition landscape? Will it more like 20 nanometer or more like 60 nanometer?
On 10 nanometer, we intend to begin with a very high market share. We intend to begin with a very high market share and we intend not to lose it. Okay. Understood.
So I think another question will be, Chairman, you comment for 60 nanometer this year. Foundry market share anyway. Yes, yes, understood.
What's the next question?
I think Chairman's comment on 16 nanometer this year is having bigger market share in a much bigger market.
I think CC is 70% foundry market share.
70% for the CEC.
Yes, above
70%. Okay, understood. So, for that one, is this a much bigger market share you bought 2 quarters ago, about 70%?
I didn't understand your question.
You said you expect much bigger market share. So this 70% is is this bit your expectation, that plan?
I think exceeded the prediction we made a year and a half ago. As far as what I was expecting a year and a half ago, I don't even remember myself.
Okay. Thank you. And then second question is to Laurent. I think in October, you I like how you commented both the investment, 12 inches investment in China, you think the manufacturing cost will be higher in China than in Taiwan. So at that time, you said TSMC was still evaluating the investment in China.
However, I think in December, you decided to set up a plan and also design center in China. So what had changed during these 2 months for you to decide to invest in China? Thank you.
The cost doesn't change in 2 months, okay. The cost in China will be still higher than Taiwan in apple to apple basis. I think we have stated the purpose for us to put a 12 inches fab in China is to pursue the potential market growth. This is the main reason for us to invest in China. At that time, I think we are still evaluating and we're also in discussions with the China counterpart and early December and we have pretty much finished the discussion and we made a decision to go ahead with the application for setup of 12 inches fab and the design center.
So how about the ROI for the investment in China? So is that will be much below corporate average or that product will be improved over time. Is that right?
For case like this, we don't measure ROI. We just know that for manufacturing part because the scale is smaller and the cost will be higher, but we hope it can be compensated by the market share gain by doing more business in China.
Well, we do measure ROI even in this case. But remember our first priority. The rationale, let's say, of setting up a 16 FinFET plant in China is to enhance our access to the growing Chinese market. So, you know, while we do measure the ROI of the plant there, you also have to take into account that the increased sales that this plant is going to bring to us. And but to answer your question simply, we still measure the ROI, but the ROI, well, since the investment is really relatively small, frankly.
And we don't we put it really second to the increased sales that we'll bring in that this trend will bring in.
Very clear. Thanks, Chairman.
Yes. All right. Next question actually will be coming from a new analyst arriving
Thank you.
Chairman, the question is that so basically the revenue guidance for 2016 is somewhere around 5 percent to 10%. But I do recall that the earnings CAGRs in the coming 3, 4 years will be like 10% above. So which means that we expect some margin improvement this year? And what's more important is that as coming to 2017 or after, when the RMB10 100 and RMB7 100 will play a much more important role, do we expect the earning growth coming from the top line or from the margin improvement?
All right. I think Bruce's question is, if we guide 20 sixteen's growth being only 5% to 10%, but then we also said that our net profit will grow 10%. That was our 5 year whatever objective. So his question is, does this imply that we will have an improvement in margin and whether this improvement coming from the top line or from the profitability.
Well, that's more for the 2016, we probably can expect do we expect some profitability improvement in 2016? And what's more important is moving to 2017 when 10 nanometer play a more important role?
Okay.
Well, I'm sorry. He apparently clarified your interpretation. So I didn't get that. I understood what you said, but I don't
The only difference is that he's thinking beyond 2016.
All right. He's thinking you are thinking beyond 2016. And you referred back to the earlier target that we set that we'll grow profit 10% a year. That's a good answer and let me try to answer it now. Did I say it's a good answer?
Did I say it's a good question? It's a good question. It's a good question. Let me try to answer it now. We set that target in late 2014, I believe.
We said that we want to grow. We said that in the next 5 years, we want to grow profit, actually operating profit, not necessarily net income, no, operating profit, 10% a year. And that was more than a year and a half ago, I believe. Much has happened since then. Last year was a difficult year.
I said 10% compounded annual growth rate. Back when we set a target in late 2014, we were looking at a very good. We thought we were looking at a very good 2015. Now, 2015 turned out to be disappointing as everyone knows, but we still managed to grow our operating profit by about 10%. And 2016 will also be it will be I think it'll be better than 2015.
