From a geographic perspective, revenue from customers based in North America accounted for 69% of total net revenue, while revenue from Asia Pacific, China, EMEA (Europe, Middle East, and Africa) and Japan accounted for 7%, 13%, 6%, and 5% of total net revenue respectively.

The Company’s owned capacity in 2019 is expected to exceed 12 million (12-inch equivalent) wafers, including capacity from three advanced 12-inch GIGAFAB® facilities, four eight-inch fabs, and one six-inch fab, in Taiwan, as well as TSMC’s wholly owned subsidiaries, WaferTech, TSMC China, and TSMC

7-nanometer contribution reached 9% of wafer revenue in 2018. 10-nanometer was 11%. And the combined 16/20-nanometer contributions was 23% of wafer revenue

7nm 23% of Revenue for Q4

64% of revenue from communications, 11% from computer, 20% from Industrial/standard, 5% from consumer. Not sure what each of these entails though.

Moving into first quarter ‘19, our business will be dampened by the overall weakening of the macroeconomic outlook, mobile product seasonality and the high level of inventory in the semiconductor supply chain.

Due to the overall softening economic environment, semiconductor supply chain inventory exiting 2018 stay at a much higher level than seasonal. We expect the excess inventory in the semiconductor supply chain will take a couple of quarters to digest. And the overall supply chain inventory will gradually approach to the seasonal level around the middle of this year

Now let me make comments about the CapEx. As I have said before, we believe USD 10 billion to USD 12 billion capital budget will be sufficient to support our average growth of 5% to 10% per annum in the next few years. Given the macroeconomic outlook in 2019, we are tightening this year’s capital spending by several hundred million dollars to a level between USD 10 billion to USD 11 billion. That said, our commitment to support customers product ramp remained unchanged.

Out of this USD 10 billion to USD 11 billion CapEx for 2019, about 80% of the capital budget will be allocated for other advanced process technologies, which includes 7-nanometer, 5-nanometer and 3-nanometer. A little more than 10% will be spent for advanced packaging and mask making, and about 10% will be spent for specialty technologies. So this is about CapEx.

Due to the recent changes in high-end smartphone business condition, our 7-nanometer capacity will see a substantial cutback on utilization rate in fourth quarter

We forecast a slowdown in global GDP growth from 3.2% in 2018 to 2.6% in 2019 due to the weakening macroeconomic conditions leading to a low growth for the semiconductor industry.

For the full year of 2019 we forecast the overall semiconductor market excluding memory will grow 1% while foundry growth will be flat.

Our N5 technology development is well on track, with customer tapeout schedule for first half 2019 and volume production ramp in first half 2020. We are already in preparation for N5’s ramp. All applications that are using 7-nanometer today will adopt 5-nanometer

In addition, we are expecting the customer product portfolio at N5 and see expanding addressable market opportunities. We expect more applications in HPC to adopt N5. Thus we are confident that N5 will also be a large and long-lasting node for TSMC.

We now become more conservative on CapEx it’s because of we forecast a slower – a lower 5-nanometer demand at the initial ramp

we forecast the number of the units of the smartphone, especially high-end smartphone, to be negative growth, the mobile business, we still grow slightly on this year regardless if the unit is dropping

Question about 2018 per segment revenue

Smartphone grows slightly. IoT grows double-digit. Automotive will be flat. HPC, if we’re excluding the cryptocurrency mining, HPC also grows slightly. But cryptocurrency is a big drop from 2018 to 2019. So if we put the cryptocurrency together in the HPC, it’s a big drop. It’s almost a double-digit.

For 2018, smartphone roughly accounts for 45% of our wafer revenue. HPC, about 30%, 32%. IoT, single-digit, 6%; automotive, 5%; digital electronics, 6% and there’s other 5% here

there’s a lot of application, new application that add into, that’s one, such as AI and something. We expect in the future AR/VR will be inside. The second thing is 5G itself will increase a lot in frequency band. And so that will add the silicon content inside. I’ll give you a kind of feeling that the smartphone unit will drop a few percentage. TSMC will still grow the smartphone business. So that means there’s a lot of increase in that revenue, it’s because of silicon content, in terms of the smartphone business.

Question about how big the contribution of crypto was last year

A lot. We don’t want to specify too much of the segment, particularly it belongs to one of the big customers. So…

I think 7+ will be also included in the whole 7-nanometer. And N7+ total revenue will still be somewhere around the TWD 1 billion. (~$32M USD)

7+ is not a major node, but rather it is a technology good for second wave and third wave customers. So it is come up slower when the first wave products or first wave customers ready to convert to the lower – to another improved version. So it’s – it doesn’t conflict with our 5. 5 is another major node.

Question about where decline in demand came from

High-end smartphone is one thing, and then others seeing the drop, actually you can imagine that cryptocurrencies mining, they dropped quite a lot. And then related to that might be some of the high-performance computing that you can see from other applications that related to the cryptocurrency mining.

Question about utilization rates of various nodes

*So 7-nanometer really is the major underutilized. *

7nm HPC Small Volume H2 2019, Mass Production 2020

Question about 7nm HPC ramp not being large in 2019 despite numerous new customers

But their ramp will start from probably in the second half this year with the small-volume and then going to the mass production next year.

Q: And my second follow-up has to do with the 5-nanometer ramp. And I’m trying to better understand your visibility and tapeout engagement. Should we expect a 5-nanometer ramp in 2020 to look more like a 7 or is that going to be a steeper? Any color would be appreciated.

