Funny comments from the Q&A:
Gokul Hariharan
Congratulations on a great result, and thanks for the details on N3 and N2. My first question is on the technology leadership. Given we are hearing a lot of competitive messaging from your U.S. IDM competitors/customer in the last few months, Intel seems to think that they will be getting into technology or process technology leadership in 2025. Just wanted to hear what does TSMC think of Intel's claim?
Dr. C. C. Wei
Well, Gokul, this is C. C. Wei. Let me answer your question with a very simple answer, said, no. But what I was stated a little bit long? Actually, we do not underestimate any of our competitors or take them lightly.
D.A.N.
Dr. C. C. Wei
Having said that, our internal assessment shows our N3P, now I repeat again, N3P technology, demonstrated comparable PPA to 18A, my competitors' technology, but with an earlier time to market, better technology, maturity and much better cost. In fact, let me repeat again, our 2-nanometer technology without backside power is more advanced than both N4P and 18A, and while the semiconductor industry is most advanced technology when it is introduced in 2025.
D.A.N.
As I have commented before, CC Wei is a fierce competitor which is a big change for TSMC from previous management.
Charlie Chan
So first question is about, do you see that overall fab utilization to pick up anytime soon?
Dr. C. C. Wei
Well, Charlie, this is C. C. Wei, again. Let me answer your question. As I said, we do observe some early signs of demand stabilization in PC and smartphone end markets. Those two segments are the biggest segment for TSMC's business. We want to say that 2024 will be a very healthy growth. But right now, did we see the bottom very close. We want to -- I cannot give you a number, it's because it's too early to call it a sharp rebound.
D.A.N.
Let's hope for a sharp rebound in 2024, absolutely. There was AI discussions but this is the best statement:
Dr. C. C. Wei
Okay. Let me answer, whether customer developed the CPU, GPU, AI accelerator or ASIC for all the type for AI applications, the commonality is that they all require usage of leading-edge technology with stable yield delivery to support larger die size and a strong -- design ecosystem. All of those are TSMC's strength. So, we are able to address and capture a major portion of the market in terms of a semiconductor component in AI.
N2 Challenges:
Dr. C. C. Wei
I'll answer that other as technology moving into more and more advanced node, the challenge is always there. Technology complexity increase dramatically. But we can do it, no doubt about it. And we still remain the technology leadership in this industry.
If you ask me, what is the most challenging part, I would say it's cost. I mean, that you look at it today inflation, everything, and the tool have become more and more expensive. Although, we can do it on time to meet customers' requirement.
Our challenge right now, actually, I would say, number one, cost. I want to reduce the cost so more customers can afford it.
But even with that, actually, we have a lot of customer interested and engaged with the TSMC today. Actually, it's probably higher than the N3 at a similar stage. Okay.
D.A.N.
This is a bit of a surprise to me. The Intel 18A, Samsung 3nm, and TSMC N2 PDKs that are out now are very competitive. Intel is leading on performance, TSMC is leading on density and power, and Samsung is rumored to be strategically pricing their wafers below Intel and TSMC. I have not heard specifics but previously Samsung was 10-20% less than TSMC.
The one thing that TSMC has, which is a great advantage, is the ecosystem. With 90%+ of the design starts on N3x, the 3nm ecosystem is all about TSMC. That will carry over to the N2 design starts and enable the masses. My big question is cost. CC Wei mentioned cost as their biggest N2 challenge so we shall see how it all plays out. I still do think a lot of business will stay with N3 until the second wave of N2 comes about which will hopefully have a cost reduction.
Question on automotive demand (which is down 24% this quarter):
Dr. C. C. Wei
So let me answer the question on automotive demand. In fact, in the past three years, automotive demand is very strong. And we deliver whatever they asked. And today, I think the automotive demand already entered the inventory adjustment mode in the second half of 2023. However, we still expect the automotive demand will increase again in 2024 because the more and more EV, more and more functionality being added to automotive. And that's what we saw.
Question on 7nm utilization which is down again this quarter:
Dr. C. C. Wei
Now talking about the N7, the 7-nanometer technology, why we have such a low utilization or the revenue decrease, it's go beyond our initial original plan because of -- we expect the N7 to be very fully utilized even now, but it is not. Let me answer the question because of -- we suddenly have -- in 10 years, the smartphone demand dropped dramatically from about 1.4 billion units to about 1.1 billion now. So that exactly, in this time frame, the N7's utilization has been impacted and followed by one major customer who delayed their product introduction. And so that's why we have a low utilization.
But saying that, we are confident to backfill our 7-, 6-nanometer capacity with additional wave of specialty demand from consumer, RF, connectivity and other applications and will return to a healthy level of utilization over the next several years. This is very similar to a situation that we have 28-nanometer, back in 2018 and 2019 time frame, okay? At the beginning, it was underutilized for a period of time, and we worked hard to -- with our customer and then for developers, some specialty technologies and then now we have to expand 28-nanometer specialty capacity. That's the same kind of a story.
Question on Edge AI requiring leading process technology:
Dr. C. C. Wei
Well, the edge device start to -- that's including smartphone and PC, start to incorporate the AI functionality inside. We observed some of the neural engines has been added increasingly. So, the die size will increase even the unit did not increase dramatically. But the die size is in mid-teens -- or no, I mean, mid-single digit is the die-size increase so far. And I expect that this kind of trend will continue.
And so more and more application of the -- on the AI side, what be incorporated into those kind of edge device. And that one need a very power-efficient chips to put into the edge device, especially when it is mobile. So I do expect -- for my own perspective, I do expect that my customer will move into the leading edge node more and more quickly to compete in the market.
Question about silicon photonics:
Dr. C. C. Wei
Okay. Let me answer that question. Silicon photonics actually is growing its importance because of just a larger amount of data need to be collected to process and transfer in an energy-efficient manner. Silicon photonics tends to be the best to fit that role. And TSMC have been working on silicon photonics for years and most importantly, we're collaborating with multiple leading customer and -- to support their innovations in this field.
It takes a lot of time to develop the technology and to build the capacity. And when we increased the volume production, we believe that TSMC's silicon photonics will be the best technology and when customer roll out all their innovations. But as I said, it's gradually increasing in their activity and gradually increasing their demand as of today.
Question about advanced packaging:
Dr. C. C. Wei
Let me answer that. It's not because of increasing of the cost in the more advanced node. And actually, they tried to -- our customers tried to maximize the system performance. That's the major portion. That, including the kind of speed improvement or the power consumption decrease, all those kind of things, put it all together and maybe cost is also part of the consideration which we noticed about.
And so more and more customers moving into the very advanced technology node, and they start to adopt the chip-based approaches. And so, that no matter what, TSMC provide industry-leading solution in both leading technology and also well-advanced packaging technology, and to work with our customer for their product and have a best system performance.
And the other one is, you are asking about the SOIC, when it will become a high volume and more substantial revenue for TSMC. It's coming. It's coming. Actually, the customer already ready to announce their new product, which are widely adopt, and I expect starting from now and next year, the SOIC will generate revenue and become one of the faster-growing advanced packaging solution in the next few years.
Question about CoWoS:
Dr. C. C. Wei
Well, Sunny, the last time we said that we will double our CoWoS capacity. We are working very hard to increase the capacity more than double, but today is limited by my suppliers' capability or their capacity. So we still maintain that we will double our CoWoS capacity by the end of 2024. But the total output actually is more than double from 2023 to 2024 because of a very high demand in -- from our customer. So actually then, this kind of a trend will continue to increase our CoWoS capacity to support our customers even into 2025.
D.A.N.
Great call, the drop in customer inventory is a very good sign, absolutely!