So we are at least mildly optimistic about 2016. So we have now, as Mark said, identified our growth in 2016 as 5% to 10%. Now, what he meant was revenue, but I was but Laura also said that our structured profitability actually is still improving. So I'm saying now, while mark meant revenue, I'm saying now that our operating profit will also grow 5% to 10% this year. Hopefully, 10% or even hopefully, even more hopefully, more than 10%, okay?
So, all right. What I'm saying is that we set the 10 year compounded annual growth rate a year and a half ago when things looked much brighter, much has happened, but we still managed for 1 year and it appears now we'll manage for the 2nd year of this 5 year above 10%. But I'm not repeating my pledge, my prediction that 'seventeen, 'eighteen, 'nineteen will continue to grow at 10% a year. I think that the livelihood of well, you just look at the semiconductor market, the prediction about the future semiconductor full market. It's 2% or 3% a year for the next 5 or 10 years.
But we have a premium. We have a growth premium. Now, a year and a half ago, I thought our growth premium of revenue and profit growth premium was at least 5%. Because back then, the prediction of all the semiconductor growth was better than it is now. Now, I still think we have a premium of some magnitude,
but
you will hear from me sometime, what our rolling 5 year projection is. The last time you heard it was a year and a half ago and so far, we have fulfilled it even though the circumstances were much more difficult than we thought they were going to be when we made the prediction, when we made the target. Did I answer your question?
Yes. Thank you. Okay, my second question is that one of the best things just simply did in past several generation is that 20 nanometer RMB much faster than 40, 20 RMB much faster than 28 and so the 16. That is can we expect that for 10 nanometer?
Yes. Thank you.
So that's nice, short and easy. Next question will come from the floor and it will be HSBC's Stephen Pelleo.
Let's start with Laura. 2011, I think, is when you guys started this capital spending ticked up for 28 nanometer. I think you were up went to 45% to 50% of revenue for a few years and dominated 28 nanometer.
Now this
year at $8,000,000,000 last year at $8,000,000,000 This year, up only 10% or more is now, I think, in the 30%, 35% of revenue levels. So this is what's generating the free cash flow and the potential for your higher dividends, but also what does it mean for your depreciation? And I also like you to answer that question maybe in terms of if you did start that big 28 nanometer CapEx 5 years ago, is there a roll off benefit that's going to be start happening soon as well?
I can talk about depreciation for this year with RMB 9,000,000,000 to RMB 10,000,000,000. The growth will be smaller than last year. Last year, I think it was 11%. This year, we expect to be a mid to high single digit, less than 10% growth.
Growth and depreciation.
Depreciation year over year growth.
We talk about growth, people usually associate.
Depreciation.
This is a decrease of depreciation.
Increase of depreciation.
The growth
rate
of depreciation, just want to slow it.
Mid to high single digit. Yes. Yes. Your second question referred to because a couple of years ago, we had very high capital expenditure and after the 5 year it will be depreciated. That's true.
That's true. I think in the next few years, we are going to see a lot of tool that has gone through the depreciation period. That's right.
Okay, fair enough. And maybe
if I could just
get a quick follow-up to C. C. To Randy's question, I actually wanted to know about 16 nanometer FinFET FFC ASP versus cost. Is this a higher margin opportunity for you here?
I say it's a low cost. I did not comment on the price, right?
The margin opportunity for FFC versus FinFET Plus. Higher.
Yes. Well, I mean, this actually, Laura gave the answer, I think in this in her structural profitability discussion, we've managed that very, very carefully. I mean, structural profit really basically is projected a price divided by projected cost
or
whatever, you know what I mean, it's just those two variables and manage that very carefully. And actually, I want to go back a little bit to the answer. I want to add to the answer I gave to Bruce. You said that he was new. He is new from
He was from CLSA now jumping ship to Berkeley.
Berkeley. Yes, okay. And I really think the key factors, why do we have a premium on over semiconductor market growth? Why do we have a premium? Meaning that our growth rate, our revenue growth rate, top line growth rate is likely to be higher than the semiconductor market growth rate.
