Taiwan Semiconductor Manufacturing (TSM) Q2 2023 Earnings Call Transcript

Taiwan Semiconductor Manufacturing (TSM 1.26%)
Q2 2023 Earnings Call
Jul 20, 2023, 2:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Jeff Su

[Foreign language] Good afternoon, everyone, and welcome to TSMC's second quarter 2023 earnings conference call. This is Jeff Su, TSMC's and your host for today. TSMC is hosting our earnings conference call via live audio webcast through the company's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode.

The format for today's event will be as follows: First, TSMC's vice president and CFO, Mr. Wendell Huang, will summarize our operations in the second quarter 2023, followed by our guidance for the third quarter 2023. Afterwards, Mr. Huang; TSMC's CEO, Dr.

C.C. Wei; and TSMC's Chairman, Dr. Mark Liu, will jointly provide the company's key messages. Then we will open the line for a question-and-answer session.

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 in our press release. And now, I would like to turn the call over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.

Wendell Huang -- Vice President and Chief Financial Officer

Thank you, Jeff. Good afternoon, everyone, and thank you for joining us today. My presentation will start with financial highlights for the second quarter of 2023. After that, I will provide the guidance for the third quarter.

Second quarter revenue decreased 5.5% sequentially in NT or 6.2% in U.S. dollars as our second quarter business was impacted by the overall global economic conditions, which dampened the end market demand and led to customers' ongoing inventory adjustment. Gross margin decreased 2.2 percentage points sequentially to 54.1%, mainly reflecting lower capacity utilization and higher electricity cost, partially offset by more stringent cost control and a more favorable foreign exchange rate. Despite the industry's cyclical downturn, we continue to invest in R&D to support our N3 and N2 development.

Thus, operating margin was 42%, down 3.5 percentage points sequentially. Overall, our first quarter EPS was TWD 7.01 and ROE was 23.2%. Now let's move on to revenue by technology. Five-nanometer process technology contributed 30% of our wafer revenue in the second quarter, while seven-nanometer accounted for 23%.

Advanced technologies, defined as seven-nanometer and below, accounted for 53% of wafer revenue. Moving on to revenue contribution by platform. HPC decreased 5% quarter over quarter to account for 44% of our second quarter revenue. Smartphone decreased 9% to account for 33%.

IoT decreased 11% to account for 8%. Automotive increased 3% to account for 8%, and DCE increased 25% to account for 3%. Moving on to the balance sheet. We ended the second quarter with cash and marketable securities of TWD 1.5 trillion or USD 48 billion.

On the liability side, current liabilities decreased by TWD 62 billion, mainly due to the net decrease of TWD 87 billion in income tax payable as we pay TWD 120 billion for 2022 income tax, offset by TWD 33 billion accrued tax payables for the second quarter. Long-term interest-bearing debt increased by TWD 53 billion mainly as we raised TWD 41 billion in corporate bonds. On financial ratios, accounts receivable turnover days decreased two days to 32 days, while days of inventory increased three days to 99 days, primarily due to entry ramp during the quarter. Regarding cash flow and capex, during the second quarter, we generated about TWD 167 billion in cash from operations, spent TWD 251 billion in capex, distributed TWD 71 billion for third quarter 2022 cash dividend and raised TWD 41 billion from corporate bond issuances.

Overall, our cash balance decreased by TWD 109 billion to TWD 1.3 trillion at the end of the quarter. Free cash flow was negative TWD 83 billion during the quarter as operating cash flow was more than offset by capital expenditures, partly due to the income tax payment of TWD 120 billion. In U.S. dollar terms, our second quarter capital expenditures totaled $8.17 billion.

I have finished my financial summary. Now let's turn to our current quarter guidance. Based on the current business outlook, we expect our third quarter revenue to be between USD 16.7 billion and USD 17.5 billion, which represents a 9.1% sequential increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 30.8, gross margin is expected to be between 51.5% and 53.5%, operating margin to be between 38% and 40%.

This concludes my financial presentation. Now let me turn to our key messages. I will start by making some comments on our second quarter '23 and third quarter '23 profitability. Compared to first quarter, our second quarter gross margin decreased by 220 basis points sequentially to 54.1%, primarily due to a lower capacity utilization.

Compared to our second quarter guidance, our actual gross margin slightly exceeded the high end of the range provided three months ago, mainly due to more stringent cost control efforts and a slightly more favorable foreign exchange rate. We have just guided our third quarter gross margin to decline by 1.6 percentage points to 52.5% at the midpoint, primarily as the higher level of capacity utilization rate is offset by 2 to 3 percentage points margin dilution from the initial ramp-up of our three-nanometer technology. Looking ahead to the fourth quarter, we expect the continued steep ramp-up of our three-nanometer to dilute our fourth quarter gross margin by about 3 to 4 percentage points. In 2023, our gross margin faces challenges from lower capacity utilization due to semiconductor cyclicality, the ramp-up of N3, overseas fab expansion, and inflationary costs, including higher utility costs in Taiwan.

To manage our profitability in 2023, we will work diligently on internal cost improvement efforts while continuing to sell our value. While we face near-term challenges, we continue to forecast a long-term gross margin of 53% and higher is achievable. Next, let me talk about our 2023 capital budget and depreciation. Every year, our capex is spent in anticipation of the growth that will follow in future years.

Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate. We now expect our 2023 capital budget to be toward the lower end of our range of between USD 32 billion and USD 36 billion. Our depreciation expense is now expected to increase by mid-20s percent year over year in 2023, mainly as we ramp our three-nanometer technologies. Despite near-term inventory cycle, our commitment to support customers' structural growth remains unchanged, and our disciplined capex and capacity planning remains based on the long-term market demand profile.

We will continue to work closely with our customers to plan our long-term capacity and invest in leading-edge specialty and advanced packaging technologies to support their growth while delivering profitable growth to our shareholders. Now let me make a few comments on our cash dividend distribution policy. The objectives of TSMC's capital management are to fund the capital -- the company's growth organically, generate good profitability, preserve financial flexibility, and distribute a sustainable and steadily increasing cash dividend to shareholders. As a result of our rigorous capital management, in May, TSMC Board of Directors approved the distribution of TWD 3 per share cash dividend for the first quarter of 2023, up from TWD 2.75 previously.

This will become the new minimum quarterly dividend level going forward. First quarter '23 cash dividend will be distributed in October 2023. For 2023, TSMC's shareholders will receive a total of TWD 11.25 per share dividend and at least TWD 12 per share cash dividend for 2024. Going forward, as our capital intensity begins to decline in the next several years, the focus of our cash dividend policy is expected to shift from a sustainable to a steadily increasing cash dividend per share in the next few years.

