Operator: Happy New Year to everyone and welcome to TSMC's Fourth Quarter 2015 Earnings Conference and Conference Call. This is Elizabeth Sun, TSMC's Director of Corporate Communications and your host for today. Today's event is webcast live through TSMC's website at www.tsmc.com. If you are joining us via the conference call, your dialing lines are in listen-only mode. As this conference is being viewed by investors around the world, we will conduct this event in English only.

The format for today's event will be as follows. First, TSMC's Senior Vice President and CFO, Ms. Lora Ho, will summarize our operations in the fourth quarter of 2015, followed by our guidance for the first quarter of 2016. Afterwards, TSMC's two co-CEOs, Dr. Mark Liu and Dr.

C.C. Wei and CFO, Lora Ho will jointly provide our key messages. After that, TSMC’s Chairman, Dr. Morris Chang, will host the Q&A session. For those participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC's website at www.tsmc.com.

Please also download the summary slides in relation to today's earnings conference presentation. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor Notice that appears on our press release. And now I would like to turn the podium to TSMC's CFO, Ms. Lora Ho, for the summary of operations and current quarter guidance.

Lora Ho: Thank you, Elizabeth. Good afternoon everyone. Welcome to join us today. My presentation will start with the financial highlights for the fourth quarter, and a recap of the whole year 2015 followed by the guidance of the current quarter. In the fourth quarter customers continued to carefully manage their inventory and our revenue declined by 4.2% sequentially which is in line with our guidance.

Despite lower revenue, growth margin rose slightly to 48.6%. Cost reduction efforts is favorable for exchange rates more than helped to offset impact of lower utilization. Operating margin of 38.3% reached the higher end of our guidance as we were able to keep a similar level of operating efficiency as the third quarter despite a drop in revenue. In non-operating items, we recognize NT$724 millions or NT$0.02 in EPS for ASML shared disposal gains. Overall, our fourth quarter EPS reached NT$2.81.

Now, let's take a look at revenue contribution by application. During the fourth quarter, communication remains flat sequentially. Consumer and industrial standard decreased 23% and 12% respectively, while computer increased 5%. On a full-year basis, revenue from communication increased 16% year-over-year and it represented 61% of our total wafer revenue. Industrial and standard also saw 22% year-over-year growth driven by increasing usage of MCU/controller and the power management IC.

Now, let's take a look at revenue by technology. As we had said before, we saw a strong ramp of 16-nanometer in the fourth quarter and a together 16-nanometer and 20-nanometer contributed 24% of our total wafer revenue in the fourth quarter. On a full-year basis, 20-nanometer and 16-nanometer accounted for 20% of our total wafer revenue in 2015, wafers 9% in 2014. And we remain confident, than the combined revenue contribution from these two technologies we'll continue to grow meaningfully in 2016. 28-nanometer also helped us very well and accounted for 28% of our total wafer revenue in 2015.

Moving into balance sheet. We ended fourth quarter with cash and marketable securities of NT$586 billion, an increase of NT$61 billion. On the liability side, current liabilities increased NT$11 billion. On financial ratios, accounts receivable turnover days decreased 1 day to 41 days. While days of inventory increased by 3 days to 62 days refracting higher working process inventory at advance note.

Now, let me make a few comments on cash flow and CapEx. During the fourth quarter, we generated above NT$145 billion cash from operations and spent NT$85 billion in capital expenditure. As a result, we generated free cash flow of NT$60 billion this quarter and our overall cash balance increased NT$47 billion to NT$563 billion at the end of the quarter. In U.S. dollar terms, our fourth quarter CapEx was US$2.6 billion and reached US$8.1 for the full year 2015.

Now, I would like to give you a recap of our performance in 2015. Despite a challenging year, the inventory corrections of fabric customers occurred continuously. We managed to grow our revenue 10.6% year-over-year to reach NT$844 billion or $26.6 billion in U.S. dollars terms. Gross margins saw an 80 basis points decline from 2014, as the decline in capacity utilization overweight are more favorable for exchange rate.

Despite the drop in actual gross margin, continued improvement in our manufacturing efficiency let to a structure improvement in profitability. Our operating margin also declined 0.9% mainly due to higher operating expense for 10-nanometer as well as NT$2.3 billion impairment loss related to our solar operations. In 2015 gains from share disposal totaled NT$24.7 billion or 80% EPS compared to NT$2.4 billion or $0.08 EPS in 2014. Our effective tax rate in 2015 was 13.5% and the full year earnings per share was NT$11.82. On cash flow we spent NT$258 billion in capital expenditure while we generated $530 billion in operating cash flow.

Accordingly, our pre cash flow more than doubled in 2015 to NT$272 billion which is the second year in a row it has more than doubled. Our 2015 whole year ROE also came out to be 27%. I have finished my financial summary. Now let’s turn to the outlook for the first quarter of 2016. While the China's smartphone market has shown some signal of recovery, customer remain cautious in general based on our current business outlook and the foreign exchange rate assumptions of US dollar [NT$232.50] [ph] we expect per quarter revenue to be between NT$198 billion and NT$201 billion which represents 1.3% to 2.7% sequential decline, gross profit margin to be between 47% and 49%, and operating margin to be between 36.5% and 38.5%.

This concludes my remarks. Now I would like to turn the podium to Mark Liu for his comments.

Mark Liu: Good afternoon everyone. I will start with demand outlook messages. As the semiconductor supply chain went through a very severe inventory reduction during the fourth quarter 2015.

Our first 16-nanometer shipment [indiscernible] during that quarter somewhat mitigated the inventory management impact through our sales revenue. As Lora just reported, in the fourth quarter 2015 we finished our revenue with quarter-to-quarter of minus 4.2% and TSMC concluded our 2015 full year with 10.6% revenue growth. The severe inventory reduction in the fabless industry during the fourth quarter was fabless data inventory to about or slightly below the seasonal level as we exited 2015. However each strong U.S. dollar environment and a volatile financial market that strengthened the market demand for overall semiconductor last year may continue for some time.

Therefore we expect our customers will likely remain cautious in their inventory control and keep inventory close to seasonal level. For our first quarter 2016 this quarter, we see a reduction of high end smartphone demand. On the other hand, demand for smartphones in China and other emergent markets shows signs of recovery with a upward momentum. We thus forecast a mild revenue decline of minus 1.3% to minus 2.7% quarter-to-quarter for the first quarter 2016. Beyond the first quarter 2016, we expect to be back to a growth trajectory.

For 2016 we forecast the world smartphone shipment unit growth rate to be plus 8%, PC minus 3%, tablet minus 7%, and the digital consumer electronics minus 5%. Smartphones will continue to be a major driver for TSMC business in 2016. TSMC's silicon content in an average high end and mid end smartphone are increasing significantly, while TSMC's silicon content in an average low end smartphone remains approximately the same. Therefore TSMC will participate broadly in this overall 8% smartphone unit growth. From the process technology perspective, we had very successful ramp up of 16-nanometer customer products with yield performance ahead of our plan in 2015.

This demand continues to be strong and the ramp up will continue through this year. Given the current macroeconomic environment, we now estimate that 2015 growth rate of world semiconductor to be about 2% year-on-year and 2016 growth rate of world's foundries to be about 5% year-on-year and TMSC’s growth rate is expected to be between 5% and 10%. Now I'd like to deliver messages on our leading edge technology. Our 10-nanometer technology development is on track. We’re currently in an intensive yield learning mode in our technology development.