It's because in 2 very simple words, it's because we are everyone's boundary. Being everyone's boundary has advantage of participating in the growth of whoever succeeds the best, whoever customer succeeds the best, we participate in it. And we have been everyone's foundry ever since well, maybe not when we started it, but certainly for the last 10, 15 years, we have been virtually everybody's foundry, and we intend to remain that way. Being everyone's foundry, fulfilling our mission of being the trusted technology and capacity provider to the IC industry. It means
that whoever
in our customer, among our customers succeed the best, we participate in that success. That's why I think that we have a premium of growth over the total IC market.
Now,
let's talk about the bottom line. Now, that's where structural profitability comes in as important. And we want to manage it such that the bottom line grows proportionately with the top line. And so just keep that in mind. And we are improving it actually.
We're improving the structured property. We're improving what we call the standard gross margin as Laura said. We have improved by several percentage points in the last few years. It depends on in fact, if I I usually look back to 6 years ago and since then, we have improved by at least by 500 basis points and we expect it to improve. Now being everyone's boundary and maintaining or improving our structural profitability still further put us in the right place.
And while I cannot answer you at this moment, that 'seventeen, 'eighteen, 'nineteen will still be 10% a year profit growth years, I cannot answer that, but I'm just saying that I have my I put my trust in our ability to be those 2 things, to maintain, to do those 2 things. First, be everyone's boundary and second, maintaining our structural profit bridge.
Sorry, Elizabeth, can I just quickly follow-up on that? So if depreciation growth is slower, if you have higher margin, faster ramp of 16 millimeter FinFET Compact, if you have currency tailwinds as well, if you have rising utilization rates, are we going to see a few quarters above 50% gross margins this year? Or is that kind of a natural ceiling? I don't know. I'm just
Well, if
things suddenly if demand suddenly surges and as a result, our utilization suddenly goes up, yes, you will see 50%. But it's just, you know, in restaurant, you hear about the margin on a meal, right. But, you care even more about filling the restaurant with the customers. That's how utilization you see. That's very, very important.
So anyway, that's all that also explains why we are Laura said it, we are very careful in building out capacity and building up capacity. You don't want to rent a lot of a big haul for a restaurant and then I have enough customers. So that's why we are very careful in building capacity. And I have said that many times in the past. We don't build capacity unless we have very high confidence that we will have customers using that capacity.
All right. Next comes questions comes from Goldman Sachs, Donald
Lu. Congratulations for
a very good result. Two questions, one is on info. So for the info, we are talking about different roadmaps. Can we understand that for the same customer over the years with different generation, you are going to generate more revenue per customer, per products? In other words, can you are you going to package more and more chips or doing something more, so that you can generate more revenue per customer?
And then the second question is, you will expand to other customers. So how can we forecast your info revenue growth in the years ahead? And also just to confirm, the CapEx we're in for this year is 10% of the total CapEx. So that's almost doubled last year. So is that a leading indicator for your revenue growth?
Daniel, you asked whether we package more chips or package more volume in the Inflow business?
Yes, per package. In other words, you can charge more and more revenue per smartphone per customer. Let's say for 1 iPhone, you generate $1 this generation, could that be $1.2, $1.3 the next generation and how fast each will be?
Okay. Let me answer that. We continue to improve the process and then coming out with a new generation of InFO technology. That will have more applications. And certainly, we expect the revenue will go up, right?
Profitability, that's our goal, of course. And so if you're asking whether that with the same customer, we continue to migrate into the new generation, the answer is yes. And we are developing the technology that can be adopted by a lot of customers. Today, we are not at that stage yet. Today is a very specific customized technology.
That answer your question? Yes.
And how can we predict the revenue growth pace of info. We have a base, it's over $100,000,000 by Q4 and more than $400,000,000 next year or some
Yes, it will be more than RMB400 1,000,000 next year. Then you are core, But I cannot give you exact number that because we're working with customers. Today, we just can tell you that we have few large volume customer.
Okay. Thank you.
2nd, Chairman, is for the Chairman. You just talked about you want to capture and be present in China, but I noticed that TSMC has been generating 60%, 70% revenues from U. S. Customers over the years, but TSMC has never built a foundry. I mean, there you have a small foundry in the U.
S. That's right. What's the difference between China? Well, that's the U. S.
And China
are 2 different countries.
