Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) Q4 2019 Earnings Conference Call January 16, 2019 1:00 AM ET
Company Participants
Jeff Su - Deputy Director of Investor Relations
Dr. Mark Liu - Chairman
Wendell Huang - SVP and CFO
Dr. C. C. Wei - CEO
Conference Call Participants
Randy Abrams - Credit Suisse
Roland Shu - Citigroup
Bruce Lu - Goldman Sachs
Gokul Hariharan - JP Morgan
Bill Lu - UBS
Brett Simpson - Arete Research Services
Charlie Chan - Morgan Stanley
Sebastian Hou - CLSA
Mehdi Hosseini - SIG
Jeff Su
Happy New Year to everyone and welcome to TSM's Fourth Quarter 2019 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Deputy Director of Investor Relations and your host for today. Today's event is webcast live through TSMC's website 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 Chief Financial Officer, Mr. Wendell Huang, will summarize our operations in the fourth quarter of 2019 and the full-year of 2019 followed by our guidance for the first quarter of 2020. Afterwards, Mr. Huang and TSMC's CEO, Dr. C.C. Wei, will jointly provide the Company's key messages. Then TSM's Chairman, Dr. Mark Liu will host the Q&A session where all three executives will entertain your questions.
For those participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC's website at www.tsmc.com. Please also download the summary slides in relation to today's earnings conference presentation.
As usual, I'd like to remind everybody that today's discussions may contain forward-looking statements, that are subject to significant risks and uncertainties which could cause the actual results to differ materially from those contained in the forward-looking statements. So please refer to the Safe Harbor notice that appears on our press release.
And now I would like to turn the microphone over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance.
Wendell Huang
Thank you, Jeff. Happy New Year, everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter and a recap of full-year 2019. After that, I will provide the guidance for the first quarter of 2020.
Fourth quarter revenue increased 8.3% sequentially to NT$317 billion driven by high-end smartphones, initial 5G deployment and HPC-related applications using TSMC's industry-leading 7-nanometer technology. Gross margin increased 2.6 percentage points sequentially to 50.2%, thanks to a higher level of capacity utilization and continuous cost improvement partially offset by an unfavorable foreign exchange rate.
Total operating expenses increased by NT$3.6 billion, reflecting higher development activities for 5-nanometer and 3-nanometer as well as opening expenses in preparation for 5-nanometer ramp. Operating margin increased by 2.4 percentage points sequentially to 39.2%. Overall, our fourth quarter EPS reached NT$4.47 and ROE was 28.9%.
Now let's take a look at revenue by technology. 7-nanometer technology continue to ramp strongly and accounted for 35% of wafer revenue in the fourth quarter. 10-nanometer was 1% and 16-nanometer was 20%. Advanced technologies, defined as 16-nanometer and below accounted for 56% of wafer revenue, up from 51% in the third quarter.
On a full-year basis, 7-nanometer contribution increased from 9% in 2018 to 27% of wafer revenue in 2019. 10-nanometer was 3% and 16-nanometer was 20%. Advanced technologies accounted for 50% of total wafer revenue, up from 41% in 2018.
Now let's take a look at revenue contribution by platform. Our fourth quarter revenue growth was driven mainly by smartphone and HPC. Smartphone increased 16% quarter-over-quarter to account for 53% of our fourth quarter revenue. HPC increased 6% to account for 29%, IoT decreased 4% to account for 8%. Automotive remain flat and accounted for 4%.
On a full-year basis, smartphone and IoT led the growth with 12% and 33%, respectively, while HPC, automotive and DCE decreased 8%, 7% and 8%, respectively. If we exclude cryptocurrency from both years, HPC would have grown mid single-digit in 2019. Overall, smartphone accounted for 49% of our 2019 revenue. HPC 30% and IoT 8%.
Moving on to the balance sheet, we ended the fourth quarter with cash and marketable securities of NT$583 billion, flat versus the prior quarter. On the liability side, current liabilities increased by NT$96 billion as we increased NT$33 billion in short-term borrowing mainly for hedging purpose, NT$51 billion in payables to suppliers and NT$13 billion in dividends payable.
On financial ratios, accounts receivable turnover days remain at 41 days. Days of inventory decreased 10 days to 55 days due to higher wafer shipments during the quarter.
Now let me make a few comments on cash flow and CapEx. During the fourth quarter, we generated about NT$203 billion in cash from operations, spend NT$170 billion in CapEx and distributed NT$52 billion for first quarter '19 cash dividend. We also increased 33 -- NT$36 billion in short-term loans for hedging purpose. Overall, our cash balance slightly increased NT$3 billion to NT$455 billion at the end of the quarter. In U.S dollar terms, our fourth quarter capital expenditures reached US$5.6 billion and totaled US$14.9 billion for the full-year.
Now let's take a look at the recap of our performance in 2019. 2019 was a challenging year for the global semiconductor industry, given rising macroeconomic uncertainties and supply chain inventory correction to name a few. However, we are able to grow our revenue by 1.3% year-over-year in U.S dollar term and 3.7% in NT dollar term.
Gross margin decreased 2.3 percentage points to 46%, primarily because of lower capacity utilization in the first half of the year. Operating margin decreased 2.4 percentage points to 34.8%. Overall, full-year EPS slightly declined 1.7% to NT$13.32.
On cash flow, we spend NT$460 billion in CapEx, while we generated NT$615 billion in operating cash flow and NT$155 billion in free cash flow. We also paid NT$259 billion in cash dividends, an increase of 25% from the previous year.
I have finished my financial summary. Now let's turn to first quarter guidance. Based on the current business outlook, we expect our first quarter revenue to be between US$10.2 billion and US$10.3 billion, which represents a 1.4% sequential decrease at the midpoint. Based on the exchange rate assumption of one U.S dollars to NT$29.9, gross margin is expected to be between 48.5% and 50.5%; operating margin between 37.5% and 39.5%.
Now I will look -- I would like to make one more comment on tax rate. In the past, we needed to accrue tax on undistributed earnings which trigger a much higher tax rate in the second quarter. Now due to the tax regulation changes, we can offset the tax with our capital investments and no longer needs to incur the tax expense on undistributed earnings.
Meanwhile, we are still subjected to the alternative minimum tax. As a result, we will still have a full-year tax rate of approximately 12% and this will be equally applied to all four quarters of the year.
