Taiwan Semiconductor Manufacturing Company's (TSM) CEO Mark Liu on Q1 2017 Results - Earnings Call Transcript

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Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM) Q1 2017 Earnings Conference Call April 13, 2017 2:00 AM ET

Executives

Elizabeth Sun - Senior Director of Corporate Communications

Lora Ho - SVP and CFO

Mark Liu - President and co-CEO

C.C. Wei - President and co-CEO

Analysts

Randy Abrams - Credit Suisse

Michael Chou - Deutsche Bank

Bill Lu - UBS

Roland Shu - Citi

Donald Lu - Goldman Sachs

Gokul Hariharan - JP Morgan

Brett Simpson - Arete Research

Steven Pelayo - HSBC

Patrick Liao - Macquarie

Mehdi Hosseini - SIG

Charlie Chan - Morgan Stanley

Rick Hsu - Daiwa

Sebastian Hou - Credit Lyonnais

Elizabeth Sun

[Foreign Language]

[Interpreted]Welcome to TSMC’s First Quarter 2017 Earnings Conference and Conference Call. This is Elizabeth Sun, TSMC’s Senior 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 dial-in lines are in listen-only mode. As this conference is being viewed by investors around the world, we will conduct the event in English only.

The format for today’s event will be as follows. First, TSMC’s Senior Vice President and CFO, Ms. Lora Ho, will summarize our operations in the first quarter of 2017 followed by our guidance for the second quarter of 2017. Afterwards, TSMC’s two Presidents and co-CEOs, Dr. Mark Liu, and Dr. C.C. Wei, and Ms. Ho will jointly provide our key messages. Then we will open the floor for questions and answers.

For those participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC’s website at www.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. Lora Ho for the summary of operations and current quarter guidance.

Lora Ho

Thank you Elizabeth, good afternoon everyone, welcome to join us today. My presentation as usual will start with financial highlights for the first quarter followed by the guidance of the second quarter. First quarter revenue decreased 10.8% sequentially but increased 14.9% year-over-year. The sequential decline reflecting mobile product seasonality and about 2% appreciation in NT dollars against the US dollar. When we give our guidance in the first quarter, we were assuming $1 dollar to TWD32. However, the average exchange rate was TWD31.16, which reduced our revenue by about TWD6 billion. Without the NT dollar’s appreciation, our first quarter revenue would have been about TWD240 billion exceedingly the high-end of our guidance. First quarter gross margin was 51.9%, slightly lower than fourth quarter 2016, mainly due to lower level capacity utilization and our unfavorable foreign exchange rate partly balanced by continued cost improvement. Operating expense ratio rose to 11.1% as R&D as a percentage of revenue increased by 70 basis points. So operating margin decreased 1.1 percentage point sequentially to 40.8% in the first quarter. Overall, our first quarter EPS was TWD3.38 and ROE was 24.6%.

Now, let’s take a look at wafer revenue contribution by application. During the first quarter, consumer and computer increased 30% and 1% respectively, while communication and industrial standard decreased 18% and 5% respectively due to mobile product seasonality. Now, let us take a look at revenue by technology. Combined revenue from 16-nanometer and 20-nanometer was 31% of total wafer revenues in the first quarter, while 28-nanometer represented 25% of total wafer revenue. Advanced technologies, which we define as 28-nanometer and below accounted for 56% of total wafer revenue in the first quarter.

Moving on to the balance sheet, we ended the first quarter with cash and marketable securities of TWD659 billion, an increase of TWD27 billion from the fourth quarter. On the liability side, current liabilities slightly increased by TWD3 billion. On the financial ratios, accounts receivable turnover days increased two days to 47 days, while days of inventory increased three days to 44 days. Now let me make a few comments on cash flow and CapEx. During the first quarter, we generated about TWD161 billion cash from operations and spent TWD103 billion in capital expenditure, as a result we generated free cash flow of TWD58 billion. We also repaid 10 billion corporate bonds and net purchase of about 7 billion fixed income securities. Overall cash balance increased by TWD23 billion to reach TWD565 billion at the end of the first quarter. In US dollar terms, our first quarter capital expenditure was US$3.3 billion, full-year capital budget remained at about US$10 billion.

I have just finished the financial summary for the first quarter. Now let me turn into the second quarter guidance. We expect second quarter demand will be weaker than the first quarter due to supply chain inventory management during the second quarter and mobile product seasonality. Based on our current business outlook and exchange rate assumption of US$1 to TWD30.5, we expect second quarter revenue to be between TWD213 billion and TWD216 billion, which represents 8% to 9% sequential decline. Growth profit margin to be between 50.5% and 52.5% and operating margin to be between 39% and 41%. The margin guidance reflects a higher utilization level for working process building to support a strong 10-nanometer shipment in the third quarter. Also, in the second quarter, we will again need to accrue the 10% tax on undistributed retained earnings. As a result, our second quarter tax rate will be about 23%. The tax rate will then fall back to 10% to 11% level in the third and fourth quarter and the full-year tax rate will be between 13% and 14%.

This concludes my remarks, and I would turn it over to Mark for his comments.

Mark Liu

Good afternoon. Let me start from my message on the near-term demand and supply chain inventory. Since all our shipments in US dollars, allow me just use the US dollar to describe our demand. We just concluded our first quarter revenue to be above our January guidance in US dollars. It gives us a minus 9% quarter-to-quarter in US dollars which is about plus 22% year to year growth. This quarter-to-quarter change in 1Q ’17 was due to the seasonality of our major smartphone customer and a slower smartphone demand in China. We now forecast our second quarter revenue to decline about 6% quarter to quarter in US dollars. Year-over-year, this is an increase of about 3% year to year in US dollars. Together, with the 1Q revenue, our first half 2017 revenue would grow about 12% year over year in US dollars. This is slightly higher than the 10% increase year to year we forecasted in our January Investor Conference.

We now estimate fabless DOI is still high, high above seasonal, exiting first quarter ‘17. Our second quarter revenue guidance does reflect a quite severe inventory adjustment by our customers, particularly in smartphone and PC markets. However, the overall end market smartphone demand appears stable in second quarter ‘17.

