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1998 First Quarter Financial Reports
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Taiwan Semiconductor Manufacturing Company Ltd. Announces

First Quarter Results for the Period Ended
March 31, 1998

Hsin-Chu, Taiwan, R. O. C., April 23rd, 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 first quarter ended March 31, 1998. All figures were prepared in accordance with generally accepted accounting principles in Taiwan. All figures are expressed in millions.


1Q 98 Year-over-Year Financial Highlights

Net sales increased 25.0% to NT$11,601 million.
Operating income and net income for the period increased 171.9% to NT$6,709 million and 126.4% to NT$6,947 million, respectively.
Earnings per share in the first quarter of 1998 rose to NT$1.70 from NT$0.75 in the first quarter of 1997, an increase of 126.4%.


FIRST QUARTER RESULTS: YEAR-OVER-YEAR COMPARISON

Net Sales:
Net sales in the first quarter of 1998 rose 107.0% from the same period a year ago to NT$15,736 million due to increased unit sales of 8"-equivalent wafers and a higher average selling price (ASP). Unit sales of 8"-equivalent wafers increased by 67.9% to 350.5k units in the first quarter of 1998 from 208.8k units in the first quarter of 1997. The ASP rose 24.3% to NT$41.6k in the first quarter of 1998 from NT$33.4k in the first quarter of 1997. However in US dollar terms, the ASP grew a marginal 3.5% as the New Taiwan dollar fell from NT$27.5 to NT$33.0 per US dollar.
Gross Margins:
The gross margin in the first quarter of 1998 was 52.3%, up from 43.8% in the first quarter of 1997 due to the 24.3% increase in ASP and better economies of scale that resulted in a 5% reduction in the cost of goods sold.
Operating Expenses:
Operating expenses in the first quarter of 1998 increased 76.4% from the comparable period a year ago to NT$1,522 million due to higher overhead and increased R&D. Personnel costs were NT$432 million in the first quarter of 1998, up from NT$289 million in the first quarter of 1997. R&D spending increased from NT$433 million in the first quarter 1997 to NT$600 million in the first quarter of 1998. Compared to the growth in sales, the increase in operating expenses was well contained. Consequently, operating margins rose to 42.6% in the first quarter of 1998 from 32.5% in the first quarter of 1997.
Non-Operating Income / Expenses:
Non-operating income declined by 7.4% in the first quarter of 1998 to NT$461 million from NT$498 million in the first quarter of 1997 due to less interest and investment income. Net investment income was NT$20.0 million for the first quarter of 1998 compared to NT$338.6 million for the same period a year ago. The sharp decline in investment income is mainly the result of losses at Vanguard International Semiconductor (VISC) of NT$77 million and at the WaferTech joint venture of NT$219 million. Non-operating expenses were higher for the first quarter of 1998 due to an increase in interest expense of NT$286 million as a result of the issuance of European Convertible Bonds (ECB).
Income Tax:
The effective tax rate for 1998 is expected to be 4%-6%. In 1997, the actual effective tax rate was 3.5%. Net income tax credit for the quarter was NT$414 million, compared with NT$173 million in the first quarter of 1997. The increase was mainly due to higher capital expenditures and investment in the first quarter of 1998.
Net Income:
Net income increased 126.4% year-over-year to NT$6,947 million in the first quarter of 1998. Earnings per share increased 126.4% year-over-year to NT$1.70.
Capacity Expansion:
The fabrication capacity in eight-inch equivalent wafers increased by 52.8% to 349.8k units in the first quarter of 1998 from 228.9k units in the first quarter of 1997. 8" wafer production at Fab 5, which began producing in October 1997 in Hsin-Chu, Taiwan, was 14.8k units in the first quarter and is expected to be 35k units per month once it reaches full capacity in the fourth quarter of 1999.


1Q 98 Sequential Financial Highlights

Net sales increased 2.6% to NT$15,736 million.
Operating income and net income increased 9.6% and 2.8%, respectively.
Earnings per share increased 2.8% to NT$1.70 from NT$1.66 in 4Q, 97.


FIRST QUARTER RESULTS: SEQUENTIAL COMPARISON

Net Sales:
A rise in the ASP offset a decline in unit sales of eight-inch equivalent wafers and resulted in a 2.6% increase in net sales in the first quarter of 1998 from the fourth quarter of 1997. Unit sales of eight-inch equivalent wafers fell 2.5% to 350.5k units in the first quarter of 1998 from 359.4k units in the fourth quarter of 1997. The ASP rose 5.8% to NT$41.6k in the first quarter of 1998 from NT$39.3k in the fourth quarter of 1997. This increase was a result of the depreciation of the New Taiwan dollar versus the US dollar. In US dollar terms, the ASP declined by 1.6%.
Gross Margins:
The gross margin fell to 52.3% in the first quarter of 1998 from 53.1% in the fourth quarter of 1997, mainly due to a lower utilization rate and the ramp-up of Fab 5. The capacity utilization rate in the first quarter of 1998 was 100.0% compared to 113.0% in the fourth quarter of 1997.
Operating Expenses:
Operating expenses in the first quarter of 1998 fell 24.7% from the fourth quarter of 1997. The decline is attributed to the payment in the fourth quarter of a one-time royalty fee of NT$149 million, lower R&D spending of NT$193 million as a result of year-end adjustments, a lower bad debt provision and other adjustments.
Non-Operating Income / Expenses:
Non-operating income in the first quarter of 1998 increased substantially compared with the fourth quarter of 1997 due to a decline in foreign exchange losses of approximately NT$70 million. A gain in investment income from the proceeds of the sale of Caesar stock for NT$281 million and VISC stock for NT$35.2 million also helped boost non-operating income for the quarter. Non-operating expenses rose 192% from the previous quarter due to an increase in interest expense of NT$96 million and investment losses at VISC and WaferTech of NT$25 million and NT$252 million, respectively.
Income Tax:
The net income tax credit in the first quarter of 1998 was NT$414 million, compared with NT$790 million in the fourth quarter of 1997. The higher level of credit in the fourth quarter of 1997 was based on the recognition of higher capital expenditures and investment during the fourth quarter of 1997 and a lower taxable income.
Capacity Expansion:
As a result of the lunar New Year holiday and annual facility maintenance, overall eight-inch equivalent wafer capacity in the first quarter of 1998 was unchanged from the previous quarter at approximately 350k units.
Net Income:
Net income increased 2.8% to NT$6,947 million from NT$6,756 million in the fourth quarter of 1997. Earnings per share (EPS) increased 2.4% to NT$1.70 on a sequential basis.


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 the third quarter of 1998.

Corporate Headquarters:
Taiwan Semiconductor Manufacturing Company Ltd.
No. 121, Park Avenue III, Hsin-Chu Science-Based Industrial Park
Hsin-Chu, Taiwan, R. O. C.
Tel: 886/3/578-0221
   
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