Well, let me comment on that. 5-nanometer are ramping in 2020. I would expect that product portfolio is expanding more as compared with the 7-nanometer in 2018. How much of a steeper of that one, it will be similar or probably we’re a little bit conservative. But today, we saw the better product portfolio, better customer portfolio. But steeper ramp probably will be similar.

Q: Sure. Should we assume that 5 would become bigger than 7 in 2021? Is that when the true benefits of 5 and the customer diversification that will materialize?

From today’s situation and customers we engage with, yes, 2021 5-nanometer will be bigger than the 7-nanometer’s same period of time. (2019 for 7nm)

Q: - I’m not sure how you classify the autonomous driving, right? But auto I think it used to be kind of a segment the company expects strong growth. Why this year we don’t…

Yes. Auto if you look at the past 2 years, it’s a very strong growth, 27%. But as you know, since last year, suddenly the automotive markets almost stopped growing. Many of our customers say the same thing. Very consistently. And some of them has attributed to the steel and aluminum tariffs. And that is I think is the structure of the automotive. In terms of the long-term, we still see the innovation of automotive will come out of this.

Question about dividend

Despite the short-term market weakness, if we look at free cash flow that we can generate remain very strong. So we plan to further increase dividend in 2019. We will get the board approval in February. So will make announcement after that.

Question about 5nm tapeouts

Okay. On the N5 progress, I just reported that our progress is on track and we work with the customers. And you say that whether our customers have worry or concern on EUV’s readiness or stability and those kind of things, no, they are happy with us. We worked with supplier, we worked with the customer on both side and our progress is so far, so good. Now whether that they want to move into N5 or stay in the 7, all I say is all the customer who are working with us on N7 are engaging with us at N5. The product, when they want to introduce into the market that is our customer’s judgment. Because N5 did offer very good performance per se as compared with N7. So some of the high-speed computing, some of the high-end smartphone, they still need to go into N5. So you would expect those customer will adopt the N5 immediately that when it is available, okay. So number of the tapeouts, I cannot tell you right now. But I already told you that all the customers are engaging with us.

Question about packaging business such as COWOS and InFO

The back-end last year is about 2.5 billion. And going forward, currently, we see the double-digit growth at least year-over-year. To clarify, backend business still is in initial stage because as you remember initially, our backend was adopted by the smartphone. But now more and more, we see the high-performance computing customer in the 5-nanometer. Almost all of them adopt – wants to adopt what we call advanced packaging. So we see the advanced packaging business is coming to support our high-performance computing products across the leading edge customers. Just to make the record, from now on, we call – we don’t call backend. We call that advanced packaging because we realize that packaging is very different than the OSAT business we used to know

Q:And given the current macro uncertainty, have you noticed any of your customers which are during the tapeout on 7 right now, become more hesitant or cautious in terms of the production schedule?

No, they are being very aggressive because of 7-nanometer has very good performance. So they can sell them to gain the market – to their product going to the market. So it’s not slowing down. It’s actually accelerating a little bit.

7+ will start to ramp probably second half or the fourth quarter of this year. Mass production will be expected in 2020.

Q: Last year, the raw wafer negatively impacted gross margin. How about this year? Are we going to still see the same change or we happen to see will be reversed maybe a benefit for this raw wafer price on margin?

We have signed a long-term contract with our suppliers in 2017 and '18. So lock in the long-term supply and also lock in the price. So we do not see any further price deterioration for us, yes.

Q: Okay, yes but given now that demand is declining and are we going to renegotiate these longer contracts with the wafer suppliers?

Yes.

Q: Second question is by when you will see your CPU revenue to reach 1% of your total revenue and also by when you will see the CPU foundry also coming from multiple customers?

That’s some very specific 1% but just say that we started working with the CPU customers and starting from 7, 7+ and all the way to 5, okay? And when time’s up I’ll report it here, say what is percentage that we got from the CPU, okay

I think you can calculate from our customers’ financial.

Question about tariffs and chinese fabs on old nodes

Okay. You talked about fab location, right? It is – as you know, we have – when we build fab, nowadays we only build the leading edge fabs. That is we’re doing 5-nanometer fabs, preparation and we’re building 3-nanometer. And the decision was made to build in Taiwan, okay? And of course, with across-the-board support from the local and administration here. Upon the trade tension, I think it appears that we will, at this point, it seems that there are much – it is good to build a fab in Taiwan. But actually, we have almost none request from our customers to change the plan we have. We – but however we do constantly assessing and deliberation about what’s the pros and cons of that plan and whether there are other options. But so far, we haven’t changed our plan. The prime reason is this: When we ramp the leading edge fabs, as you know those are really for the high-performance computing or smartphone launch, the ramp is very tight. Time-to-market is critical. And to have a leading edge fab ramp not only this fab has to be closely coupled with an R&D fab, which is in Hsinchu, the 2 teams also work as 1 team, also this fab has to collaborate with other fabs in TSMC. As our founder mentioned, there are thousands of engineers, transport from fab to fab to cope with this sudden ramp of those resources needed. So those are the background of those leading edge fabs. When we open book with our customers, this is the best sure way to ensure their product announcement and product launch and the request conversation will take them back. But we’re constantly watching this on bigger geopolitical change. Of course, at this present time, we do not have plan to change that.

from Daily Technology News http://bit.ly/2B1KVY0
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7nm HPC Small Volume H2 2019, Mass Production 2020

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