We estimate the fabless DOI should approach seasonal level at the end of second quarter ’17 and demand for our products will be poised for a strong growth in the third quarter. Given the very strong demand in the second half last year, we maintained our second half ’17 this year growth rate estimate of 5% year over year and our full 2017 growth rate target remains to be 5% to 10% in US dollar as we previously stated. On the forecast of overall semiconductor market growth rate compared to three months ago, we raised it to 7% from 4% due to a stronger memory market. Semiconductor, excluding memory market growth rate, remained at 4% this year. We also revised foundry revenue growth to 5% percent from 7% due to this elevated inventory in the supply chain. Our 5% to 10% full-year growth forecast shows we will continue to increase our market share this year. Thank you.

I’ll hand the mike to C.C. Wei, I’m sorry Lora.

Lora Ho

As the foreign exchange rate is volatile this year, its’ almost very difficult to predict, so I will make some comments on foreign exchange and impact to our revenue and the profitability. As you may all know NT dollars is the reporting currency for all our financial statements, due to the fact that nearly 100% of TSMC’s revenue is denominated in US dollars and about 75% percent of our cost of goods sold and about 70% of our operating expenses are based in NT dollars. Therefore the fluctuation in exchange rate between US dollars and NT collars will have a sizable impact to our reported revenue and gross margins. The sensitivity of revenue to US dollar, NT dollar exchange rate is nearly 100% that is if every 1% appreciation of NT dollars to US dollar will reduce our reported revenue by about 1%. The sensitivity of both our growth margin and operating margin to the emerging to the same 1% exchange rate change is a above 40 basis points that is if NT appreciates 1% against US dollars, our gross margin and operating margin will both come down by about 40 basis points.

Compared with the first quarter guidance made in January 12, the NT dollar has appreciated by an average about 2.6% sequentially which negatively impact our first quarter revenue by about 2.6% and our growth profit margin about 100 basis point gross margin and operating margin each. For 2017 second quarter, we forecast the average NT dollars will further appreciate another 2.1% sequentially which will negatively impact our second quarter revenue by 2.1% and reduce our gross margins and operating margins by about 85 basis points. Should exchange rate have stayed ahead of fourth quarter ’16 level which was 31.77 the average, our first quarter ’17 revenue would have been 1.9% better than actual number reported here and our second quarter revenue would have been 4% better then we just guided.

Thank you. I will turn it to C.C. Wei.

C.C. Wei

Thank you, Lora. Good afternoon ladies and gentlemen. Let me start with 10-nanometer RAM status. We have passed with our ability qualification and internal technology qualification vehicle and have also passed 500-hour with our ability qualification on several customers product. N10 has been transferred from R&D to operation in both Fab 12 in Hsinchu and Fab 15 in Taichung and is ready for high volume production. Although N10 technology is very challenging, the yield and progression has been the fastest as compared to the previous node such a 20 and 16 nanometer. Our current N10 yield progress is slightly ahead of schedule. The ramp of N10 will be very fast in the second half of this year, we expect the 10-nanometer were contributor about 10% of our waiver revenue this year.

Now let's move to N7 and N7 Plus. TSMC N7 will enter risk production in second quarter this year. So far we have more than 30 customers actively engaged in N7 and we expect about 15 tape-outs in this year with volume production in 2018. In just one year after our launch of N7, we plan to introduce N7 Plus in 2018. The N7 Plus whatever is EUV technology [indiscernible] critical layers to sell more emerging layers. In addition to process simplification, our N7 plus provides better transistor performance by about 10% and reduces the chip size by up to 10% when compared with the N7. High volume production of N7 plus is expected in second half 2018, I'm sorry in second half of 2019. Right now our focus on EUV improved household stability critical for EUV mask as stability of the quarter resist. We continued to work with ASML to improve the tool productivity so that it can be ready for mass production and schedule.

Now N5, we have been working with major customers to define 5-nanometer specs and to develop technology to support customers that reach schedule in second quarter 2019 with volume ramp in 2020. Functional SRAM in our test vehicle has already been established. We plan to use more years of EUV in N5 as compared to N7 Plus. In addition to those leading edge technology we also continue to improve N16 and 20-nanometer which are in mass production for many years. Now let me talk about N12. After we have developed 16-nanometer technologies from 16FF to 16FF+ and then to 16FFC, we further extend this technology to 12-nanometer which will have about 10% better performance at the same total power or 25% and/or power consumption at the same speed, then about eight to ten smaller die size compared with our 16FFC. Although 12-nanometer wire have smaller metal pitches as compared to 16FFC, we have worked with IP infrastructure partner to build a completely IP support to make sure our customers 16-nanometer product can be successfully ported to [indiscernible] with minimal effort.

We anticipate the completion of 12-nanometer development by mid of this year. So far more than ten customers has activity engaged with seven tape-outs being planned in 2017. The major applications were the mid-to-low end smartphones with 12-nanomter having better cost structure and better performance in our already competitive 16-nanameter we expect to maintain a high market shipment share in this N16 and N12 node. Now 22ULP, 22ULP is a half node of our 28-nanometer technology. We developed this technology to address the market segment where lower operating voltage are required. Applications in IoT image signal processing, GPS, Wi-Fi and 5G millimeter wave are examples that can find good use of this technology. Compared to our 28-HPC Plus, our 22ULP offers 15% performance improvement or 35 power reduction. It also reduces the die size by up to 10%. In addition, the RF performance, the cutout frequency [indiscernible] much of our frequency it also improved to 400 and 370 gigahertz which is used for your 5G application. We expect to begin 22ULP volume production in 2018. We enhanced the features carried by this technology, we expect to maintain a high market share in these 28, 22 technology family.

Now let me talk about specialty technology. Especially this time I will cover ultra low power which is a very important for all mobile products. We have offered the foundries of most comprehensive ultra low power technology portfolio including [indiscernible] 40-nanometer, 28-nanometer, 16FFC and now 22ULP and 12ULP. While these technologies are targeting IoT, mid low-end smartphone, GPS, Bluetooth and other applications. Depending on each applications, the performance and the power requirement, the customer can choose their optimal solution from our portfolio. [indiscernible] and 40-nanometer ULP are in high volume production since early 2016. So far, they have been more than 35 products running in the line. Meanwhile 28ULP, 16FFC are also in high volume production. In addition to those technologies, we have also developed [indiscernible] voltage technology in 40-nanometer. This technology can achieve power consumption below 10 microampere per megahertz active power which is five to ten times lower than industry's best product for today. We are working on the design enablement support for our 40-nanometer [indiscernible] voltage which will be completed by third quarter this year.

