TSM 台积电

Elizabeth Sun

Welcome to TSMC's Fourth Quarter 2014 Earnings Conference and Conference Call. This is Elizabeth Sun, TSMC's Director of Corporate Communications and your host for today. Before we begin, let me wish you a very happy and prosperous new year. Today's event is webcast live via TSMC's Web Site at www.tsmc.com. If you are joining us through the conference call, your dialing lines are in listen-only mode. As this conference is being viewed by investors around the world, we will conduct this event in English only. The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Ms. Lora Ho, will summarize our operations in the fourth quarter and full year 2014, followed by our guidance for the current quarter. Afterwards, CFO Lora and TSMC's two co-CEOs, Dr. Mark Liu and Dr. C.C. Wei will jointly provide our key messages. After that, TSMC’s Chairman, Dr. Morris Chang will host the Q&A session. 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 Web Site 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 as this appears on our press release. And now, I would like to turn the podium to TSMC's CFO, Ms. Lora Ho, for summary of operations and current quarter guidance.

Lora Ho

Thank you, Elizabeth. Good afternoon and happy new year to everyone. Thank you for joining us today. My presentation will start with the financial highlights for the fourth quarter and a recap of our 2014 performance followed by the guidance for the current quarter. Fourth quarter was another record breaking quarter for TSMC with revenues, earnings per shares and a cash balance all reached historical high level. Despite a moderate impact from supply chain inventory corrections, our revenue increased 6.4% sequentially to reach NT$209.05 billion. This was mainly due to the strong demand for our 20 nanometer technologies. On the profitability side, gross margin was 49.7%, down 0.8 percentage points from the third quarter. This was attributed to 20 nanometer margin dilution and their lower capacity utilization while cost improvements and favorable foreign exchange rate offset some of the decline. Operating margin was 39.6%, also down 0.8 percentage points from the third quarter. Overall, our fourth quarter EPS was $3.08, increased 4.8% sequentially and 78.5% year-over-year. Let’s take a look at revenue by application. During the fourth quarter, the strong 20 nanometer ramp was mainly driven by communication related applications. As a result, communication grew 18% sequentially and the revenue contribution increased from 59% in the third quarter to 65% in the fourth quarter. As for other applications, computer grew 7%, while consumer industrial declined 21% and 11% respectively. On a full year basis, communication increased 39% and that represented 59% of our revenue. The major contributing segments included baseband, application processors, image processors and display drivers. Another fast growing application in 2014 was industrial and standard, which grew 30% year-over-year. The growth was mainly driven by increasing usage of power management ICs, near field communication and audio codec within the mobile devices. Our technology, 20 nanometer revenue contribution started with a very small number in the second quarter, jumped to 9% in the third quarter and reached 21% in the fourth quarter. Such unprecedented ramp cannot be achieved without seamless teamwork with our customer, the R&D and operation people in TSMC. On a full year basis, 20 nanometer accounted for about 9% of our full year wafer revenue. Looking forward, we are confident that 20 nanometer will continue its momentum to contribute 20% of the revenue for the whole year 2015. Meanwhile customer demand for our 28 nanometer wafer remains strong. Accordingly these two advance technologies, 20 nanometer plus 28 nanometers represented 51% for our fourth quarter total wafer revenue, a big increase from a 43% in the third quarter. Now let me move on to the balance sheet. On the asset side, cash and marketable securities increased NT$147 billion to reach NT$437 billion at the end of the first quarter, mainly due to higher free cash flow generated from the fourth quarter and the receipt of NT$30 billion guarantee deposit. Total liabilities increased by NT$56 billion mainly due to increased in guarantee deposit, increase in tax payable and the employee profit sharing. Our financial ratios, accounts receivable turnover days was 47 days. Days of inventory increased by 2 days to 58 days, reflecting longer production cycle time for leading notes. Now let me make a few comments on cash flow and CapEx. During the fourth quarter we generated about NT$153 billion cash from operations and invested NT$52 billion in capital expenditure. As a result we generated free cash flow of NT$101 billion in this quarter. Overall our cash balance increased NT$132 billion to reach NT$358 billion at the end of the quarter. In U.S. dollar returns, our fourth quarter capital expenditure was $1.7 billion. This adds to the total of $ 9.5 billion of capital expenditure for 2014. Now I would like to give you a recap of our total performance in 2014. TSMC set a record in terms of revenue and earnings in 2014. Our revenue 27.8% year over year to reach NT$763 billion or $25 billion turns. On profitability, although the rising depreciation and the fast ramp of 20 nanometer has indeed put pressure on our margins, our gross margin actually improved 2.4 percentage point to reach 49.5%. This is because the capacity we invested were fully utilized and we continue the productivity and cost improvement, and to a lesser degree affordable foreign exchange rate environment. Our operating margin increased 3.7 percentage point to reach 38.8%. This demonstrated our ability to drive higher operating efficiency. The operating expenses as a percentage of revenue decreased from 12% in 2013 to 10.6% in 2014. As a result our full year earnings per share increased by 40% to reach the historical high level of NT$10.18 per share. On cash flow, we spent NT$289 billion in capital expenditure, which is about the same level as 2013. Meanwhile our operating cash flow increased 21% to reach NT$422 billion. Accordingly our free cash flow more than doubled in 2014. Overall, our ROE increased by 3.9 percentage point from last year to reach 27.9% in 2014, exceeded our long term financial goal of equal or bigger than 20%. I have finished my report on the financial part now let me turn to the first quarter outlook. We expect a slightly weaker demand in the first quarter due to seasonality. However we also anticipate a more favorable foreign exchange rate will moderate a seasonal weakness. Based on current business expectations, and the forecast exchange rate of NT$31.80, we expect our first quarter revenue to be between NT$221 billion and NT$224 billion, representing a flattish quarter. In terms of margins we expect the first quarter gross margin to be between 48.5% and 50.5%, and we expect operating margin to be between 38.5% and 40.5%. This concludes my remarks. Thank you very much.

Elizabeth Sun

Now our executives will deliver the key messages. The messages will be offered by our CFO as well as by the two Presidents and co-CEOs. We will start with Lora.