Now let me turn the microphone over to C.C.

C.C. Wei -- Chief Executive Officer

Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand and inventory. We concluded our second quarter with revenue of USD 15.7 billion, in line with our guidance in U.S.

dollar terms. Our business in the second quarter was impacted by the overall global economic conditions, which dampened the end market demand and customers' ongoing inventory adjustment. Moving into third quarter 2023. While we have recently observed an increase in AI-related demand, it is not enough to offset the overall cyclicality of our business.

We expect our business in the third quarter to be supported by the strong ramp of our three-nanometer technologies, partially offset by customers' continued inventory adjustment. In the last quarterly conference, we said we expect fabless semiconductor inventory to rebalance to a healthier level exiting the third quarter. This statement continues to hold true. However, due to persistent weaker overall macroeconomic conditions, slower than expected demand recovery in China, and overall softer end market demand conditions, customers are more cautious and intend to further control their inventory into 4Q '23.

Thus, while we maintain our forecast for the 2023 semiconductor market, excluding memory, to decline mid-single digit year over year, we now expect the foundry industry to decline mid-teens and our full year 2023 revenue to decline around 10% in U.S. dollar term. With such inventory control, we also forecast the fabless semiconductor inventory to exit 4Q '23 at a healthier and lower level as compared to our expectation three months ago. Next, let me talk about the HPC and TSMC's long-term growth outlook.

As we have said before, the massive structural increase in demand for computation underpinned by the industry megatrend of 5G and HPC continues to drive greater need for performance and energy-efficient computing, which require use of leading-edge technologies. These megatrends are expected to fill TSMC's long-term growth. Even with a more challenging 2023, our revenue remains well on track to grow between 15% and 20% CAGR over the next several years in U.S. dollar terms, which is a target we communicated back in January 2022 investor conference.

The recent increase in AI-related demand is directionally positive for TSMC. Generative AI requires higher computing power and interconnected bandwidth, which drives increasing semiconductor content. With using CPUs, GPUs, or AI accelerator and related ASIC for AI and machine learning, the commonality is that it requires use of leading-edge technology and a strong foundry design ecosystem. These are all TSMC's strengths.

Today, server AI processor demand, which we define as CPUs, GPUs, and AI accelerators that are performing, training, and influence functions accounts for approximately 6% of TSMC's total revenue. We forecasted this to grow at close to 50% CAGR in the next five years and increased low teens percent of our revenue. The insatiable need for energy-efficient computation is starting from data centers, and we expect it to proliferate to edge and N devices of time, which will drive further long-term opportunities. We have already embedded a certain assumption for AI demand into our long-term capex and growth forecast.

Our HPC platform is expected to be the main engine and the largest incremental contributor to TSMC's long-term growth in the next several years. While the quantification of the total addressable opportunity is still ongoing, generative AI and large language model only reinforce the already strong conviction we have in the structural megatrend to drive TSMC's long-term growth, and we will closely monitor the development for further potential upside. Now let me talk about our N3 and N3E status. Our three-nanometer technology is the most advanced semiconductor technology in both PPA and transistor technology.

N3 is already involved in production with good yield. We are seeing robust demand for N3 and we expect a strong ramp of N in the second half of this year, supported by both HPC and smartphone applications. N3 is expected to continue to contribute mid-single-digit percentage of our total wafer revenue in 2023. N3E further extends our N3 family with the enhanced performance, power, and yield, and provides complete platform support for both HPC and smartphone applications.

N3E has passed the qualification, and achieved performance and yield target, and will start volume production in the fourth quarter of this year. With our continuous enhancement of three-nanometer process technologies, we expect strong multi-yield demand from our customers and are confident that our three-nanometer family will be another large and long-lasting node for TSMC. Finally, I'll talk about our N2 status. Our N2 technology development is progressing well and on track for volume production in 2025.

Our N2 will adopt narrow sheet transistor structure to provide our customer with the best performance, cost, and technology maturity. Our narrow sheet technology has demonstrated excellent power efficiency and our N2 will deliver full performance and power benefits to address the increasing need for energy-efficient computing. As part of N2 technology platform, we also developed N2 with backside power rail solution, which is best suited for HPC applications. Backside power rail will provide 10% to 12% additional speed gain and 10% to 15% large density boost on top of the baseline technology.

We are targeting backside power rail to be available in the second half of 2025 to customers with production in 2026. We are observing a high level of customer interest and engagement in N2 from both HPC and smartphone applications. Our two-nanometer technology will be the most advanced semiconductor technology in the industry in both density and energy efficiency when it is introduced and to further extend our technology leadership well into the future. This concludes my prepared remarks, and now let me turn the microphone over to Mark.

Mark Liu -- Chairman

Thank you, C.C., and good afternoon, everyone. Today, I want to talk about TSMC's global manufacturing footprint status update. TSMC's mission is to be the trusted technology and capacity provider of the global logic IC industry for years to come. Our strategy is to expand our global manufacturing footprint to increase customer trust and to expand our future growth potential and to reach for more global talents.

Our overseas decisions are based on our customers' needs and the necessary level of government support. That is to maximize the value of our shareholders and to fulfill our fiduciary duty. In Arizona, we are building a first fab to provide U.S. most advanced semiconductor technology in mass production to support the needs for U.S.

semiconductor infrastructure. Our fab in Arizona started construction in April 2021 with an aggressive schedule. We are now entering a critical phase of handling and installing the most advanced and dedicated equipment. However, we are encountering certain challenges as there is an insufficient amount of skilled workers with those specialized expertise required for equipment installation in a semiconductor-grade facility.

While we are working on to improve the situation, including sending experienced technicians from Taiwan to train the local skilled workers for a short period of time, we expect the production schedule of N4 process technology to be pushed out to 2025. In Japan, we are building a specialty technology factory, which will utilize 12, 16 and 22, 28 process technologies. Volume production is on track for late 2024. In Europe, we are engaging with customers and partners to evaluate building a specialty fab in Germany, focusing on automotive-specific technologies based on the demand from our customers and the level of government support.

In China, we are expanding 28-nanometer in Nanjing as we planned to support our customers in China, and we continue to follow all rules and regulations fully. At the same time, we continue to invest in Taiwan and to expand our capacity to support our customers' growth. From a cost perspective, the initial cost of overseas fab are higher than TSMC's fabs in Taiwan due to: One, the smaller fab scale. Two, higher costs throughout the supply chain.