Now let me update on InFO. First, we expect InFO revenue in 2017 will be about US$500 million. Now we are engaging with multiple customers to develop next generation InFO technology or smartphone applications for their 2018, 2019 models. We are also developing various InFO technologies to extend the application into high performance computing area such as InFO On-Substrate, we call it InFO OS, and InFO with memory and substrate InFO MS. These technologies will be ready by third quarter this year or first quarter next year.

That's all my update, thank you for your attention.

Mark Liu

Okay, let me share with you the last bullet; AI, artificial intelligence and ubiquitous computing. This is to share with you the recent development in the semiconductor industry and how TSMC position ourselves to ride on this trend. We are in a new era where billions of devices are connected at all times and computing takes place at any time and in any place. This is what we referred to as ubiquitous computing. For smartphone for example, in addition to the smartphone unit growth, more intelligent features such as voice, image recognition and AI for decision making will further increase its computing power and silicon content. Given the vast established subscription base of smartphone today, it is the best launch pad for new consumer hardware and software innovation. For AI in high-performance computing, let me first define the HPC, high performance computing at the semiconductor, used in data centers, servers, networking, storage and gaming.

Artificial intelligence application and services and five key infrastructures are the major driving force with leading edge technology behind this HPC growth. For example, more than half of our customer product tape-outs with our 7-nanometer today we see our HPC products. Recently we are also very encouraged by the support of a major AI service provider on ARM-based processor or datacenter in Open Compute Project Summit this year. Accelerators used in datacenter are also increasing, adopting the GPUs, FPGAs and ASICS, we expect HPC to become our major growth engine from 2020. The trend of ubiquitous AI also shows up in many IoT and consumer devices such as robot, drones, surveillance devices, smart TV and set-top box. Ubiquitous AI will also be widely used in the fast developing autonomous car market.

Al; these require very intensive localized parallel computing capability, which drive up the silicon content. At TSMC, we work with innovators around the world, TSMC’s long term growth engine ride on this industry trend from mobile computing to ubiquitous computing. The proliferation of AI demands insatiable computing capability from semiconductors. As C.C. Just talked about our technology updates, we are developing various technologies and innovation platforms to satisfy industry this trend.

Thank you for your attention.

Question-and-Answer Session

Elizabeth Sun

This concludes our prepared statements. Before we begin, in the Q&A session, I would like to remind everyone to limit your questions to two at a time to allow all participants an opportunity to ask questions. Questions will be taken both from the floor and also from the call. Should you wish to raise your questions in Chinese, I will translate that to English before our management answers your question. [Operator Instructions] Questions will be taken in the order in which they were received. [Operator Instructions] Now let’s begin the Q&A session. All right first one, the first questions will be coming from Credit Suisse, Randy Abrams.

Randy Abrams

First question I wanted to ask about 28-nanometer where you talked about still gaining a bit of market share. There's a couple rival options, Intel announced 22-nanometer, I'm using the FinFET that they have on 22, and then also the Samsung/GlobalFoundries have the FDSOI. And for China, there haven't been a presence but starting to ramp up. So I’m curious how you're viewing these other options and the driver of confidence on the 28-nanometer relative to these.

C.C. Wei

Well, Randy, we continue to improve our technologies, so we are very competitive. As I said, we developed 28-nanometer from time up to 28 HPC Plus. Now we have a 22ULP, so we are still confident we can maintain a very high market shipment share on this technology node. I don't want to comment on our competitors’ progress.

Randy Abrams

The second question, I wanted to ask about the margins, you've actually done a great job weathering two quarters in a row where margin is still above 50% and sales are down high-single digit two quarters in a row and high margin. If you could take a forward look towards second half where we ramp up 10-nanometer, and at these exchange rates and since you're building WIP in the second quarter, how do you expect the margin to trend if there's still some leverage in the model as we go into peak season in the second half?

Lora Ho

Randy, we intend to keep structure profitability close to 50% margin. As you know we are ramping 10-nanometer significantly starting from the second half of this year. I remember I said last time there will be some dilution from 10-nanometer. In terms of magnitude, our estimation is for the second half, you will have 2 to 3 percentage point dilution to corporate level gross margin.

Randy Abrams

And do you expect offsetting that any incremental leverage from the rest of the business to potentially offset the 10-nanometer dilution?

Lora Ho

Usually at the very beginning stage of any technology ramp, it's difficult to find offset immediately. But when time goes by and we can offset gradually the 10-nanometer module will also continue to improve.

Elizabeth Sun

Our next question will be coming from Deutsche Bank, Michael Chou.

Michael Chou

C.C., things that you and management mentioned before, there will be only one 7-nanometer EUV customer. So are you seeing more customers for 7-nanometer EUV?

C.C. Wei

Yes we are, as I just reported, we are engaged with many customers in 7 and also 7 Plus. So does that answer your question?

Michael Chou

I mean for 7-nanometer Plus EUV, right. So management mentioned before, only one customer for EUV in 7-nanometer. So now are you seeing, how many customers do you have?

C.C. Wei

Many.

Michael Chou

The next question, management mentioned log scale comparison versus Intel, I think 2014, right. So since Intel came out to say that their technology seems to be three-year ahead of all the competitors, certainly including your company, so do you have any comment on your minimal metal pitch and gate pitch comparison versus Intel or you have any comment for your 5-nanometer versus Intel 10-nanometer versus Intel 7-nanometer?

Mark Liu

That's a tough question. I think every company right now; they have their own philosophy in developing the next generation of technology. As I reported, in the foundry, we work with our customer to define the specs that can fit their product well. So the minimal pitch to define the technology node, we are compatible to the market. But the most important is that we are offering the best solution to our customers’ roadmap, and that’s what we care for. So I don't compare that really what is the minimal pitch to define the technology node.

Michael Chou

It’s a follow up question, can we say your power consumption efficiency in your 5-nanometer in 2020 will be ahead of all other competitors including for instance, IDM, can we say that?

Mark Liu

We have confidence to do that, yes.

Elizabeth Sun

Next question will be coming from UBS, Bill Lu.

Bill Lu

Question for Dr. Liu, you said that AI ubiquitous computing will be a driver starting in 2020. I'm wondering if you can talk to us about why that timing because you said that half of your 7-nanometer customers are HPC related, it seems like your customers and your customers’ customers are pretty bullish right now, so why that timing? Thank you.

