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1999 Second Quarter Financial Reports
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Taiwan Semiconductor Manufacturing Company Ltd. Announces

Second Quarter Results for the Period Ended
June 30, 1999

Hsin-Chu, Taiwan, R. O. C., July 27th, 1999, 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, 1999. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.


2Q99 RESULTS: YEAR-OVER-YEAR COMPARISON

Highlights
Quarterly unit sales set a new record high at 422K.
Capacity was fully utilized due to a strong recovery in demand.
Net sales increased 48.5% YoY to NT$17,232 million.
Operating income increased 64.1% YoY to NT$6,193 million.
Net income rose 60.3% YoY to NT$6,022 million.
Diluted earnings per share (EPS) increased 60.3% to NT$0.80 from NT$0.50.
Net Sales:
Net sales in 2Q99 totaled NT$17,232 million, up 48.5% compared with NT$11,601 million for the same period of 1998. Net sales mentioned above includes revenue and revenue adjustment from WaferTech (See Accounting Change below). The unit shipment of eight-inch equivalent wafers grew 52% to 422K units in 2Q99 from 277K in 2Q98. Unit volume growth resulted from new customers and strong demand for the foundry service across all regions.

The average selling price (ASP) in the New Taiwan dollar declined by 5.5% YoY to NT$36.0K in 2Q99, as a net result of price erosion in 2H98 and improvement in product mix in 1H99. In US dollar terms, quarterly ASP declined 4.8% to US$1,098 per eight-inch equivalent wafer. The New Taiwan dollar appreciated from the weighted average rate of NT$33.07 to NT$32.81 per US dollar during this period.

Sales breakdown by application, technology, customer type, and geography for 2Q99 and 2Q98 are summarized in Table 1.

Segment 2Q99 2Q98 Segment 2Q99 2Q98
Application (Unit) Customer Type (Revenue)
Computer 40% 34% Fabless 68% 67%
Consumer 25% 27% IDM 27% 30%
Communication 15% 19% System 5% 3%
Industrial / Others 7% 7%      
Memory 13% 15%      
2001 Technology (Unit) Geography (Revenue)
0.25μm 21% 0% North America 53% 53%
0.35μm 30% 32% Asia Pacific 36% 26%
0.50μm 39% 49% Europe 7% 16%
1.0+μm 10% 20% Japan 4% 5%
Accounting Change:
Starting in 2Q99, TSMC recognizes 100% of WaferTech's revenue (NT$1,363 million for 2Q99 and 1Q99 retroactive adjustment), instead of counting only the sales commission from WaferTech, which was the case until 1Q99. Also starting in 2Q99, an 85% capacity obligation charge paid to WaferTech was applied to Cost of Sales instead of Non-operating Expenses, which had been the case in 1Q99. Net profit and loss impact of WaferTech will continue to be reflected in the 'Investment Income' line on TSMC's income statement. There is no net impact on TSMC's net income and EPS, while gross margins are lower under the new accounting method. The Company believes that such revenue and cost recognition is a more realistic depiction of actual revenue and cost flow for TSMC, and therefore, is a preferable method of accounting. Income statements prior to 2Q99 are not restated under the new accounting method.
Gross Margins:
The gross margin under the new accounting method was 43.7% in 2Q99 compared with 42.9% in 2Q98.
Operating Expenses:
Operating expenses in 2Q99 increased 11.8% from the same period a year ago to NT$1,343 million due to higher Selling & Marketing and R&D expenses. Operating expenses as a percent of net sales decreased to 7.8% in 2Q99 from 10.4% in the same period of 1998 due to higher sales number.
Non-Operating Income / Expenses:
Net non-operating item had income of NT$138 million in 2Q99 versus expenses of NT$115 million in 2Q98. This is mainly a result of reclassification of WaferTech's 85% capacity obligation charge in both 1Q and 2Q99.
Investment Income / Losses:
Investment losses decreased to NT$417 million in 2Q99 compared to NT$777 million in 2Q98, primarily resulting from improving Vanguard International Semiconductor Company ("VISC"). VISC resulted in NT$99 million investment loss vs. NT$442 million investment loss in 2Q98.1 WaferTech resulted in NT$343 million investment loss vs. NT$334m investment loss in 2Q98.2
Net Income:
Net income tax credit for 2Q99 was NT$108 million (NT$536 million tax expenses and NT$644 million tax credit), down from NT$769 million in 2Q98. Net income increased 60.3% to NT$6,022 million in 2Q99. Diluted earnings per share were NT$0.80 for 2Q99, up from NT$0.50 in the same period of 1998.
Operations Highlights:
Capacity utilization based on wafer produced (or "out utilization") increased to 103% in 2Q99 from 75% in 2Q98. Installed capacity was up 7% to 437K (including WaferTech) in 2Q99 compared to 407K in 2Q98 in terms of eight-inch equivalent wafers.