And three, the early stage of semiconductor ecosystem on those overseas sites as compared to a matured ecosystem in Taiwan. In our recent meetings with senior government officials in the U.S., Japan, and Europe, we discussed our plans to expand our global manufacturing footprint to them. We also emphasized one of our major responsibility is to manage and minimize the cost gap to maximize returns for our shareholders. Those discussions went very well.

All sides understand the critical and integral role TSMC plays in the semiconductor industry, and we appreciate all the government's ongoing support in working with TSMC to help narrow down the cost gap. We will continue to work closely with all the governments to secure further support. Our pricing will also remain strategic to reflect our value, which includes the value of geographic flexibility. At the same time, we will leverage our fundamental competitive advantage of manufacturing technology leadership, large volume, and economies of scale to continuously drive our cost down.

By taking such actions, TSMC will have the ability to absorb the higher cost of overseas fab while remaining the most efficient and cost-effective manufacturer, no matter where we operate. Thus, even as we expand our capacity overseas, TSMC's long-term gross margin of 53% and higher and sustainable ROE of greater than 25% is achievable, and we will continue to maximize the value for our shareholders. This concludes our key messages. Thank you for your attention.

Jeff Su

Thank you, Chairman. This concludes our prepared statements. Before we start the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask their questions. Should you wish to raise your question in Chinese, I will translate it to English before our management answers your question.

[Operator instructions] Now, let's begin the Q&A session. Operator, can we please proceed with the first caller on the line?

Questions & Answers:

Operator

The first one to ask questions Gokul Hariharan from J.P. Morgan. Go ahead, please.

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Yeah, thank you. Good afternoon, and thanks for a lot of clarity on the AI-related exposure. My first question is on the AI front. A lot of TSMC's customers have been talking about capacity shortage and having to kind of queue up for capacity for AI accelerators, including GPUs and ASICs.

Could TSMC talk a little bit about what TSMC is doing on the capacity side, especially on the advanced packaging, but also in other areas? And when do you expect to get back to some degree of demand and supply balance for these AI accelerators? Is it going to be only sometime next year? Or you think it could happen quicker based on what you see on demand from your customers and the capacity plan?

Jeff Su

OK, Gokul. Thank you. Let me try to -- please allow me to summarize your first question. So, first question from Gokul is that he notes that we are -- customers are seeing strong demand from AI-related, but they're facing capacity tightness or shortage.

So, his question is, what are we doing in terms of the capacity side, maybe both in terms of the advanced packaging, as well as the logic? And then when do we see the demand-supply imbalance returning to a better, healthier, balanced level? Is it sometime next year? Is that correct, roughly, Gokul?

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Yeah. Thanks, Jeff.

C.C. Wei -- Chief Executive Officer

OK. Gokul, this is C.C. Wei. Let me answer your question.

For AI, right now, we see a very strong demand, yes. For the front-end part, we don't have any problem to support, but for the back end, the advanced packaging side, especially for the CoWoS, we do have some very tight capacity to -- very hard to fulfill 100% of what customers needed. So, we are working with customers for the short term to help them to fulfill the demand, but we are increasing our capacity as quickly as possible. And we expect these tightening will be released in next year, probably toward the end of next year.

But in between, we're still working closely with our customers to support their growth.

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

OK. C.C., maybe one follow-up. Could you let us know what kind of capacity expansion is like -- how much capacity you're expanding on the CoWoS side? Like any kind of what kind of capacity you are adding?

Jeff Su

OK. So, Gokul, just in addition to the first question, how much capacity are we going to increase in terms of CoWoS?

C.C. Wei -- Chief Executive Officer

Let me give you -- I will not give you the exact number, but let me give you a roughly probably 2x of the capacity will be added. OK, Gokul.

Jeff Su

Gokul, are you there? If not, operator, maybe we move on to the next participant. Gokul, are you there? OK. I think there was disconnected. All right.

Let's move on to the next caller, please.

Operator

Next one to ask questions, Bruce Lu from Goldman Sachs. Go ahead, please.

Bruce Lu -- Goldman Sachs -- Analyst

OK. Thank you for taking my question. I still want to know about like the TSMC maintained a 15% to 20% revenue CAGR when we cut this year's revenue to minus 10%. That's all we use, that 15% revenue CAGR to 2026, that has been tried about like 25-plus percent for the coming two years, which means that the overall semi-growth is going to increase like a lot for the next two years.

And you just mentioned that the AI only accounts for 6% with low teens potentially. That is not big enough to get back to the trend. So, what is the underlying growth you have with the global semi in the coming years? And what are the key assumptions for the growth for each segment?

Jeff Su

OK. Bruce, let me try to summarize your first question. So, Bruce's first question is on our long-term growth CAGR, which we have said is to be between 15% to 20% from '21 to '26 CAGR period. So Bruce's question, this year, C.C.

just said we will decline around 10%. Under his calculation, I think he's saying, well, this implies you should grow 25% the next several years, which, of course, is a CAGR, but nonetheless and so Bruce's question is that, therefore, if that's the type of growth, then shouldn't that imply a much higher growth level for the overall semiconductor excluding memory industry? I think that is your question, Bruce. Am I correct?

Bruce Lu -- Goldman Sachs -- Analyst

Yes. What are the key assumptions for the quarter?

Mark Liu -- Chairman

OK. Let me handle this question. Your rationale is correct. However, some of the factors may not be totally included.

For one thing, in your model that the customers' gross margin, 60% or plus, I don't think that will represent the average customer's gross margin, maybe some specific ones. However, the other one is the market share. The market share factor, you assume the constant. That is not one thing that could be different than in your formula.

So, the semiconductor growth right now, we are forecasting 4% to 5%. It may increase, but definitely, as you said, it won't increase to 10%. But those longer-term semiconductor excluding memory growth is still yet to be evaluated. Did I answer your question?

Bruce Lu -- Goldman Sachs -- Analyst

Yes. The reason I do that is I'm assuming that you have like dominant market share in the best node and also the growth is mostly coming from the advanced node, which your customers is supposed to be higher. So, I think in that the gap is wide enough. That's what I'm wondering right whether I miss anything, which might be big enough to move the needle that some might investments that the management can give us some color. 

Mark Liu -- Chairman

This is a factor. As far as the market share value, you might not be totally included in all the factors. That's my perspective. But I cannot dig into the numerical comparison at this point.

What I mean, the market share is not just the advanced leading-edge technologies, but also the share of the outsourcing.

Jeff Su

So, maybe, Bruce, if I summarize again, TSMC's growth is driven by both the underlying structural megatrends but also by our technology leadership and differentiation. So, our CAGR is a combination of those two factors.