Mark Liu

Well, we look at our customer tape out at 7-nanometer and look at our deployment activity in our 5-nanometer, I think that is the time frame that we - our customer can have a strong advantage to get into that market growth.

Bill Lu

I guess I'm not so clear because 7-nanometer starts ramping 2018, 2019.

Mark Liu

Yes, 2019 is the…

Lora Ho

7 Plus.

Mark Liu

7 Plus. And in order to accumulate huge volume of revenue for us it takes a couple of years [indiscernible] value up.

Bill Lu

So, you’re saying it becomes a bigger driver by 2020?

Mark Liu

Yes. By driver, I measure by the incremental revenue dollars.

Bill Lu

Do you have an estimate for how much as a percentage of revenues or total size by 2020 on HPC?

Mark Liu

I mention last conference, currently its 15% and at this point it has slightly increased this year by a couple of percent. But it is the cooking from today to 2020 and we expect, we do have a number but currently is a model I really cannot be certain on that numbers accurately. But the trend is picking up at that time.

Bill Lu

Thank you, my second question is related as well, which is, it seems like every quarter you’re getting more confident on 7-nanometer, both in terms of your execution and your customers progress. And I know the comment previously had been that CapEx stays relatively flat next several years. Does that change at all with the confidence that 7-nanometer is going up between now and 2020? Thanks.

Mark Liu

As the program development continues progressing, our confidence gets more and our customers confident also gets more. So in terms of the CapEx, we tried to make the 7-nanometer and 10-meter relative compatible. So thus we try to maximize our CapEx efficiency when we starting to ramp in 7-nanometer.

Bill Lu

I just have a quick follow up. If you look at 28, which I think was the last dominant node for TSMC that coincided with the Smartphone ramp between – I’m throwing a number as 2011 to 2015, your CapEx was from about 3 billion to about 10 billion, right, but that also included a huge revenue ramp. Now as you look at HPC, I mean to me it’s a big opportunity as well and that's over the next several years, but you’re not seeing that CapEx is going to triple, right. So what’s your expect.

Mark Liu

You’re talking about CapEx, after 2020?

Lora Ho

Bill, you are thinking we should add up CapEx, so we see more confidence on the technology development. Actually I want to mention one thing is, actually we have some tremendous effort trying to improve the capital efficiency. You can see the generation to next generation, the conversion ratio is pretty high. I was talking about 80% of the time people feels it’s good, but now I can tell you that 10-nanometer transition to 7-nanometer, the migration compatibility is more than 95% that's the average we have seen. So we believe the CapEx guidance, we were talking about at a 10 billion level has reflected our confidence in all the effort we have put in to improve the efficiency.

Elizabeth Sun

Next question will be coming from Citi's Roland Shu.

Roland Shu

First question to Mark. Mark, you mentioned, [indiscernible] might increase a lot. So do you see the same change for this ARM-based processor for PC? Because Microsoft actually - now their Window 10 supporting this ARM-based processor.

Mark Liu

You’re referring to Microsoft Windows 10 supporting ARM-based CPU in PC and Notebook last year, right. That was very good news to us, but I rather not to reveal our customers booking individually. So I think wish their business to grow and they get all the support from us and many other OEMs.

Roland Shu

So we can assume a very strong second half momentum, definitely we probably include some momentum for this Windows ARM player? Can we assume that?

Mark Liu

I didn’t say that. But it will grow. I mean I cannot reveal to you.

Roland Shu

And also second question for your 22ULP, you said you are going to a mass production for next year. So when can we expect this 22ULP revenue to achieve 10% of total revenue.

C.C. Wei

I did not look at that, but all I can say is we start to engage with many customer and it is very completive. So I said some of the 28-nanometer to support our move into 22. When we are going to reach 10% of wafer revenue, I did not see the exact schedule yet.

Lora Ho

Actually we don't separately looking at 22 and 28 because it exchanging of the technology, we look at combined revenue, we don't look at it separately.

Roland Shu

So going forward that means we will include 28, 22 at the same node. So how about 16 and 12, they will also included into the same node.

Elizabeth Sun

Next question next question will be coming from Goldman Sachs, Donald Lu.

Donald Lu

[Foreign language]

Elizabeth Sun

I will need to translate that first. Donald, if I misrepresent you, you have to let me know. Donald’s question basically is with respect to the implementation of AI in smartphones and he's asking whether or not this increment of AI functionality to the smartphones will increase the die size of the Smartphone.

Mark Liu

It should but every company have their different product strategy, some target to low end, some target to the premium, they are all very different. For the low end, still the cost is still critically and they want us just to get the woes from the customers. And so they have different strategies, so I cannot really quantify for you, but definitely piece of silicon will be dedicated to AI. And in the beginning could be a separate function and you could be integrated to. But remember, our chip size will shrink along the progress of technology to even maintain the chip size already is a huge capability and contribution from AI already.

Donald Lu

So maybe I can follow up, TMSC’s smartphone content question. For this year, I think last year last six months ago we commented it will increase for this year and that's still the trend and you can repeat like how much it will increase from last year to this year again?

Mark Liu

Roughly, if you calculate from our share and our average dollar performed it’s about high-single digit.

Donald Lu

And this trend do you think will continue because of AI and other things for next year?

Mark Liu

I hope so, I hope it’s going to be more.

Donald Lu

My second question is on the guidance of this year. I think in January you said 5% to 10% of US dollars and now the whole market its slowed down a little bit. So we will be more like in the low end of that range for this year. No. Okay. Great. Thank you.

Elizabeth Sun

Okay. Next question will be from JP Morgan’s Gokul.

Gokul Hariharan

Thanks. My first question, just wanted to refer back to your comments on 10/7 nanometer being a bigger node than 16. Could we also compare that to 28, which was I think at its peak like $8.5 billion in terms of revenue. Are we -- what is our degree of confidence in terms of 7 and 10 nanometer combined at its peak rate, being significantly higher than 28? And maybe also could talk about -- you talked about half of the tapeouts being HPC related, could we also have some idea about, is revenue still going to be mostly mobile related or smartphone related or is the revenue also going to be more -- or closer to the split that we see in the tapeout side in terms of HPC?