Our 256 megabit SRAM is yielding well. We expect to complete process and the product qualification and begin customer product tape-outs this quarter. Our 7-nanometer technology development progress is on schedule as well. TSMC’s 7-nanometer technology development leverage our 10-nanometer development very effectively. At the same time, TSMC’s 7-nanometer offers a substantial density improvement, performance improvement and power reduction from 10-nanometer.

These two technologies, 10-nanometer and 7-nanometer will cover a very wide range of application including application processors for smartphone, high-end networking, advanced graphics, field programmable data rates, game console, variables and other consumer products. We see major product advancement in three major product sectors in the next two years from 2015 to 2017. First sector is high end smartphone. We expect to see between now and 2017 more than 1.5 times of transmission speed increase and greater than 2.2 times of visual experience in high end smartphones. Meanwhile, data sensing will move towards context awareness sensing.

All those advances will be supported by TSMC's 10-nanometer and TSMC’s 7-nanometer technologies. Second factor is high performance computing. We expect to have a 2 times of CPU cores in a processor unit to carry the needed data processing. The computing network infrastructure will need 1.6 times bandwidth for higher data rates, again, all those advances will be supported by our 10-nanometer and 7-nanometer technologies. First factor is emerging applications such as virtual reality, gaming and automotive.

For example, the advanced driver assistance system ADAS on cars can greatly enhance the safety on the road for the overall automotive industry. The processors typically will need 20 times of computing power from today's level to serve that purpose. These applications were also supported by TSMC 10-nanometer and 7-nanometer technologies and we’re looking forward for that. I also would like to update you on the development progress beyond our 7-nanometer. We have a sizeable R&D team developing our 5-nanometers technology for more than a year.

Several innovative features and capability on transistors, content and interconnect have been demonstrated. Our 5-nanometer technology is planned about two years after our 7-nanometer. We’ve made significant progress of EUV to prepare for its insertion, likely in 5-nanometer, the process simplification and cost effective density scaling. At the present time, we are installing the third generation EUV tools in TSMC fabless. We also have a extensive pipeline of technical innovation to extend the Moore's Law, including advanced patterning, high mobility channel materials, new nano wire transistor structures, low resistance and low capacitance contact and wires.

Our goal is to further double the data processing throughput for application processor, graphic processor, few programmable gate array, and other process at our notes. Above is my message. Thank you very much. I'll turn the podium to C.C. Wei.

C.C. Wei: Thank you, Mark. Good afternoon ladies and gentlemen. Today I will update you the status of our 28-nanometer, 16-nanometer input and followed by comments on our specialty technologies. First 28-nanometer.

The utilization rate of our 28-nanometer has recovered to a level close to 90% in first quarter this year and offset a wafer demand increases. We expect this utilization rate to remain above 90% for the remainder of this year. In addition to wafer demand increases, we also observed an increase number of tape-outs in2015. And those tape-outs will mostly be produced in 2016. Most of the new tape-outs are on TSMC's latest edition to 28-nanometer, namely 28 HPC and 28 HPC+.

TSMC's 28, HPC 28, HPC+ offers a higher performance and lower power consumption as compared with previous solutions. It is suitable for application in smartphone, digital TV, consumer and networking products. In addition due to this lower power characteristic, customer are able to design their product for low voltage applications which are very important for the IoT devices. In summary, TSMC 28-nanometer technologies are highly comparative in both technology and cost. We are confident that our 28-nanometer were contributed significantly to 2016 revenue and we expect to maintain or even expand our market segment share at least now.

Now 16-nanometer. We have successfully rent-up the production of 16-nanometer starting third quarter last year with very faster pace. Manufacturing industry such as a yield and cycle time was achieved $3 million to $4 million sooner than our 20-nanometer node and are ahead of 10. In addition to 16 FinFET class, in first quarter last year we have completed the development of 16 FSC, that will power and total cost version for the 16-nanometer process. TSMC's 16 FSC incorporate the process simplification and as you know optical string for further by cost reduction.

It also shares shifting FF+ so customer can directly transfer their product to 16 FSC. As a result, we expect 16 FSC will enter volume production in this quarter. Our customer accelerated their technology migration into 16-nanometer node, we anticipate a significant demand drop in 20-nanometer in 2016. However, we also expect a continual rent-up of 16-nanometer this year and expect to contribute more than 20% of wafer revenue in 2016. We estimate our foundry market segment share of 16, 14-nanometer node increases from about 40% in 2015 to above 70% in 2016 exceeding the previous prediction we made in mid-2014.

Now let me talk about the InFO. We have successfully completed InFO process installation in the new long time site and IM products, in product qualification stage right now. We are on track to start InFO volume production in second quarter 2016 because of the very custom nature of our current generation InFO technology, we do not expect adoption by a large number of customers. However we do expect a few very large volume customers. The majority of InFO application out for mobile devices including IoT products, while we are ready for the first generation InFO volume production, we are also developing next generation InFO technologies for better performance and lower cost.

In summary, we believe TSMC’s InFO technology can enhance our customer's product in performance and low products of power consumption. Our expectation of InFO contributing more than US$100 million quarterly revenue in 4Q this year remains unchanged. Now let me talk about specialty technology and IoT. We believe IoT related application will be a important part of semiconductor for us in the future. In order to capture the opportunity of IoT business, TSMC has been developing technology that pick IoT product requirements such as high speed computation just mentioned by Mark, ultralow power transistors, sensors in many cars, connectivity and et cetera.

Some example I would like to share with you here. First, we are developing process to meet automotives tender for smart cars. We have also developed the most advanced CMOS image sensor with multi-million context between the stat chips. We have delivered the smallest footprint main sensor for various applications. We have developed eternal power bluetooth solution for connectivity's.

Specialty technology are an important part to TSMC revenue. In 2015 more than 70% of TSMC 8-inch wafer business was contributed by our specialty technologies. We have also observed an increase in amount of our 12-inch wafer business has been contributed by specialty technologies. We expect the trend will continue in the future. Thank you for your attention.

Now, I'll turn the podium to Lora.

Lora Ho: I have few comments to make and let me start with CapEx. Our CapEx for 2016 is expected to be between US$9 billion to US $10 billion with 10% to 20% increase year-over-year. About 70% of the capital budget will be used for capacity build up for the leading edge technology majorly 10-nanometer and R&D CapEx. Of year $9 billion to $10 billion number about 10% will be used for backend mainly InFO and a 5% for China fab.

With this CapEx, our 2016 capacity will increase by about 10%. I'll talk about TSMC's structural profitability. TSMC's structural profitability is measured by its standard growth margin rate, SGM, which refers to a gross margin calculated at 85% utilization rate. In the past few years, TSMC has been able to steadily increase our SGM from the mid 40s level to a high 40s level despite higher CapEx, which lead to a substantial increase in depreciation expenses. The improvement of our structural profitability is mainly due to the following.

First, very careful planning and build-out of capacity. Second, intensive cost reduction to productivity improvement and a better asset effectiveness. We are confident that we will be able to continue increasing our SGM in 2016. Now a few comments about China investment. On December 07 last year, we submitted the application to the Investment Commissions of Taiwan's Ministry of Economic Affairs for investment project to build a wholly owned 12-inch wafer manufacturing facility and a Design Service Center in Nanjing, China.

