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1997 Fourth Quarter Financial Reports
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Taiwan Semiconductor Manufacturing Company Ltd. Announces

Fourth Quarter and 12-month Results for the Period Ended
December 31, 1997

Hsin-Chu, Taiwan, R. O. C., March 4th, 1998: Taiwan Semiconductor Manufacturing Company Ltd. (TAIEX: 2330, NYSE: TSM), ("TSMC" or "the Company") the world's largest dedicated semiconductor foundry company, announced today the results of its operations for the fourth quarter and 12 months ended December 31st, 1997. All figures were prepared in accordance with generally accepted accounting principles in Taiwan. All figures are expressed in millions.


4Q 97 Financial Highlights

Net sales increased 86.4% to NT$15,331 million.
Operating income and net income for the period increased 99.9% to NT$6,124 million and 99.9% to NT$6,756 million, respectively.
Earnings per share was NT$1.66 for the fourth quarter in 1997, an increase of 30.0% compared with NT$1.27 reported for the same period of 1996.


FOURTH QUARTER RESULTS

Net Income:
Net income for the quarter ended December 31, 1997 increased 99.9% to NT$6,756, from NT$3,380 reported for the same period of 1996. This significant increase in net income was achieved by the strong sales activity, efficient cost controls and a higher tax credit for the quarter. On a per share basis, net income increased 30.0% to NT$1.66 during the fourth quarter of 1997 from NT$1.27 reported for the same quarter of the previous year. Total shares outstanding increased to 4,081,300,000 from 2,654,200,000 year over year due to a stock dividend of 1,327,100,000 shares (at the rate of NT$5 per share) and employee profit sharing of 100,000,000 shares, both of which became effective as of June 18, 1997.
Net Sales:
Unit sales of the 6" equivalent wafer increased by 83.4% to 639.8K units during the fourth quarter of 1997 from 348.4K units reported for the same period of the previous year. This strong demand for foundry was largely due to a recovery in the global semiconductor industry, which began during the third quarter of 1997. The industry had experienced a down cycle from the third quarter of 1996 through the second quarter of 1997, which helped the quarter-over-quarter comparison for the fourth quarter of 1997. The ASP (average selling price) also increased marginally. Both of these factors contributed positively to the 86.4% growth in net sales for the period.
Cost of Goods Sold/Gross Profit:
Cost of goods sold for the quarter increased 71%, less than the 86.4% growth in net sales, contributing to the gross profit increase of 102.3% for the fourth quarter of 1997. Gross profit was helped by the higher capacity utilization. The capacity utilization rate was 108% in the fourth quarter of 1997 compared with 85% during the fourth quarter of 1996.
Operating Expenses:
General and administrative expenses declined 4% in the fourth quarter of 1997 as a result of the Company's cost-control efforts. Selling expenses increased due to the Company's strategy to strengthen marketing by adding more sales personnel, reorganizing the marketing department and enhancing the efficient flow of sales information. Research and development expenses increased by 118% in the fourth quarter of 1997, due to the increased efforts in developing the 0.25 micron and 0.18 micron process technologies. TSMC is determined to be a leader in the leading-edge 0.25 and 0.18 micron technologies. Going forward, the Company expects to maintain a similar level of research and development expenses.
Non-Recurring Items:
Interest income was lower for the fourth quarter of 1997 due to the lower level of cash balance. This increase in non-operating expense is mainly due to an issuance of European Convertible Bond (ECB) with accrual interest expense of approximately NT$200 million for the quarter. Investment expenses associated with WaferTech (57.23% ownership) and Vanguard International Semiconductor (VIS, 27.11% ownership) was NT$143 million combined for the period. Gains/losses on foreign exchange fluctuations was insignificant.
Income Tax Credit:
Income tax credit was NT$790 million in the fourth quarter of 1997 compared with NT$72 million a year ago due to an NT$720 million tax credit provision accrued in the fourth quarter of 1996.
Capacity Expansion:
Total fabrication capacity in 6" equivalent wafer increased by 46.8% to 631.8K units in the fourth quarter of 1997 compared to 430.3K units in the same period of the previous year. 8" wafer production in Fab 5 began in October 1997 in Hsin-Chu, Taiwan.
Initial Public Offering:
TSMC launched 24 million shares of American Depositary Receipts (ADRs) on October 8th, 1997 under the symbol "TSM" and became the first Taiwanese company to list on the NYSE. Philips Electronics N. V. was a selling party, releasing 120 million of its TSMC common shares. Philips's ownership in TSMC after the offering is approximately 28.6%. The Chicago Board of Exchange and the American Stock Exchange began trading options on TSMC's ADRs on January 15, 1998.