Mark Liu

Well, it's, in dollars, right now to be honest, many of our customers are still working on their products with our 10 and 7. So what we do is just to try to bring the product to the market and how successful that is still really is still -- yet to be seen. It was very difficult for us to calculate what the business and how many wafers or how many product units their product gets to achieve. But I can tell you that in dollars to us, it's a much bigger volume, much bigger numbers than either 16 and 28. Okay. And for the same reason, it's -- how much is HPC, how much is mobile computing. I think on 10 and 7, it’s still too early to say. HPC will be the bigger portion than you have been known.

Gokul Hariharan

My follow-up is on 7 and 7 plus, since there is additional EUV steps, do customers have to redesign their product, does it drive more customers toward 7 plus other than 7 or you’re not seeing any of that happen?

C.C. Wei

[indiscernible] but the effort will be very minimum, because we try our best and work with IP infrastructure partners to minimize that effect. So it will be, I cannot say transparent, but the effort will be minimized.

Gokul Hariharan

You don’t see any customers delaying their 7 plans because they want to wait for 7 plus with the EUV, you don’t see that?

C.C. Wei

I think the customers have their own product roadmap and their new product introduction to the market is probably the most important for them to consider. So whether they change their product from 7 to 7 plus, we do not see that again.

Elizabeth Sun

All right. We will now take our next question from the call. Operator please proceed with the first caller on the line.

Operator

The first question from the line comes from Brett Simpson from Arete Research.

Brett Simpson

Yeah. Thanks very much. I have two questions. First of all on the HPC segment, if I look at that segment and look at chips like data center chips, server chips, this HPC segment is structurally much higher margin and -- much more profit in the value chain. Do you think that TSMC can make structurally higher gross margins in HPC, maybe you can discuss that opportunity?

And just on the questions of evolving customers to 22 nanometer and 12 nanometer ULP, you mentioned there's minimal upfront NRE for customers to evolve their chips from 28 and 16. Can you talk a bit more about this, because it seems to be quite a big differentiator versus a customer going to FD-SOI or another fab, can you maybe talk about how significant a saving this is for customers. Thank you.

Mark Liu

Okay. Let me answer your HPC’s, how to capture values. Yes. You're right. The HPC products produce much more value in the system build. And our customer will commend more value products and we work with our customer also, we're trying to get the more value along the supply chain. We also remember this HPC product will not only be wafer business or our advanced packaging technology and associate with our future platform or system integration. We’ll also come to the service, provide to our customers. So in the future advanced packaging, we also intends to increase our value to our customer, therefore, capture more value along the supply chain.

C.C. Wei

Now, let me answer the question on 22 ULP and 12 ULP, how competitive it is and then versus our competitors over in the 22 FD-SOI or others. The first one, on the 22 ULP, this one, we offer lower power consumption, higher speed and with the die size shrink about 10% as I said, but the beauty is our customers don’t have to change anything. They can view their IP portfolio in 28 nanometer. The 10% die shrink is actually the uptick direct shrink05. So the customer does not have to do anything.

They can easily put their existing product or the new products in 22 ULP and tackle of the higher performance and more important, optical power consumption and then for their new product to compete in the market. So we think this is very, very competitive. On the 12 ULP, which shrink a little bit on the metal piece, so I just mentioned, we also work with IP infrastructure partner to minimize their effort. So again, this one offer a very effective path and cost effective path from 16 nanometer into 12 nanometer. So we expect for this kind of advantage we offer to our customer we still can maintain a very high market share.

Elizabeth Sun

All right. We will still stay on the line and take the question from the next caller. Operator, please.

Operator

Next question is from Steven Pelayo from HSBC.

Steven Pelayo

Thank you. A year ago, we talked about your lead customers at 16 nanometer bidding on 16 nanometer for the second year. Yet, I believe it was C.C. that said, yes, they're increasing the functionality there, so the die size doesn't really change too much there. Yet, this year as we go to 10-nanometer, we get a little bit more benefit from a stronger shrink. So I'm curious what do you think of the impacts, will a smaller die size thus require less wafers from you in the second half of the year or more importantly, the ASP differential at 10-nanometer is significantly more versus let’s say 16 nanometer FFC that had more than offset any potential die shrink, so could you comment a little bit about die sizes and with the ASP differential, 16 nanometer FFC versus 10 nanometer.

Elizabeth Sun

All right. I will repeat Steven’s question. He’s basically asking that our major customer this year will migrate from 16 nanometer to 10 nanometer and therefore he assumes that it will be a smaller die and think it's a smaller die, whether or not it will be fewer wafers and if it is fewer wafers, whether or not the ASP increase can more than offset by the fewer wafers.

C.C. Wei

Well, we don't comment on customers’ die size first. And second, I think Mark already pointed out as we move along the path of the technology, the geometry gets smaller and smaller, however the content also increases quite a lot and you can see that from your smartphone you are using today and two years or five years ago. But again, I don’t comment on the customers’ die size.

Elizabeth Sun

Steven, do you have second question?

Steven Pelayo

Well, the second part of that question was relative to the ASP differentials on 60 nanometer FFC versus 10 nanometer?

Elizabeth Sun

Oh, he wants to know how much more we charge at 10 nanometer compared to 60 FFC.

C.C. Wei

Confidential information.

Elizabeth Sun

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

Operator

Thank you. Next question is from Patrick Liao of Macquarie. Please go ahead.

Patrick Liao

I would like to ask your view on entire seasonality. Is this changing gradually from recent years and the first half has become relatively sluggish. This is my first question.

Elizabeth Sun

So Patrick’s question is what has changed in terms of our business seasonality. It looks like our first half is sluggish compared to second half.

Mark Liu

Your observation might be right. This is the second year that we have a slower first half and that we, at this point, look at the -- it has to do with premium form seasonality as I have mentioned. And we are going to develop more customer products hopefully to smooth out this, but this is the current seasonality we see.

Patrick Liao

Okay. My next question would be TSMC moved to 3-nanometer fab trend to US. I know this is probably not the right to ask, but very curious I assume for many audience. Thank you.

Elizabeth Sun

So Patrick, you’re asking if we go to US to build a 3 nanometer fab, is that your question?

C.C. Wei

Well, we continue to look for the options on the new fabs allocation. So far, the fab in the US is not very optimal due to many consideration, although it’s still an open option for us to choose.