Bruce Lu -- Goldman Sachs -- Analyst

I see. OK, thank you. My next question is regarding to the guidance changes. The previous guidance for the full year was low to mid-single digit, now it is about like 10% decline.

So, the gap is like 5% of the total revenue, which is like quite sizable in terms of revenue, TWD 3 billion, TWD 4 billion highly concentrated in the second half of fourth quarter. Can you give us like what are the changes in terms of this shortfall? What are the weakness of the contract?

Jeff Su

OK. So, Bruce's second question is looking at our 2023 full year guidance. He notes that last time, we had said low to mid-single-digit decline. This time, we have guided to around 10%.

So, his question is the delta of this seems to be all -- a lot of it also in the fourth quarter. Is there any particular segment or market that is driving this? And what are the factors behind this? Is that correct, Bruce?

Bruce Lu -- Goldman Sachs -- Analyst

Yes, thank you.

C.C. Wei -- Chief Executive Officer

OK. Bruce, let me answer the question. Yes, we did see something different. The first is weaker than what we thought.

Three months ago, we were probably more optimistic, but now it's not. Also, for example, China economy's recovery is actually also weaker than we thought. And so, the end market demand actually did not grow as we expected. So put all together, even if we have a very good AI processor demand, it's still not enough to offset all those kinds of macro impact.

So now we expect that the whole year will become minus 10%. That's what we thought.

Jeff Su

And in terms of by particular segment or is there a particular market?

C.C. Wei -- Chief Executive Officer

Well, thank you. You are asking me the question? It's almost an impact.

Bruce Lu -- Goldman Sachs -- Analyst

Yeah, I understand.

C.C. Wei -- Chief Executive Officer

Yes, its overall market segment is being impacted because it's a combination of macroeconomics.

Bruce Lu -- Goldman Sachs -- Analyst

So, can we conclude that other than AI, almost every application sees some weakness in the second half?

C.C. Wei -- Chief Executive Officer

You got it.

Bruce Lu -- Goldman Sachs -- Analyst

Thank you.

Jeff Su

Thank you, Bruce. Operator, can we move on to the next participant, please?

Operator

The next one to ask the last question is Gokul Hariharan from J.P. Morgan. 

Jeff Su

Gokul, you're back. OK. 

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Yeah. Sorry about that. So next question, I just wanted to ask about TSMC management's view on the current inventory cycle. It looks like this cycle is much -- taking it much longer to get through the down cycle compared to '19 and 2015.

When do you think we kind of bottom out and do you feel that the recovery in next year is going to be a strong recovery? Or do you think it's going to be a more gradual recovery? What are the kind of plans that you are putting in place as we think about next year's recovery once inventory situation normalizes? Thank you.

Jeff Su

OK. So Gokul's second question is about the inventory correction cycle. He notes this cycle seems to be taking much longer to get through as compared to 2019 or -- and 2015. So his second question is when do we think this cycle can bottom out? What will 2024 next year look like? Do we expect a strong recovery? And what factors are we looking at? Is that correct, Gokul?

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Yes, thanks. Thanks a lot.

C.C. Wei -- Chief Executive Officer

OK. Gokul, this is a good question. Let me answer it in a short one sentence is all about the macro. I mean I just say the macroeconomy is not so -- has become weaker than we thought.

In fact, higher inflation and interest rate impact end demand in all market segments in every region in the world. As we said, under such situation, our customers are more cautious in their inventory control in the second half of this year. So, while we expect the fabless semiconductor industry, their inventory to be cleaner and healthier existing this year, but were much closer to the seasonal level -- but our expectation for them was to continue to manage their inventory. And 2024, it is still dependent on the macro situation.

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

OK. So, it sounds like you're still expecting at least early part of next year to still be a little bit challenging, similar to what it is looking like right now. Is that fair to say?

C.C. Wei -- Chief Executive Officer

We will give you our comments -- Gokul, we will give you our comments next time in 2024.

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Thank you.

Jeff Su

Thank you, Gokul. Operator, can we move on to the next participant, please?

Operator

Next one, we have Charlie Chan from Morgan Stanley. 

Charlie Chan -- Morgan Stanley -- Analyst

Good afternoon. Thanks for taking my question So, my first question is about the overseas fab cost seems to get higher. So, would TSMC consider to further adjust your pricing to absorb those increased costs? And also, management mentioned that you're doubling or more than doubling your elevated packaging given the AI rush order. Would that give you a chance to reprice the bake-in foundry service? Because I remember there was a kind of below-company gross margin average.

Would that be a chance to bring that back to the corporate average? Thank you.

Jeff Su

OK, Charlie. Charlie's first question is, I guess, regarding pricing, two parts or two angles. First on the overseas fab given that the costs are higher, would TSMC consider to further adjust our wafer price? And also, along similar lines related to advanced packaging, given we are -- C.C. said we're doubling roughly the capacity, would we consider to also charge more or higher given that the returns of the backend are lower. 

Mark Liu -- Chairman

Let me answer the first question first. Yes, the overseas fab will cost higher, at least for the near future, where their supply ecosystem is not mature yet. And the labor cost is from our experience, actually, is a little bit higher than we expected. But to answer your question, yes, as we try to get the maximum government subsidy, and we also really look at the -- how the price value for the overseas geographical flexibilities is all considered.

The aim is to, one, to increase our customer trust, make them continue to work with us going forward under the geopolitical concerns. Secondly is to maximize shareholders' value. To answer your question on price is strategically yes. C.C., can you answer the second question?

C.C. Wei -- Chief Executive Officer

I think the second question is about the pricing or the -- and the cohorts. As I answer the question, we are increasing the capacity in as soon as possible manner. Of course, that's including actual cost. So, in fact, we are working with our customers.

And the most important thing for them right now is supply assurance. It's a supply to meet their demand. So, we are working with them. We do everything possible to increase the capacity.

And of course, at the same time, we share our value. And then--

Charlie Chan -- Morgan Stanley -- Analyst

Great. Thanks. May add a second question? It's a different topic. Is that OK?

Jeff Su

Sure. You get two questions, so sure.

Charlie Chan -- Morgan Stanley -- Analyst

Thank you. Thanks, Jeff. So, another question is about the AI semi demand, right, since you're providing your revenue contribution, growth assumption that is super helpful. But I'm wondering how TSMC can judge the AI demand because right now, it's arms race right now.

