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

Third Quarter Results for the Period Ended
September 30, 1999

Hsin-Chu, Taiwan, R. O. C., October 22nd, 1999: Taiwan Semiconductor Manufacturing Company Ltd. (TAIEX: 2330, NYSE: TSM), ("TSMC" or "the Company") the world's largest dedicated semiconductor foundry company, today announced the results of its operations for the third quarter ended September 30, 1999. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.


3Q99 RESULTS: YEAR-OVER-YEAR COMPARISON

Highlights
Quarterly unit sales set a new record high at 465K.
Capacity utilization was at 96% as a result of the earthquake.
Net sales increased 75% YoY to NT$19,707 million.
Operating income increased 154% YoY to NT$7,169 million.
Net income rose 190% YoY to NT$6,137 million.
Diluted earnings per share (EPS) increased 190% to NT$0.81 from NT$0.28.
Currently, 100% of wafer process equipment has been released for production.
Net Sales:
Despite a devastating earthquake, which hit the central island of Taiwan on September 21st, TSMC recovered its production at a faster than expected pace and reported strong 3Q99 results. Only ten days after the earthquake, 95% of TSMC's wafer process equipment were released for production, while wafer moves have reached more than 90%. Currently, 100% of wafer process equipment has been released for production. TSMC would like to express its gratitude toward TSMC's suppliers, customers, shareholders, and employees for their assistance and support during the recovery.

Net sales in 3Q99 totaled NT$19,707 million, up 75% year-over-year. The unit shipment of eight-inch equivalent wafers, including those outsourced to joint ventures, grew 77% to 465K units in 3Q99. Unit volume growth resulted from new customers and strong demand for the foundry service, particularly from IDMs and communication segments.

The average selling price (ASP) in the New Taiwan dollar declined by 3.7% YoY to NT$38.0K in 3Q99, as a result of unfavorable foreign exchange. In US dollar terms, quarterly ASP rose 3.8% to US$1,183 per eight-inch equivalent wafer due to improvement in technology mix. The New Taiwan dollar appreciated from the weighted average rate of NT$34.58 to NT$32.08 per US dollar during this period.

Sales breakdown by application, technology, customer types, and geography for 3Q99 and 3Q98 are summarized in Table 1. For consistency, historical numbers are changed to reflect current definition and methodology during classification thus may vary from those released earlier.

Table 1: Sales Breakdown

Segment 3Q99 2Q99 Segment 3Q99 2Q99
Application (Unit) Customer Type (Revenue)
Computer 44% 47% Fabless 66% 80%
Consumer 33% 26% IDM 31% 18%
Communication 12% 15% System 3% 2%
Industrial / Others 3% 4%      
Memory 11% 18%      
2001 Technology (Unit) Geography (Revenue)
X £ 0.25μm 26% 1% North America 65% 61%
0.25μm < X £0.35μm 30% 39% Asia Pacific 18% 23%
0.35μm < X £0.80μm 37% 44% Europe 9% 13%
0.8μm < X 7% 16% Japan 8% 3%
Gross Margins:
Gross profit increased 135% year-over-year to NT$8,768 million as unit sales and capacity utilization improved. Gross margin improved to 44.5% in 3Q99 compared with 33.2% in 3Q98.
Operating Expenses:
Operating expenses in 3Q99 increased 76% to NT$1,599 million due to higher SG&A expenses. TSMC and its employees made a donation of NT$200 million to earthquake victims. Operating expenses as a percent of net sales was unchanged at 8.1% in 3Q99.
Non-Operating Income / Expenses:
Net non-operating expenses increased 161% to NT$751 million, including NT$381 million losses incurred from July power outage and September earthquake. An estimate of 23,000 wafers were scrapped because of the earthquake. TSMC expects a claim payment from the insurance companies in 4Q99.
Investment Income / Losses:
Investment losses decreased to NT$660 million in 3Q99 compared to NT$831 million in 3Q98, primarily resulting from improvements in the Vanguard International Semiconductor Company ("VISC"). VISC resulted in NT$224 million investment loss vs. NT$656 million loss in 3Q98. WaferTech resulted in NT$427 million investment loss vs. NT$379 million loss in 3Q98. TSMC-Acer Semiconductor Manufacturing Company ("TASMC") resulted in NT$85 million investment loss.
Net Income:
Net income tax credit for 3Q99 was NT$379 million (NT$322 million tax expenses and NT$701 million tax credit), down from NT$406 million in 3Q98. Net margin rose to 31.1% in 3Q99 from 18.8% a year ago. Net income increased 190% to NT$6,137 million in 3Q99. Diluted EPS were NT$0.81 for 3Q99, up from NT$0.28 in the same period of 1998.
Operations Highlights:
Average capacity utilization based on wafers produced (or "out utilization"), excluding joint ventures, increased to 96% in 3Q99 from 58% in 3Q98. Installed capacity was up 3.9% YoY in 3Q99 to 447K eight-inch equivalent wafers. Installed capacity managed by TSMC including joint ventures was up 15.4% YoY to 503K eight-inch equivalent wafers. As of October 1, 1999, TSMC has completed 100% of all Y2K compliance solutions.
Major announcements during 3Q99 included:
TSMC fabricates MoSys 1T-SRAM core on standard logic process
Appointment of new Quality & Reliability Vice President
TSMC decided early redemption of US$350M Eurodollar Convertible Bonds
TSMC 2nd-round ADR Conversion Sale Program
TSMC and BTA to deliver foundry industry's first reliability simulation tool suite
SiberCore Technology (Canada) and TSMC sign fabrication agreement
Please visit the Company's website for details of the announcements.