Elizabeth Sun

Okay. There seems to be quite a few people still on the line, so we will continue on the line. Operator, please have the next caller. Thank you.

Operator

Next question is from Mehdi Hosseini from SIG. Please go ahead.

Mehdi Hosseini

Yes. Thanks so much for taking my question. Two follow-ups. One on EUV. Can you please help us understand the extent of EUV adoption, particularly, how many layers would you expect the 7 plus nanometer node to adopt EUV and I have a follow up.

C.C. Wei

Well, I would say a few critical layers, which is we used to do two purpose. One is to swing the die and then to do the practice for the EUV. How many critical layers, that I cannot share with you now.

Mehdi Hosseini

Did you say a few critical layers?

C.C. Wei

A few critical layers.

Mehdi Hosseini

Okay. Thank you. And then my follow-up question has to do with the capital intensity and how you have been able to increase efficiency of equipment. I want to better understand the equipment reuse from 10 to 7 nanometer. I heard Lora talking about 10 billion CapEx for a few years, but then I also heard the equipment that is used for 7, 7 plus is going to be pretty much same set or very much reusable from 10 nanometer. Can you help me reconcile the CapEx with the equipment reuse commentary?

Lora Ho

Okay. You’re asking capital intensity and how do we reuse the tools from generation to generation. I have said that really a couple of times, in the coming few years, we expect our capital intensity will be ranging from 30% to 35% and still with our view. Okay. In terms of how do we do it because capital is very expensive in the company and that’s utmost important decision in the company? So we spend a lot of effort, trying to -- generation becomes shorter so that make the equipment reuse even more critical. So we have invented a lot of way, trying to increase the commonality from node to node, either if some open tools or trying to utilize those idle open tool.

So either migration or mutual, several factors back up each others and a lot of innovation coming from operation people trying to reduce the CapEx we have to spend. And also we’re putting more focus on what’s the big capacity building. You cannot follow, just follow what customer tell you the highest demand they need, you have to look at the cycle and find out which is the optimal peak capacity you build and once you build it, you try to utilize those capacities as much as possible, including you have sometime have to move product among quarters, just for the purpose to utilize the capacity. Those are the several ways that we’ve been doing in the company to capital efficiency.

Mehdi Hosseini

Just very quickly, as you would scale the InFO back-end technology, should we expect the mix of CapEx between front end and back end packaging change going forward?

Elizabeth Sun

So Mehdi’s question is now since we have started volume producing with InFO, what will be the mix going forward between the capital spend for the front end which is where the wafer and then the capital spend for the backend which is the packaging?

Lora Ho

It is indeed. Our back end capital has been increasing. For example, we are ramping the InFO technology starting from last year and I didn't show you the CapEx breakdown, it’s pretty high. In the past, I think our backend was a couple of hundred million. It can be go up to 1 billion. And this year, it would be the case.

Elizabeth Sun

Okay. I think we'll come back to the floor now. Now, we are back to the floor for questions. First, let's have Morgan Stanley’s Charlie Chan.

Charlie Chan

Thanks. So my first question is on the second quarter guidance. So Mark, you mentioned that there were some supply chain inventory management. So if that’s the smartphone, what area do you see weakening, for example gaming, PC even industrial. And would you also to attribute that smartphone chipset to your customers’ market share loss, meaning lose to Qualcomm? Thanks.

Mark Liu

Second quarter weakenings, smartphone is one. We think PC is another one. Mostly because of inventory though and industrial, I don’t see the weakness at all and to come to your question about the, what is your second question.

Charlie Chan

So your customer’s market share loss?

Mark Liu

Okay. This is not news right. We anticipate this and we are working to recover for quite some time and all this years, recovery work is ongoing. And we already factored those factors in and still we expect this year, we overall should be able to gain market share overall to overcome this. For the long term, of course, these customers, relationship with this customer gets much better and we are working with them on the existing technologies.

Charlie Chan

Okay. Thanks. And also on your HPC, you mentioned that you’re excited about ARM-based server get qualified but the time you are already have said second win for your 7-nanometer. The ARM-based server processor, your 7-nanometer customer already? Do you already have ARM-based server processor already?

Mark Liu

Oh yes, of course.

Charlie Chan

And my next question is to Mr. Wei, so regarding your 28-nanometer capacity extension I think couple of weeks ago you - at your technology symposium, you mentioned that 28-nanometer capacity will increase 15% year-on-year. But the trend is that - I don't doubt your competiveness of 22-nanometer ULP but the fact is that, some of your customers moved into 16-nanometer. And also your market share 28 nanometer is already more than 90%. So how confident that you will maintain growth, another 15% in the coming years.

C.C. Wei

Well, we build our capacity according to customers at demand. And we do it very carefully. So, you say that we are going to increase 15% every year, did we say that?

Lora Ho

This year.

C.C. Wei

Oh, this year. Oh, this year, this year, yes. So far I can share with you that we are still fully loaded and probably a little bit not enough. So we worked very hard to increase the capacity for customers at demand.

Charlie Chan

Even with [indiscernible] fully loaded.

C.C. Wei

Yes, it’s continued to be that.

Charlie Chan

So very quick just one number. So you mentioned that your 7-nanometer customer already exceeded 30 customers. So what’s the customer number for 10-nanometer and 16-nanometer respectively currently?

C.C. Wei

Well comparable to 16-nanometer but 10-nanometer is smaller. So the 7-nanometer, 16 similar.

Elizabeth Sun

Okay. Next question will be from Daiwa, Rick Hsu.

Rick Hsu

Just a quick follow-up to the previous question about your second quarter demand driver. I think Mark mentioned about the weakness mainly from smartphones and PCs due to some more inventory equation and industrial tend to be stable. Do you see any pocket of strength for second quarter?

Mark Liu

I don’t typically noticed particularly the strengths that are in pocket. Industrial is considered heating up. We have - that’s the number. So showing the overall second quarter. Okay, automotive although a small percentage is heating up.

Rick Hsu

My second quarter is, if I remember correctly. I think your 28-nanomter is very strong and even for this year, you still confidently feel that that more capacity. But for your 2015 and 10, I think capacity wise for each node is much lower than 28 nanometer. So my question is, do you anticipate the next 7 and 7 Plus will be a strong node with capacity build maybe by 2020 you will at least as comparable as your 28-nanometer.

C.C. Wei

I cannot share with you but certainly hope so.