That we
know. For doing business, I mean, what's the point? Then they can come to Taiwan. It's even closer than the U. S.
Well, I'm proud of the U. S, but U. S. And China are 2 different countries. Even the Chinese will tell you that.
The Mainland Chinese, I mean, yes. Did I answer that question? Did I answer your question?
I wish to hear more. Well,
I should say that we have used the phrase that our objective is to enhance our access to the Chinese market. I've used that phrase we have used that phrase quite a few times. And I must say that we don't say that in vain. We say that with some degree of assurance from
the
authorities.
Some will give assurance that building a plant there will indeed enhance our access to the Chinese market. And reversely, not building a plant there will not
ask. Okay. Thank you.
All right. Next question comes from Aiwa's Rick
Xu. Happy New Year, Mr. Chairman and our management. My first question is about the capacity. I know Laura talking about this year capacity increase is about 10%.
Could you give us more color in terms of breakdown, 28 nanometer 20 and 2016? In terms of year on year increase, throughout by year for this different technology nodes?
I will not give you breakdown by each node, but what I can tell you is very big portion of our CapEx goes to 10 nanometer. So you can imagine a majority vast majority of the capacity increase will be on the leading edge 10 nanometer.
You're asking about last year 10% increase last year?
It's about this year 10%. You're talking about this year?
Yes, I'm talking about this year.
You want me to give you a breakdown?
Yes, I just want to give you some idea that I know your 20s should be declining because this year 2020 is now your focus. And 2016, 2010 should increase a lot and 28 maybe not much. But I just want to get some more color about how much increase or decrease by different technology nodes on a year basis?
What you said is correct. We are not increasing any 20 nanometer. It will be migrate to 16 nanometer or 10 nanometer along the way. All the newly added capacity will be on 10 nanometer as the vast majority capacity increase. And 2016 will continue to increase, but we have spent a huge amount of CapEx last year for 16 kilo, but this year we still spend some money, but it's telling.
And I probably need to add that we also have productivity improvement in 16 nanometers, so that will give us capacity without spending much money.
It's a very good point.
Okay. Thank you so much. My second question is, I recently talked to some of your large volume fabless customers. And it seems to me that they're complaining that even they migrate to 16 nanometer this year, they're not enjoying much cost saving on per unit basis. So will you consider when you ramp up more 16 nanometer contribution, will you consider yields on pricing to your customers?
We did. And I'm not very sure that whom you talk to, but most of the customer in GOE that 16 FinFET, 16 nanometers performance and cost. All right.
So thank you.
Next question comes from JPMorgan's Gokul, Haruhana.
Thank you. My first question is on compute since you already mentioned compute as one of the biggest drivers, high performance computing. Now just wanted to understand that a little bit further. The traditional understanding of compute has been it's been a X86 inter dominated market. So when we talk about compute growth, should we think about TSMC taking TSMC enabling some of your customers to take share from that market?
Or is it completely greenfield areas where there's no standards like automotive and stuff like that you mentioned? And since you mentioned this is a 2 year kind of thing where you start seeing growth coming through, Could we have some kind of quantification if it's possible in terms of what kind of growth could be coming from compute as a segment? Right now, I think what you define is compute is probably about 8% of revenues 8% to 9% of revenues. That's my first question.
Okay.
When we talk about computing, we really not just including the data center and PC tablets, we also include the infrastructure as well as the edge computing devices. So our microliterature computing is actually for TSMCs, more opportunity in the infrastructure and edge computing. Among the edge computing, I mentioned a couple of our innovator product advancement. One of them is I mentioned about cars. And that is an area of a very active innovation we see.
We work with our customers working on it. And how far that product will come up is everybody's guess. But if you want a paradigm, the semiconductor content of a car today is about 6 times of the average smartphones. And because of the innovation in that electronics in cars, we see this 6 times will increase to 10 times by the year of 2020. So that is the promising we see.
And also that is very, very practical purposes for that to be proliferated. Yes. Okay.
And just a subset of that question, I think you mentioned about the ARM server efforts or non X86 server efforts. Could you give an update on what you're seeing on your customer side? Because I think until now that has been very small proportion of the market. But we've seen ARM itself give pretty bullish guidance for 2020 in terms of like 25% of the server market etcetera. Could you give some color in terms of what you're seeing given that you are the foundry for pretty much everybody as Chairman mentioned in the ARM server market?