Lora Ho

I will make few comments. I will start with the capital expenditure for this year. As we continue to expand our business in advance technologies, we estimate our 2015 capital expenditure to be between $11.5 billion to $12 billion, which is about a 20% to 25% year-over-year increase. In addition to the investment for 16 nanometer capacity, we also spend for 10 nanometer tools and facilities to be ready for customer product tape out by end of this year. More than 80% of the planned CapEx is budgeted for advanced technologies while 8-inch capacity tools or specialty technologies and a banking capacity investment constitute the rest of the 20% of 2015 budget. I would also like to make some comment on the solid state lighting selling. As you now last Friday January 9th upon TSMC’s Board of Directors approval, we have signed a contract with Epistar to sell TSMC’s entire holding shares, which is 94% of TSMC’s solid state lighting to Epistar, and we will exit the LED industry. Despite several years of a dedications and hard work, as a late entrant to the LED industry, TSMC solid state lighting faced difficulties overcoming patent obstacles and sales channels. Not seeing how the Company will be able to reach profitability due to the oversupply exhibited by massive expansions of LED companies worldwide, we have decided to transfer the ownership to Epistar, which is the world’s largest manufacturer of LED at the wafer and dies. The share transfer is the valued at NT$1.46 per share with a total proceed of NT$825 million to TSMC. We have took NT$740 million in impairment loss in first quarter last year, with minimal impact of EPS by about $0.03. The most important part of this deal is that no solid state lighting employee loses his job. Everybody has a job. My last comment is about ASML stock sale. As you know, in August 2012, we acquired about 21 million shares of ASML. Under its customer co-investment programs, the purchase price was €39.91 per share for a total of $838 million. There was a lock up period of 225 years. In the last two years TSMC has entered several hedging contracts, now fully covered our position with an average hedge price of €62.59 per shares, resulting in a locking profit of €483.5 million. As the lock up period is to be expired in April this year, we will be able to book a total profit of about NT$21 billion in 2015. This one-time non-op gain is expected to increase our EPS by NT$0.61 in second quarter and NT$0.13 in the third quarter and for the full year will be about NT$0.75. That concludes my remarks. Let me turn the holding to C.C. - to Mark.

Mark Liu

Okay. I will follow to give you key messages on the near-term demand. We have just concluded a strong 2014, with a 27.8% revenue growth. In particular, the strong demand of our 20 SOC overcome the normal inventory adjustment pattern and enabled a 6.4% quarter-to-quarter growth in the fourth quarter 2014. The fabless company exited 2014 based on our estimates with the days of inventory two days below seasonal. It was from a four days above in the third quarter. Now we see such inventory adjustment should come to a close. We estimate days of inventory at the end of the first quarter ’15 should be one day below seasonal level. So we see our near term demand is quite healthy. Since our fourth quarter last year set a high base, we guide a good quarter for the first quarter 2015, with essentially flat from fourth quarter ’14 and clearly better than our seasonal, again. Looking forward to 2015, it should be another upbeat year. We forecast the semiconductor industry revenue growth to be 5%. The foundry revenue growth is 12%. For TSMC, we are confident we can outperform the foundry revenue growth by several percentage points in 2015. Now I’ll give you a few words on 10 nanometer development update. Our 10 nanometer technology development is progressing and our qualification schedule at the end of 2015 -- end of this year remains the same. We are now working with customers for their product tape outs. We expect this volume production in 2017. On the new technology development in TSMC, I’ll begin with beyond 10 nanometer. I just talked about, we are now working on our future generation platform technology development with separate, dedicated R&D development teams. These technologies will be offered in the 2017 to 2019 period. We are committed to push forward our technology envelop along the silicon scaling path. In addition to the silicon’s device scaling, we are also working on the system scaling through advanced packaging to increase system bandwidth, to decrease power consumption and device form factors. Our first generation info technology has been qualified. Currently, we are qualifying customer info products with 16 nanometer technology and it will be ready for volume ramp next year, 2016. We are now working on our second generation info technology to supplement the silicon scaling of 10 nanometer generation. On the other side, in addition to the recently announced 55 ULP, ultralow power technology, 40 ULP, 28 ULP technologies for ultralow power application such as wearable and IOT. We are also working on 16 ULP technology development. This 16 ULP design kits will be available in June this year. It will be just suitable for both high performance and ultralow power or ultralow voltage, less than 0.6 volt applications. Now I’ll turn the microphone to C.C.

C. C. Wei

Thank you, Mark. Good afternoon ladies and gentlemen. I will update you 28, 2016 [ph] nanometer status the info figures. First, 28 nanometer. Since year 2011, we started to ramp up 28 nanometer production. Up to now we have enjoyed a big success, in terms of good manufacturing result and most importantly the strong demand from our customer. This year we expect the success will continue. Let me give a little bit more detail. First on the demand side, the demand continue to grow, which are driven by the strong growth of mid and low end 4G smartphone, as well as the technology migration from some second wave segments such as radio frequency, hard disk drive, fast controller connectivity and digital consumers. Second, on the technology improvement, we continue our effort to enhance 28 nanometer technology by improving the speed performance while reducing the power consumption. 28HPC, 28 ultralow power technology are some examples. So to conclude the 28 nanometer status, we believe we can defend our segment share well, because of excellent performance and performance cost ratio and our superior [indiscernible] results. Next I will talk about 20 SoC business status. After successfully ramp up in high volume last year. We expect to grow 20 nanometer periods more than double this year due to high end mobile device demand, which was generated by our customers’ very competitive product. Our forecast of the 20 nanometer periods as Lora just pointed out was contribute of the 20% of the total wafer revenue. That remained unchanged. Now on 16 nanometer ramp up, we expect to have more than 50 product tape outs this year, on 16 nanometer. High volume production was started in third quarter, with meaningful revenue contribution starting in fourth quarter this year. And I would like to state again that our Chairman already mentioned that combining 20 nanometer and 16 nanometer we expect to enjoy overwhelming market segment share. Last our update on the info business. The structuring on info is strong. We have engaged with many customers and a few of these customer are expected to ramp up in second quarter next year. Right now we are building a small [indiscernible] line in the new site to prepare for high volume production next year. Also we expect this info technology will contribute sizable revenue in 2016. And thank your attention.

Elizabeth Sun

Okay, this concludes our prepared statements. Before we begin the Q&A session, I would like to remind everybody 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 from the call. Should you wish to raise your questions in Chinese, I will translate it to English before our management answers your questions. [Operator Instructions]. Now let’s begin the Q&A session.

A

First we will invite Bank of America Merrill Lynch Dan Heyler.

Dan Heyler

I have two questions. First I wanted to talk a bit about the ASP situation. You did talk about blended ASP. You did talk about growth in semis being 5% this year, foundry being 12% and TSMC growing several percentage points beyond that. Should we expect that your blended ASP should rise again this year and continue to rise in future years? Thank you.