Elizabeth Sun

Next question will be coming from Credit Lyonnais’s Sebastian Hou.

Sebastian Hou

Thank you. I think my first question is to Dr. Liu on the HPC, I follow that you mentioned by 2020, HPC will be kind of a bigger driver for the company, is it bigger or biggest in terms of incremental revenue?

Mark Liu

Well, that depends on how smartphone plays out. It’s a competition. I think in 2020-2025, that’s the time where they will be really picked up. So I wouldn’t say even in 2020 to compare with smartphone yet.

Sebastian Hou

Okay. And just a follow-up on that one is that I think the six months ago that covers, gave us some ideas about how the wafer addressable market, revenue of HPC is down $15 billion for 2020. I remember that time you mentioned about, it’s really hard for you to quantify artificial intelligence in the numbers. So I wonder the thing that you talk about today is on top of the 15 billion are already included.

Mark Liu

It’s part of the story. It’s still a consistent story, part of that. Okay. When I talk about AI, I talk about HPC, but I also talk about IoT, automotive and smartphone. So AI is a phenomena, phenomena of using more silicon in all kinds of devices. Of course the AI will require more competition in the data center and more communication in the network and storage. That HPC is product based, AI portion in HPC application.

Sebastian Hou

Okay. Thank you. And one follow-up. I think this one is for Dr. Wei is on, we understand that your 60 nanometer and one of the major customers moving to 10 and with your launch of a 12 nanometers, do you expect your 16 nanometers family with 12 next year at a total revenue in absolute level will recover to similar that we have seen in 2016?

C.C. Wei

We hope so. But maybe choice again. That 12 nanometer will be used for the mid to low end smartphones and we offer wafer customer to have a cost effective roadmap for their product. Again, the most advanced premium grade smartphone will move to the next node as you expected.

Elizabeth Sun

Okay. Follow-up question from Randy Abrams, Credit Suisse.

Randy Abrams

Yes. Thank you. Just one probably for C.C. On the pan out, you talked about more mobile products. Could you talk if that’s still for the high-end smartphone, where you see it moving down into the mass market, where it's now cost competitive with flip chip. And do you see any cases where customers are splitting the architecture now to using InFO and maybe migrating a smaller part of the die size, say the 7 and 10 nanometer and then with InFO keeping somewhat lagging notes?

C.C. Wei

Okay. So far today, InFO still used by most advanced smartphones. Okay. We are engaging with the customer, many who do the scenes you just mentioned to move into more areas, including separate die size into multiple one to get more appreciation. That’s what we’re doing, but more importantly we are moving the application into the high performance computing because as Mark just mentioned, the AI and orders was starting to develop in the next few years, which either catch up with the market.

Randy Abrams

Great. The second question I wanted to ask, you maintained aside from currency, your growth assumptions for this year, but you lowered the overall foundry industry. Can you maybe talk about factors, was it a difference in share or you feel like you've taken some share in certain applications or your view on what you expect your competitors versus a few months ago?

Mark Liu

Well, the main reason we revised foundry growth rate is due to the inventory accumulation received in end of Q1 and also expected at towards the end of Q2. Regarding, we have some, our forecast currently however is better than the average foundry growth rate forecast. Therefore, we consider we are gaining market share this year.

Randy Abrams

And just to clarify, from this inventory correction, do you think you’ve gained enough share to offset safer TSMC the impact of this inventory correction?

Mark Liu

Well, inventory correction applies to everyone. Okay. So simply that therefore everybody, the average foundry market share will drop. So we are not gaining other share to be better than 5%.

Lora Ho

Okay. Next question will also be coming from a follow-up and that would be Citi’s Roland Shu.

Roland Shu

Thank you. Just looking at your annual, actually your fourth quarter report and you have this annual result. So last year, wafer revenue actually declined in both I remember and also as a potential of total revenue and even I don’t yet know, in the past year, from 2013 to 2016, the percentage of the non-wafer revenue actually declined from 6.1% to 4.1% last year. But actually, I don’t know is that again, because in the past year, actually, we had a lot of activity to doing this 20-nanometer, 20 or 15 nanometer, it means a lot of the [indiscernible] with a lot of new wafer activity, but we still have with non-wafer revenue in the past years? Thank you.

Lora Ho

I probably cannot link your statement about the declining revenue, but there are some periods of time, our non-wafer revenue basically the EVO, that are the two major non-wafer revenue. It has been about 10% for many years. And with InFO that is joining the company starting from this year, we expect at least we can maintain or even increase our non-wafer revenues as far as I can see.

Roland Shu

Yeah. But the 10%, [indiscernible] reported that in last year was only 4.1% of non-wafer revenue?

Lora Ho

Cannot be. I have to check which page you’re looking at.

Roland Shu

Page 80 something.

Lora Ho

I will go back and check.

Roland Shu

Okay. You have this wafer revenue and non-wafer revenue there. And also a second question is on the InFO. Yeah. Guided for InFO revenue last year, 4Q last year was up $100 million, so how about your forecast for InFO revenue this year. Thank you.

Mark Liu

I mentioned this year you will be for the 2017, you’re about $500 million.

Elizabeth Sun

All right. Follow-up question from UBS’ Bill Lu.

Bill Lu

Thank you. Two quick follow-ups. One is on Donald’s question on smartphone content. In the past, you've given us the content for high end, mid end and low end, can you provide that for this year.

Mark Liu

I don't have that with me, but the similar situation than last year I think.

Bill Lu

Okay. Great. Thanks. And then just a clarification with Dr. Wei, you had said that HPC will increasingly use InFO, I had thought that maybe a lot of HPC will use CoWoS. Can you talk about the two?

C.C. Wei

Oh, yeah. Today, most of the HPC, almost all of the HPC customer using the CoWoS because of that, one is a very high performance. And I’m talking about the extent that you go into the HPC area, because that overall costs and also improve InFO’s performance, so it’s still being lower than the performance here of the CoWoS, but cost effective is much better. That’s what we expect to be widely used by HPC customer.

Elizabeth Sun

Okay. Follow-up questions from Deutsche Bank’s Michael Chou.

Michael Chou

You mentioned HPC for InFO in the future, so for very high HPC product, will that still use CoWos or you think that it will shift to InFO internally in the future.

C.C. Wei

No. I would think, it is still using CoWoS. That’s much better performance of very high things in the few thousand content or those kind of things.