The main purpose for this investment project is to enhance our access to business opportunities in China market. With the establishment of a 12-inch wafer fab and a Design Service Center in China, TSMC will be able to provide closer support to our customer in China and to extend our ecosystem to that market. We will commence the investment project upon receiving the approval from the Investment Commission. My last comment is about the dividend. As you remember, our dividend policy is a sustainable and trending to increase cash dividend per share.

With our healthy free cash flow, we are considering an increase of cash dividend in 2016. This concludes my remark. Thank you.

Elizabeth Sun: All right. This concludes our prepared statements.

Before we begin the Q&A session, I would like to remind everybody to limit your questions to two at a time to allow all participants an opportunity to ask questions. Questions will be taken both from the floor and from the call. Should you wish to raise your questions in Chinese, I will translate that to English before our management answers your question. For those of you on the call, if you would like to ask a question, please press the star then 1 on your telephone keypad now. Questions will be taken in the order in which they were received.

If at any time you would like to remove yourself from the questioning queue, please press the pound or hash key. Today's Q&A session is hosted by our Chairman, Dr. Morris Chang. The Chairman will answer some of your questions and will pass the rest to the co-CEOs or the CFO. So we'll begin the Q&A.

Elizabeth Sun: All right, I think we'll let Credit Suisse, Randy Abrams to ask the first question.

Randy Abrams: Yes. Thank you. The first question - congratulations first on last year and also a good outlook for the coming year. The first quarter, it seems like it's holding up relatively well factoring in some of the high-ends smartphone weakness.

If you can go through just what's driving the strength, how much of TSMC specific as far as share gains or how much it's coming from end markets or from other end markets outside of smartphone. And off this higher first quarter, what's your expectation for continued improvement in second quarter because last year first quarter, held up well, but then we saw a slow down after that. If you think there is any inventory build again in first quarter this year?

Morris Chang: You're asking, Randy, why is the first quarter holding up for us?

Randy Abrams: Yes. Why the first quarter is holding up and then if you fear with the strengths, how you expect the next couple of quarters if it could be the start of another bill?

Morris Chang: Well, actually you know, I wasn't surprised by our first quarter. You seem to be saying that it's holding up while the markets are not holding up.

I really think that if we have gained any share in the first quarter - if we gain any share in the first quarter, I think it will not be significant. I think that's the way the foundry market will be in the first quarter, at least as far as I can see now. I don't think we have any – now we’ll be losing any share. I suspect that that we may be gaining a little share in the first quarter, but I don't think it's significant. As to what sectors? While the same sectors that we do will business in, communication of course is abetment, mobile products, I think is a big one.

And then again, Lora has told you, and I don't see anything unusual. Well, actually markets talk about the end of inventory – surplus inventory. We think that at the end of the fourth quarter, although the numbers are not out yet, but we think that the end of the fourth quarter inventory is supply chain inventory is already well above 2 days below seasonal. So because of that, I really for a while expect the first quarter to be stronger than what we are forecasting now. But the way we are forecasting it now it’s pretty normal seasonally you know if you look at our past couple three years record, I think the first quarter has always been a bit, a few percentage points below the fourth quarter.

I don’t know, as far I can see I think we’re managing the company well but I don’t think that’s unusual you know.

Randy Abrams: Okay. I’ll ask the follow up on two technologies, I think there is some change 16 FFC which is a lower cost, I think you mentioned it’s actually in production this quarter if I heard right, and if you could talk about how meaningful because that will lower cost on 16 in getting customers to migrate from 28 to 16 if you see a more meaningful ramp of that node through this year. But the other side InFO, it felt like last quarter you were talking about more customers beyond the high volume application, if you’re seeing some delays or change in other customers or additional customers adopting InFO?

Morris Chang: About InFO or on the 16?

Randy Abrams: It’s was two part question.

Morris Chang: I know, the first part I knew is about the 16 FFC and the second part is InFO, right where you ask about whether more customers are using something.

Randy Abrams: InFO getting more customers.

Morris Chang: Okay, C.C. would you answer that question?
C.C. Wei: 16 FFC first, Randy you asked whether it is a meaningful cost reduction or something like that, low cost.

Randy Abrams: Actually a meaningful ramp, if you expect a meaningful ramp from 28 to 16
C.C.

Wei: Yes, it’s a meaningful ramp.

Randy Abrams: Through this year?
C.C. Wei: Yes, this year. Does that answer your question?

Morris Chang: I think his question was - it's already in production 16 FFC?
C.

C Wei: Yes.

Randy Abrams: Okay, so it’s a pull in by a few quarters. C.

C Wei: And it is actually faster than we thought because of very successful technology introduction and using the same design rule we don’t have to change any design, architectural or design ecosystem. So just a few minor capitalization that was necessary but it’s okay, so it’s meaningful volume production. Now InFO, this is - the last time I reported that we’ve a lot of customers working with us and the InFO application to their product, the cooperation continues but then InFO at this stage is a very customer specific, your layout, your die size, your application, your requirement and the total shipments all different.

So now we’re focused on very large volume customers because we want to ramp it up quickly and other application we’re now we’re going to introduce in the new generation with low cost and the better performance.

Randy Abrams: Timing for the new generation?
C.C. Wei: Next year.

Randy Abrams: Next year, okay, thank you.

Elizabeth Sun: We’ll go to Deutsche Bank, Michael Chou for the second question.

Michael Chou: Thank you. The first question is regarding your 7-nanometer progress, it seems like you can enter 7-nanometer measured mass production in the first half of 2018, is that correct?

Mark Liu: That's correct.

Michael Chou: So does that mean you will be ahead of all your competitors by at least one year in terms of mass production schedule?

Mark Liu: I do not - well, each company’s technology maybe different, so each company have their own product roadmap. So we don’t compare just by the date, it also depends on the content of those technologies, but that’s our schedule and that fits to our customers product development.

Michael Chou: Can we say your 7-nanometer performance will be – or had all of our competitors - your 7-nanometer performance will be half of your competitor given that your time frame would be –
C.C.

Wei: I don't want to comment on this. We don't know the competitive specific numbers.

Michael Chou: Okay. Second question is regarding the EUV in 5-nanometer. You highlighted that it could be adapted - EUV could be adapted for EUV for 5-nanometer reduction.

So would that help you extend your – marking 5-nanometer versus 7-nanometer. Would that be – 5-nanometer or just for 10, versus 7-nanometer, if you can use EUV. C.C. Wei: You mean the demand?

Michael Chou: For demand - it seems like smaller, - if you can use EUV for 5-nanometer can we say that?
C.C. Wei: Your question is will EUV improve - increased the demand of our 5-nanometer?

Michael Chou: Yes, versus 7-nanometer, yes, given as 7-nanometer will not use the EUV.

C.C. Wei: It’s hard to compare because these two technology - the purpose of using EUV is to simplify the process flow therefore the yield can be higher. Secondly is to reduce the cost, if the EUVs source development is according to that plan, the current plan. So for both factors it will help our 5-nanometers both yield and cost. And if you translate that into a demand, I think it enables more affordability of the 5-nanometer.

Michael Chou: Anyway you can disclose your average output for EUV tolls now?