Lora Ho

And the answer is yes. We do expect the blended ASP will continue to grow in 2015.

Dan Heyler

In order of magnitude relative to the last couple of years?

Lora Ho

We expect our share will continue to the year after next year as well.

Dan Heyler

Okay.

Mark Liu

Order of magnitude is that.

Lora Ho

Low single digit range year over year.

Dan Heyler

And the specific drivers of that? I know you’re going to say mix, but could we talk in a little bit more detail on the drivers of ASP improvement as my follow up?

Mark Liu

I think it’s just 20 will be bigger this year, percentage wise than last year. And 16 will start and 16 will be much bigger year than this year, et cetera. And in the past several years our ASP has been increasing because the advanced technologies keep coming up. So rest is driving for us.

Dan Heyler

And the second part, I guess as we look at your pie chart, on your slide with communications and computer being amazingly only 9% of your revenue, say 10 years ago that chart looked much, much different, with compute being the biggest. As we look at computer opportunities going forward, I think to some extent there’s maybe a sense of a little bit of disappointment in that we don’t see ARM necessarily in PCs yet. We haven’t really necessarily seen that ecosystem come through in the server business. And Big Data being such an important trend going forward, with compute growing about 15% per year, I’m wondering what TSMC is doing or what your view of that opportunity will be in the future as a potential growth driver?

Morris Chang

Servers is one of them, Mark. IoT actually also, and don’t forget that mobile, actually we think has few more years to run yet. Really the TSMC silicon content in the average phone is actually increasing, which is something that is not recognized by another people, because everybody says that the weight, the gravity is shifting to the middle level, lower level priced phones. But according to our data, and we have kept track of it for quite a long time, the average, our TSMC silicon content in the average phone is actually increasing. So -- and look, we still look for -- I think the number we have is that by 2019 there will be a 2 billion phones manufactured this -- I think last year it was what, 1.3 billion to 2 billion and the average TSMC silicon content per phone is increasing and the number of phones is going up. So that’s by no means a -- it’s still there, it’s still a growth engine. And then the, IoT, I think we talked about IoT before and now we are certainly not oblivious to the server possibility. So why don’t I ask Mark to talk more about the server and then maybe C. C. will talk a little about the IoT.

Mark Liu

Okay Dan, just respond to you on the server part. Kevin talked about the area -- we mostly focus on phone today and that would drive -- give us growth momentum in the next several years. Our server, we work with product innovators around the world, and such a field definitely will not lose in our radar screen and theirs. And the TSMC has over the years developed our technology to suit for high power computing. And from 65, 40, 28 to 16 nanometer, we continue to improve our transistor performances. And today we believe our 16 FinFET Plus transistor performance probably is the top of the -- it’s one of the top of world, that’s well suitable, well capable doing the computing tasks. And actually before server, and there are several super computer around the world in U.S. and in Japan, already powered by our technology, doing weather forecasting, whether it be geo exploration applications today. And on the server, on ARM particular we have very close partnership with ARM in the recent years. And ARM is a very innovative company. They produce CPU core in the new architecture every year. And we reach our leading edge technology very early with ARM and to design leading edge CPU cores, and that will continue and several of our customers are taking advantage of that. Yes, in a path it is being -- getting too slower as expected. That’s because the software ecosystem is slower to come, but actually lot of service companies, assistant companies continue investing in this ecosystem, Linux based ecosystem is coming very strong too. So I think the trend will continue and we will with our customer get into this segment in the near future.

C. C. Wei

Say few words for IoT.

Mark Liu

Okay. For the IoT that would be a big topics right now in the whole industry. All I want to say is we are happy to share with you that long time ago we already focused on our specialty technology, which are the CMOS sensor MEMS, embedded flash, all those kind of things. The day we add another new technology, ultra-low power into it and that would be the basis for the IoT technology necessary in the future, and we believe that when the time comes and IOT business become big, TSMC lie in a very good position to capture most of that business that I share with you.

Elizabeth Sun

Next we will invite Credit Suisse, Randy Abrams.

Randy Abrams

The first question, actually wanted to ask about the CapEx increase where it’s moving up for this year. Could you talk about the allocation, how much you plan for the 10 nanometer, how much for the 16? And then also if you still see growth out of 28 and the 8 inch, if there’s plans to expand 8 inch. So if you could give more flavor on the CapEx?

Lora Ho

Randy, in my remark I was talking about 80% of the CapEx goes to leading edge technology. That actually cover very big part of 16 FinFET capacity and also the 10 nanometer for the engineering line and R&D expenditure that altogether leading edge technology will be 80%. We are also increasing our investment in the backend, also in 8 inch. These two things together will be about 10% and address other smaller items.

Randy Abrams

I think it’s a 10 nanometer.

Elizabeth Sun

We do not disclose specific numbers.

Randy Abrams

Okay. And then the follow up question on profitability, if you could give a flavor on structural profitability for 2015 and on some of the flavor for 20, how quick that may get to corporate margins and for 16 because it’s an extension whether that could be in your corporate margins as that comes up. And if you could give a comment on the inventory at current levels, if there is any -- if that will stay at these higher levels from the whip you’ve been building or that may come back down to a different level?

Lora Ho

Okay. Randy you have multiple question. I recall you asked about structural profitability, that’s your first question, right. From what we can see now, we are very confident. We can maintain equal or slightly better structure probably instead of gross margin versus 2014. For the 20 nanometer and 16 nanometer ramping, how will that effect the corporate margins, I have said in last July, it usually takes seven or eight quarters for any new leading edge technology get to close to the corporate average. So for 20 nanometer, it will take eight quarters so we believe -- so 20 nanometer start to sell in second quarter ’14 and we expect by first quarter ’16, last eight quarters you will be at corporate average level. For 16 we are going to mass produce this product. It will follow the similar trend. 16 nanometer will be based on the feature of 20 nanometer. So the margin will start to be higher, but it will also follow the similar trend. It takes seven quarter to reach to corporate average. So say we plan to mass produce 16 FinFET in the third quarter ’15. So by first quarter ’17 it will get close to corporate average. So there will -- before that there be still some more dilutions. For this year the dilution will be 2 to 3 percentage points and last year the second half will be 3 to 4 percentage point and very low in 2016.

Randy Abrams

Then is there -- just [indiscernible] on inventory, is there any impact from the inventory at these current higher levels. Do you expect because of the longer cycle time inventory would stay at these inventory day levels or that would come back down to the historical levels or closer to history?