In order to accommodate increasing demand, the Company announced an upward revision in its capital expenditure for 1999. The current capital expenditure plan stands at US$1,112 million excluding WaferTech. This plan represents an increase of 34% compared to the previous plan of US$830 million. The increase of US$282 million is for the equipment purchase at fab 6. Capital expenditure plan for WaferTech in 1999 is currently planned at US$265 million, up from the previously announced US$106 million. The plan for the Singapore joint venture with Philips is currently at US$86 million. As a result, total wafer capacity for 1999 is now scheduled to increase by 14% YoY to approximately 1.87 million eight-inch equivalent wafers compared to the previous plan's 11% increase to 1.8 million wafers.
Major announcements during 2Q99 included:
The policy for TSMC ADR conversion sale program
Industry's first commercially available true 0.18-micron process technology
Strengthened strategic alliance with Acer Group through acquisition of Acer Semiconductor Manufacturing Inc.
Foundry industry's first web-based, browser-accessed supply chain management information services
Appointment of a new head for European Operation
Please visit the Company's website for the details of the announcements.
Year 2000 Compliance:
As of April 30, 1999, TSMC has completed 100% of the tasks which TSMC has control over. However, we still have a few items of equipment for which we are waiting for Year 2000 solutions from the major semiconductor equipment manufacturers. Table 2 shows the status of Year 2000 solution deployment by major categories to July 2, 1999. For the area where 100% compliance is not achieved, we are working closely with the equipment manufacturers to expedite the Year 2000 solutions. We expect all of the solutions to be ready by the end of July, 1999.

Table 2: Y2K Compliant Status as of July 2, 1999

Category Percentage Completed
Manufacturing Equipment 98.9%
IT Infrastructure 100.0%
Commercial Software 100.0%
In-house Application 100.0%
Total 99.6%


2Q99 Results: Sequential

Highlights
Sequential recovery in order volume continued.
Net sales rose 37.9% QoQ.
Operating income increased 27.1% QoQ.
Net income increased 47.3% QoQ.
Diluted earnings per share were NT$0.80, an increase of 47.3% from NT$0.54 in 1Q99.
Net Sales:
Net sales in 2Q99 totaled NT$17,232 million, up 37.9% compared with 1Q99, as a result of higher unit sales of eight-inch equivalent wafers. Unit shipment of eight-inch equivalent wafers grew 32% to 422K units in 2Q99 from 320K in 1Q99. (Please see "Accounting Change" above for details.)

The ASP in the New Taiwan dollar and US dollar remain fairly stable. In US dollar terms, the quarterly ASP was almost unchanged at US$1,098 per eight-inch equivalent wafer compared to US$1,101 in 1Q99. The New Taiwan dollar depreciated from the weighted average rate of NT$32.58 to NT$32.81 per US dollar during the period.

Sales breakdown by application, technology, customer type, and geography for 2Q99 and 1Q99 are summarized in Table 3.

