C. C. Wei: This is a very deep question. Of course, we have a model, basically. The short-term fancy about the AI demand definitely cannot extrapolate for the long term. Neither can we predict the near future, meaning next year, how the sudden demand will continue or will flatten out. However, our model is based on the data center structure. We assume a certain percentage of the data center processor are AI processors. And based on that, we calculate the AIs processor demand. And this model is yet to be fitted to the practical data later on. But in general, I think the – our trend of a big portion of data center processor will be AI processor is a sure thing. And we can cannibalize the data center processors. In the short term, when the CapEx of the cloud service provider are fixed, yes, it will.
It is. But as for the long term, when their data service, when the cloud services having the generative AI service revenue, I think they will increase the CapEx, that should be consistent with the long-term AI processor demand. And I mean, the CapEx will increase because of a generative AI services. Anything more for you?
Wendell Huang: Yes, Charlie, I think part of Charlie’s question is also how do we see ASIC related in AI development?
C. C. Wei: Well, actually, the customer also have a high demand on the ASIC part for the AI application. And as Mark pointed out, a short-term sudden increase, you can extrapolate to be long term. But again, let me emphasize that. Those kind of application in the AI, be it CPUs, GPUs or AI accelerator or ASIC, they all need leading-edge technologies. And they all have one symptom. They are using the very large die size, which is TSMCs strength.
Charlie Chan: Got it. Thank you. Thank you very much.
Jeff Su: Okay. Thank you, Charlie. Thank you. Operator, we’ll move on to the next participant, please.
Operator: Next one to ask questions. Randy Abrams, Credit Suisse.
Randy Abrams: Okay, yes. Thank you. I wanted to shift to the profitability, maybe more for Wendell. For – looking at the fourth quarter, you mentioned the 3 to 4 point dilution from N3. I think that is 2 to 3 points in the third quarter. Is that what you’re suggesting, the directional change could be a little bit down margin profile? Or do you have positive offsets that could keep it more stable? And then a follow-up on the margin, where you discussed is a tough year for margins on these factors, like the energy ramp up 3. But could you discuss 2024, do you think we’re going into a period of a bit more challenging profitability or you see factors that we could comfortably get back to the 53 and above next year?
Jeff Su: Okay. Thank you, Randy. So Randy’s first question is on gross margin. Fourth quarter with the N3 dilution of 3% to 4%, does that mean directionally, fourth quarter margin is sequentially down? Are there any positive offsets? And then for looking to 2024 for the full year, if Wendell can give some comments about 2024 gross margin, will it also be challenging? Or do we still feel confident in a 53% and higher gross margin?
Wendell Huang: Okay, Randy. Starting from the second half of this year, as we said, we faced certain cost challenges, including the ramp up N3 which will dilute about 2 to 3 percentage points in third quarter and 3 to 4 in the fourth quarter, plus the higher electricity cost. But we’re not giving our guidance on the fourth quarter at this moment. We’re just spelling out some of the challenges that we’re seeing. And of course, we are going to continue to drive down our costs and sell our value to ensure that we will have a good return on the node. That’s for this year. For next year, we’re seeing – we’re not talking about the whole gross margin, but we still see that N3 will dilute about 3 to 4 percentage points of next year’s gross margin.