Okay. That's
a tough question to answer. You know the data center and PC stronghold of major player already is incumbent, very strong. And however, the industry, many other players are looking for options at least. So we see our view is we see a lot of innovators, product innovators working in that area. And following that is only the industry estimates about how far the arms can move into the space.
And for the easier one, I think it will happen first in the tablet and PC. And I see before 2020 range from 10% to 30%. It's in anybody's guess. But I just assure you that a lot of innovators are working on that area and a lot of customers are looking forward to that happen.
My second question is, one of your bigger customers is moving to a competitor for a flagship chip. I think that's kind of very well known right now. Now One of our One of your biggest fabulous customers is moving to a competitor for a flagship chip this year. Now Chairman mentioned that in 2017 with 10 nanometer, you're going to start with extremely high market share and intend to keep that share. Could you share about could you think let us know what your thinking is about winning back share in this customer?
Because historically, you've seen whoever has left TSMC has kind of come back maybe after 1 year, after 1 generation or 2 generations?
We are
thinking about it all the time And I'm not going to tell you anything more than that.
Okay. So on the 10 nanometer side, so the confidence in terms of starting with extremely high market share, should we say this is going to be like higher than the 70% plus market share you will have in 16 nanometer when you start in 2017?
Well, I just don't want to be quantitative at this point. But actually, that was how we started with almost every node. Now, 16 turned out to be a discontinuity, 'sixteen. And we hated that. And so a year and a half ago, I vowed that we'll recover it and we have recovered it.
But we would rather not have the same thing happen again. So we want to put 10 back into, you know, where things were, where the order was before 'sixteen. Okay. Okay.
All right. I think we should go to the call. Operator, please have the next caller on the line.
Sean, the first question on the phone comes from the line of Brett Simpson from R. Wright Research. Please ask your question. Thanks very much. I just had a question on smartphones.
Can you talk about what growth you saw from smartphones in 2015 and how you see this trending in 2016, building on the rising silicon per unit that you see?
Is he asking about the market or is he asking about TSMC?
I think, Brett, you're asking about the market, right? Yes, TSMC. Okay.
No, no, sorry. I'm asking about TSMC versus the smartphone. TSMC. TSMC smartphone growth in
TSMC smartphone growth in 2015 versus whether well, whether we see rising silicon content continue in 2016?
Can you answer the question? Or do you even have the data that
I mentioned that for every high
end smartphone,
our phone, the wafer value we get this year will be increased by 8%, 7% or 8%. So that number is smaller than from 14% to 15%. I don't remember the 14 to 15 number.
Okay. Maybe just a follow-up on 28 nanometer. I think you said in the past, Mark, that 28 nanometer is going to grow in revenue terms in 2016 after it declined somewhat in 'fifteen. Can you give us an update on how you see 28 nanometer outlook this year?
Go ahead.
On the 28 nanometer revenue, C. C, can you comment on
that from?
We see the increased demand and you're asking about the revenue growth?
Probably flat. Yes. What growth? Yes.
Probably flat, considering that more demand, but pricing dropped. So it will probably flat. I would like to say that.
Okay. Thanks. And just one final question. Laura, I think you said China is 5% of CapEx this year, the China facility. Can you talk about what the total CapEx will be for China?
And how might you fill this fab? Will you be transiting equipment already in operation or will this be incremental capacity for TSMC? Thank you.
This year, the China CapEx will be about 5%, it's a couple of $100,000,000 There's a multiple year project and the current plan for China is to install a 20,000 wafer as a starting point and to be manufacturing in 2018. So from now 2016 to 2017 will be the construction period for new fab. So this year will be couple of $100,000,000 next year will be bigger. Actually, 2017 will be the most bigger one. The total investment that's based on 20,000 wafer is approximately US3 $1,000,000,000 multiple year project.
Thank you very much.
All right. We still have another caller on the line. Operator, could you please proceed to the next caller?
Your next caller on the line comes from the line of Mehdi Hosseini from SIG. Please ask your question. Yes. Thanks for taking my question and happy to be here. I want to ask you about the key assumptions that are going through the year end guidance of 5% to 10%.