Table 3: Sales Breakdown

Segment 2Q99 1Q99 Segment 2Q99 1Q99
Application (Unit) Customer Type (Revenue)
Computer 40% 44% Fabless 68% 72%
Consumer 25% 27% IDM 27% 25%
Communication 15% 18% System 5% 3%
Industrial / Others 7% 3%      
Memory 13% 9%      
2001 Technology (Unit) Geography (Revenue)
0.25μm 21% 15% North America 53% 53%
0.35μm 30% 32% Asia Pacific 36% 36%
0.50μm 39% 38% Europe 7% 8%
1.0+μm 10% 16% Japan 4% 3%
Gross Margins:
The gross margin under the new accounting method was 43.7% in 2Q99 compared with 49.6% in 1Q99, mainly due to an impact from an accounting change in recognizing WaferTech's revenue.
Operating Expenses:
Operating expenses in 2Q99 were NT$1,343 million up from NT$1,326 million in 1Q99. Operating expenses as percent of net sales decreased to 7.8% in 2Q99 from 10.6% in 1Q99.
Non-Operating Income / Expenses:
Net non-operating item had income of NT$138 million versus expenses of NT$536 million in 1Q99. This is mainly as a result of reclassification of WaferTech's 85% capacity obligation charge from Non-operating Expenses to Cost of Sales.
Investment Income / Losses:
Investment losses increased to NT$417 million in 2Q99 compared to NT$226 million in 1Q99, primarily as a result of higher investment losses at VISC (NT$99 million in 2Q99 versus NT$34 million in 1Q99) and WaferTech (NT$343 million in 2Q99 versus NT$174 million in 1Q99).
Net Income:
Net income tax credit for 2Q99 was NT$108 million (NT$536 million of tax expenses and NT$664 million tax credit) compared to NT$23 million net tax expense for 1Q99. Net income increased 47.3% to NT$6,022 million in 2Q99 from NT$4,090 million in 1Q99 and diluted earnings per share (EPS) grew to NT$0.80 from NT$0.54 in 1Q99.
Operations Highlights
During the 2Q99, TSMC experienced a continuous sequential recovery in order volume. Average capacity utilization rate based on wafer produced (or "out utilization") rose to 103% compare with 87% in the 1Q99.
Liquidity and Capital Resource
During 2Q99, TSMC generated NT$8.3 billion in net cash from operating activities. Depreciation and amortization were NT$4.2 billion. Net cash used for investing activities totaled NT$5.1 billion, primarily in capital expenditure. Net cash used for financing activities was NT$3.7 billion, mainly as a result of NT$2.8 billion decrease in long term bank debt, NT$1.1 billion decrease in guaranteed deposits.

During 2Q99, TSMC generated NT$8.3 billion in net cash from operating activities. Depreciation and amortization were NT$4.2 billion. Net cash used for investing activities totaled NT$5.1 billion, primarily in capital expenditure. Net cash used for financing activities was NT$3.7 billion, mainly as a result of NT$2.8 billion decrease in long term bank debt, NT$1.1 billion decrease in guaranteed deposits. As of June 30, 1999, TSMC had NT$16.8 billion of cash equivalent on hand. Debt to assets ratio improved slightly to 30.3% from 32.6%. Management believes that available bank credit line and cash flows from operating activities will be sufficient to finance current operation, investment, and capital expenditures through at least the next six months. Cash requirements for periods beyond the next six months depend upon the Company's profitability, its ability to manage working capital requirements and its rate of growth.


1H99 Financial Highlights

Highlights
Net sales rose 8.8% YoY to NT$29.7 billion from NT$27.3 billion.
Operating income increased 5.6% YoY to NT$11.1 billion from 10.5 billion.
Net income declined 5.5% YoY to NT$10.1 billion from NT$10.7 billion.
Accumulated EPS declined 5.5% YoY to NT$1.34 from NT$1.42.


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 manufacturing advanced integrated circuits, and related services, for 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. Fab 6 and 7 will be located in the new Tainan Science-Based Industrial Park in Taiwan. In 1998, TSMC has entered a join venture agreement with Phillips to construct a foundry operation in Singapore called SSMC. In 1999, TSMC has acquired 30% of Acer Semiconductor Manufacturing Incorporation and formed the TSMC-Acer foundry fab.

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
www.tsmc.com
   
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