So Charlie’s first question is related to CapEx. He points out that newspaper talks about EUV orders being pushed out. So his question is really for our CapEx in 2023, do we think it will be towards the lower end of the range? And then also any indication for 2024 in terms of both CapEx and capital intensity. Is that correct, Charlie?Charlie Chan Yes.Jeff Su Okay. Maybe Wendell can answer.Wendell Huang Charlie, this is Wendell. First of all, we don’t comment on specific suppliers or customers or competitors. Regarding this year’s CapEx when we gave out the CapEx range, $32 billion to $36 billion, we have already started or tightened up our 2023 capital budget. At this moment, we believe this range is appropriate and it’s prudent under today’s economic environment, that range is still valid.
Now for next year, it’s too early to talk about next year. But as I just stated, if the CapEx spend this year will be for future years, and CapEx spend next year will be for even future years. So if we see the growth opportunities is there, then we will continue to invest. That’s the main policy, the principle that we have.Charlie Chan Yes. Yes, thanks for the clarification. So I guess the question is if, right, whether those growth drivers still there, meaning because it was outsourcing for 2024, and whether your customers are aggressively adopting your N3 and N2. Yes, I guess that’s why we are concerned about whether 2024, you’re reducing some CapEx. But anyway, let me shift to the next one. I think a lot of investors also quite interested about the U.S. CHIPS Act.
So I remember Chairman showed some concern about those requirements. I’m not sure which one is specifically concerned, for example, I need to disclose customer information, profit sharing, some restrictions for the future China fab investments. So my question is that how TSMC is going to reconcile your own interest versus the U.S. government’s requirement. And if it is hard to reconcile, whether TSMC would consider not to take U.S. government’s grants.Jeff Su Okay. So Charlie’s second question is regarding the CHIPS Act. He notes we have recently said that some of the terms may be not acceptable. So he wants to understand how will TSMC reconcile its own interest versus some of the guidelines or guardrails around the CHIPS Act. And is there a possibility that we will not accept or participate in the CHIPS Act.Wendell Huang Okay, Charlie, let me make a few comments on this one.
We are currently in the application process and, therefore, we’re not able to comment on specific details. However, we are in close and constant communication with the U.S. government so that we fully understand all the details and provide our feedback and comments to them. At the end, all the decisions that we make will be based on the best interest of TSMC.Operator The next one to ask question, Brett Simpson from Arete Research.Brett Simpson Yes. Wendell, I wanted to just talk a bit about Arizona. And now that you’re scheduled to move into production next year and you’ve been hiring a lot of people, how do we think about the cost premium for TSMC operating in the U.S.? And then when it comes to the pricing for the wafers, would this be something that you charge a premium for, for accessing U.S. capacity?
Or would you be sort of offering similar wafer pricing to what you offer in Taiwan?Jeff Su Okay. Thank you, Brett. So Brett’s first question is around — regarding our Arizona fab. He notes that the volume manufacturing schedule is on track, and we’ve hired lots of people. So his first question is to Wendell around sort of what is the cost premium that we face in Arizona and how will we manage this, including our wafer pricing. Will we charge a different price for a different fab? Or how do we intend to do it?Wendell Huang Okay, Brett. The overseas fab is indeed the cost is higher, at least in the first several years. And we stated last time that some of the components like the construction costs may be as high as 5x. Now the way to mitigate that, first of all, it’s — it represents our global expansion represent a value to the customers, then we will be selling that value as well.
And secondly, because of our large base and volume, we’ll be able to leverage that big base and volume to lower down the cost. And at the same time, of course, we will need to secure the necessary level of government support. So putting all these efforts together, we will — our job is to minimize the cost gap and make appropriate return. For the whole company on a combined basis, the 53% and higher gross margin remains our long-term financial goal and is achievable.Brett Simpson Great. And maybe just a follow-up. I wanted to ask about the subsidies that TSMC are getting today, particularly in areas like Japan. How much is this going to be in 2023? And are you expecting a meaningful increase in support in the second half of the year? I’m just trying to understand what’s embedded in guidance and how to think about accounting for the support that you’re expecting over the medium term.Jeff Su Okay.