This concludes my financial presentation. Let me follow by making a few comments about near-term demand in the inventory and 2020 capital budget. We concluded our fourth quarter with revenue of NT$317.2 billion or US$10.4 billion, slightly above our guidance mainly due to better demand from smartphone related applications than our forecast 3-month ago.
Concluding 2019, the semiconductor industry excluding memory declined 3%, while foundry was flat. TSMC's revenue grew 1.3% year-over-year in U.S dollar terms, outpacing both the semiconductor ex memory and foundry industry growth. On the inventory front, our fabless customers' overall inventory continue to be digested throughout the fourth quarter. We now expect it to reduce to the seasonal level exiting 2019, setting up a healthier inventory base entering 2020.
Moving into first quarter 2020, despite mobile product seasonality, our business is expected to be better than the seasonality in recent years supported by continued ramp of 5G smartphones.
Now I will talk about our capital budget in 2019 and 2020. We expect the ramp of 5G related and HPC applications to drive strong demand for our advanced technologies in the next several years. In order to meet this increased demand and support of customers' capacity need, we raised our 2019 CapEx guidance by US$4 billion to US$14 billion to US$15 billion and we ended up spending US$14.9 billion.
Our 2020 capital budget is expected to be between US$15 billion and US$16 billion. Out of the US$15 billion to US$16 billion CapEx for 2020, about 80% of the capital budget will be allocated for advanced process technologies, including 3, 5, and 7-nanometers. About 10% will be spent for advanced packaging and mask making and about 10% for specialty technologies. With this level of capital spending in 2020, we reiterate that TSMC remains committed to a sustainable cash dividend on both an annual and quarterly basis.
Now let me turn the microphone to C.C.
Dr. C. C. Wei
Thank you, Wendell. Good afternoon ladies and gentlemen. Let me start with our 2020 full-year outlook. For the full-year of 2020, we forecast the overall semiconductor market growth excluding memory to be 8%, while foundry industry growth is forecast to be about 17%.
For TSMC, we are confident we can outperform the foundry revenue growth by several percentage point in U.S dollar term. Our 2020 business will be supported by strong demand for our industry leading 7-nanometer and 5-nanometer technologies, while we see strong interest from all four growth platforms, which are mobile, HPC, IoT and automotive.
Now let me talk about 5G and HPC as the major long-term growth driver of -- for TSMC. We continue to see stronger deployment of 5G networks in smartphones in several major markets around the world. We reiterate mid teens penetration rate for 5G smartphones of the total smartphone market in 2020. We also forecast a faster penetration of 5G smartphone as compared to 4G over the next several years, while our silicon content of 5G smartphone will be substantially higher than that of a 4G smartphone.
In addition, the significant performance bandwidth and latency improvement of 5G network will drive AI application and unlock new usage cases such as a real time response and control across many different types of connected end devices. We believe 5G is a multiyear megatrend that will a world where digital computation is increasingly ubiquitous, which will fuel the course of all four of our growth platform in the next several years.
With 5G driving exponentially growth, the amount of big data being generated and continuous improvement in algorithm, a smarter and more intelligent work will require massive increase in computation power. Thus HPC become another major long-term growth driver for TSMC.
CPU networking and AI accelerator will be the main growth area for our HPC platform. By working diligently to provide the foundry industries of most advanced most technology and making it available to all the product innovators, TSMC can expand the pool of innovators who fuel the semiconductor industry growth.
With a successful ramp up of N7, N7+ and upcoming ramp up N6, N5, and N3, we are able to widen our customer product portfolio and expand our addressable market. We also see growth in networking, thanks to 5G infrastructure deployment over the next few years. With 5G and HPC applications as a major growth driver, we now expect to grow at the high-end of our long-term growth projection of 5% to 10% CAGR in U.S dollar terms.
Now I will talk about the ramp up for N7, N7+ and the status of N6. As N7 enter the third year of ramp, we continue to see very strong demand across a wide spectrum of product for mobile, HPC, IoT and automotive applications. Our N7+ is entering the second year of ramp. N7+ is industry's first high-volume production with EUV photolithography technology while paving the way for N6. Our N6 provides a clear migration path for next wave N7 products as its design rule are fully compatible with N7, while providing 15% to 20% higher density with improved power consumption when compared to N7.
N6 is on track for risk production in fourth quarter this year, and volume production before the end of this year. N6 will have one more EUV layer than N7+ and while further extend our N7 family way into the future. We expect our 7-nanometer family to continue to grow in the third year and contribute more than 30% of our wafer revenue in 2020.
Now allow me to talk about how our N5 volume production. Our N5 technology is a full node stride from our N7, with 80% larger density -- oh, I’m sorry, with 80% larger the density gain and about a 20% speed gain compared with 7-nanometer. N5 will adopt the EUV extensively and is well on track for volume production in first half this year and with good year. We expect a very fast and smooth ramp of N5 in the second half of this year, driven by both mobile and HPC applications. We expect 5-nanometer to contribute about 10% of our wafer revenue in 2020.
N5 will be the foundry industries most advanced solution with the best PPA. We will offer continuous enhancement to further improve the performance, power and density of our 5-nanometer technology solution into the future as well. Thus we are confident that 5-nanometer will be another large and long lasting node for TSMC.
Finally, I'll talk about our N3 status. We are working with customers on N3 design and the technology development progress is going well. We’ve many technology options in development and we carefully evaluate all the different approaches. Our decision is based on technology maturity, performance and cost.
Our N3 will offer another full node scaling benefit in terms of performance, power and density as compared with our N5 technology. We expect our 3-nanometer technology will be the most advanced foundry technology in both PPA and transistor technology when it's introduced. We will announce more details about our N3 technology at our TSMC North America Technology Symposium on April 29. Thank you for your attention.
Question-and-Answer Session
A - Jeff Su
Okay. Thank you. This concludes our prepared statements. Before we begin 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 questions. Questions will be taken from both the floor and from the call. Should you wish to raise your question in Chinese, I will translate in to English before our management answers your question. [Operator Instructions] So now let's begin the question-and-answer session. Our first question will come from the floor. Credit Suisse, Randy Abrams.