Our customers are very aggressive booking capacity. So, I'm wondering how t company can judge whether those AI semi demand is for real? And also, in terms of breakdown, I'm wondering whether company sees the ASIC, the content is outgrowing GPU. I think the more important one should be the first part of the question, especially investors are concerned whether AI is cannibalizing the CPU server demand. So those are kind of the questions in our mind.

Thank you.

Jeff Su

OK. Let me summarize your second question, Charlie. Charlie is on AI demand. He wants to know how do we judge the demand properly because customers are very aggressive, but, in his words, how do we know that this demand is real? And then also how do we see the demand specifically for ASICs as it relates to AI? 

C.C. Wei -- Chief Executive Officer

OK. You want to answer?

Mark Liu -- Chairman

Let me try first then you probably follow up. This is a very deep question. Of course, we have a model, basically. The short-term fancy about the AI demand definitely cannot extrapolate for the long term.

And neither can we predict the near future, meaning next year, how the sudden demand will continue or will flatten out. However, our model is based on the data center structure. We assume a certain percentage of the data center processor are AI processors and based on that, we calculate the AI processor demand. And this model is yet to be fitted to the practical data later on.

But in general, I think the trend of a big portion of data center processor will be AI processor is a sure thing. And will it cannibalize the data center processors? In the short term, when the capex of the cloud service providers are fixed, yes, it will. It is. But as for the long term, when their data service -- when the cloud services having the generative AI service revenue, I think they will increase the capex.

That should be consistent with the long-term AI processor demand. And I mean the capex will increase because of the generative AI services. Anything more for you? 

Jeff Su

Yeah, Charlie, I think part of Charlie's question is also how do we see ASIC related in AI development? 

C.C. Wei -- Chief Executive Officer

Well, actually, the customer also have high demand on the ASIC part for the AI application. And as Mark pointed out, short-term sudden increase, you can extrapolate to be long term. But again, let me emphasize that. Those kind of applications in AI be it CPUs, GPUs, or AI accelerator or ASIC, they all need leading-edge technologies.

And they all have one symptom. They are using the very large die size, which is TSMC's strength.

Charlie Chan -- Morgan Stanley -- Analyst

OK. Thank you.

Jeff Su

OK. Thank you, Charlie. Thank you. Operator, we'll move on to the next participant, please.

Operator

Next one to ask questions, Randy Abrams, Credit Suisse.

Randy Abrams -- Credit Suisse -- Analyst

Yes. I wanted to shift to the profitability, maybe more for Wendell. Looking at the fourth quarter, you mentioned the 3 to 4-point dilution from N3. I think that is 2 to 3 points in the third quarter.

Is that what you're suggesting the directional change could be a little bit down margin profile. Or do you have positive offsets that could keep it more stable? And then a follow-up on the margin, where you discussed it's a tough year for margins on these factors like the energy, ramp up three. But could you discuss 2024, do you think we're going into a period of a bit more challenging profitability where you see factors that we could comfortably get back to the 53% and above next year?

Jeff Su

OK. Thank you, Randy. So, Randy's first question is on gross margin. Fourth quarter with the N3 dilution of 3% to 4%, does that mean directionally, fourth quarter margin is sequentially down? Are there any positive offsets? And then for looking to 2024 for the full year, if Wendell can give some comments about 2024 gross margin, will it also be challenging? Or do we still feel confident in a 53% and higher gross margin?

Wendell Huang -- Vice President and Chief Financial Officer

OK, Randy. Starting from the second half of this year, as we said, we faced certain cost challenges including the ramp of N3, which will dilute about 2 to 3 percentage points in third quarter and 3% to 4% in the fourth quarter plus the higher electricity cost. But we're not giving our guidance on the fourth quarter at this moment. We're just spelling out some of the challenges that we're seeing.

And of course, we are going to continue to drive down our costs and sell our value to ensure that we will have a good return on the node. That's for this year. For next year, we're seeing -- we're not talking about the whole gross margin, but we still see that N3 will dilute about 3 to 4 percentage points of next year's gross margin. And although the yield will be better next year.

At the same time, the percentage of revenue contributed by N3 will be bigger. So, net-net, where we also see some dilution from the N3 next year. But the margin -- the guidance will be given out next year.

Randy Abrams -- Credit Suisse -- Analyst

OK. I got a quick follow-up to the first question. I think the last few notes was 2 to 3 points dilution in the first year or two of ramp. The factor for it larger, is it the higher capital intensity or something different with three versus five and seven, it looks like a little bit more dilution.

Wendell Huang -- Vice President and Chief Financial Officer

Yeah, the increasing process complexity does add on to the challenges of a newer node. However, the other important factor is that our corporate averages has become higher than before. We used to have 50% gross margin. We're now talking about 53% and higher gross margin. 

Randy Abrams -- Credit Suisse -- Analyst

OK. And the second question, I wanted to ask how you're thinking about capex, just netting a few things, the geographic expansion, the three, and then the start of two-nanometer, the first ramp up or tool move-in versus the mixed outlook you're looking at for macro for a ballpark capex into next year? And if I could, maybe within it ask if the Arizona fab delays, does that push out where you mentioned the low end of guidance, push out some of this year that could give some lift for next year?

Jeff Su

OK. So, Randy's second question is on capex. He wants to know basically focusing on 2024 capex, do some of the delays in the Arizona fab push out capex from this year to next year, as we expand overseas as we invest in N2, but at the same time, as the macro remains uncertain, how does this impact 2024 capex?

Wendell Huang -- Vice President and Chief Financial Officer

Yeah. Randy, the push out of fabs does push out some part of the capex, but that doesn't affect a big part. For 2024, it's too early to talk about the overall capex. However, our capex, if you -- as we said before, every year, we spend the capex to capture the future growth opportunities.

And in the past few years, our capex has risen very fast to capture the mega trend. And going forward, the next few years, when we start to harvest those investments, we believe that capex will begin to level off in terms of dollar amount. And that will lead to -- start to lower the capital intensity in the next several years.

Jeff Su

Sorry, Randy, sorry, do --

Randy Abrams -- Credit Suisse -- Analyst

My quick follow-up. I think you mentioned in the past, you could use your five-nanometer to support the ramp of 3. Given the AI and some of that pickup, do you still see that potential that could help optimize capex? Or do you need to keep it for existing node? And that's my final one. Thank you.

Jeff Su

Yeah. So, Randy, just is also asking then how does tool commonality play a role in our future capex?

Wendell Huang -- Vice President and Chief Financial Officer

Yeah. We always build two [Inaudible] between nodes to provide a greater flexibility. We mentioned last time the strong multiyear demand from N3, we are able to support that using some of the tools from N5. We're not going to comment on the capex beyond this year.