Lora Ho

I think Mark has talked about inventory level. We have went through the inventory depletion period. Now we see inventory was four days above seasonal in the third quarter last year.

Randy Abrams

For TSMC’s only [indiscernible]…

Elizabeth Sun

Yes, TSMC’s inventory level.

Lora Ho

TSMC, you’re talking about 50 days, I was talking about. Normally in the past you have seen around 45 to 50 -- 45 being average. This increase of inventory is mainly because the 20 nanometer ramp. It has much longer cycle time, both in the wafer fab also in the backend. So that’s the main reason inventory going up. So it will not continue to go up further. It will probably stay at the similar level but it will not go down either.

Elizabeth Sun

Next we invite Citibank’s, Roland Shu.

Roland Shu

First question, I would like to learn from Chairman your view about the effective capacity of 14 nanometer, since I think back to 14 nanometer days, you precisely both seen the effective 14 nanometer. That thing will much smaller length -- low capacity 14 nanometer capacity will be much smaller than the built in 14 nanometer capacity. So first your view for 14 nanometer this time, thank you.

Elizabeth Sun

So, Roland your question is with respect to effective capacity, where Chairman has defined the capacity to be effective when you have a useful technology. So your question is wanting to hear from Chairman about the situation of 14/16 nanometer, what kind of effective capacity scenario we’re facing today.

Morris Chang

And I define effective capacity as what?

Elizabeth Sun

Capacity with a useful technology.

Mark Liu

[Indiscernible] back to 13 nanometer days, chairman guided us on the effective 14 nanometer capacity. That means it’s going to be much smaller than the overall build capacity. So I just want to learn from you, what’s you view for 14 nanometer effective capacity these days?

Morris Chang

Yes, that is capacity that is going to be used, right. That is going to make a profit for us, right. We are just in the middle of building up our 16 nanometer effective capacity strongly.

Elizabeth Sun

I think Roland's question, you probably are asking us.

Roland Shu

It’s about overall.

Elizabeth Sun

Overall industry, whether or not other players are building effective capacity as well.

Morris Chang

I think I have pointed out many times in the past that some companies, some foundries build capacity on speculation, just like builders build houses or condos on speculation. They haven’t sold them yet. Their speculation is that after they build the apartments or houses, they will be sold, but that doesn’t always happen of course. Now we however are different. We build capacity when we know it’s already sold.

Roland Shu

Maybe I'll ask in other way. So compared to 14 nanometer days, and now we’re looking for the 14, 14 capacity. Do you think the effective capacity for 14 nanometer industry will be bigger or smaller than the effective capacity when you see at the 14 nanometer days?

Morris Chang

Do you understand the question?

Elizabeth Sun

Sort of.

Morris Chang

He’s talking about 14.

Elizabeth Sun

He is asking Chairman to compare 14 nanometer today versus 14 nanometer a few years ago in terms of the capacity.

Morris Chang

What today?

Elizabeth Sun

14/16. We should use 16. 16 nanometer versus 14 nanometer a few years ago.

Morris Chang

In what respect?

Elizabeth Sun

Whether the industry has oversupply in capacity, whether the oversupply capacity is effective.

Morris Chang

I don’t know yet, because from the data we have now, I don’t think -- you’re talking about 14 right, 14 right?

Roland Shu

Yes.

Morris Chang

From the data we have now, I don’t think that it’s enough -- they’re building too much 14 capacity. Am I correct? Everybody forget that. I don’t think that everybody together is building. From the data we have now, I don’t think they’re building too much capacity yet. But you want me to compare with 40, 40 yes. I think at about the same point in time in the 40 nanometer cycle we - my memory is a little hazy now. That was five-six years ago.

Roland Shu

Okay thank you very much. I think my second question is that most investors are very happy to see a Chairman. You have ranked -- shareholder as the top priority when you are around TSMC. But I think some of the customers probably are very upset to hear about TSMC have put customer on the much lower priority when you are running your business.

Morris Chang

Customers have a very high priority in our Company. In fact very, very high. As I think we have said many times that we really have three major strengths. One is technology, second is manufacturing, and third is customers’ trust and this has been our model ever since we started the Company almost 30 years ago. So now if you are talking about -- we do of course place shareholders also in a very high priority or high position. But I think that’s common and I think that’s the way it should be. But obviously you need very good customers. You need customers that trust us. We need customers that trust us, that work with us in order to satisfy our shareholders. It’s a part of the same question.

Roland Shu

Yes I think maybe I should rephrase my question -- I think in the past TSMC because of your technology,

Morris Chang

Why do you have to rephrase your question all the time?

Roland Shu

My question [indiscernible] just on your -- for the profitability and also customer relationship. I think most of the time, this has come late. I think that in the past due to a very good profit 30 for TSMC, probably some of the customer actually was not happy. So going forward how TSMC to balance its profitability and the customer relationship?

Elizabeth Sun

So Roland, your point is that because we have very high profitability, therefore our customers are unhappy. That is not the right logic.

Mark Liu

Well we think we earn our profit. We think everyone has to earn his profit. We think our customer has to earn his profit too. And I think -- they do think -- our customers do think they earn their profit, just as we think we earn our profit. But there are always people who think that you’re making too much profit. Some of our customers think that our customers are making too much profit too. So -- but we think we earn our profit. And if any customer is unhappy with us, he sees me -- he comes to see me, he comes to see us, okay. And we try to correct the situation. We try to improve the situation.

Elizabeth Sun

Okay good, next we invite Goldman Sachs, Donald Lu.

Donald Lu

Congratulations on the very good 2014 results and also very strong 2015 CapEx guidance. I think this year maybe TSMC will top the world in logic.

Mark Liu

Not really.

Donald Lu

Okay so now two questions. One is the channel -- about six months ago you gave us a comment on your estimate on TSMC’s market share. In fact in 2015, 2016, 2017. So has that changed? Second question is Lora, you commented someone paid you 30 billion capacity guarantee. Is this something new? I don’t remember that TSMC take?

Mark Liu

What did you say? I didn’t hear the last one.

Donald Lu

The second question is about capacity guarantee of NT$30 billion.

Elizabeth Sun

Yes, customer deposit.

Donald Lu

Deposit, customer deposit.

Lora Ho

The guarantee deposit. You’re asking this is something new?

Donald Lu

Yes.