Randy Abrams
Yes. Thank you. I guess with the trade war eased a bit, there are still couple, maybe political issues out there. So I wanted to just start with that. The first one, if you could give some color on TSMC's U.S content. And just if maybe the calculation, there's talk about the content threshold lower to 10%. And if -- there's some talk of the equipment may be excluded from that calculation. So if you could give a bit more color about that? And then second with more of the geopolitical concerns about some of the military technology. You’ve talked in the past about not needing to or having more scale with the fabs in Taiwan, but if any new considerations on the fab location.
Wendell Huang
Yes. Happy New Year everyone. On the possible further tighten up of the export control from the U.S government, I think this is -- they haven't really announced with the specifics about the rules. So everything I say here can only -- is a speculation. So -- and particularly I don’t want to comment on particular customers, but one thing for sure is our business profile is massive. We are everyone's foundry and we will deal with each customer fairly and equally. Secondly is we has been and we will follow the law and regulation. So upon the regulation being effective, we will carefully study and evaluate product by product our eligibility in the export. And we have -- we really have a very sophisticated export control system as you might know. Every product is calculated automatically, every product is different in terms of the -- their content. So it's really difficult to describe to you generally what is the content percentage is. But I can just tell you that whatever you read on newspaper is not true, okay? So we are prepared to deal with this new export control regulation.
Randy Abrams
Yes. Thanks for clarifying, especially that it's not a node by node, which some of the press was speculating. The second question, I just wanted to ask on the higher CapEx where it came in the high-end of guidance and a higher range of CapEx for 2020. If you could talk maybe the areas where the incremental increase, both just from an investment where that new spend is coming. And maybe what changed on the demand side versus a few months ago to lift the budget. And then the second part because of its higher base, how you’re looking at kind of the base over the, say the following year, because now we’ve a 2-year higher elevated spend, if say, some moderation from there?
Dr. C. C. Wei
Yes, we did increase substantial amount of the CapEx. Let me give you some color why we did that, okay? We expect -- actually we expect the mobile phone and HPC, these two segment probably grows above 20% this year. And we saw another two segment, two platform, automotive and IoT probably in mid teens. So put all together we have to increase the capacity. We work with the customer to fulfill their demand. And so that’s a result of how we increase our capacity. Now your question about our growth?
Randy Abrams
Yes, the second question was where the spend sits like 5, 7 versus backend, so where the additional increase?
Dr. C. C. Wei
Oh, okay. A little bit around 7 that we announced in the last year. And then most of them using 5 and the prepare for 3. And 10% in the backend and 80% in the leading edge technology like the 7, 5, 3, altogether.
Randy Abrams
Okay. And then the two -- maybe the follow-up I had was just the moderation of CapEx for -- if you expect that to maybe moderate from the very high level next year. In the backend, 10% would be $1.5 billion for CapEx, but I’m curious maybe between backend and mask, if really over a $1 billion backend CapEx?
Dr. C. C. Wei
You’re right. I mean, the backend including the mask.
Randy Abrams
Okay. But I guess out of that, do you think the backend CapEx is over $1 billion investment on that side?
Dr. C. C. Wei
No.
Randy Abrams
Okay. Thanks. Okay. And then if could you talk about the moderation for …?
Jeff Su
I think, Randy, the last part of your question is talking about our CapEx this year and last year is at a higher level looking out the next several years, where do we think the CapEx will be?
Dr. Mark Liu
That would depend on the growth, right? Yes, if we enjoyed a good growth in these two years, I think the -- and if it's a success introduction of our N3, I mean the CapEx probably will not drop, yes.
Randy Abrams
Great. Thank you.
Jeff Su
Okay. Thank you. Let's go on to the next question. We will take it from the floor. Citigroup's Roland Shu over here.
Roland Shu
Thank you and Happy New Year. First question, I will just follow on the CapEx. For this 15 to 16 CapEx spending, so what -- how many of the total capacity increase is going to be this year and how about last year with this almost $15 billion CapEx spending, how many percent of the CapEx increased last year? Thank you.
Dr. Mark Liu
Wendell with your number -- discuss this question.
Wendell Huang
You’re asking about the capacity increase?
Roland Shu
Yes.
Wendell Huang
Right. Okay. Of course, the increase mainly come from advanced technologies, right? So for 2020, we are looking at mid single-digit capacity increase. Last year, low single-digit number.
Roland Shu
Okay. And then how about the total depreciation is going to be this year?
Wendell Huang
It will increase by high teens in 2020.
Roland Shu
Okay. Thank you. And second question is for the gross margin. For your first quarter revenue guidance, U.S dollar just down slightly. However, apparently in first quarter we have a fewer working base. So it means that your utilization in first quarter definitely is going to be much higher than 4Q. And also for 7-nanometer last quarter we said that we already -- the gross margin has already reached corporate average. And also, I believe, in first quarter we probably won't have the inventory reevaluation. So along this, so is your gross margin guidance, 48.5% to 50.5%, a little bit conservative? Thank you.
Wendell Huang
The utilization we expect it to increase a little bit. And of all the factors that you just mentioned, there is also potential factor which is foreign exchange rate impact. There are six factors affecting our profitability. The development and ramp of our advanced technology, pricing, cost, utilization, technology mix and foreign exchange rate. So when you put all these together, that is how we came up with the guidance. Okay?
Roland Shu
Okay. Thank you.
Jeff Su
Yes. Thank you, Roland. All right. Next question will from -- come from Goldman Sachs's Bruce Lu.
Bruce Lu
Happy New Year. I try to [indiscernible] granularity, color for the 5G penetration rate. Management just mentioned that it's about mid teens in 2020. Can we have more color in terms of that, whether it's sell-in or sell-through or what kind of geography distribution? What kind of distribution between high-end and low end for the 5G?
Dr. C. C. Wei
Well, I can only say that the 5G's penetration is higher than the 4G. And you know a few countries that they’re moving faster than other area, right? And that’s all we know, but we are making the judgment look at installation of 5G infrastructure and we look at each country's adoption and we do our own estimate. That’s why we come back with the mid teens penetration.
Bruce Lu
So it's more from the top down perspective instead of like bottom that from like each product line. Is that right?
Dr. C. C. Wei
We do both and make a judgment.
Bruce Lu
So in either both, can you give us some color about why distribution, putting high-end and …?
Dr. C. C. Wei
That’s company confidential.
Jeff Su
Okay. Bruce, do you have a follow-up.