However, as I just mentioned, every year, the capex spend to capture future growth opportunities.

Randy Abrams -- Credit Suisse -- Analyst

Thank you.

Jeff Su

OK. Thank you, Randy. Operator, can we move on to the next participant.

Operator

Next one to ask questions is Laura Chen from Citi.

Laura Chen -- Citi -- Analyst

Thank you very much for taking my question. Good afternoon, gentlemen. Very appreciate, C.C. and Mark sharing on TSMC's view on the longer-term outlook in AI.

So, I'm just wondering how does TSMC evaluate your backend capacity expansion to sync up with the front-end wafer side? Since there is no problem in the front-end foundry space, were you kind of concerned about potential overcapacity in the backend side beyond next year? Or actually, we may see more upside at the foundry wafer side, so our, say, like advanced node utilization rate may go higher into next year? Thank you. That's my first question. 

Jeff Su

OK. So, Laura's first question is looking at our expansion of advanced packaging or backend versus the frontend wafer, as we are expanding the backend, but not the front end, does that imply that, first, that our frontend wafer particularly leading node, we expect the utilization to increase next year? And then conversely, or is there a risk that we are over-expanding or overcapacity risk for the packaging side?

C.C. Wei -- Chief Executive Officer

OK, Laura. Let me answer the question. AI today is a very hot topic. A lot of my customers right now increased their demand and that will increase their front-end demand, of course.

TSMC almost have the major share or the largest share, let me say that, in the front-end wafer. According to the front end [Inaudible] we really work closely with our customer and to decide what is the back end that they need. And so, on that perspective, we are planning our cohort as a capacity, although probably still not enough, but we're working very hard to increase it. Overcapacity not today is a concern.

Today concern's not enough capacity to support all the very strong demand. 

Jeff Su

OK. Thank you, C.C.

Laura Chen -- Citi -- Analyst

Yeah. Thank you. That's very clear. Thank you very much, C.C.

And my second question is also about the gross margin outlook. If I'm wrong, please correct me. I recall that on the previous cycle like seven or five-nanometer, the capacity usually will be three times in the third year of the new technology ramping. So, I'm wondering it is still the case for N3.

In particular, we have seen that significant capacity intensity increase may lead to some margin pressure, particularly in the first few years. So I'm just wondering how does TSMC balance your technology leadership and also the margin saturation? Thank you.

Jeff Su

Laura, you said three times -- sorry, are you referring to the revenue contribution? Sorry, you said N7 -- 

Laura Chen -- Citi -- Analyst

No, the capacity, the capacity. Yeah. 

Jeff Su

Yes. OK. So, all right, let me try to summarize your question. I think Laura is asking N7 and N5, we substantially expanded the capacity.

So, what is the case for N3? And then also in terms of the profitability of N3 or gross margin to be more specific as it compares to N5 and N7 previously? Is that roughly correct, Laura? 

Laura Chen -- Citi -- Analyst

Yes. Thank you, Jeff.

Jeff Su

OK.

Wendell Huang -- Vice President and Chief Financial Officer

OK, Laura. Let me answer this question. As I just mentioned, the N3 due to the increasing process complexity is becoming more challenging than the previous nodes. But at the same time, we will continue to sell our value and drive down the cost at the same time.

We still believe that N3 will be a long-lasting -- or a large node for TSMC. With all the efforts and we still believe that the whole company's gross margin will be 53% and higher. OK?

Jeff Su

Laura, does that answer your question?

Laura Chen -- Citi -- Analyst

Those answers are very efficient.

Jeff Su

Yes. OK. Thank you, Laura.

Laura Chen -- Citi -- Analyst

Yes, thank you.

Jeff Su

Operator, let's move on to the next participant, please.

Operator

Yes, right now, we have Rolf Bulk from New Street Research. Go ahead, please.

Rolf Bulk -- New Street Research -- Analyst

Thank you for taking my question. This quarter, you're using the legacy node 16 and 28-nanometer in particular were down around 15% to 20% Q-on-Q. And my question is, were there any particular end markets that caused this decline? And how do you think about the recovery of those legacy nodes? Should we still expect recovery in the fourth quarter of this year? Or is that more 2024? Thank you.

Jeff Su

OK. So, Rolf's first question is looking on the mature nodes, such as 16 and 28, he knows that -- he notes, sorry, that those all saw sequential declines in the second quarter. So, his question is, what is driving this -- what end markets are driving this decline? And what is the expectation for this in the second half?

C.C. Wei -- Chief Executive Officer

Well, let me answer that question. The mature nodes wafer actually or the product actually try to be companionship for the smartphone or for the PC market or for the HPC. So, while the total unit of smartphone become weaker and PC become weaker, so it's a high -- the leading-edge technology node being -- also demand dropping and so the mature node, that's together. Did I answer your question? 

Rolf Bulk -- New Street Research -- Analyst

Yes, thank you. That's very clear. For my second question, can you focus on cobalt and advanced packaging in general and also the weakness that you see in the remainder of your business? Could you maybe comment on the percentage of your capex spending that will go toward leading nodes, specialty nodes and packaging this year compared to last year?

Jeff Su

OK. So, Rolf's second question is for 2023 capex, which our CFO has said toward the lower end of the 32% to 36% range, can we give a breakdown between leading-edge specialty technologies and then the packaging, testing, mass-making, and others?

Wendell Huang -- Vice President and Chief Financial Officer

Leading-edge technology accounts for between 70% to 80% of our total capex in the year. Mature -- specialty technology, between 10% to 20%, and the remaining are split between advanced packaging and EBO and some others.

Jeff Su

OK, thank you, Rolf.

Rolf Bulk -- New Street Research -- Analyst

Perfect. Thank you.

Jeff Su

All right. Operator, let's move on to the next participant, please.

Operator

Next one, we have Sunny Lin from UBS. 

Sunny Lin -- UBS -- Analyst

Thank you very much. Good afternoon. Thank you for taking my questions. So, my number one question is on three-nanometer ramp-up.

As we are going through set quarters of mass production, I think you must have a pretty good visibility for customer engagement for the coming few years. So, I wonder, now how should we think about the overall ramp of three-nanometer if we compare with five and seven-nanometer? If we look at five, you reached toward 18% of revenue in the second year of mass production and then about 24% of revenue in the third year, whereas for three-nanometer, I think the concerns by smartphone customers have been on cost. Then the question will be if HPC is significant enough to still drive a meaningful pickup of three-nanometer, and so would be greatly appreciated if you could provide us any kind of thoughts. Thank you very much.