12-month Financial Highlights


Net sales increased 11.5% to NT$43,936 million.
Operating income decreased 15.1% to NT$15,490 million.
Net income decreased 7.4% to NT$17,960 million.
Earnings per share were NT$4.40, a 7.5% decline from NT$4.75 a year ago in constant shares outstanding.


12 MONTH RESULTS

Net Income:
Net income for the year decreased 7.4% to NT$17,960 million in the fourth quarter 1997 from NT$19,401 million in the same period of 1996. This decline was largely due to: (1) a decline in ASP during a down cycle in the industry from the third quarter of 1996 through the second quarter of 1997, (2) higher sales and marketing and research and development expenses, and (3) higher interest expenses from additional debt financing.
Net Sales:
Unit sales of the 6" equivalent wafer increased by 40.2 % to 2,037K units in the year 1997 from 1,453K units in the year 1996. ASP, however, decreased 22.4% in 1997 compared to a year ago due to the slowdown in the industry. As a result, net sales in 1997 increased rather moderately by 11.5%.
Cost of Goods Sold/Gross Profit:
Cost of goods sold increased only by 31.1% while unit sales increased by 40.2%, mainly thanks to higher capacity utilization rate, which was 102% for the year 1997 compared with 96% in 1996. Gross profit, however, decreased by 4.0% for the year 1997 as net sales increased rather moderately by 11.5% for the reason mentioned above.
Operating Expenses:
General and administrative expenses were flat in 1997 compared with a year ago, due to the Company's cost-control efforts. Selling expenses increased 132.3% due to the Company's strategy to strengthen marketing by adding more sales personnel, reorganizing the marketing department and enhancing the efficient flow of sales information. Research and development expenses increased 67.7% to NT$2,505M, at 5.7% of the net sales for 1997. In order to continue its commitment to technological advancement, the Company expects to maintain its R&D investment at around 4-5% of net sales going forward.
Non-Recurring Items:
Interest income was lower during 1997 due to the lower level of cash balance. Investment expenses for 1997 were approximately NT$28 million compared to an investment income of approximately NT$136 million for 1996. Net foreign exchange loss was NT$188 million in 1997 compared to net foreign exchange gain of NT$107 million in 1996
Income Tax Credit:
Income tax credit was NT$2,443 million in 1997 compared with NT$428 million a year ago. This increase was due to: (1) a higher tax credit recognized on a higher capital expenditure and investment, and (2) a higher tax credit adjustment from the previous year.
Capacity Expansion:
Total fabrication capacity in 6" equivalent wafer increased by 35.9% to 2,131K units in 1997 compared with 1,568K units in 1996. TSMC expects to maintain its annual capacity expansion rate at approximately 27% CAGR for the next 5 years. The Company spent NT$28 billion (US$1 billion) in capacity expansion during 1997 and plans to spend NT$40 billion (US$1.3 billion) during 1998.
Company Description:
TSMC is the world's largest dedicated integrated circuit ("IC") foundry and offers a comprehensive set of IC fabrication processes, including processes to manufacture CMOS logic, mixed-mode, volatile and non-volatile memory and BiCMOS chips. Currently, TSMC operates two 6" wafer fabs (Fab 1 and 2), and three 8" wafer fabs (Fab 3, 4 and 5), all located in Hsin-Chu, Taiwan. In mid-1996, TSMC commenced construction on its first U.S. foundry, WaferTech, in Camas, Washington, a $1.2 billion joint venture with Altera, Analog Devices and Integrated Silicon Solutions, Inc. Production at WaferTech is scheduled to commence in 1998.
Corporate Headquarters:
Taiwan Semiconductor Manufacturing Company Ltd.
Park Avenue III, Hsin-Chu Science-Based Industrial Park
Hsin-Chu, Taiwan, R. O. C.
Tel: 886/3/578-0221

   
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