Bruce Lu
Yes, of course. Can I double check that the assumption of mid teens penetration is based on like there's no change in terms of de minimis rule?
Dr. C. C. Wei
That’s a good question. The changing of de minimis rule is still speculative. So our forecast, we assume the business as usual.
Bruce Lu
I understand it.
Dr. Mark Liu
I think the -- yes, the number we currently forecast does not include the de minimis rule tied and change. But for the -- whatever the export control is coming up, we think the 5G's momentum will continue. If any interruption, it will be very short-term. After going through the supply chain changes and share exchanges, I think the momentum will -- were just as strong.
Jeff Su
Okay. Your second question?
Bruce Lu
The second question is regarding to the management. You used to mention that the TSMC becomes more important in terms of geopolitics situations. So does that change your -- cause of your -- does that change your equation in terms of building all the fab, the cost structures? So in the past we only care about the manufacturing cost as a main cost factor. But given the current situation, do you think that you have to put that into your consideration as well? Management keep on saying that building a factory outside of Taiwan is a lot more expensive than doing that in Taiwan. But with all the geographical risk, that building a factory outside of Taiwan becomes like you see the increasing pressure on that. Do you want to -- do we expect any changes on that?
Dr. Mark Liu
Yes, the cost in Taiwan is lowest among all regions across the world. We have been studying it continuously. And that decision is made to the best interest of our customers. Yes, the geopolitical is evolving, but we still listen to our customers as the priority. And at this point, our customer when asked to be manufacturing in higher cost region, their answer is we cannot be competitive this way. So to increase the -- to maintain the competitiveness of our customer, currently this is a fab layout we are having. In the future, right now it's too early to say and still our customer prefer we have the lowest cost production sites and doing business with us.
Bruce Lu
So what if they’re willing to pay for a higher price?
Dr. Mark Liu
They may be special products, but by and large it's unlikely.
Bruce Lu
Understand. Thank you.
Jeff Su
Thank you. All right. We have -- let's move to the line, we have quite a few callers on the line as well. Operator, can we take the next call from the line please.
Operator
Sure. Your next question comes from the line of Gokul Hariharan from JP Morgan. Please ask your question.
Gokul Hariharan
Thanks and Happy New Year. My first question is on margins. Given that we’re looking at a very strong demand pickup, could we talk a little bit about any change in the view on longer term gross margins? Could it be meaningful improvement in gross margins beyond the 50% range that we’ve been in the last four to five years? And also could you talk a little bit about the margin dilution impact in second half of 2020 from 5-nanometer? Is it likely to be more modest given there's a very strong 7-nanometer demand also through the course of this year? And I had a follow-up question. Thanks.
Jeff Su
Okay. Thank you, Gokul. Let me just repeat your question to make sure we got it right. So your first question is asking about sort of with given the strong demand pickup, is there any change to TSMC's long-term gross margin target? Why couldn’t it not be beyond or above 50%? And then your follow-up or addition to that is looking at this year, could the margin dilution from our 5-nanometer ramp in second half be more modest given the continued strong demand of our 7-nanometer?
Gokul Hariharan
That’s right.
Wendell Huang
Right. We continue to use 50% gross margin, we think it's still a very good target. Of all the six -- I just mentioned the six factors that will affect our profitability. One of them actually relates to the ramp of new node. So the ramp up every new node we will see margin dilutions. This relates to your second question. And indeed, we’re seeing a margin dilution in the second half of this year from the N5 ramp. Is it going to be better than before? Yes, but only slightly, okay? And the other factors that I just mentioned include the following exchange rate, which is really uncertain for anybody to guess. So at this moment we believe the 50% gross margin is still a good target for us. Okay?
Jeff Su
Gokul, do you have a second question?
Gokul Hariharan
Yes. Talk a little bit about what we’re seeing in the N-minus-2, N-minus-3 nodes, should we anticipate any recovery in the situation in 28-nanometer, given overall foundry growth seems to be rebounding? And second part is on 12 and 16-nanometer, given the node of the smartphone customer seems to be migrating to 7-nanometer and even 5-nanometer because of the adoption of 5G? Will there be any challenge to backfill 12 and 16-nanometer as these customers migrate to more advanced process nodes? Thanks.
Jeff Su
Okay. So let me just repeat to make sure we understand. Again, you're asking about our N-minus-2 and N-minus-3. So first part of your question is do we see any recovery in the demand for 28-nanometer given the overall strong demand that we see this year? And then the second part of your question is that with a lot of products going from 12 and 16-nanometer very quickly to using our 7 and our 5, where we have challenges with difficulty to backfill 12/16?
Dr. C. C. Wei
All right. Let me answer 28-nanometer first. With a strong market growth, 28-nanometer, we did see a little bit better than we expected. However, we have reiterated saying that 28-nanometer capacity has been overbuilt in this industry. So the utilization is still below our average in 28-nanometer. We expect it will be improved in next one to two years when we develop a new specialty technology for our customer to utilize it and we start to see the sign because of former new tape outs, so we can be sure that one to two years later that the utilization rate will go back to company's average.
Jeff Su
And also 12 and 16?
Dr. C. C. Wei
12 and 16, we did not see that. Today, it's still very strong demand and they continue to be a very high utilization rate. It's all because of we develop the -- we continue to improve the technology, and so it's being utilized. The first wave of smartphone, HPC and now it's IoT, automotive.
Jeff Su
Okay. Does that answer your questions, Gokul?
Gokul Hariharan
Yes. Thank you very much. Thanks.
Jeff Su
Okay. Thank you. We will take the next question from a caller on the line, please.
Operator
Yes. Your next question comes from the line of Bill Lu from UBS. Please ask your question.
Bill Lu
Yes. Hi, there. Thank you very much and Happy New Year. Question on 5-nanometers. I remember when 7 was ramping, you gave us numbers on the number of tape-outs. I'm wondering if you can help us with 5-nanometer either also by giving us number of tape-outs. Maybe just comparing it to 7 and [indiscernible] little higher or lower?
Jeff Su
Okay. Bill, sorry you broke up a bit at the end, but I think I understood your question. You want to ask us if we can give you some comparison of the number of tape-outs at 5-nanometer versus our 7-nanometer at a similar stage.
Dr. C. C. Wei
Well the 5-nanometer's tape-outs …
Bill Lu
That's fine. Thank you.