Lora Ho

Actually in there, I think more than 10 years ago, maybe 15 years ago TSMC had bound us with several customers. It’s not something really new.

Mark Liu

15 years ago.

Morris Chang

Late 90s. But after that I guess we didn’t have [indiscernible] yes. I thought it was pretty good in the late 90s. So we started again looking at it. Customer likes it too.

Donald Lu

So maybe you can trend little bit like what it guarantees TSMC’s obligation on that and how long it will be [indiscernible]?

Mark Liu

Are we still answering the second question or are we -- I want to answer the first question. Donald’s question was that I said -- actually I looked up my statement at that time, July 16 of last year. I said on the subject of 16 and 20, 16 nanometer and 20 nanometer project, I said that I actually made three statements. The first statement was that because we started 16 a little late, our market share in 2015, our 16 nanometer market share in 2015 will be smaller than our major largest competitors. The second statement I made was that we started 16 late because we wanted to do 20, and so if you combine 20 and 16, our major competitor who will be slightly ahead of us this year on the 16, he has very little 20, almost no 20 at all. And if we combine 20 and 16, our combined share in this year will be much higher than that competitors’. The third statement I made is that in 2016 we will have much larger share in just 16 nanometer than our competitor. First, I want to say that I at this time stand on those statements. In fact I now will add a couple of statements. The statements I will add -- that's four statements now, okay. When we have a larger share on just 16 alone in 2016, the 16 market will also be much larger than this year, 2015. So, yes we are slightly behind. We have a smaller market share in 2015. In a smaller market, next year we’ll have a larger share, in fact much larger share in a much larger market, 16. And another statement I want to make is that I’m at this point very-very comfortable with all those statements that I have made on July 16th last year and the statements that I have added up today. I’m very comfortable. I don’t know whether that answered your question on that. Donald?

Donald Lu

Yes. How about 2017 if…

Mark Liu

The what?

Donald Lu

2017.

Mark Liu

What? 2017? 2017 the trends is going to continue. We’re not going to lose the leadership on 16 market share once we recapture that in 2016. It’s going to continue 2017, 2018 and also both 20 and 16 are going to live longer than you might think now. Well 28 for that matter also will live longer than you think.

Elizabeth Sun

Next, we will invite Deutsche Bank’s, Michael Chou.

Michael Chou

Thank you. Chairman, do you see the 16 nanometer FinFET plus PPA is better tier 2 foundries 14 nanometer at this moment, given that you mentioned you expect TSMC’s 16 nanometer market share should be higher than your major competitor in 2016, but…

Mark Liu

What?

Michael Chou

Based on current R&D focus any product design focus, do you think that your PPA of the 16 nanometer FinFET plus is better than your competitor PPA? [Multiple Speakers].

Elizabeth Sun

Okay. So Michael’s question is if we look at the definition of the technology in terms of performance, power and area, is our 16 nanometer better than our competitors?

Mark Liu

We’ll see. Why don’t you [indiscernible].

Michael Chou

As the follow up do you think that your most customer will stay in your 16 nanometer rather than shift to tier 2 foundries over the next 18 month? Staying at 16 FinFET plus rather than move to your competitor 14 nanometers?

Elizabeth Sun

You mean after we have ramped 16 FinFET price?

Michael Chou

Yes.

Elizabeth Sun

Well, our customers shift to our competitions offer.

Michael Chou

I saw the question I think answered already. Once we capture that the larger share we’ll stay here for many years. Let me put another way. Can we state your 16 nanometer market share in 2016 will be customary to your dominance in 20 nanometer given that your 20 nanometer the only provider. So the apples-to-apple comparison should be 28 to 16 nanometer.

Elizabeth Sun

So market share in 16 nanometer in 2016, will that be the same as our market share at 28 nanometer I would say back in 2013, ’14?

Mark Liu

No. I don’t think so. Because 28 of course we were virtually sole source, and 16 we already know, we are not -- there is at least one major competitor. And there is another one that’s just kind of eager to get in. I don’t mean the first competitor’s accessory. I mean another one.

Michael Chou

Okay. Second question is regarding the info. Do you expect gross margin info to have a negative impact to your overall gross margin in 2016 or beyond, given that you mentioned it could be sizable revenue in 2016?

Elizabeth Sun

So your question whether or not info business in 2016 will impact our margins?

Michael Chou

Yes.

Elizabeth Sun

Whether info will impact our margins?

Mark Liu

No probably not. The backend business actually is lower margin but the turnover is faster. So put two together is comparable.

C. C. Wei

Info will have lower margin than our wafers business. But it will actually have higher return on investor capital, clearing our way for business.

Elizabeth Sun

Okay I think we really should go to the line and invite questions there. Operator could you please invite the first caller on the line.

Unidentified Analyst

[Audio Inaudible]

Elizabeth Sun

All right. Let me repeat Brett’s question, so that people here can hear it better. Brett’s question is TSMC’s 28 nanometer capacity is very large. As our technology migrate to more advance nodes such 20 and 16 in the next few years, what will be our plan on capacity of the 28 nanometer? Will we still have large demand to utilize those capacity or we need to do some changes?

Mark Liu

In every generation we worry a lot about the conversion loss we will suffer when we convert the equivalent of the capacity of that generation to the capacity of the next generation. Now so we do two things. First we try to minimize that conversion loss. And since we’ve been living but the problem for so long now, I think we’re getting to be pretty good at it. So the conversion loss from one generation to another is normally in the low single digit, low middle single digit. Now the second thing we try to do is, and I think we actually have been doing it perhaps even more successfully than the first thing. The first thing was to try to minimize the conversion loss. The second thing we try to do is we try to prolong the life of each generation. And I was saying just five minutes ago that I think the life of 28 nanometer may be longer than lot of people would think and actually we are still making half micron stuff. And we try to pull on the life of every generation as we continue to migrate to advanced technologies, and 28 is suddenly a generation that we want to pull on the life of.

Elizabeth Sun

All right. Brett, do you have a second question?

Unidentified Analyst

[Question Inaudible]

Mark Liu

The question is

Elizabeth Sun

Whether or not we’ll build a 28 nanometer capacity in China in the next 12 to 24 months. And how large will that be?

Mark Liu

We are seriously considering the possibility, and in fact we are gathering data and making contacts et cetera. They are obviously both pluses and minuses. And we are seriously considering the proposition of making 28 nanometer in China. And there are also barriers, but as I said, at this stage we are exploring. We are seriously considering. We are exploring. We are gathering data and making contacts.

