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

Second Quarter Results for the Period Ended
June 30, 1998

Hsin-Chu, Taiwan, R. O. C., July 20, 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 second quarter ended June 30, 1998. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.


2Q 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 37.2% to NT$3,773 million and 6.1% to NT$3,758 million, respectively.
Diluted earnings per share in the second quarter of 1998 rose to NT$0.62 from NT$0.59 in the second quarter of 1997, an increase of 6.1%.


SECOND QUARTER RESULTS: YEAR-OVER-YEAR COMPARISON

Net Sales:
Net sales in the second quarter of 1998 totaled NT$11,601 million, an increase of 25.0% from the same period a year ago, due to both increased unit sales of eight-inch equivalent wafers and a higher average selling price (ASP). Unit sales of eight-inch equivalent wafers increased by 5.3% to 276.6K units in the second quarter of 1998 from 262.6K units in the second quarter of 1997. The ASP rose 22.7% to NT$38.1k in the second quarter of 1998 from NT$31.1k in the second quarter of 1997. However in US dollar terms, the ASP increased only 2.7% as the New Taiwan dollar fell from the weighted average rate of NT$27.7 to NT$33.07 per US dollar.
Gross Margins:
The gross margin in the second quarter of 1998 improved slightly from 42.2% in the second quarter of 1997 to 45.3% mainly due to the higher ASP that helped offset lower capacity utilization levels.
Operating Expenses:
Operating expenses in the second quarter of 1998 increased 27.4% from the same period a year ago to NT$1,484 million due to higher R&D costs and overhead expenses, as well as increased preliminary investment expense in Fab 6 located in the Tainan Science-Based Industrial Park. Sales and marketing costs were NT$283 million, nearly unchanged from the same period a year ago. The increase in operating expenses was well contained compared to the growth in sales and operating margins rose to 32.5% in the second quarter of 1998 from 29.6% in the second quarter of 1997.
Non-Operating Income / Expenses:
Non-operating income declined by 26.7% in the second quarter of 1998 to NT$166 million from NT$227 million in the second quarter of 1997 due to less investment income. The investment loss for the quarter was NT$777 million mainly as a result of losses at Vanguard International Semiconductor (VISC) and WaferTech. Non-operating expenses were also sharply higher for the second quarter of 1998 due to an increase in interest expense of NT$267 million as a result of the issuance of US$350 million EuroDollar Convertible Bonds (ECB) in July1997.
Income Tax Credit (Expenses):
Net income tax expenses for 4Q98 was NT$1 million, down from NT$790 million of income tax credit in 4Q97 primarily due to lower capital expenditure and investments.
Income Tax:
Income tax credit for the quarter rose 24% from NT$707 million in the second quarter of 1997 to NT$877 million mainly due to a higher adjustment of the original tax provision made in 1997 as well as higher capital expenditure and investments during the second quarter of 1998.
Net Income:
Net income increased 6.1% to NT$3,758 million in the second quarter of 1998, and diluted earnings per share were NT$0.62, up from NT$0.59 in 1997.


2Q 98 Sequential Financial Highlights

Net sales fell 26.3% to NT$11,601 million from NT$15,736 million.
Operating income and net income declined 43.8% and 45.9%, respectively.
Earnings per share also fell 45.9% to NT$0.62 from NT$1.15 in 1Q 98.


SECOND QUARTER RESULTS: SEQUENTIAL COMPARISON

Net Sales:
Net sales for the second quarter of 1998 dropped 26.3% from the previous quarter to NT$11,601 million due to both lower unit sales of eight-inch equivalent wafers and a decline in ASP. Unit sales of eight-inch equivalent wafers dropped 21.1% to 276.6K units in the second quarter of 1998 from 350.5K units in the first quarter of 1998. The ASP fell 8.2% to NT$38.1k in the second quarter of 1998 from NT$41.6k in the first quarter of 1998. In US dollar terms, the decline in ASP was 8.4% as the New Taiwan dollar depreciated to the weighted average rate of NT$33.07 from NT$33.00 per US dollar.
Gross Margins:
The gross margin fell to 45.3% in the second quarter of 1998 from 52.3% in the first quarter of 1998 due to lower capacity utilization and the drop in ASP as a result of an unfavorable product mix.
Operating Expenses:
Operating expenses in the second quarter of 1998 fell 2.5% from the first quarter of 1998 as lower selling and marketing costs offset the increase in R&D expenses.
Non-Operating Income/Expenses:
Non-operating income in the second quarter of 1998 fell by 64.0% from NT$461 million to NT$166 million in the first quarter of 1998. (The first quarter figure was higher due to a one-time gain of NT$316 million from the sale of securities investments in Caesar Technology Inc. and VISC.) Non-operating expenses rose to NT$1,058 million from NT$637 million in the first quarter mainly due to investment losses at VISC and WaferTech.
Income Tax:
Income tax credit in the second quarter of 1998 was NT$877 million, compared with NT$414 million in the first quarter of 1998 due to higher capital expenditures and investment during the second quarter of 1998.
Net Income:
Net income decreased 45.9% to NT$3,758 million from NT$6,947 million in the first quarter of 1998, and diluted earnings per share (EPS) fell from NT$1.15 in the first quarter to NT$0.62.

1H 98 Year-over-Year Financial Highlights (for details see attached 6 month income statement)

For the first six months of 1998, net sales rose 61.9% to NT$27.3 billion from NT$16.9 billion for the same period in 1997 due to an increase in unit sales of eight-inch equivalent wafers and a higher ASP. In the first half of 1998, unit sales increased by 33.0% and the ASP rose 24.8% compared to the first half of 1997. Net income rose 62% to NT$10.7 billion in the first half of 1998 from NT$6.6 billion in the first half of 1997. Diluted earnings per share in the first half of 1998 grew 62% to NT$1.77 from NT$1.09 in the first half of 1997.


Company Description:

Founded in 1987, TSMC is the first and largest semiconductor foundry company in the world. The company is based in Taiwan's "Silicon Valley", the Hsin-Chu Science-Based Industrial Park, and is dedicated to providing manufacturing services for advanced integrated circuits to fabless design houses and integrated device manufacturers (IDM). The company operates two 6" wafer fabs and three 8" wafer fabs offering a comprehensive set of IC fabrication processes, including processes to manufacture CMOS logic, mixed mode, volatile and non-volatile memory and BiCMOS chips. In mid-1996, TSMC began construction on the first-ever, pure-play foundry in the US, WaferTech, in Camas, Washington, - a $1.2 billion joint venture. Production at WaferTech commenced in June 1998, one month ahead of schedule. Fab 6 and 7 will be located in the new Tainan Science-Based Industrial Park in Taiwan.

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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