Dr. C. C. Wei
Yes. 5-nanometer's tape-out is little bit less than 7-nanometer compared at the same stage of the time. However, the most important thing is that the high-volume tape- out is almost equal. And so we expect that our 5-nanometer's ramp is very fast and smooth and it will contribute about 10% to this year's revenue.
Jeff Su
Okay. Do you have a second …
Bill Lu
So the expectations in -- Sorry, just to finish on my first question, so the expectations then that 5-nanometer would be in terms of wafer capacity as big as 7?
Dr. C. C. Wei
We are building the capacity right now and to meet the customers' demand, very high demand. So that's all I can say.
Bill Lu
Great. Second question is a follow-up on Gokul's question on 28-nanometers. As you develop these specialty technologies, can you talk about what kind of applications are expected to use these new specialty technologies?
Dr. C. C. Wei
You want to repeat or …
Jeff Su
Yes, sorry. Okay, because you're breaking up a little bit. You're asking, Bill, on 20-nanometer, we talk about developing specialty technologies for 28-nanometer. Your question is what type of applications will be used or the specialty technology is targeting?
Dr. C. C. Wei
You want me repeat specific. We are developing the 28-nanometer into 22-nanometer geometry. And ultra low power is one of the direction we are working on, which can be applied to a lot of IoT devices and also applies to some specialties such as CMOS image sensor and all others, okay?
Jeff Su
Okay. Thank you, Bill. Let's move on. We will take one more question from the line and then come back to the floor.
Operator
Your next question comes from the line of Brett Simpson from Arete Research. Please ask your question.
Brett Simpson
Yes. Thanks very much and Happy New Year, everyone. I just had a question on China. China was more than 100% of your Q4 sales growth on a year-on-year basis and sales more than doubled in 2019 from China despite the headwinds from crypto. Can you maybe talk a bit more about the region, what's driving so much growth and how should we think about China growth specifically in 2020. Thank you.
Jeff Su
Okay. Brett, please allow me to repeat your question. Your question is about our China business. You pointed out that it was 100% of our fourth quarter growth and grew quite strong in 2019 despite the drop-off in cryptocurrency. So you want us to comment on how we should think about China as a percentage of sales in future growth drivers going forward. Is that correct?
Brett Simpson
That's right. Thanks, Jeff.
Dr. Mark Liu
Well, China is about 20% of our business and has been stable around that number last year this year. So what's changed is I think the last year, we see the China growth particularly strong and other regions, such as U.S., probably growth is less. So that is a disjunction for this way, but we continue going on I think the -- we expect to maintain this level.
Dr. C. C. Wei
Well, let me add some color to it. The same thing, the channels, major business with TSMC is also still 5G and AI, the same thing. Two years ago, probably we have some kind of big increase in the cryptocurrency, but right now it's become normal situation.
Jeff Su
Okay. Brett, do you have a second question?
Brett Simpson
Just to follow-up on that, on my question. Looking at 2020, can you maybe just sort of help us what the drivers for growth from China? Do you think it will be mainly 5G smartphone related? Is there going to be quite a meaningful contribution from other markets like HPC, any more color would be very helpful.
Dr. C. C. Wei
All right. It will be 5G related, both smartphone that will be increased and also the networking that's in the HPC area. That’s the two major area that China as a business that will be increased in 2020.
Jeff Su
Okay. Brett, do you have a second question?
Brett Simpson
And just -- yes, thanks. The second question is really targeted at HPC. Can you maybe talk about how much of 7-nanometer capacity is running HPC at present? I think you were planning to ramp that in the second half of '19, but any more color on the portion of 7-nanometer running HPC would be helpful. And how does this feel as we look at 2020? The use of 7-nanometer for HPC? And I think you mentioned 5-nanometer HPC chips would actually ship in 2020, what would it be used for? Any more help there would be great. Thank you.
Jeff Su
Okay. Brett, let me just repeat your question. The first part is how much of our 7-nanometer capacity is for HPC products? How much was this last year? How do we expect this capacity for HPC to scale in 2020 for 7-nanometer? And then the second part is for 5-nanometer, what types of HPC products or applications are being used on 5-nanometer?
Dr. C. C. Wei
Well, we do not disclose the capacity breakdown for a specific node. In terms of revenue on the HPC in N7, actually all I want to say is it continue to grow to increase and we expect that this momentum will continue in the next few years. For N5, as we said, it's driven by mobile phone and HPC, still the two biggest increase in this year.
Jeff Su
Okay. Thank you. Let's come back to the floor for -- open the floor for questions. Next question will come from Morgan Stanley's Charlie Chan.
Charlie Chan
Thanks. Happy New Year. So my first question is about your future technology developments, right. So next year I’m not sure if you are going to introduce so-called 5-nanometer pro -- process and can you comment that a little bit? And if you let the extension of the current 5-nanometer, does that mean possibly to your gross margin improvements? So that is the first question. Thanks.
Dr. C. C. Wei
We continue to improve the performance of each node. So next year you're talking about 5 pro …
Charlie Chan
Yes, 5-nanometer pro or …
Dr. C. C. Wei
Whatever, okay. Okay. It will be better than this year's 5-nanometer, that's for sure. All right. And all the major customers were using and so the gross margin improvement that will not be the same as our previous node, it takes about the seven quarter …
Wendell Huang
Six to eight.
Dr. C. C. Wei
Six to eight, okay. Six to eight quarter to restart the company's average, okay?
Charlie Chan
Okay. So I would assume that 5-nanometer gross margin will continue to improve into next year?
Dr. C. C. Wei
That's for sure.
Charlie Chan
Okay. Thanks. And next is, I'm really interested in your 3-nanometer, right. So currently what is [indiscernible] meaning the cost per transistor. Do you think you can re reduce cost per transistor label as 3-nanometer. And I'm also curious given this assumption, do you think it's PC or mobile will be a bigger user for your coming 3-nanometer for both CPU or smartphone AP. Thanks.
Dr. C. C. Wei
So transistor cost, I believe, continue to reduce, okay? That's for sure. Now who is going to use it. That's a major question. Again, still high yield smartphone and HPC will be the users.
Charlie Chan
Okay.
Dr. C. C. Wei
All right. I cannot be more specific to tell you whom in fact.
Charlie Chan
Can I switch back to some near-term follow-up?