Elizabeth Sun

All right. Let’s go back to the floor. And now it will be from Barclays Andrew Lu.

Andrew Lu

[Non English]. The first one is regarding the revenue outlook for the next few quarters. Are you expecting any single quarter for the next quarters, Q2, Q3, Q4 revenue below first quarter?

Elizabeth Sun

Andrew is asking to give him guidance whether or not our Q2, Q3, Q4 revenue will be lower than Q1 level?

Mark Liu

Will Q2, Q3, Q4 will be lower than Q1?

Andrew Lu

Any single quarter in your internal forecast saying will be lower than the first quarter.

Morris Chang

What is the Q1 times for? I’ll work out the answer here. Right here.

Andrew Lu

Because that’s the following, why I’m going to calculate, because based on the estimate Q1 is quite similar to Q4, on the revenue by EPS point of view, from op margin guidance, gross margin guidance. If we [indiscernible] revenue is up 15% year-over-year and the EPS up 20% year-over-year.

Morris Chang

That will be consistent with what Mark said. He said that it will outperform the foundry growth, which is 12%. He said we will outperform it by several points.

Andrew Lu

But this is based on flattish environment. We have got no course for the next few quarters. That’s why I asked you any downside risk?

Morris Chang

All right. Let me just tell you what I think. I think we have upside, in next year.

Andrew Lu

Okay, that’s enough.

Elizabeth Sun

And Andrew, I also have to remind you, the foundry numbers are based in U.S. dollars, but the fourth quarter or the first quarter revenues are based in NT dollars.

Andrew Lu

Yes. Second question is, are we still planning to raise our cash dividend?

Morris Chang

No. Yes, we are seriously considering it. But obviously I can’t answer question because the Board has to approve it, and then of course the shareholders meeting has to approve it.

Andrew Lu

What number in your mind?

Morris Chang

I am not going to go there.

Elizabeth Sun

Okay, now we will invite HSBC’s Steven Pelayo.

Steven Pelayo

It seems like especially last week there have been two or three key concerns people are talking about relative to TSMC. The first one is smartphone growth slowing down. I think you’re guiding for foundry market growing 12%. You growing several points faster kind of answers that growth. Next two concerns are really about competition, customer concentration. So I’m wondering if I just ask, you are look at your top three customers in 2015, do you expect them each to grow year-on-year and do they grow that several points above 12% foundry market?

Elizabeth Sun

Okay, Steven’s question is regarding our top three customers. Whether or not their business with TSMC year-over-year growth rate will be at least in line with the foundry’s 12% rate of growth.

Morris Chang

If you’re just limited to three, it’s getting too specific, because you almost know who the three are and if I tell you anything, you will. So let’s say 20, our top 20 customers. I expect the vast, vast majority of them to grow every year.

Steven Pelayo

Okay, and then maybe as a follow-up. I think we’re all kind of dancing around the same general questions. I asked this I think of you I think last quarter. At 20 nanometer node, you had seven quarters of sequential growth, absolute dollars. 20 nanometers ramped up so significantly because you’ve had some significant customer wins there. When you look at it on a quarterly basis, do you expect every quarter of 20 nanometer to be higher than the prior quarter in dollars as you go through 2015?

Elizabeth Sun

You are asking 20 or 28?

Steven Pelayo

20 now.

Elizabeth Sun

Okay, 20 nanometer every quarter is a following quarters, whether they will be higher than the prior quarter. 20 nanometer every quarter, whether it will be higher than the prior quarter this year?

Morris Chang

I think the answer is yes. The answer is yes. And by the way going back to your last question, were you discussing about this year or every year from now on?

Steven Pelayo

I think the customer concentration concerns are primarily for this year, trying to offset such huge gains last year and it appears as though you are absorbing us.

Morris Chang

Well, my answer is still the same. Of the top 20, I expect the vast, vast majority of them will grow, each will grow this year.

Elizabeth Sun

All right, next question will be coming from Morgan Stanley’s Bill Lu.

Bill Lu

Thanks very much and also let me add my congratulations on a spectacular 2014. My first question is on 28 nanometers. If I look at your capacity this year versus 2014, how much is the increase in capacity?

Morris Chang

28?

Bill Lu

28, yes.

Morris Chang

C.C. do you want to answer the question?

C.C. Wei

High double digit.

Morris Chang

High double digit.

Bill Lu

You mean high teens or high double digits?

Morris Chang

High teens.

C.C. Wei

Actually, high teens. I am sorry.

Bill Lu

Okay great. Do you think revenue can grow? In other words, do you think ASP decline should lessen than unit growth?

Elizabeth Sun

We are not supposed to comment on a single node’s price. I am sorry. Our legal advice is not to comment on single node’s price.

Bill Lu

Okay great. My second question is on your China strategy, and you talked about potential looking at 28 nanometers. Correct me if I’m wrong, but my understanding was that Taiwanese companies cannot do 28 in China. Can you talk little bit more about that?

Morris Chang

What?

Elizabeth Sun

28 nanometer manufacturing in China. So you question is most of the players cannot do 28 nanometer properly in China right now.

Bill Lu

I thought by law Taiwanese companies cannot do 28.

Elizabeth Sun

Oh, Taiwan?

Morris Chang

No. Actually Taiwan -- I think it’s the rule now that says you still have to apply in every instance, but the general rule is that N-1 [ph] technology is allowed thus currently, but you still have to apply in each case.

Elizabeth Sun

Okay next, we will be having questions from UBS, Eric Chen.

Eric Chen

Very quick, my first question regarding to your China investment. So I would like to know why you picked 28 nanometer process. And we know your China client already doing very good business with your TSMC and in Taiwan. So what’s the point for you to build another 28 nanometer process in China and what is the trigger and what’s the benefit? My first question.

Elizabeth Sun

Yes, so Eric’s question is since most of our Chinese customers already do 28 nanometers with us in Taiwan, why do we need to go to China to capture the 28 nanometers there? What’s the plus and the minus?

Morris Chang

Well because they’re telling us that yes, they will continue to do 28 with us, but it will be better if they do 28 with us if we’re in China.

Eric Chen

Okay so in this.

Morris Chang

And you have to realize that they are companies, they are foundries in China that also going to do 28 nanometer and, so they may prefer to buy from our customers, may prefer to buy from the Chinese foundries when their 28 becomes available.

Eric Chen

Okay can we assume from the profitability point of view it’s no big change, no big difference between the manufacturing in Taiwan and the manufacturing in China, right?