Jeff Su

OK. So, Sunny's first question is on the ramp of three-nanometer. Her question really, I believe, is coming from a percentage of revenue contribution. She wants to know how is the ramp-up three-nanometer? And then, can it contribute to the revenue like five and seven in the past?

Wendell Huang -- Vice President and Chief Financial Officer

Yeah. As I just said, we believe N3 will be a long-lasting and large node for TSMC. Now in terms of percentage, I think it's sometimes less important because our overall corporate revenue is much, much bigger these days than before. So, I think you should also take that into consideration, but dollar amount-wise, it's a much bigger node, yeah.

Jeff Su

And C.C. also said it's a multiyear strong structural demand. Yeah, sorry. OK. 

Sunny Lin -- UBS -- Analyst

Got it. Well, so I have a quick follow-up on three-nanometer profitability. And so, Wendell has provided a pretty good insight about the dilution for 2024. But historically, a new node would take about seven to eight quarters to get to corporate average after mass production.

I understand now corporate average gross margin is also higher, but any expectations that N3 will become in line with corporate average gross margin? 

Jeff Su

Yeah. So, Sunny's question is looking at the three-nanometer. Her question is really that with three-nanometer and process complexity. Sunny you're asking really can it reach the corporate average over time?

Sunny Lin -- UBS -- Analyst

Or is there a timeline that you are expecting?

Jeff Su

And a timeline to reach? 

Wendell Huang -- Vice President and Chief Financial Officer

Yeah. Sunny, as I just mentioned, it's becoming more challenging for the leading nodes because of the process complexity increases a lot. It applies to N3. So, it will be challenging for N3.

We actually mentioned that at the beginning of last year already, it will be challenging that for N3 to reach the corporate average in seven to eight quarters time frame like before, yeah. But however, part of it is really because of the higher corporate margin that we currently have. 

Sunny Lin -- UBS -- Analyst

Got it. Thank you. My second question is on two-nanometer. And so, if we look at your target for two-nanometers improvement over three-nanometer in terms of speed and power, the upgrade seems to be actually less than three-nanometer over five-nanometer.

So, I wonder what's actually the implication of GAH transition to cost versus performance? Is the target somewhat conservative? Or there's other technological challenges that we need to consider?

Jeff Su

OK. Sunny's, second -- well, it's really her third, but the question is on N2. She notes that the performance and the improvement seem to be less than three-nanometer versus five-nanometer. So, could we talk more about that?

C.C. Wei -- Chief Executive Officer

Yeah, let me answer the question. Sunny, you have a very good observation. Yeah, you are right. As I compare node to node from five to three, the improvement, it becomes less from three to two.

But let me point it out, usually, we are talking about the performance, the speed and also the density, so that the geometry shrinkage. Now, we focus on the power consumption reduction, which is still a full node performance because as time goes by, more and more customer, really, they are increasing toward greater power efficiency. This is very important for the data center, very important for the server. And that's what we are working on.

So, did I answer your question, Sunny? 

Sunny Lin -- UBS -- Analyst

Got it. Thank you for the color and good to know that you are on track to deliver a second generation of two-nanometer in 2026.

Jeff Su

Thank you, Sunny. Operator, let's move on to the next participant, please.

Operator

Next one to ask questions is Brett Simpson from Arete.

Brett Simpson -- Arete Research -- Analyst

Yeah, thanks very much. The first question is for C.C. I was interested in getting a read on the customer reception you're getting for the new variants for N3, I think you talked about N3P, N3X. Are customers still as focused on N3? Or are you seeing a preference for them to migrate to the new variants such as N3P, N3X rather than N3E? And this is a follow-on.

For AI, when do we actually start to see N3 adoption for N3? Thank you.

Jeff Su

OK. So, Brett's first question is looking at our three-nanometer families and the continuous enhancements that we always have, he is asking, what is the customer reception of N3P and N3X? How does this compare or cannibalize N3? And when do we expect AI related to adopt 3-nanometer family solutions? 

C.C. Wei -- Chief Executive Officer

Let me answer the last one first. AI application already adopting that our N3 technology node. We continue to improve our technology as we always do. So, we have an N3E, N3P and N3X.

X is the actual performance that's for very high speed, very high, let me say, performance computing for some of the CPUs application. But N3Es are widely accepted by all of my customer and the design starting from N3E and we help them, OK, for some of them go to the N3P. So, all together, every version, every variation, there's a lot of customer engagement right now. 

Brett Simpson -- Arete Research -- Analyst

OK. Thank you, C.C. And maybe just my second question for Mark. Mark, you were talking about building up the ecosystem in some of the overseas markets like the U.S., and you're talking about skill shortage.

But can you talk about what you think the like-for-like wafer cost differences to operate in the U.S. versus Taiwan? I think your TSMC founder talked previously about a 50% premium to operate in the U.S. Can you just clarify if that's likely to be that high? And then when would you expect the cash support from the U.S. CHIPS Act to be made available to TSMC? Thank you.

Jeff Su

OK. So, Brett's second question is for Chairman. He wants to know, in, basically the cost gap, how big is the cost gap of fab in the U.S. versus in Taiwan.

Founder has said 50% or more. Is it that high? And then concurrently, with the CHIPS Act, how and when do we expect to receive the incentives to support? 

Mark Liu -- Chairman

Yes, Brett Simpson, I think the founder is right. I mean at this point, if we're using the current supply chain and labor cost, indeed, as that differences. However, we try to work with the U.S. administration.

First of all, on the subsidy -- cash subsidy and tax investment tax credit, that is to cover the gap in the first five years approximately. When the tool is depreciated, then the ecosystem becomes prominent. That is what is the material costs, chemical costs and the labor cost. And we are working with our supplier to set up some of the more efficient supply sites to be lower, and the U.S.

administration has decided also to subsidize our suppliers. So that is still in the works. How much it can further decrease? I don't know. But I think either way, we will strengthen our pricing values and be able to keep the corporate profitability as we forecasted now.

Jeff Su

Thank you, Chairman. OK. Thank you, Brett. In the interest of time, operator, we'll take questions from the last two participants in the queue, please.

Operator

Yes. Next one to ask question, Mehdi Hosseini from SIG. 

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Yes, thanks for taking my question I'm going to go back to the gross margin. And I think you highlighted the fact that for '23, you're still tracking to 53% gross margin on a USD basis. That would imply that Q4 could be flat to up. And I just want to better understand how this is tracking.

I'm not asking for a guide on Q4, but if 2023 gross margin is going to be 53% plus, that would imply Q4 flat to up. Is that correct?