Morris Chang: EUV, we are working on the second generations EUV tools and we are installing our third generation EUV tools. And for the EUV currently for the two we have we try to improve the reliability of the tools and that from on the cost. We run several 100 wafers a day continuously so that we can look in the tools, and that will be prevail for quite some time to do that.

Michael Chou: What kind of effort do you expect that you can use the EUV for the 5-nanometer mass production?

Morris Chang: At what time?

Michael Chou: In one day, in average.

Morris Chang: At this time we are -- we have demonstrated 500 wafer per day, every day for over period time level of four months.

So that was a demonstration, the rest we are working on, we don’t push to extreme of the move but rather we focus on the reliability of the tools, so the demonstrated is 500 wafer per day.

Michael Chou: So does that mean if you can demonstrate that safely over the next 12 months, you would use for 5-nanometer mass production, can we say that or?

Morris Chang: Yes.

Michael Chou: Thank you.

Elizabeth Sun: Next question comes from the floor and that will be from Citigroup's Roland Shu.

Roland Shu: Thank you for taking my question.

A happy New Year Chairman and CEOs. First question is about – 10-nanometer with almost no competition in the market – for last year when you started the 15-nanometer I think we had that big competitor in the market. So question is now we are moving to 10-nanometer, how do you think about the competition, will it be more 28- nanometer or it is more like 16-nanometer last year. Thank you.

Morris Chang: The last part of your question, say it again.

Roland Shu: When we start 10-nanometer mass production end of this year, how do you think about the competition – it's more like 10-nanometer or more like 15-nanometer.

Mark Liu: Well on 10-nanometer we intend to begin with a very high market share. We intend to begin with a very high market share and we intend not to lose it.

Roland Shu: Some of that question - Chairman, your comment for 16 nanometer this year --

Morris Chang: Foundry market share, anyway.

Roland Shu: Yes, yes.

Understood. C.C. Wei: What's your next question?

Roland Shu: I think Chairman's comment on 16 nanometer this year is heavy pickup market share is much bigger market.

Morris Chang: I think C.C said 70%, Foundry market share.

Roland Shu: 70% for the --

Morris Chang: Didn't you?
C.C.

Wei: Yes, above.

Lora Ho: Above.

Morris Chang: Above 70% he said.

Roland Shu: So is this a moderate pickup market share? Your thoughts, two quarters ago above 70%?

Morris Chang: I didn't understand your question.

Roland Shu: You said you expect much bigger market share.

So this 70% is this your expectation? Plan?

Morris Chang: I think we exceeded the prediction we made a year-and-a half ago. As far as what I was expecting a year-and-half ago, I didn't even remember myself.

Roland Shu: Second question is to Lora, in October you commented for the investment in China, you think the manufacturing cost will be higher in China than in Taiwan. So at that time you said, TSMC was your evaluating the investments in China, how about in December we decided to setup a plan and also decide center in China. So what have changed during this two months for you to decide to invest in China?

Lora Ho: The cost doesn't change in two months.

Okay. The cost in China was obviously little higher than Taiwan, ARPU-to- ARPU basis, I think we have stated the purpose first to put a 12-inch fab in China is to pursue the potential market growth. This is the main reason for us to invest in China. So that's why I think we were asked to evaluating and we are also in discussions with the China counterpart. And early December, we have pretty much finished the discussion and we made a decision to go ahead with the application for setup a 12-inch fab and the design center.

Roland Shu: So how about the ROI investment in China? So is there what's beating your below, much below corporate average or that's probably will be improved over time. Is this right?

Lora Ho: For case like this, we don't measure ROI. Okay. We just know that for manufacturing part, because the scale is smaller and the cost will be higher. But we hope it can be compensated by the market share gains by doing more business in China.

Morris Chang: Well, we do measure ROI even in this case, but remember our first priority, the rationale let's say of setting up 16 FinFET plant in China. Yes to enhance access to the roaring Chinese market. So while we do measure the ROI of the plant there, you also have to take into account that the increased sales that this plant is going to bring to us. But to answer your question simply, we still measure the ROI, but the ROI -- while since the investment is really relatively small frankly and we don't -- we put it very second to the increased sales that will bring in now -- that this plant will bring in.

Elizabeth Sun: All right.

Next question actually will be coming from a new analyst arriving at Barclays, Bruce Lu.

Bruce Lu: Chairman, the question is that -- so basically the revenue guidance for 2016 is somewhere around 5% to 10%, but I do recall that earnings CAGR in coming 3 years to 4 years will be like 10% and above, so which means that do we expect some margin improvement this year. And what's more important is that as coming to 2017 or after, where 10 nanometer and 7 nanometer will play a more important role, do we expect earning calls coming from the topline or from the much improvement.

Elizabeth Sun: All right, I think Bruce's question is if we guide 2016's growth being only 5% to 10%. But then we also said that our net profit will grow 10%.

That was our five-year, whatever, objective. So his is question is does this imply that we will have a improvement in margin and whether this improvement coming from the topline or from the profitability. C.C. Wei: That's more further. In 2016, we probably can expect or we expect some profitably improvement in 2016.

Laura Ho: Right.

Mark Liu: And what's more important is moving to 2017 when 10 nanometer play more important role.

Morris Chang: Well, I'm sorry. He apparently clarified that your interpretation. I didn't get that.

I understood what you said, but I don't --

Lora Ho: The only difference is that he is thinking beyond 2016.

Morris Chang: All right, he is thinking -- you are thinking beyond 2016. And you referred back to the earlier target that we set that we'll grow profit 10% a year is a good answer. And let me try to answer it now. Did I say it's a good answer or did I say it's a good question? It's a good question, yes.

It's a good question. Let me try to answer it now. We set that target in late 2014, I believe. We said that we want to grow. We said that in the next five years we want to go out profit, actually operating profit not necessarily net income, no, operating profit 10% a year.

And that was more than a year-and-half ago I believe, much has happened since then. Last year was a difficult year. I said 10% compounded annual growth rate. Now, back when we set the target in late 2014, we were looking at a very good -- we thought we are looking at very good 2015. Now 2015 turnout will be disappointing as everyone noticed, but we still managed to grow our operating profit by about 10%.

And 2016, we'll also be, it will be -- I think it will be better than 2015. So we are at least moderately optimistic about 2016. So we have now as Mark said identified our growth for 2016 as 5% to 10%. Now what he meant was revenue, but Lora also said that our structured profitability actually is still improving. So I'm saying now while Mark meant revenue, I'm saying now that our operating profit will also grow 5% to 10% this year.

Hopefully 10% or even hopefully, even more hopefully more than 10%. Okay. So all I – what I'm saying is that we set the 10-year compounded annual growth rate a year-and-half ago when things looked much brighter, much has happened but we still managed for one year and it appears now we'll manage for the second year of this five year above 10%, but I am not repeating my pledge, my prediction that 17, 18, 19 will continue to grow at 10% a year. I think that the likelihood of -- while we just looked at the semiconductor market though the predictions about the future, semiconductor market is 2%, 3% a year for the next five to 10 years, but we have a premium. We have a growth premium now.

A year and a half ago, I thought our growth premium of revenue and profit, growth premium was at least 5%, because back then the prediction of semiconductor growth was better than it is now. Now I still think we have a premium of some magnitude, but you'll hear from me sometime what our rolling five-year projection is. The last time you heard was a year and half ago and so far we have fulfilled with it even though the circumstances were much more difficult than we have been -- than we thought they were going to be when we made the prediction, when we made the target. Did I answer your question?