Elizabeth Sun

Whether or not the profitability, in fact you are actually talking about.

Morris Chang

Well, actually there are pluses and minuses. Basically, I think the cost, we have had the experience for more than 10 years now of operating an 8 inch factory in China, okay, and cost seems to be -- the cost is higher, let’s say minus, but if you lose business, then it’s even worse, all right.

Eric Chen

Okay my second question regarding to the CapEx, we write our CapEx also the order CapEx harden the market’s potential. So can we expect or can we assume other equipment are competitive for the 16 nano FinFET probably will move ahead of all the earlier -- the schedule -- internal the 16 nano FinFET the equipment schedule. Will that move ahead?

Elizabeth Sun

So [Eric] your question is since our CapEx guidance is higher than market expectation, whether or not we are moving the equipments earlier or ahead of our original schedule?

Eric Chen

Yes for the 16.

Elizabeth Sun

For 16 nanometer.

Morris Chang

I don’t know what the market expectations are. We don’t benchmark ourselves against market expectations. We benchmark ourselves against needs.

Eric Chen

Yes, you are right. But I don’t understand. I remember that probably six months ago you told [indiscernible], spoke probably three months ago, six months ago and in conference probably Lora mentioned the CapEx for this year probably supply be higher the year 2014. And so I assume that we get more aggressive about the CapEx, am I right?

Morris Chang

Well I think we’ve always been reasonably aggressive in CapEx without speculating at all. So that’s our stand up, all right. So I don’t know what your question is anyway. Are you asking whether we are moving in or how soon we are buying the - we’re setting up the capacity, is that what he’s asking?

Elizabeth Sun

No, I think Eric, you are really trying to see if we are becoming more confident and convinced of the demand, so we are pulling in the equipments sooner, right?

Eric Chen

Yes.

Morris Chang

I said earlier that we don’t dote capacity on speculation.

Eric Chen

So, that’s what we need.

Elizabeth Sun

Yes, good, thank you. Okay, all right, so then next I think we’ll [indiscernible] JPMorgan’s, [indiscernible] already raising his hands. We’ll give the microphone to him, thank you.

Unidentified Analyst

First I had a question on, there’s been a lot of controversy about cost per transistor, where the Moore’s law, the economics of Moore’s law are slowing down. Your competitor Intel has kind of put out a very emphatic statement saying that until 7 nanometer they are seeing that continuing at the same pace as before, while there has been a lot of noise from the phablet community in the last couple of years that at 20 nanometer or the 16 nanometer, there is the potential slowdown. Could we have TSMC’s version, now that you’re pretty much ready to start 10 nanometer and thinking already about 7? That’s my first question.

Elizabeth Sun

So, all right, let me repeat Gokul [ph], your question is mainly on the comments of cost per transistor. Some of the other player, I think you are referring to Intel, who has made comments that they do see the cost per transistor to continue into 7 nanometer, and so they can handle the economics of the Moore’s law, whereas on the other hand phablet companies begin to complain about not seeing enough economics since starting with 20 nanometer. So what is TSMC’s statement regarding this economics issue?

Mark Liu

Let me answer this question. The cost of transistor continues to go down, and by scaling mostly is -- everybody knows. Nobody, nobody I think refuses that statement. We see the cost of transistor continue going down in a constant rate and in going forward, the cost of transistor going down probably at slightly slower rate. That’s the argument. But it really depends on companies, and some companies simply do not have the technology capabilities. And today further going down the more slower technology development, just a few. And we as far as though, whether those cost can -- is -- can get enough returns, and of course that has to do with how much that technology bring values to the product, whether that command the price. And today we see certain segments will continue to need it, that type of system performance to get enough return. So this is the reason we committed to push the system scaling.

Unidentified Analyst

So can we say that for customers who can afford it, it is still going to go down basically? Even at 10 nanometer for customers who can afford it -- afford the development cost, and have the volume, the cost is still going to be going down substantially?

Mark Liu

Of course of course. It goes down very significantly, yes.

Unidentified Analyst

I have a second question, just a clarification on the 16 nanometer ramp up. I think last conference C. C. mentioned that 16 nanometer ramp up is likely to be at or even faster than the 20 nanometer ramp up that we saw last year with a five quarter delay. So basically meaning that first quarter 16 nanometer revenues could be even higher than what 20 nanometer revenues were last quarter? Is that still the expectation for the 16 nanometer ramp up in the next few quarters?

Mark Liu

What was the question?

Elizabeth Sun

The question is whether or not the speed of the ramp up of 16 nanometer will be faster than the speed of the 20 nanometer ramp up in the first three quarters?

Morris Chang

In the first three quarter, our ramping up speed were similar, but maybe a little faster, but very similar.

Mark Liu

Don’t we have any more questions from the…

Elizabeth Sun

There are people hands here. Okay, there is [indiscernible], Rick Hsu.

Mark Liu

No, I mean overseas mail.

Rick Hsu

I’ll do this quick this. This is Rick from Daiwa. So just one question here. I remember in the last four years post the financial crisis I think TSMC tended to build about two fab shells per year for expansion year ahead. But if I look at this year, correct me if I’m wrong if I look at this year, it seems to me that you don’t have any new fab shell under construction. So does that mean your guys are trying to be more conservative in 2016 or 2017?

Elizabeth Sun

So Rick is asking us whether or not we will be building new fab shells this year at the same speed as we did in the past, which is two shells per year.

Morris Chang

We will. We continue this trend.

Rick Hsu

Two shells a year.

Morris Chang

Two shells almost for one generation.

Elizabeth Sun

Okay. Randy has a follow up question.

Randy Abrams

My first question on the guidance you gave for first quarter is holding up pretty well flat. And looking at the last four to five years, it’s also been much better than it used to be at the beginning of the year in the first quarter. If you could talk about if you’re seeing seasonal patterns shifting more -- customers getting more aggressive first half, and if you see the same type of scenario we have second half slow down again. So if you see a different pattern of seasonality?

Elizabeth Sun

Okay. Seasonality, Randy’s observation was that in the past he saw our customers to be optimistic in the first half and then going through inventory correction in the second half. Will we be seeing similar patterns this year?

Morris Chang

This year -- we just guided a strong first quarter because, typically the first quarter is slow quarter for us. So that’s -- being flat is consider as comforting. For this year, because our -- more recently the smartphone announcement getting to the strongly effective general inventory pattern, the smartphone launch typically in the April time frame and in September and that will depend how much share we gain if the launch will affect our seasonal pattern. For this year, the first quarter and - for this year pattern will be different than next year’s, also be different than last year’s. So that’s the comment I had coming to play with different share we have.