What is your assumption if revenues were to be up 5%? And what are the assumptions if revenues are up 10%?
As it relates to our revenue growth, as it relates to the semiconductor market growth? TFMC's revenue guide of 5% to 10% growth. Yes. Well, that estimate is actually is made on 2 basis. The first base is the semiconductor market growth and the foundries growth, which Mark already mentioned, we estimate the semiconductor market growth will be 2% and the foundry growth will be 5% this year.
And we also have a few other relevant growth indices such as fabless growth and our customers' collective growth. And well, I think those are the most relevant indicators. And so that's the first base. That's the first basis on which we estimate our growth this year. The second basis that we do estimate is from the field, from the regional, our own field sales estimates.
Each region reports its own estimate of the growth in this region. Actually, we have a third estimate, but the third estimate is basically a synthesis and a reconciliation between the first two. So I hope that answers your question.
Great. Sure. And just as a follow-up to this, I want to better understand some of your conservatism built in this guide. This time last year, you were expecting the revenue to grow by more than 15%. But unfortunately, overall end market demand wasn't that strong.
Now when you're starting the year at a lower growth rate, what are the key assumptions for handset sell through? It seems to me that the Chinese handset OEMs are building inventory. There is a risk that sell through is not going to be there. 1 of the key leading EuroSpace handset maker is facing some challenges? And in that context, how much of a conservatism is done into these guidance?
Well, I think Mark said that our estimate of handset smartphone sell through is 1,500,000,000 units worldwide, 8%, I think, 8% growth over last year.
Mehdi, I guess your question is whether or not we have been too conservative or being too optimistic about our forecast of the smartphone growth?
Yes. Thanks for clarifying that. Yes.
Let me ask some comments on this question. The compared this year and last year, there is at least 2 major differences make lead us to make the current forecast. One is when we entered the beginning of last year, we did not know the inventory build up is very, very high. I still remember 11 or 12 days above seasonal. And then this year, however, we consider the drastic reduction of the inventory during the Q4.
We have a better estimate the starting point of the year. And secondly, of course, is the macroeconomics of this year, as you know, is still several uncertain factors in it. Therefore, we were just taking those two factors into account to make our current forecast. And therefore, it will at least to a bigger range.
Got it. Thank you very much for detailed color.
Thank you. And let's come back to the floor. There are quite a few hands raised up. I'll ask the people who have not yet had the chance to ask questions first. And that first one goes to all right, Sebastian, CLSA.
Thank you for taking my questions. So my first question is regarding the 10 nanometers. So earlier, Chairman said that intent to maintain high market share initially at the beginning. So do you have any sense in mind that what kind of revenue contribution you'll see by Q4 2017? Would it be similar to by 15% to 20% you had back in Q4 2014 on 20 nanometers?
Well, C. C, do you have any idea? He's talking about 2017.
Yes, I know.
4th quarter.
The Q1. If you I don't estimate the customer's demand, but if I can give you an answer that what year it will be higher
because of You are higher than You
are higher than the 20 nanometer in the Q4 of 2014, higher than the 'sixteen we've had in the Q4 because of continued growth.
Thank you very
much. And also on the 10 nanometers earlier, Bruce asked about the faster ramp and C. C. You answered that it will be faster ramp compared to the previous nodes. So does that mean that the yield ramp or the yield learning curve will be faster?
That means you are going to reach the corporate average margin faster than the previous lows?
Well, not necessarily because the margin is determined by price and cost. You may learn faster on the cost, but
But basically,
we look at the total company structure profitability and we maintain that. So, I don't really particularly want to talk about node by node profitability. Of course, in the past, we have said under pressure from you, How soon will reach corporate average, etcetera, etcetera. But today and actually last few times, I kept assuring you that we are looking out for the corporate average. The corporate average, of course, has got the new node in it and the new node in fact is likely to be a very important part of the corporate average.
But we look at the whole thing. I mean, look,
we manage a portfolio.
We don't manage just a single stock. I'm talking figuratively. We manage a total portfolio of technologies not just a single one. Thank you.
My second question is on specialty technologies that the we heard that a lot of the foundries, even the Tier 2, Tier 3 foundries are promoting their specialty technologies for IoT and more and more. So we wonder what's the special strategy that TSMC has in this field? And do you think you'll lead those funders by a lot?