Bruce Lu: Yes. Thank you.

And my second question is that when the best thing you did in process second generation is that 20-nanometer ramp up must pass that in 40, 20-nanometer ramp up must pass out in 28 and so the '16, that is can we expect for 10 nanometer? Thank you.

Morris Chang: Yes.

Bruce Lu: Thank you.

Elizabeth Sun: So that's nice short and easy. Next question will come from HSBC's Steven Pelayo.

Steven Pelayo: Let's start with Lora. 2011 I think is when you guys started this capital spending picked up for 20-nanometer I think you were at 45% to 50% of revenue for a few years and dominated 28 nanometer. Now this year at $8 billion, last year at $8 billion, this year up only 10% or more is now I think your 30%-35% of revenue level. So this is what's generating free cash flow and the potential for your higher dividend but also what does it mean for your depreciation and I would also like you to answer that question maybe in terms of if you start that big 28 nanometer CapEx five years ago, is there is a roll-off benefit that's going to be starting soon as well?

Lora Ho: I can talk about depreciation for this year. It was $9 billion to $10 billion.

The growth will be smaller. Last year I think it was 11%. This year we expect it to be mid to high single digit less than 10% growth.

Morris Chang: Both in depreciation?

Lora Ho: Depreciation year-over-year growth.

Morris Chang: When you talk about growth people usually associate premium with it.

Lora Ho: The increase of depreciation.

Morris Chang: No, with the growth of depreciation, the growth rate was great of depreciation is going to be slower.

Lora Ho: And your second question referred to the growth a couple of years ago where it has very high capital expenditure and after the five year, it will be depreciated. That's true. That's true.

I think in the next few years, we're going to see a lot of it has come through the depreciation period, that's right.

Steven Pelayo: Okay. Fair enough. And maybe if I can just get a quick follow-up to Randy's question. I actually wanted to know about speaking and their 16 FinFET, ASP versus cost is at the higher margin opportunity for you.

Morris Chang: The lower cost did not come in the price. The margin opportunity for FFC versus FinFET cost is higher.

Mark Liu: Well I think the answer I think in her structural profitability discussion, we managed that very, very carefully. I think the structure basically is projected to decline to lie that projection cost and we'll have only just those two variables and manage it very clearly. And that actually I want to go back a little bit to the answer, I want to add to the answer I gave to Bruce Lu, he said that he was new, he is new from…

Lora Ho: He said that he was from CLSA, not jumping it to Barclays.

Mark Liu: Barclays, yeah, okay. I really think the key factors, why do we have a premium on over semiconductor market growth, why do we have a premium? Meaning that our growth rate, our revenue growth rate, topline growth rate is likely to be higher than the semiconductor market growth rate. That's because in two very simple words, that's because we're everyone's foundry. Being everyone's foundry has advantage of participating in the growth of whoever succeeds the best, where the customer succeeds the best. We participated in it and we have been in everyone's foundry ever since while maybe not when we started it, but certainly for the last 10-15 years we have been virtually everybody's foundry and we intend to remain that way.

Being everyone's foundry, fulfilling our mission of being the customer, technology and capacity provider to the IC industry, it means that whoever in our customer among our customers succeed the best, we participate in its success. That's why I think that we have a premium of growth over the total IC market. Now let's talk about the bottom line. Now that's where structural possibility comes in as important and we want to menu such that the bottom line grows proportionately with the topline and so just keep that in mind and no we are improving that actually. We're improving the structural profitability.

We're improving what we call the standard gross margin also relative and we have improved it by several percentage points in the last few years. It depends on, in fact if I usually look back to six years ago and since then we've improved by at least five, by 500 basis points and we expect it to improve. Now leading everyone’s foundry and maintaining or improving our structure for the ability to stay further product in the right place and while I cannot answer you at this moment, that 17, 18, 19 will still be 10% a year profit growth years. I cannot answer that but I am just saying that I will have my -- I put my trust in our ability to be those two things. To maintain to do those two things.

First, the everyone is responding and second maintaining our structural profitability.

Steven Pelayo: So can I just quickly follow up that, so if deprecation growth is slower, if you have higher margin, faster ramp of 16-nanometer FinFET compact, if you have currency tailwinds as well, if you rising utilization rates, are we going to see a few quarters about 50% gross margins this year or is that kind of natural ceiling, I don’t know I’m just -

Morris Chang: If things were suddenly – demand charges and as result our utilization suddenly goes up, yes, you will see 50%. But in restaurant, you care about the margin, right but mostly you care even more filling the restaurant to customers that's how utilization you see, that’s very, very important so anyway that also as explains always said it, we are very careful in building our capacity and building up capacity. You don’t want to rent a big whole for restaurant and then have enough customers so thus far we are very careful in building capacity. And I have said that many times in the past, we don’t build capacity unless we have very high confidence that we will have customers using that capacity.

Elizabeth Sun: All right. Next question comes from Goldman Sachs, Donald Lu.

Donald Lu: Congratulations for the results. Two questions one is on InFO. So for the InFO we are talking about different roadmaps, can we understand that for the same customers over the years different generation you are going to generate more revenue per customer, per product.

In other words are you going to package more and more chips or doing something more so that you can generate more revenue per customer. And then the second question is you will expand to other customers, so how can we forecast your yield for revenue growth in the years ahead and also just to confirm the CapEx yield for this year is 10% of the total CapEx. So that's also doubled last year, so that will be the indicator for your revenue growth?

Mark Liu: You ask whether we package more chips or package more volume in the InFO business.

Donald Lu: Yes for package. In other words you can charge more and more revenue per smartphone per customer.

Let's take one iPhone, you generate $1 this generation could that be 1.2, 1.3 the next generation and how fast it will grow?

Mark Liu: Okay, let me answer that. We continue to improve the process and then coming out with the new generation of InFO technology, that will have more applications and certainly we expect the revenue will go up, right. The profitability that's our goal of course, and so if you ask [indiscernible], with the same customer we continue to migrate into the new generation the answer is yes, and we are developing the technology that can be a adapt a lot of customers, today we are not at that stage yet, today is a very specific customize technology. Does that answer your question?

Donald Lu: Yes. And how can we predict the revenue growth pace of InFO, half of base is over $100 million by Q4, and more than $400 million next year or some -

Mark Liu: Yes, it will be more than 400 million next year.

I cannot give you exact number that because we are working with our customers today we just can’t tell you that we have few large volume customers.

Donald Lu: Okay, thank you. Second chance is for Chairman. You just talked about you want to capture and be present in China but I noticed that TSMC has been generating during 60%, 70% revenues from U.S. customers over the years but TSMC has never foundry – I mean you have a small foundry in U.S, what’s the different in China and US?

Morris Chang: The China has two different countries.

Donald Lu: That we know but, [indiscernible] point, than they can come to Taiwan, it's even closer than U.S.

Morris Chang: I am far enough the U.S. but U.S. and China are two different countries, even the Chinese will tell you that - the Mainland Chinese. Did I answer that question – did I answer your question?

Donald Lu: I wish to hear more.