Randy Abrams

Another follow up question I want to ask. On the currency we finally have NT dollar moving in our favor to support margin improvement. In the past when you see NT dollar depreciate, can you typically sustain the incremental profitability or if NT were to stay at 32 or even move higher, do you eventually have to share it with your customers or how that typically plays out, if it remains better for the company?

Morris Chang

Will you repeat the question?

Elizabeth Sun

So Randy, you are asking whether or not we can sustain the advantage coming from the current -- the favorable exchange rate, right. Sustaining beyond say the first quarter?

Randy Abrams

Like if we were to stay at 32…

Morris Chang

The ratio, I think we said earlier long time ago, by that I mean two, three years ago that each percentage point of exchange rate change is equivalent to 0.4% of our margin. I think you are asking whether that still holds true, is that right.

Randy Abrams

Or whether if the currency stays at that level, if over time -- like if that’s a permanent benefit if we were to stay at 32, or over time you share some with your customers?

Elizabeth Sun

So you are saying that since -- if NT dollar remains this low, whether or not we will share the exchange rate benefits -- at least part of that with our customer. Whether we will be sharing the exchange rate benefit with our customers? I.e. whether or not we are willing to take a lower U.S dollar price.

Morris Chang

Well they didn’t share the exchange rate loss with us?

Elizabeth Sun

Okay follow up question from Roland, Citi’s Roland Shu.

Roland Shu

Just 10 nanometer question to C.C. Since C.C., you said we are expecting to valid [indiscernible] 10 nanometer in 2017. But I remember in the past two quarters actually our goal was up to pull in 10 nanometer [indiscernible] by end of 2015. So [indiscernible] a little bit or not?

C. C. Wei

Let me explain that because 10 nanometer is the [indiscernible] about 70 to 80. So you got to start in 2016 to have output in 2017. So what I am talking about is 2017 should start to have revenue.

Roland Shu

Okay thanks. So wafer start schedule in ’17 does not change.

C. C. Wei

No I cannot say more than that.

Elizabeth Sun

Okay. Alright Andrew Lu also has follow up question.

Andrew Lu

I remember last Investor Conference C.C Wei mentioned 16 FinFET revenue have a high single digit by Q4 this year and may be few percentages by Q3. Is that number unchanged?

C. C. Wei

Unchanged.

Andrew Lu

You sound so less [ph] confident.

C. C. Wei

The more I say the more that information from the customer will be released soon.

Andrew Lu

Okay understood.

Elizabeth Sun

Okay Andrew you are done right?

Andrew Lu

Yes.

Elizabeth Sun

Okay now we’re going to Dan Heyler.

Dan Heyler

I had a question on the -- more the mature nodes situation; saw a nice chunk of revenue there on the mature 12 inch nodes. As we move into IoT, there’s a lot of interesting products that are coming up, ultra-low power for one. I’m wondering, as you look at the 40, 65 nodes, what’s happening on device complexity as device complexity, they’re increasing, because we hear about device complexity maybe -- on the mature node maybe increasing. I wonder if you have a view on that. Sorry, it’s more design related. What I’m getting at there is the ASP trends. I think there’s a traditional view of mature technologies being a low-margin business.

Morris Chang

C.C will have all the answers of questions. Generally yes, the device complexity or mature nodes is increasing. This is how we’re prolonging the life of the mature nodes.

C. C. Wei

Yes usually we have developed the [indiscernible] of technology to the derivatives technologies, which is complicated. But one good example from the logic to embedded price. Then you add a quite a few steps and become CMOS image sensor or those kind of things or that more complex.

Dan Heyler

So implications, therefore I will presume pricing and market share then would be I guess quite favorable. Does -- do you -- when device complexity goes up, does that hold blended ASP’s flat or does it increase ASP in general terms.

Elizabeth Sun

Because of the complexity of the mature technology is increasing, whether we will benefit from ASP.

Dan Heyler

No, does market ASP.

Morris Chang

Well actually I will say that our profitability has remained pretty constant over what? In the early stage the profitability of a node is often more. As Lora pointed out, it takes about eight quarters for the margin to get to the cooperate level. But after that it is placed pretty constant or increases a little bit in fact. It increases -- particularly in the last few years I think we have kind of pushed up the structural profitability. And yes, I think that the added complexity or actually a lot of new things are happening on the mature nodes. So the mature nodes today are nothing like, but only about 50% - 60% like where they were when they were first introduced.

Daniel Heyler

And the second question is on the 20. Do you think 20 revenue will grow this year? Your expect it? Well okay. And if that’s the case, does the mature technology overall, everything else say 40 to 90, is that able to stay flat or does that go down, because there is still some -- a lot of migration taking place to 20. It’s a very attractive node. I’m just wondering what’s happening on kind of the 40, 65 and 90. Can that hold flat or does that decline?

Elizabeth Sun

I think it depends on nodes. So Dan’s question is if we are growing our 20 nanometer revenue, we are growing 28 nanometer revenue, whether or not our 40, 65 et cetera, those older nodes revenue will be growing as well?

Lora Ho

I can make some comments on your questions. Actually we have very strong demand on those specialty technology. As you know at this point Taiwan is very high demand, and we are also increasing the technology offering for 40 nanometer 65. From what I can see now, I believe that in 2015 those maturing technologies revenue will be bigger than 2014.

Elizabeth Sun

All right. So I think really we will just allow two hands. It will first go to Michael and then it will be Steven.

Michael Chou

So sorry, just the capacity increased this year. So what would be your forecast?

Lora Ho

Okay, with 11.5 to 12 billion CapEx, we expect to increase our capacity by above 11% to 12%.

Elizabeth Sun

Thank you. Steven?

Steven Pelayo

The guidance for the first quarter is very, very impressive; and of course we are all going to try to reconcile that for the full year; Andrew’s question with the full year guidance. I guess could we talk just a little bit about the second quarter, but talk about it relative to -- I think you mentioned last quarter and I think you did it last year. You do some pre-building in the first quarter ahead of the second quarter. How much of that is impacting your first quarter guidance?

Mark Liu

Lora?

Lora Ho

Very minimal. As we went through the increased inventory depletions and this preview give less and less, I think you know the purpose trying to utilize the capacity without any waste. So it does help a little bit for the utilization, but it’s getting lower and lower now.