What was the question?
All right. Sebastian is asking when we talk about specialty technologies, he also noticed that there are a number of other foundries that are also claiming to working on IoT and more than more. What is going to be TSMC's differentiation? Do we have a substantial lead over other foundries?
We differentiate by the customers trusting us. We differentiate by the technology we have. We differentiate by our manufacturing ability.
So thank you. So what kind of the growth this special technology do you expect to contribute to TSMC in the next 5 years?
So you see? Would you please repeat your question again?
Oh, yes. I mean How much does how much will IoT contribute to our revenue? I think that's your question, right? Yes.
Thanks, Chairman. All I
can say is increasing. I give you a number, a specific number on the 8 inches wafers. Now it's moving into the 12 inches wafer business. And it's increasing. So you are dependent on the market situation, say, how fast the IoT will grow, right?
So growth rate is enormous, but the base is relatively thin.
Okay. Thank you.
All right. Next question goes to Morgan Stanley's Charlie Chan.
Thanks for taking my question. My first question is on the capital intensity. So if we average out this year and the last year CapEx is around US9 $1,000,000,000 per year and then similar level to 2014 CapEx. And our revenue growth is growing at 10% and this year high single digit. So that means capital intensity is decline.
So we'd like to get your updates on the capital intensity whether this is an industry phenomenon or it is because of much better execution from TSMC?
Well, we predicted that our capital intensity, the way you defined it, CapEx divided by current year revenue, we predicted quite a few years ago that it will go down and it's going down. So, the update is that, yes, our prediction was correct. It will go down.
But I think Charlie's question is whether or not this decline is TSMC specific or it is an industry wide phenomenon?
I think it's I hope I do think it's PSMC specific because I think we do a better job in improving our asset effectiveness.
Okay. Thank you. And then
my next question is on potential dividend payout increase. And so Laura, can you quantify the increase of the cash dividend payout this year in comparing dollar per share or the payout percentage? Thank you.
I said we consider an increase, but we need to discuss with the Board. Before we do that, I would rather not to quantify that, but I can tell you it's not going to be a trivial number.
Okay. Thank you.
All right. Now there are
follow-up questions from Credit Suisse Randy Abrams.
Yes. The follow-up, in the packet, your currency last year was 31.7%. We're currently at 33.5%. Percent. Could you clarify the 5% to 10% sales and margin if that's U.
S. Dollar? So in NT dollar, you would grow 10% to 15% and then also for margin, if structural profitability, I mean, if that factors a currency benefit?
I'm sorry, I need to hear your numbers again. Well, Laura will answer the question, but I was curious. I want to hear your numbers.
So NT dollar like in the packet, it was $31,700,000 for the average last year. Today, it's $33,49,000 So you're getting a pretty big benefit both on sales and margin.
Well, but today, it's only, well, 14th day of the year. Okay. Okay. Yes. Okay.
Will you make a prediction to me, please? Okay. What does the U. S. Exchange rate will be?
I can't predict exchange rate, but is your guidance based on U. S. Dollar or
is it based on local currency? Well, anyway, look,
well, why don't you? You heard this question, right?
I heard you. I think you're probably saying we are conservative and we cannot reflect the potential upside from FX gain. We have said many years ago, there's a rule of thumb, any 1% of exchange rate change will have 0.4 percentage point to our margin. This formula still works. So you can work on your math, if the exchange rate move 1%, that's 0.4% each point to our profitability.
And we sell almost 100% in U. S. Dollars And our guidance was in NT dollars based on a 23.2.5 percent exchange rate for the Q1.
And that's your full year is based on that, the 5% to 10%?
No, no, no. It's only we are talking about the Q1. Are you saying Chairman's 5% to 10% growth based on what?
Yes, based on what currency? Is it based on U. S. Dollar?
The 5% to 10% growth rate revenue growth rate, it will be either U. S. Dollars or NT. Yes, it will be all within that range.
Okay.
Okay. And then the follow-up question. You had a lot of reuse from 20 to 16. 28 has had a long life. But as you start to migrate customers to 16 with the FFC, can 28 be migrated efficiently to FinFET or 10?