Jeff Su
Let's stick with two questions, first and then go back in the queue, we can come back, sorry. Thank you. Next question will come from CLSA's Sebastian Hou.
Sebastian Hou
Thank you. Happy New Year. So my first question is to follow-up on Chairman's comments about that you see the 5G momentum will continue to be strong even if there is a change on U.S exporting rule. Maybe just some near-term disruption because TSMC has evaluated the supply chain change. So can you elaborate more about what's the supply chain change you have seen to make you such a -- give you such a confidence that there will be just near-term disruption even there's some change on the exporting rule?
Dr. Mark Liu
Well, this is a forward-looking analysis. So I think some of you also did analysis. Basically the smartphone, you’ve to look at this smartphone demand for a year, and then look at the 5G penetration per year. Who will be the smartphone supplier you can change, who will be their shares and where the 5G base station being produced that was changed. So all these things it really depends on the -- it boils down to really the forward-looking smartphone demand, would that be interrupted. That's the analysis. I think that if any disruption, it will be a shorter term, yes.
Sebastian Hou
Okay. So my follow-up question on that is smartphone we understand, so A brands they lose share, B, C brands will pick up, but what about the infrastructure if there's a disruption on the infrastructure because one of the key infrastructure supplier may not have the critical processors, so which means the whole 5G infra build-out maybe slowed down postpone and what's the point of having those 5G smartphone with the whole supply chain, whole 5G piece [ph] had been postponed?
Dr. Mark Liu
I think the -- I think industry will find -- I think there's no business with just one player for too long, okay? The second and third player will sooner or later will come up and it could be pretty soon. And our business, always in a competitive environment. So, yes, we have a number one enter the market, but the number two, number three is not too far away.
Sebastian Hou
Okay. Thank you. My second question is on the guidance that the company gave this year that the foundry industry is growing 17%. Semis, excluding memory, it's about 8%. I think if I look back historically, usually I think the formula for TSMC's growth is usually the global GDP. And semi is about like, 2%, 3% point above that, foundry a little bit above that, TSMC is a little bit above that. So TSMC get a 5% to 10% of the CAGR. So I think that is very simple formula, but has the formula changed? So I mean that historically semiconductor is highly correlated with the global GDP growth to some extent. So if TSMC or the foundry is growing faster, is it like the foundry [indiscernible] become outlier, or is because also there you're implying that the whole economy is growing faster?
Dr. C. C. Wei
Now at this time, we have higher gross rate right for foundry and for TSMC. It all because of driven by 5G and AI's application. So whether we can increase our forecast, for example, TSMC always say 5% to 10% CAGR is that our goal, we certainly hope that we can exceed that. But this year it's still too early to say, but we stay on what we said. The foundry industry will be 17% and TSMC will be better than that.
Dr. Mark Liu
Sebastian, let me add to this. This year the formula does change a bit. We put it in the Korean -- captive Korean player foundry -- captive into the foundry, okay, which is they do that and constantly, so at this time we put the Korean players captive into the foundry business, so that's why you see the growth quite faster, yes.
Sebastian Hou
Okay. So -- but if we also look at, I think the company also made a comment that you're seeing your 5-year CAGR to be higher -- at a high-end of the 5% to 10%. So it's not just one year, it's just a flash in the pan. So I think if you will look at the longer timeframe, which means I think there will be more, I think the correlation with the global GDP, I think that make more sense more representative. So does that also means that like semis and tech innovation is going to drive the global economy grow faster in the next couple of years, or is it just because global GDP still grow as the growth of 2%, 3% but semis, foundries, TSMC became the outlier, that gap is getting bigger.
Dr. C. C. Wei
Oh, we don't want to say it's outlier. We continue to forecast global GDP still in a normal situation provided the trade tension between the two big countries did not deteriorated. But for semiconductor, I want to say that the content of the semiconductor in our life continue to increase, provide -- see that -- you can see the big example in the smartphone, you can see the big example in the automotive and you can see that IoT is a big increase also. So now it's changing our world. And that all because of semiconductor content, it's not because of GDP suddenly become grow faster and it's not because of semiconductor is an outlier. It will continue to be this way.
Jeff Su
Yes. And remember last year, as Wendell said, the semi industry ex memory was a year of decline. So obviously there's a base effect in play as well for 2020.
Sebastian Hou
Yes, sure. I'm talking about five year.
Jeff Su
Sure. Yes. Okay. Thank you. Let's move back to the line please. And we will take the next question from the line please, operator.
Operator
Yes. Your next question comes from the line of Mehdi Hosseini from SIG. Please ask your question.
Mehdi Hosseini
Yes, there. Thanks for taking my question. I have one clarification. When you were referring to 5-nanometer, does that include 6? And if it doesn't, what is your view of availability of 6-nanometer by year-end '20?
Dr. C. C. Wei
Do I have to repeat the question? You say that 5-nanometer is including 6 or not. No, 6 is a 7-nanometers of family. So we look at the 7, 7 processors as a one family. 5 is another big node.
Mehdi Hosseini
Okay. And you are still on schedule to have 6 available by end of this year, correct?
Dr. C. C. Wei
Volume production at the end of this year. Right now it's ready or ready for our customers' tape-out.
Mehdi Hosseini
Sure. Okay. And then in terms of just that we are talking about the growth more than 20%, at the same time, one of the leading microprocessor manufacturer based in North America has talked about increased outsourcing. I just want to get your view how -- when you look into the longer term, would that -- would there be a structural change in semiconductor manufacturing where TSMC would actually be able to grab higher market share because there will be more outsourcing, specifically from a key company based in North America.
Jeff Su
All right. Let me repeat your question, Mehdi. I think you are asking us to comment on the potential for an increased outsourcing from a major microprocessor or CPU vendor. Long-term, could this be a structural change in the potential for long-term -- longer term outsourcing?
Mehdi Hosseini
Yes.
Dr. Mark Liu
We certainly welcome that's outsourcing continue to grow. And for TSMC all I can see is we deliver -- we develop the technology to build our customers requirement and we are confident that we are the best technology leader and we have excellent manufacturing. And of course, as a result, we expect that we gain some market share out of it, but that is for the future for TSMC's growth and I cannot be more specific in there.
Jeff Su
Okay. Thank you. Let's move on. We have a follow-up question from the line from JP Morgan's Gokul Hariharan.