3Q99 Results: Sequential Comparison

Highlights
Sequential recovery in order volume continued. Unit shipment rose 13% QoQ.
Net sales rose 14% QoQ.
Operating income increased 16% QoQ.
Net income increased 1.9% QoQ.
Diluted EPS were NT$0.81, up slightly from NT$0.80 in 2Q99.
Net Sales:
Net sales in 3Q99 totaled NT$19,707 million, up 14% compared with 2Q99, as a result of higher unit sales of eight-inch equivalent wafers. Unit shipment of eight-inch equivalent wafers, including those outsourced to joint ventures, grew 13% to 465K units in 3Q99.

The ASP in the New Taiwan dollar and US dollar remained fairly stable. In US dollar terms, the quarterly ASP increased slightly to US$1,183 per eight-inch equivalent wafer compared to US$1,150 in 2Q99. The New Taiwan dollar appreciated slightly from the weighted average rate of NT$32.81 to NT$32.08 per US dollar during the period.

Sales breakdown by application, technology, customer type, and geography for 3Q99 and 2Q99 are summarized in Table 3 on the following page. For consistency, historical numbers are changed to reflect current definition and methodology during classification thus may vary from those released earlier.

Table 3: Sales Breakdown

Segment 3Q99 2Q99 Segment 3Q99 2Q99
Application (Unit) Customer Type (Revenue)
Computer 41% 40% Fabless 66% 76%
Consumer 33% 25% IDM 31% 23%
Communication 12% 15% System 3% 1%
Industrial / Others 3% 7%      
Memory 11% 13%      
2001 Technology (Unit) Geography (Revenue)
X £ 0.25μm 26% 21% North America 65% 63%
0.25μm < X £0.35μm 30% 30% Asia Pacific 18% 21%
0.35μm < X £0.80μm 37% 39% Europe 9% 10%
0.8μm < X 7% 10% Japan 8% 6%
Gross Margins:
Gross profit increased 16% to NT$8,768 in 3Q99. Gross margin was flat at 44.5% in 3Q99 as the combined result of higher unit sales, stable ASP and lower capacity utilization.
Operating Expenses:
Operating expenses in 3Q99 were NT$1,599 million up 19% sequentially. Operating expenses as percent of net sales increased to 8.1% in 3Q99 from 7.8% in 2Q99.
Non-Operating Income / Expenses:
Net non-operating item had a loss of NT$751 million versus income of NT$138 million in 2Q99. The loss was primarily due to extraordinary loss of NT$381 million caused by July power outage and September earthquake.
Investment Income / Losses:
Investment losses increased to NT$660 million in 3Q99 compared to NT$417 million in 2Q99, primarily as combined results of investment losses at VISC (NT$224 million in 3Q99 versus NT$99 million in 2Q99), WaferTech (NT$427 million in 3Q99 versus NT$343 million in 2Q99), and TASMC (NT$85 million in 3Q99).
Net Income:
Net income tax credit for 3Q99 was NT$379 million compared to NT$108 million credit for 2Q99. Net margin declined to 31.1% in 3Q99 from 34.9% in 2Q99 due to extraordinary items as well as increased outsource in production. Net income increased 1.9% to NT$6,137 million in 3Q99 from NT$6,022 million in 2Q99 and diluted EPS grew to NT$0.81 from NT$0.80 in 2Q99.
Operations Highlights
Due to the impact of the September earthquake, average capacity utilization rate of TSMC based on wafer produced (or "out utilization") slightly declined to 96% compared with 105% in the 2Q99.
Liquidity and Capital Resource
During 3Q99, TSMC generated NT$11.2 billion in net cash from operating activities. Depreciation and amortization were NT$4.8 billion. Net cash used for investing activities totaled NT$16.8 billion, up significantly from NT$5.5 billion in the previous quarter. The increase was primarily devoted for Fab 5 and 6 and investment in TASMC. Net cash generated from financing activities was NT$4.8 billion, mainly from increase in bank loans and short-term credit instruments.

As of September 30, 1999, TSMC had NT$15.8 billion of cash equivalent on hand. Liability to assets ratio declined to 28.2% from 30.3%. Management believes that available bank credit line and cash flows from operating activities will be sufficient to finance current operations, 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.


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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