Morris Chang: Well, I should say that we have used the phrase that our objective is to enhance out excess to the Chinese market. I’ll use that phrase, we have used that phrase quite a few times. And I must say that we don’t say that in bank, we say that what some of assurance from the authorities, some of the assurance that [indiscernible] will indeed have our excess to the Chinese market and reversely not building the plan, -

Donald Lu: Okay. Thank you.

Elizabeth Sun: All right.

Next question comes from Daiwa's, Rick Hsu.

Rick Hsu: Happy New Year, Mr. Chairman and all the management. My first question is about the capacity. And then Lora talking about this year capacity increase is about 10%.

Could you give us more color into a breakdown 28-nanometer or 20, in 2016 in terms of year-on-year increase, just some rough idea for this different technology nodes.

Lora Ho: I will not give you a breakdown by each node but what I can tell you is very big portion of our CapEx goes to 10-nanometer so you can imagine a majority, vast majority of the capacity increase it will be on the leading edge technology.

Morris Chang: He was asking about last year 10% increase.

Lora Ho: It was about this year 10% - you were talking about this year.

Rick Hsu: Yes, I’m talking about this year.

Lora Ho: Do you want me to give you breakdown?

Rick Hsu: Yes, I just wanted to – give you some idea, I know your 20 should be declined because this year 20-nanometer is not your focus, and 16 should increase a lot and 28 may be not much but I just want to get some more color about how much increase or decrease of different technology nodes on a year-over-year basis.

Lora Ho: What you said is correct, and we are not increasing any 20-nanometer it will be migrate to 16 or 10-nanometer along the way. All the newly added capacity will be on 10-nanometer, as some vast majority capacity increase and 16 will continue to increase but we have to spend huge amount of CapEx last year with 16, but this year we’ll still spend some money but it’s the tailing.

Elizabeth Sun: I probably need to add that. We will also have productivity improvement in 16-nanometer so that will give us capacity without spending much money.

Lora Ho: It’s a very good point.

Rick Hsu: Okay, thank you so much. My second question is I recently talked to some of your larger volume fabless customers and it seems to me that the compliant even they migrate to 16-nanometer this year, they’re not going to enjoy much cost saving on per unit basis. So will you consider when you ramp up more 16-nanometer contribution will you consider yields on pricing to your customers.

Mark Liu: We did.

And I’m not very sure that whom you talked to but most of the customers enjoy that 16 FinFET, 16 nanometers performance and cost, all right.

Rick Hsu: Thank you.

Elizabeth Sun: Next question comes from JPMorgan's, Gokul Hariharan.

Gokul Hariharan: Thank you. My first question is on compute since you’ve already mentioned compute as one of the biggest drivers, high performance computing now just wanted to understand that a little bit further.

The traditional understanding of compute has been, it's been [indiscernible] into dominated market. So when we talk about compute growth should we think about TSMC taking, TSMC enabling some of your customers to take share from that market or is it completely greenfield areas where there is no standards like automotive and stuff like that you mentioned. And since you mentioned this is a two year kind of thing there, you’ll start seeing growth coming through, could we have some kind of quantification if it's possible in terms of what kind of growth could be coming from compute as a segment. Right now I think what you defend as compute is probably about 8% of revenues, 8% to 9% of revenues. This is my first question.

Mark Liu: Okay. When we talked about computing, we really not just including the data center and PC tablets, we also include the infrastructure. So as the edge computing devices, so our - my definition of computing is actually for TSMCs more opportunity in the infrastructure and edge computing. Among the edge computing, I mentioned a couple of our innovative product advancement. One of them is I mentioned about cars and that is a area of very active innovation, we see we work with our customers working on it and how far that product will come up is everybody’s guess.

But if you want to pay a paradigm to semiconductor content of a car today is about a six times of the average smartphones and because of the innovation in that electronics in cars, we see this six times will increase to 10 times by the year of 2020. So that is promising we see and also that is the very practical purposes for that to be proliferated.

Gokul Hariharan: And just a subset of that question, I think you mentioned about the ARM server efforts - server efforts. Could you give an update on what you’re seeing on your customer side because I think until now that has been very small proportion of the market but we've seen ARM itself give pretty bullish guidance for 2020 in terms of like 25% of the server market et cetera. Could you give some color in terms of what you’re seeing given that you’re the foundry - much everybody as Chairman mentioned in the ARM server market?

Mark Liu: That's a tough question to answer.

You know the data center and PC is strong hold of a major player already is incumbent very strong and however the industry many other players are looking for options at least, so we see - our view is we see a lot of innovators, product innovators working in that area. And following that is the only industry estimates about how far the ARMs can move into the space and for the easier one I think will happen first in the tablet and PC and I see before 2020 range from 10% to 30% is in anybody’s guess but I'll just ensure you a lot of innovators are working on the area and lot of customers are looking forward to that happen.

Gokul Hariharan: My second question is, one of your biggest customers is moving to a competitor for flagship chip having that kind of very well-known right now. Now one of your biggest fabless customers is moving to competitor for a flagship chip this year. Now Chairman mentioned that in 2017 with 10-nanometer you are going to start with extremely high market share and intend to keep that share.

Could you let us know what your thinking is about winning back share in this customer because historically you have seen what has left TSMC as kind of comeback maybe after one year, after one generation or two generation -

Morris Chang: We are thinking about it all the time. And I’m not going to tell you anything more than that.

Gokul Hariharan: Okay. On the 10-nanometer side, the confidence in terms of starting with extremely high market share, should we say this is going to be like higher than the 70% plus market share you will have in 16-nanometer when you start in 2017?

Morris Chang: No, well I just don’t want to be quantitative at this point but actually that was how we started to look at almost every node now 16 turn out to be discontinuity of 15. And we hate that and so year and half ago, I vowed that we will recover it and we have recovered it but we will rather not have the same thing happen again.

So we want to put 10 back where things work where the order was before 2016.

Gokul Hariharan: Okay.

Elizabeth Sun: All right, I think we should go to the call. Operator, please have the next caller on the line.

Operator: Sure the first question on the phone comes from the line of Brett Simpson from Arete Research.

Please ask your question.

Brett Simpson: Thanks very much. I just had a question on smartphones, can you talk about what growth you saw from smartphones in 2015 and how you see this trending in 2016 building on the rising silicon per unit that you see?

Morris Chang: Is he asking about the market or is he asking about TSMC?

Elizabeth Sun: I think Brett, you're asking about the market right?

Brett Simpson: No, sorry I’m asking about TSMC, TSMC smartphones yes.

Elizabeth Sun: TSMC smartphone growth in 2015 whether we see rising silicon content continue in 2015.

Morris Chang: Mark, can you answer the question or you we even have the data that is out there.

Mark Liu: I mentioned that for every high end smartphone our phone – the wafer value we get this year will be increased by 8%, 7% or 8%. So that number is smaller than from 2014 to 2015. I don’t remember the 2014 to 2015 number.

Brett Simpson: Okay. Let me ask a follow-up on 28-nanometer, I think you said in the past Mark that 28-nanometer is going to grow in revenue terms in 2016 after declines somewhat in 2015, can you give us an update on how you see 28-nanometer outlook this year, thank you.

Mark Liu: On the 28-nanometer revenue, C.C. can you comment on that?
C.C. Wei: We see the increased demand and you’re asking about the revenue growth?

Brett Simpson: Yes. What growth?
C.C. Wei: Probably flat considering that more demand, but pricing drop.