Gokul Hariharan
Thanks, Jeff. So quick question on the high-end of the 5% to 10% growth. Could you talk a little bit about why only high-end up of 5% to 10% when the CapEx increase seems to be 40% to 50% from the last kind of $10 billion to $11 billion kind of CapEx range over the last five years? Any reasons why we are a bit more cautious? Do we feel that the 5G cycle after a couple of years could start to kind of decelerate, especially given this year we’ve already starting off with a very strong 20% kind of growth. So just wanted to think about the puts and takes in terms of the high-end of 5% to 10% and why not stronger than that growth given the big jump in CapEx and indication that CapEx could stay around these levels even going into the 3-nanometer era.
Jeff Su
Okay. Gokul, let me try to summarize your question. Basically, Gokul, is asking why our long-term growth target is only at the high-end of 5% to 10% when our CapEx has increased 40% to 50% versus $10 billion to $12 billion in the past. He is asking or wondering is this because we are taking more cautious view that 5G cycle maybe strong this year and next year, but may slow down after that. And so why do we still stay at the high end of 5% to 10%?
Wendell Huang
Last year, before we increased the CapEx, we are looking at somewhere in the middle of the 5% to 10%. But afterwards when we see the ramp in 5G deployment, we increased the CapEx and now we're looking at a high-end of the 5% to 10% range. So that is the difference. Also let me explain this from a capital intensity point of view. Last year, while we increased the CapEx, the capital intensity was over 40%. This year, we think it will be lower than 40%. And from next year on, although it's still pretty early, we think it will be somewhere between 30% or 35%, which is pretty similar to the old norm that we used to say before.
Jeff Su
Gokul?
Gokul Hariharan
Okay. Thank you.
Jeff Su
Do you have a second question?
Gokul Hariharan
Yes. Yes, just one more broader question for Dr. Liu. At a Board level, Dr. Liu, could you talk a little bit about how the Board thinks about TSMC's positioning as foundry for everyone, everybody's foundry, given the broader geopolitical changes that are happening? I don't want to go into each episode in terms of like the change in the [indiscernible] rules etcetera. But thinking four to five years out, how does --- what where the steps that the Board is considering to kind of still ensure that TSMC can remain everybody's foundry even in more challenging kind of geopolitical environment and a lot more quality kind of risk compared to say the last five to seven years?
Jeff Su
Okay. Let me try to summarize your question. Again I think he's asking -- Gokul is asking for Mark to please share your thoughts on -from a Board level, TSMC's positioning as everyone's foundry. Of course, we are facing a lot of different geopolitical changes and challenges, Gokul just need us to comment on each one. But generally, how are we thinking about five to seven years out, how TSMC can position ourselves and how we can remain to be everyone's foundry.
Dr. Mark Liu
Yes, the -- first of all, currently we discuss this strategy with the Board and Board fully agree with our current strategy, okay. And of course this strategy contains several necessary component. First of all, we develop our technology ourselves, all the technology IP and know-how and technology all developed in Taiwan here. Secondly is another necessary element is our technology has to be leaders. When you are technology leaders, people will have to come to you and that's how we maintained to be everyone's foundry. There are exceptions, of course, because of their domestic trade policy that I cannot overcome, but basically that -- so far this strategy should be able to play on.
Jeff Su
Okay. Does that answer your question, Gokul?
Gokul Hariharan
Yes. Thank you very much.
Jeff Su
All right. Thank you. Let's come back to the floor and see if there's any follow-up questions from anyone. Morgan Stanley, Charlie?
Charlie Chan
Thanks for taking my follow-up. So first of all, for the first quarter you mentioned that utilization rates are higher, but in terms of U.S dollars revenue go down slightly. So what is the ASP or foreign exchange here? Thanks.
Jeff Su
So Charlie is asking that we said, first quarter the utilization rate will slightly increase but our U.S -- our guidance shows a slight decrease in the U.S dollar -- in the revenue in terms of U.S dollars. So why is that? Does that imply an ASP change?
Wendell Huang
Last year fourth quarter or even third quarter last year, part of the wafer revenue come from wafers prepared in the first quarter -- first half of 2019 when the utilization was pretty low and we are pretty much digesting all of those already.
Charlie Chan
Okay, thanks. So it looks like the year is open, right? But do you see any kind of any next data points, for example, any segment or any customers cutting forecast or orders recently, can you comment on that?
Dr. C. C. Wei
No, we do not see that.
Charlie Chan
Okay. And lastly, it's a little bit subtle, right? CapEx, I think a few months ago -- I think the guidance for this year CapEx is US$14 billion to US$15 billion, but now it's like US$1 billion higher. So what is that additional CapEx for? Is it mainly for 7-nanometer or 5-nanometer?
Wendell Huang
Well, other than the advanced technology, we also mentioned earlier we also increased the CapEx this year for specialty technology as well as advanced packaging. So those are the areas that we are focusing now.
Charlie Chan
Okay. And lastly, if I may, I guess a market share question. We appreciate that the company provide your assumption for industry growth. So I guess that first of all, we want to clarify when you at Korea captive foundry in the comparison you said apple-to-apple comparison, meaning, do you include that into last year's revenue base?
Dr. C. C. Wei
I think we did, right. Yes, we did.
Charlie Chan
Okay. So include then, apple-to-apple comparison, it's up 17%?
Dr. C. C. Wei
Up 17%.
Charlie Chan
Okay. And [indiscernible] to China competitors' market share, I think that’s a …
Wendell Huang
I think that's probably needs to corrected. I don't think we included the foundry growth in last year, the Samsung captive supply. So the growth is 17% is particularly high.
Charlie Chan
Okay. So what is the kind of apple-to-apple comparison there?
Wendell Huang
I think 6 points. So it will be 11% if we do apple-to-apple comparison.
Charlie Chan
Okay. Thanks. So based on that kind of 11% industry growth and I think lots of investors are asking whether your sort of losing market share in China because the China want to push the localization, right? So some [indiscernible] talking about SMIC taking more orders from you guys as 40-nanometer. Can you also comment a little bit on this front?
Dr. C. C. Wei
Usually we don't specifically answer these kind of very sensitive questions, specifically on one competitor. But let me tell you that what the newspaper say it is not true.
Jeff Su
All right.
Charlie Chan
Okay, clear. Thank you.