So Brett has a quick follow-up with regards to Japan. His question in terms of the government support or incentives we may receive. How will we account for it? How much will it be in 2023 and how significant? Is it most of it in the second half?Wendell Huang Okay. Brett, let me reply this matter. In Japan, we will — our total CapEx is about $8 billion, and we expect about 50% to receive from the government. And we will be production — stop production at the end of next year. So the incentives from the government will be according — will be based on the progress that we are building our fabs. So that gives you some idea of how much we can receive this year and next year. How do we account for it? Basically, we will be — that will be accounted for as an offset of depreciation.
Okay?Jeff Su Okay. Thank you, Brett. Operator, can we move on to the next participant then?Operator Next, we have Sunny Lin from UBS.Sunny Lin So my first question is on the pricing. So I think, just now, management again reiterated that your supply chain value is increasing and you look to sell that value. And so with that, as you are about to start ramping overseas capacity more significantly into next couple of years, how should we think about your ASP trend?Jeff Su Okay. So Sunny’s first question is also related to pricing. She knows that semiconductor industry value in the supply chain TSMC is increasing. Her question is that, Sunny, I believe as we expand our footprint and capacity beyond Taiwan and go overseas, what will be the ASP trend in the next few years.
Is that correct?Sunny Lin That’s right.C. C. Wei Okay. Sunny, I answer this question. First, actually, our pricing strategy actually is strategic and long term. We work with our customer. Yes, you are right. I mean, that the inflation or all others, the cost is increasing, especially in the overseas fab. However, we already put all those kind of things into consideration. And we have a lot of action items to work with internally and also with our partners, our supply partners and to lower down all the costs. And we’re also working on the supply chain management. So we hope that we will control that, even with today’s very tough situation.Sunny Lin Got it. Sorry, if I could have a very quick follow-up. And so how should we think about the mechanism?
For you to reflect that supply chain value, would it be an annual pricing negotiation? And I also wonder what’s the customer feedbacks under the current situations.Jeff Su All right. So Sunny wants to know how will we do the pricing. Is it on an annual basis? How — what’s the feedback from customers?C. C. Wei Sunny, this is very specific, but let me emphasize again. Our pricing is strategic, and we reflect our value. Now our value includes the value of a geographic flexibility. Did that give you some hint?Sunny Lin Got it. That’s very helpful. My second question is on your CapEx expansion. And so I wonder, if we look at the equipment lead time, are you seeing ongoing improvement? What I’m trying to understand, if you need to tighten up the CapEx. But let’s say, if later on, demand start to recover or get better into second half of the year, how much flexibility you have to pull in the equipment?Jeff Su Okay.
So Sunny’s, second question is around capacity expansion and equipment lead time. She notes that we have said we’re tightening up our CapEx this year and being prudent given the economic environment. But her question is if the demand recovers in the second half, how quickly can we adjust our equipment and capacity? And would the equipment lead time then become a bottleneck? Is that correct, Sunny?Sunny Lin That’s right.C. C. Wei Okay. Sunny, this is a very, very good question. We are tightening up on the CapEx. But at the same time, we also remain flexible that once the demand pick up quickly, we should be — have prepared enough capacity for our customers to grow. And so both factors are very important, and we are working with all the suppliers preparing for that.
In fact, we are planning our long-term capacity expansion and then with some kind of adjustment in between. So we have a flexibility to increase quickly. We also have a flexibility to tighten the CapEx. But the main trend stays the same because we believe AI, 5G, the megatrend will continue to grow, and TSMC business will continue to grow.Jeff Su All right. Thank you, Sunny. Operator, can we move on to the next participant, please?Operator Next one, we have Laura Chen from Citi.Laura Chen My first question is about the data center and server space. We know that in the high computing PC category that also includes some of the PC CPU or consumer-related applications. So that may show some weakness that we see the quarter-on-quarter decline in Q1.
But I’m just wondering that since we see quite promising AI server growth, what’s — specifically, if we look at the AI-related contribution at current right now or what’s the growth outlook you may be looking for?Jeff Su Okay. So Laura’s question, she notes that our HPC platform includes more consumer-facing things such as PC CPUs, but it also includes data and server — data center and server, sorry. So her question is, really, I guess, what is TSMC’s view on the growth outlook for AI data centers? And how significant this could be for HPC business.Laura Chen Yes. So if we — excluding those like gaming GPU or consumer PC CPU in this category, so what’s the data center and server business looks right now?C. C. Wei Laura, let me answer this question.