So it will be probably flat, I would like to say that.

Brett Simpson: And just one final question. Lora, I think you said China is 5% of CapEx this year, the China facility. Can we talk about what the total CapEx will be for China and how might you fill the slab? Will you be transferring equipments already in operation or would it be incremental capacity for TSMC?

Lora Ho: This year the China CapEx will be above 5%, it's a couple of hundred million U.S. dollars.

It's a multiple year project. And the current plan for China is to install a 20,000 wafer. It's the starting point and to be manufacturing in 2018. So from now 2016 to '17 will be the construction period for new fab. So this year will be couple of hundred million, next year will be bigger.

Actually 2017 will be the most bigger one. The total investment that's based on 20,000 wafer is approximately $3 billion multiple-year project.

Elizabeth Sun: Alright. We still have another caller on the line. Operator, could you please proceed to the next caller?

Operator: Your next caller on the line comes from line of Mehdi Hosseini from SIG.

Mehdi Hosseini: I want to ask you about the key assumptions that are going through the year end guidance of 5% to 10%. What is your assumption if your revenues were to be up 5% and what are the assumptions if revenues are up 10%?

Morris Chang: As it relates to our revenue growth, as it relates to the semiconductor market growth?

Mehdi Hosseini: TSMC's revenue guide of 5% to 10% growth.

Morris Chang: Well, that estimate is actually made on two bases. The first base is the semiconductor market growth and the Foundry's growth, which Mark already mentioned. We estimate the semiconductor market growth will be 2% and the Foundry growth will be 5% this year.

And we also have a few other relevant growth indices such as fabless growth and our customer's collective growth. And, well, I think those are the most relevant indicators. So that's the first base -- that's the first basis on which we estimate our growth this year. The second basis that we do estimate is from the field from the regional, our own field sales estimates. Now, each region reports its own estimate of the growth in its region.

Actually we have a third estimate, but the third estimate is basically a synthesis and a reconciliation between the first two. So I hope that answers your question.

Mehdi Hosseini: And just as a follow up to this I wanted to understand some of your conservatism built in this guide. This time last year you were expecting revenue to grow by more than 15%, but unfortunately overall end market demand wasn't that strong. Now will you start in the as a newer growth rate and what are the key assumption for a handset sell through? It seems to me that the Chinese handset OEMs are building inventory given the risk that sell though is not going to be there one is the key leading US-based handset maker is facing some challenged.

And in that context, how much of the conservatism is done into these guidance?

Morris Chang: Well, I think Mark said that our estimate of handset, smartphone sell though is 1.5 billion units worldwide. 8% I think. 8% over last year.

Elizabeth Sun: Mehdi, I guess your question is whether or not we have been too conservative or being too optimistic about our forecast of the smart phone growth?

Mehdi Hosseini: Yes. Thanks for clarifying that.

Mark Liu: Yes. I have some - let me add some comments on this question. Compare this year and last year, there is these two major differences leaders to make the current forecast. One is when we enter the beginning of last year, we did not know of inventory buildup is very, very high. Its -- I still remember 11 or 12 days above seasonal.

And then this year however, we considered the traffic reduction of inventory during the fourth quarter, we have a better estimate how the starting point of the year. And secondly of course is macro economics of this year as you know is still several uncertain factors in it. Therefore we are just taking those two factors on account to make our current forecast, therefore it will lead to a bigger range.

Elizabeth Sun: Lets come back to the floor there are a quite a few hands raised up. I'll ask the people who have not yet had the chance to ask questions first.

And that first one goes to, all right, Sebastian, CLSA.

Sebastian Hou: So my first questions is regarding the 10 nanometers. So earlier Chairman said that you intend to maintain high market share initially at the beginning, so do we have any sales mind that what kind of revenue contribution you'll see by fourth quarter 2017. Would it be similar to like 15% to 20% you had back in fourth quarter 2014 on 20 nanometers?

Morris Chang: Well, C.C, do you have any idea? He's talking about 2017. C.C.

Wei: Yes, I know.

Morris Chang: Fourth quarter. C.C. Wei: The fourth quarter - I don't estimate the customers' demand value, I can give you an answer that it will be a little bit higher, because of -

Morris Chang: A little higher than?
C.C. Wei: Higher than the 20-nanometer in the fourth quarter of 2014, higher than the 16 in the fourth quarter, because continuing of course.

Sebastian Hou: Thank you very much. And also on the 10-nanometers earlier, Bruce asked about the faster ramp and C.C. you answered that will be faster ramp compared to the previous note. So does that mean that the yield ramp, well, the yield learning curve will be faster? That means you're going to reach the corporate average margin faster than the previous nodes.

Morris Chang: Well, not necessarily, because the margin is determined by price and cost.

You may learn faster on the cost, but basically we look at the total company structure profit really and we maintain that. So I don't really particularly want to talk about node-by-node profitability availability. Of course in the past we have said that under pressure from you. How soon we'll reach corporate average, et cetera, et cetera. But today and actually last few times, I kept assuring you that we are looking out -- we are looking out for the corporate average.

The corporate average of course has got the new nodding it. And the new node in fact is likely to be very important part of the corporate average, but we looked at the whole thing. I mean look, we manage a portfolio; we don't manage just a single stock. I'm talking figuratively. We manage a total portfolio of technologies, not just a single one.

Sebastian Hou: My second question is on specialty technologies that the -- we heard that a lot of the fundraise, even the Tier 2 and Tier 3 fundraise are promoting their specialty technologies for IoT and more and more. So we wonder what's the special strategy that TSMC has in this field and do you think you'll need those fund raise by a lot?

Morris Chang: What was the question?

Elizabeth Sun: All right. Sebastian is asking when we talk about specialty technologies, he also noticed that there are a number of other fundraise that are also claiming to working on IoT and more and more. What is going to be TSMC's differentiations? Do we have a substantial lead over other fundraise?

Morris Chang: Definitely we differentiate by the customers trusting us; we differentiate by the technology we have; we differentiate by our manufacturing ability.

Sebastian Hou: So what kind of the growth of the special technology do you expect to contribute to TSMC in the next five years?

Morris Chang: C.C.?
C.C.

Wei: Would you please repeat your question again?

Sebastian Hou: Oh yes, I mean --

Morris Chang: How much will IoT contribute to our revenue? I think that's your question, right?

Sebastian Hou: Yes. Thanks Chairman. C.C. Wei: All I can say is that you agreed in. I give you a number, a specific number on the 8-inch wafers and now it's moving into the 12-inch wafer business and it's increasing, so you want to depend on the market situation and see how fast that the IoT work rule.

All right. So --

Morris Chang: The growth rate is enormous, but the base is right at raved in.

Elizabeth Sun: All right. Next question goes to Morgan Stanley's Charlie Chan.

Charlie Chan: My first question is on the capital intensity.

So if we average out this year and the last year CapEx is around $9 billion per year. And there is similar level to 2014 CapEx. And our revenue growth is growing at 10% in this year high single-digit, so that means capital intensity is declined. So would like to catch your updates so on capital intensity, whether this is a industry phenomenon or it is because a much better exclusion from TSMC?

Morris Chang: We've predicted our capital intensity, the way you'll find it. CapEx divided by current year revenue.