Jeff Su
Thank you. Yes. Charlie, also let me just clarify. Last time we did not say that $14 billion to $15 billion for 2020 CapEx. We said it will probably stay at a similar level as to 2019, but we did not specifically say that dollar range, all right. Just to clarify. All right, let's go back to the line. Sorry, we have a follow-up from SIG, Mehdi.
Mehdi Hosseini
Yes. Thank you for the follow-up. Wanted to go back to your commentary about the 5G phone. And how should I think about opportunities if I were to think about the sub 6 versus millimeter wave? And specifically, do you think that this year opportunities with mobile you talked about a 20% -- more than 20% growth is that all going to be sub 6, or is it going to be a mix of the two technologies?
Dr. C. C. Wei
You want to repeat?
Jeff Su
I think …
Dr. C. C. Wei
Okay. Okay. The question is clear enough. If the 5G growth is because of sub 6 or the millimeter wave, my answer is both, okay? That's the 5G phone and the base station is for sub 6 and millimeter wave.
Jeff Su
Do you have a second question, Mehdi?
Mehdi Hosseini
Yes. Actually if I were to have a follow-up, do you think you would actually be building a millimeter wave phone or for millimeter wave, it's just going to be limited to base station?
Dr. C. C. Wei
Okay. Actually the phone is much easier to build with millimeter wave plus sub 6. The base station probably will have a much higher number in sub 6 rather than millimeter wave.
Jeff Su
Okay?
Mehdi Hosseini
Okay. Thank you.
Jeff Su
All right. Let's come back to the floor. We have a follow-up from Credit Suisse's Randy Abram.
Randy Abrams
Yes, thank you. You talked about the good investment in the backend. Last year, I think you said $2.5 billion was the revenue run rate in 2018. If you can maybe give a view the size of the business now and maybe what type of growth you are expecting for this year.
Wendell Huang
Yes. The revenue size of backend was $2.8 billion in 2019. We are expecting double-digit growth for this year, mid-teens.
Randy Abrams
Mid teens. Great. Okay. And if I could ask on the two other areas that don't get as much attention, automotive and IoT. So automotive was depressed last year, but I think you're talking about a pretty big pickup to grow teens. Could you talk the areas like if it's just cyclical rebound, or if there are certain types of products or components coming back from the automotive where you are gaining content share. And for the automotive -- sorry for the IoT, it was very strong growth, it's a big category. So if you could maybe center on if there's a few particular pieces within an IoT driving the momentum for that category.
Dr. C. C. Wei
Actually the growth this year most come from the content increase rather than the unit increase. So we are -- I just mentioned that it will be mid teens, right, mid teens increase. Certainly it's not the mid teens unit. You don't expect though so many cars being sold and so is the content -- the semiconductor content increase is more important than the unit.
Jeff Su
And then Randy is also asking about for IoT. Are there specific areas or segments that's driving the growth in IoT?
Dr. C. C. Wei
Well, Wearable is very popular now everywhere. And according to our Chairman, content also increased.
Jeff Su
Okay. Thank you for that.
Randy Abrams
Okay.
Jeff Su
Next we have a follow-up from Citigroup, Roland Shu.
Roland Shu
Yes. Last time, CEO guide this, you expected 7-nanometer revenue will continue to grow in 2020. So do you still hold to the view?
Dr. C. C. Wei
Yes.
Roland Shu
So how much growth it will be this year? So last year we have a 27%. Is this able to above the high-level of 28-nanometer around 34%?
Dr. C. C. Wei
Gross.
Roland Shu
Okay. Thank you. And also for 7-nanometer, do you see any competitor with the technology breakthrough and likely to impact or taking your market share in the near-term?
Jeff Su
Can you repeat the question, sorry.
Roland Shu
Yes. Do you see any competitors with 7-nanometer technology breakthrough and that will likely to threat you or take your market share going forward?
Dr. C. C. Wei
We will continue to hold a very high market share, that's all we can say. And I don't comment on my competitor.
Roland Shu
Okay. Thank you. My second question is that, you said that you continue expanding your customer and product portfolio. And so you’ve new customers and the products from cryptocurrency in 2018 and the last year you have this new CPU foundry outsourcing as your new customer in technology. So how about this year? Do you see any new customer, or new applications to contribute to your growth? Thank you.
Dr. C. C. Wei
Yes, this year's growth counting on my customer is what we engaged last year already. So as I said, we continue to expand our product portfolio and we continue to increase the number of our customer. So …
Wendell Huang
I think the content increase along with 5G penetration is the major phenomenon including the leading edge as well as the mature nodes. And it's just widespread of customers or existing customers.
Jeff Su
Okay. We have a follow-up here from CLSA, Sebastian Hou.
Sebastian Hou
My first follow-up is, we heard that the 7-nanometer demand is very strong at TSMC and most of the customers are on allocation mode right now. So with the step back of CapEx for this year, I believe some of that also [indiscernible] into 7 nanometer for this year. Do you still expect this similar tightness that your customer may experience on 7-nanometer by the end of this year?
Dr. C. C. Wei
We do have very high demand from 7-nanometer, and we work very hard to meet customers' demand. Last year, we announced that we put 1.5 billion more to increase the 7-nanometers capacity. We work hard to increase the capacity.
Wendell Huang
Yes, with 5-nanometer ramp up in the second half of this year, the tightness of 7-nanometer we hopefully can be [indiscernible] a bit for the customers.
Sebastian Hou
Okay. And is there -- are there any process nodes that TSMC is seeing not growing this year?
Dr. C. C. Wei
28-nanometer.
Sebastian Hou
But 28 is already pretty low last year, but you're still seeing that not growing?
Dr. C. C. Wei
You said not growing, right? Yes, not growing.
Sebastian Hou
All right. So even for 16, 12, this platform, TSMC also expect that to go up? Okay, so that's why you say that the newspaper is wrong.
Dr. C. C. Wei
I don't want to be so specific.
Sebastian Hou
Okay. Well, that's pretty clear. Thank you.
Jeff Su
All right. In the interest of time, we'll see if there is any last questions from anybody. If not, then this concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within four hours from now. The transcript will be available from -- within 24 hours from now, both of which will be available through TSMC's website at www.tsmc.com. Thank you for joining us today. We hope you will join us again next quarter. Good bye. Happy New Year and have a great day.