Jeff Su

All right, Mehdi. I think we'll let Wendell answer this question. But Mehdi is asking basically, are we saying that 2023 will be 53% and higher?

Wendell Huang -- Vice President and Chief Financial Officer

Mehdi, we're not giving out guidance beyond the third quarter. So, we're not saying what Jeff just said. What we're saying is only some of the negative factors will affect the second half of the year. As to 53% and higher, that's a long-term growth margin targets for TSMC.

Jeff Su

Yeah, we did not provide a guidance for 2023 specifically, Mehdi. As Wendell just said, 53% or higher is our long-term target, which we believe is achievable. Do you have a second question?

Mehdi Hosseini -- Susquehanna International Group -- Analyst

OK. Thank you. Yes. Your updated guide suggests the revenues in the second half would be up 10% to 12% versus the first half.

Obviously, the step-up is lower than prior expectations. What I want to better understand is how should we think about continued inventory correction among your customer versus new product ramp by some of the other customers. Is there any way you can differentiate these two trends?

Jeff Su

OK. Mehdi is asking with our full year guidance. It implies a more mild second half seasonality. So, he wants to know how much strength of the new customer product launches is offset by continued inventory correction, sort of if we can provide more color on that.

C.C. Wei -- Chief Executive Officer

That's a tough question to answer. Mehdi, your observation is right. Second half, the seasonality is more mild than the previous years. But, of course, we have N3 ramping up and for the new product launch.

But what is the impact, how to separate them, no, I cannot share too much of the detail of that.

Jeff Su

OK, Mehdi. Thank you. Operator, then let's move on to the last participant, please.

Operator

Yes, the last one on queue is Charles Shi from Needham.

Charles Shi -- Needham and Company -- Analyst

Thanks. Hey, thanks for squeezing me in. I have two questions. The first question is I want to ask about AI, especially around TSMC's monetization of the AI trend.

We did hear some commentary that for certain AI applications, TSMC is selling chips for a few hundred bucks, but TSMC customers can actually sell for tens of thousands of dollars to their end customers. So, I mean some investors I spoke with really feel that it pains them to see TSMC to create an advanced technology, that deserve, probably, to give a greater value than this. So, the question really is, how does TSMC think about maybe better monetization going forward for the capability to produce all these AI chips? And really, I want to tie back to one thing management mentioned in the prepared remarks. The AI growth, 50% CAGR, how much of that is volume? And how much of that could be the pricing tier in terms of TSMC's expected growth over the next few years in AI? Thank you.

Jeff Su

OK. Charles' question. First is on AI. Again, basically, he's asking about monetization or capturing value, let's say.

He notes that TSMC, we may be selling chips for a few hundred dollars, but our customers are able to sell it for tens of thousands or even more. So, is TSMC giving away too much of the value? Can we better sell our value or monetize to capture greater value with the AI trend?

C.C. Wei -- Chief Executive Officer

Well, Charles, I used to make a joke on my customers saying that I'm selling him a few hundred dollars per chip, and then he sold it back to me with USD 200,000. But let me say that we are happy to see customers doing very well. And if customers do well, TSMC does well. And of course, we work with them and we share our value to them.

And fundamentally, we want to say that we are able to address and capture a major portion of the market in terms of a semiconductor component in AI. Did I answer your question? 

Charles Shi -- Needham and Company -- Analyst

Yes. What about the part about 50% CAGR, how much of that is volume? And should we expect some pricing element in that long-term growth?

Jeff Su

Sorry. Yeah. So, the second part is about close to 50% CAGR for AI, sorry, server with AI processor. How much of that is volume? How much of that is price?

C.C. Wei -- Chief Executive Officer

We cannot separate out, but let me share with you again, we talk to the customers because we have a major share of all the leading-edge technology node. So, we know that we can make our judgment. And so, we forecast of 50% CAGR. How much of that is on the frontend, backend, or others? I am not able to share with you about it.

But let me assure you that TSMC is going to capture a major portion of the market in terms of semiconductor component.

Jeff Su

OK, Charles?

Charles Shi -- Needham and Company -- Analyst

Thank you. Can I ask you the second question?

Jeff Su

Last question.

Charles Shi -- Needham and Company -- Analyst

Yes, no problem. The last one. When I asked about the capex, I think I heard a comment maybe from Wendell about the dollar amount capex is probably going to level off the frontier. And I think the management used to point us, analysts, to look at the 2010 to 2013 period with a high capital intensity.

Capex actually went up $3 billion to $4 billion per year to $10 billion. And actually, after that, TSMC capex did level off around $10 billion level for roughly five years until 2019. By telling us the capex is probably going to level off, are you telling us or are you alluding to maybe there will be some steady-state capex numbers going forward, maybe starting from '24 or '25, around $30 billion-ish level? That's just a clarification on that comment to level it off. Thank you. 

Jeff Su

OK. So, Charles' second question is on our capex. He wants to know capital spending starting to level off. I think Wendell said in the next several years.

So not any specific, but what does that mean? Is it going to stay around the $30-some billion level? Or what does that mean by spending leveling off?

Wendell Huang -- Vice President and Chief Financial Officer

Yeah. Charles, as I've mentioned in the past few years, our capex increased dramatically from $10 billion to $36 billion last year. As we start to harvest those investments, the increase in capex will be slower than before. That's what I mean by leveling off. 

Jeff Su

OK. All right, Charles?

Charles Shi -- Needham and Company -- Analyst

Got it. Got it. [Inaudible]

Jeff Su

OK. Thank you.

Charles Shi -- Needham and Company -- Analyst

Yes, thank you.

Jeff Su

OK. Operator, this concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the call will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, both of which you can be -- find and available through TSMC's website at www.tsmc.com.

So, thank you for joining us today. We hope everyone continues to stay well. Have a good rest of the summer, and we hope you will join us again next quarter. Goodbye, and have a good day.

Duration: 0 minutes

Call participants:

Jeff Su

Wendell Huang -- Vice President and Chief Financial Officer

C.C. Wei -- Chief Executive Officer

Mark Liu -- Chairman

Gokul Hariharan -- JPMorgan Chase and Company -- Analyst

Bruce Lu -- Goldman Sachs -- Analyst

Charlie Chan -- Morgan Stanley -- Analyst

Randy Abrams -- Credit Suisse -- Analyst

Laura Chen -- Citi -- Analyst

Rolf Bulk -- New Street Research -- Analyst

Sunny Lin -- UBS -- Analyst

Brett Simpson -- Arete Research -- Analyst

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Charles Shi -- Needham and Company -- Analyst

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