Or do you expect to keep that node at 28? Can you migrate and reuse the 28 if demand starts to fall next couple of years?
I'm sorry, I didn't hear the question.
So, Randy, you're asking whether or not 28 nanometer capacity can be migrated to produce FinFET.
28 nanometer can be migrated to what?
Produce FinFET.
Produce FinFET 28 to FinFET. Well, I imagine well, there's so many well, the simple answer is some of it is, okay? Some of it will be. But do you have
a more demand? We have done that, but we see our 28 nanometer demand continue to be sustaining what the capacity we are having today. So hopefully, we stay competitive and keep that demand. And
All right. Thank you.
All right.
In Canada, we still have 1 micron equipment that's being utilized now. So to convert one node of equipment to another node is not our first priority.
Okay. I see a hand over there, but I do not really know you. Can you identify?
Yes. My name is Ken Koyanagi with Nikkei Asian Review from Japan. I understand you made a decision about China investment after last fall election. And I'm just curious how you reached that condition decision after assessing how what political risks are involved in this investment? How did you assess the political risks, especially after the election and right before the election, which will probably change the political landscape of the cross trade relationship.
What do you mean by political risks?
Well, I think you can think
of a lot of scenarios. There will be more tensions between the two territories between the Channel Strait and which might affect how you will be treated by the Mainland Chinese Government?
Well, we are a business And a lot of businesses a lot of Taiwan businesses are in China. And we are really among the ones that are investing in each other the least. We are among Taiwan companies, I think we are perhaps and if we consider the relative size and so on. We still have more than 90% of our people, of our employees in Taiwan. And the capital investment we have made in China so far was minuscule compared to the investment that we have made in Taiwan.
So yes, we have considered all these risks. In fact, we discussed our proposal with a lot of people. So and we did reach this decision of making investment in China, building a plant and also setting up a design center, a design service center. That's important too. That's important for enhancing our access into the Chinese market.
So, yes, we have considered all these risks. Yes. Well, if you call them risks, I mean, it seems to me, a lot of people have the U. S. American companies have made a lot of investments in China too.
And
so, yes. HSBC, Steven Pallejo has a follow-up question.
There's been an unprecedented amount of semiconductor M and A in the last, I don't know, 15 months or so, more than the last 15 years. I'm just curious if you're seeing any short term impacts of these companies consolidate and rationalize that's impacting any of your near term demand? And then if you have any thoughts maybe longer term on terms of the purchasing power of a much larger, stronger customer?
Well, the 3 big ones last year as far as we were concerned were Intel's acquisition of Alterra, Argo and Broadcom, NXP and Freescale, yeah. All 6 of them, I'm talking about both the acquirer and the acquired, all 6 of them were our good customers. And after the combination, will be 3. And I hope and I have reason to expect that the 3 combined entities will continue to be our good customers. That's what being everybody's foundry means.
It doesn't sound like Sudesh.
One more follow-up. That's an audio question.
It was an audio question.
Near term as well, I'm curious as they're trying to rationalize their businesses and consolidate these 2. Are they slowing maybe their order activity to try to figure out what their final company is ultimately going to look like? Are you seeing any short term impacts?
No, we don't see any short term impacts. No. Okay.
And then my second question was, you had an anchor customer at 16 nanometer in the second half of twenty fifteen that appears to be staying on 16 nanometer as they go into 2016. Does this mean there could be die size increases as they add more functionality and perhaps more wafers needed from you?
Your question is whether they increase
the die size? I'm saying
that 2 years ago, you kind of went from 20 to 16, so you had this node jump, so they could your customers could kind of keep their die size the same by adding more functionality. Now they're staying at 16 nanometer, some of the anchor customers. And so I'm wondering if maybe that means the die size is going to increase and thus require more wafers from TSMC to meet the same unit?
Well, I don't comment on the die size, but I tell you that they add a lot of functionality inside. So you look at the smartphone, they all become better and better.
Okay. Fair enough. Thank
you. All right. Due to the time consideration, we will conclude our conference at this point. So before we conclude today's conference, please be advised that the replay of the conference will be accessible within 3 hours from now. Transcript will be available 24 hours from now.
And they are all available through our website. Thank you for joining us today. We hope you will join us again next quarter. Goodbye and have a good day.