Michael Chou

So, can we say that maybe 70% to 80% of HPC product will be based on InFO, the new InFO product in the future or you think that maybe 50% of the HPC will be still based on CoWoS?

C.C. Wei

Oh, today I cannot do any prediction, but we’re working with the customer because of overall cost structure is very important. That’s what we are working on and we also try to make a lot of variation to meet the customers’ requirement.

Michael Chou

Yeah. As a follow-up for your InFO, do you think the mid to low-end product will shift to InFO, because of things are mid to low end product about costs?

Mark Liu

I would expect that. Yes. It’s not happening yet.

Michael Chou

But in future, is it possible?

Mark Liu

It is possible.

Michael Chou

Okay. The second question for Mark, you mentioned before you should have a high market share in 7 nanometer versus 16? Yes. So can we say that you can gain more market share in 7 nanometer smartphone market versus 16 and 40 nanometer in 2018 to 2019, I’m not mentioning the customer, I just mentioning market share.

Mark Liu

Yeah. I think so. We really have higher market share in 7 and 7 plus and those are for high end smartphone. The mid low end smartphone, we still, we’re going 22 ULP all those low power technology to capture. We have multiple OT prone strategy on this to capture this.

Elizabeth Sun

Okay. Questions will be coming from JP Morgan’s Gokul.

Gokul Hariharan

Thank you. First question, when I look at HPC currently, unlike smartphone like you mentioned, premium will be at 7 nano and 10, older nodes can also be driven by smartphones because of low cost or mid end. HPC, if I use the current biggest IDM which is probably the biggest HPC player right now, most of the capacity is leading edge and they probably have n and n minus one that's pretty much it and they work on a very accelerated schedule in terms of capacity conversion. When HPC becomes a bigger driver for TSMC, how do you think about capacity planning? Are we going to have a lot more conversion from, let's say, ten or 10/7 to 5 or are there enough second wave, third wave, even within that ambit of ubiquitous computing that could drive the second or third wave for the fresh capacity that you put on?

Mark Liu

You’re talking about sometimes in the future. Let me ponder this with you. TSMC is very different than this IDM company. We are in every segment in the market. Therefore, we attack the leading edge and we capture the HPC doesn’t mean those technologies later on when the technology moves, it doesn't have the usage for all other segments. Let alone you talk about HPC’s volume compared with today’s high performance, no, I'm sorry, premium phones, smaller. So I don't -- we will consider the technology migration, capacity migration them, but I don’t consider that a major change or major problem for us.

Gokul Hariharan

Okay. My follow-up is on more near term question, especially for second half. If I look at the half on half growth that’s almost like 20%, going in to the second half, just wanted to understand, are we anticipating that except for the big premium customer ramp up, are we also anticipating some inventory restocking, we expect the inventory correction to finish ion first half and we anticipate some general inventory restocking in second half or is it primarily driven by the super cycle that people are expecting.

C.C. Wei

Yes. We anticipate -- we try to prepare for the flexibility of the team to cope with the demand with the second half. So you're right. Certain activity is already ongoing in the second quarter to make sure that we continue with the needed demand in the second half.

Gokul Hariharan

If I can phrase it a little bit differently, do we expect the customers who are really weak in the mid end smartphone, et cetera also to have a big rebound in the second half of the year along with the big seasonality for your main customer?

C.C. Wei

The smartphone, high mid, low ends, we consider is, we can deal with it, because at this point if you follow the relatively seasonal patterns and it’s more predictable than the premium launch.

Elizabeth Sun

Okay. Follow up question from Goldman Sachs’ Donald Lu.

Donald Lu

May I ask a question on other gains and losses? It’s still fluctuating their guidance and where it's coming from, et cetera.

C.C. Wei

It's 2.62 billion for Q1.

Lora Ho

Which line you are asking?

Donald Lu

I was looking at page 3 of the management report, on the second table there, there are other gains and losses like 1.8 billion in last Q1 and 2.6 billion this Q1, so I was just wondering like?

Lora Ho

Oh, you refer to 2.62, second quarter versus 1.8 last year, right?

Donald Lu

Yeah.

Lora Ho

I think the big component of this slide in interest income. If we have more cash and generate more interest and that helps on this one.

Donald Lu

Okay. Another question is on this year's guidance again. I think you mentioned the lower the foundry forecast because of inventory correction, but have you considered a news or speculations now that one of your -- the high-end premium phone launch this year might be delayed, for example could be launched in September, the shipment is in November December, things like that. If that happens, what will happen to TSMC’s guidance?

C.C. Wei

This is totally speculation, right. So I don't make comment.

Elizabeth Sun

Okay. In the interest of time, we would just allow the final follow-up and that will be from Credit Lyonnais’ Sebastian Hou.

Sebastian Hou

Thank you, Dr. Sun for choosing me. So the first follow-up I have is, we’ve seen TSMC growing their wafer price on the equivalent basis, has increased every year since 2010 and my question is, are you confident on in terms of continue to increase your wafer price in the next five years?

C.C. Wei

Well, so far, we're doing okay. So we’re still trying hard to continue to improve our ASP. That’s all I can say.

Sebastian Hou

Thank you. And my second follow-up is, can you share with us your strategy and how you look at memory. We understand that TSMC has been developing embedded memory and also the new type of innovative memory like MRAM, RRAM and can you share with us on your, how you progress on that and when we're going to see that embedded memory technology being commercialized on like 16 or even like 7 nanometers and also can you share your strategy on the discrete memory.

Mark Liu

Let me talk about discrete memory and C.C. will cover the embedded memory. We consider we are not in commodity business. Therefore, at this point, we do not intend to enter the commodity business currently, which is discrete memory is.

C.C. Wei

Other than the commodity, actually we work with customers who offer the embedded memory because of, today, we are the largest provider of embedded flash. The embedded flash has its own limitation upto 28 nanometer. So we work with the customer to find a better solution, that means we have to find some memory that can dissipate low power and higher speed. That’s why we are working on our RRAM, MRAM and others. So that's our strategy. Certainly, we work with customers to meet their demand and we defined our embedded memory roadmap.

Elizabeth Sun

All right. With this answer, we conclude today's conference. Please be advised that the replay of the conference will be accessible within three hours. Transcript will become available within 24 hours from now. Both of them will be 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.

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