We predicted it quite a few years ago that it will go down and that it's going down. So the update is that yes, our prediction was correct. It will go down.

Elizabeth Sun: But I think Charlie's question is whether where this decline is TSMC specific or it is a industry-wide phenomenon.

Morris Chang: I think it's – I hope, I do think it's TSMC specific, because I think we do a better job in improving our asset effectiveness.

Charlie Chan: And my next question is on potential dividend payout increase. So Lora, can you quantify the increase of the cash dividend payout this year in dollar per share or the payout percentage?

Lora Ho: I said that we'll consider a increase, but we need to discuss with the board. Before we do that, I will rather not to quantify that, but I can tell it's not going to be a trivial number.

Elizabeth Sun: All right. Now there are follow up questions from Credit Suisse, Randy, Randy Abrams.

Randy Abrams: I'm to follow up in the packet your currency last year was 31.7% and we're currently at 33.5%. Could you clarify the fact that 10% sales in margin if that's U.S. dollar, so in NT dollar you would grow 10% to 15% and then also for margin if structural profitability, I mean if that factor is a currency benefit?

Morris Chang: I'm sorry. I need to hear your numbers again. Well, Lora will answer the question, but I was curious.

I want to hear your numbers.

Randy Abrams: So NT dollar like in the packet, there was 31.7% for the average last year. Today, it's 33.49%. So you're getting a pretty big benefit both on sales and margin.

Morris Chang: Well, but today it's only what 14th day of the year.

Okay. Well, will you make a prediction to me, please? What does U.S. exchange rate will be?

Randy Abrams: I can't predict exchange rate, but as your guidance is based on U.S. dollar; U.S. dollar is based on local currency.

Morris Chang: Well, anyway, look -- well, Lora why don't you -- you heard this question right? Okay.

Lora Ho: I heard you. I think you're probably saying we are conservative and we have no reflect the potential of [Siamphone FX scam] [ph]. We have said many years ago there is a rule of thumb, any 1% of exchange rate change we have our 0.4 percentage point to our margin. This [indiscernible] do works.

So you can work on your math. If the exchange rate move 1%, that's 0.4 each point to our profitability. We seal 100 -- almost 100% U.S. dollars. Our guidance was NT dollars based on NT$23 –NT$22.5 exchange rate for the first quarter.

Randy Abrams: So that's your full year based on that? The 5% to 10% [indiscernible] --

Lora Ho: No, no, no. This is only -- we're talking about the first quarter. Are you saying Chairman's 5% to 10% growth based on what?

Randy Abrams: Yes, based on what currency? Is it based on U.S. dollar?

Morris Chang: The 5% to 10% growth rate, revenue growth rate will be either U.S. dollars or NT.

Lora Ho: Yes. It will be all within our range.

Randy Abrams: And then the follow up question. You had a lot of reuse from 20 to 16. 28s had a long life.

But as you start to migrate customers to 16 with the FFC, can 28 be migrated efficiently to FinFET were 10? Or you expect to keep that near at 28? Can you migrate and reuse the 28 if demand starts to follow next couple of years?

Morris Chang: I'm sorry, I didn't hear the question.

Elizabeth Sun: So Randy, you're asking whether or not 20 nanometer capacity can be migrated to produce FinFET?

Morris Chang: Can be migrate to what?

Elizabeth Sun: Produce FinFET.

Morris Chang: Produce FinFET, 28 to FinFET. Well, I imagine what the summary. Well, the answer, simple answer is yes, some of it, yes.

Okay. Some of it will be, but do you have a more detail. C.C. Wei: We have done that, but we see our 28 nanometer demand continue to be sustaining what the capacity we are having today. So hopefully, we stay competitive and keep that demand.

Elizabeth Sun: All right. There is a hand --

Morris Chang: In that way you still have one equipment that's being utilized. Now, so to convert one node of the equipment to another node is not our first priority.

Elizabeth Sun: I see a hand over there, but I do not really know you. Can you identify yourself?

Ken Koyanagi: Yes, my name is Ken Koyanagi with Nikkei Asian Review from Japan.

I understand you made a decision about China investment after last fall election and I'm just curious how you reached that condition -- decision after assessing how -- what bigger risks are involved in investment? How did you assess the political risks? Especially after the election and right before the election, which will probably change the political landscape of the cross-state relationship?

Morris Chang: What do you mean by political risk?

Ken Koyanagi: Well, I think you can think of a lot of scenarios, there would be more tensions between two territories, between the channel straight and which might affect how you will be treated by the mainland Chinese government?

Morris Chang: Well, we are a business and a lot of Taiwan businesses are in China and we’re really among the ones that are investing in China the least you know, among Taiwan companies I think we are perhaps, if you consider the relative size and so on, we still have more than 90% our people, our employees in Taiwan and the capital investment we’ve made in China so far was miniscule compared to the investment we've made in Taiwan. So yes we’ve considered all these risks, in fact you know we discussed proposals with a lot of people and we did reach this decision of making investment in China, building it up and also setting up a design service center, that’s important too, that’s important for enhancing our access into the Chinese market you know. So yes, we have considered all these risks, well if you call them risks, it seems to me a lot of people have, the U.S. American companies have made a lot of investments in China too.

Operator: HSBC's Steven Pelayo has a follow-up question.

Steven Pelayo: There has been an unprecedented amount of semiconductor M&A in the last 15 months or so more than last 15 years. I’m just curious if you’re seeing any short term impact so these companies consolidate and rationalize that's impacting any of your near term demand. And then if you have any thoughts maybe longer term on terms of the purchasing power of much larger stronger customer?

Morris Chang: Well the three big ones last year as far as we were concerned were Intel, Intel's acquisition of Altera, Avago and Broadcom and XP and Prescale. All six of them, I’m talking about both the acquirer and the acquired, all six of them were our good customers and after the combination there will be three and I hope and I have reason to expect that the three combined entities will continue to be our good customers. That’s what being everybody’s foundry means.

Steven Pelayo: Thank you so much. One more following question - in near term as well, I’m curious as they are trying to rationalize their businesses and consolidate these two. Are they slowing maybe their order activity to try to figure out you know what their final company is ultimately going to look like, are you seeing any short term impacts?

Morris Chang: No, we don’t see any short term impacts.

Steven Pelayo: Okay. And then my second question was you had an anchor customer at 16-nanometer in the second half of 2015, that appears to be saying on 16-nanometer as they go into 2016.

Does this mean there could be die-size increases as they add more functionality and perhaps more wafers needed from you?

Morris Chang: Your question is either they increase the die size –

Steven Pelayo: I’m saying that two years ago you came out from 20 to 16, so you had this node jump so they could - your customers be kind keep their die size the same by adding more functionality. Now standing at 16 nanometer from the anchor customers and so I’m wondering if maybe that means the die size going to increase and thus require more wafers from TSMC to meet the same unit.

Morris Chang: Well I don’t comment on the die size but I can tell you that they add a lot of functionality inside so you do get smartphone - become better and better.

Steven Pelayo: Okay. Fair enough thank you.

Elizabeth Sun: All right. Due to the time consideration, we will conclude our conference at this point. So before we conclude today’s conference please be advised, that the replay of the conference will be accessible within three hours from now, transcript will be available 24 hours from now and they are all available through our website. Thank you for joining us today. We hope you will join us again next quarter.

Good bye and have a good day.