1998 Third Quarter Report

Hsin-Chu, Taiwan, R. O. C., October 19, 1998 - Taiwan Semiconductor Manufacturing Company Ltd. (TAIEX: 2330, NYSE: TSM), (or "the Company") the world's largest dedicated semiconductor foundry company, announced today the results of its operations for the third quarter ended September 30, 1998. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.

3Q 98 Year-over-Year Financial Highlights

Net sales declined 3.9% to NT$11,263 million. Operating income declined 31.8% to NT$2,827 million. Net income declined 54% to NT$2,115 million. Diluted earnings per share declined 54% to NT$0.35 from NT$0.76.

THIRD QUARTER RESULTS: YEAR-OVER-YEAR COMPARISON

Net Sales: Net sales in the third quarter of 1998 totaled NT$11,263 million, down 3.9% compared with the same period of 1997, as a combined result of lower unit sales of 8-inch equivalent wafers, a higher average selling price (ASP) and a lower contribution from Packaging and Testing services sales. The unit sales of 8-inch equivalent wafers fell 16.1% to 263.4K units in the third quarter of 1998 from 314.1K in the same period of 1997. The ASP in the New Taiwan dollar rose by 15.7% year over year from NT$34.1K to NT$39.4K as the New Taiwan dollar depreciated from the weighted average rate of NT$28.32 to NT$34.59 per US dollar. In US dollar terms, the ASP declined 5.3%.

Gross Margins:

The gross margin declined to 36.6% in the third quarter of 1998 compared with 48.7% in the second quarter of 1997 mainly due to lower average capacity utilization.

Operating Expenses:

Operating expenses in the third quarter of 1998 declined 16.9% from the same period a year ago to NT$1,292 million due to cost control in general administrative expenses. Increase effort in research resulted in 62% rise in R&D expense during the same period a year ago. Operating expenses as % of net sales decreased to 11.5% in the third quarter of 1998 from 13.3% in the same period of 1997.

Non-Operating Income/Expenses:

Non-operating income increased 396% in the third quarter of 1998 to NT$354 million from NT$71 million in the same period of 1997 due to proceeds from sale of the stock holding in Taiwan Mask Corporation in the third quarter of 1998. Non-operating expenses increased to NT$1,472 million from NT$399 million a year ago primarily due to higher interest expenses and investment losses of NT$1,070 million from Vanguard International Semiconductor and WaferTech combined.2 Consequently, the profit margin before tax declined to 15.2% from 32.6% a year ago.

Income Tax:

Net income tax credit for the third quarter of 1998 was NT$406 million, down 47.5% compared with NT$774 million in the same quarter of 1997, due to lower capital expenditure and investments.

Net Income:

Net income declined 54% to NT$ 2,115 million in the third quarter of 1998. Diluted earnings per share were NT$0.35 for the third quarter of 1998, down from NT$0.76 in the same period of 1997.3

3Q '98 Sequential Financial Highlights

Net sales declined 2.9% to NT$11,263 million. Operating income declined 25.1% to NT$2,827 million. Net income declined 43.7% to NT$2,115 million. Diluted earnings per share were NT$0.35, a decrease of 43.7% from NT$0.62.

SECOND QUARTER RESULTS: SEQUENTIAL COMPARISON

Net Sales: Net sales in the third quarter of 1998 totaled NT$11,263 million, down 2.9% compared with the second quarter of 1998, as a result of lower unit sales of 8-inch equivalent wafers, higher average selling price (ASP) and lower contribution from other sales. Unit sales of 8-inch equivalent wafers fell 4.8% to 263.4K units in the third quarter of 1998 from 276.6K in the second quarter of 1997. The ASP in the New Taiwan dollar increased 3.3% sequentially to NT$39.4K from NT$38.1K as the New Taiw