TSMC 1998 4Q Earnings Release

Hsin-Chu, Taiwan, R. O. C., January 26, 1999 - 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 fourth quarter ended December 31, 1998. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.

4Q98 Results: Year-over-Year Comparison

Highlights: Net sales declined 24.1% to NT$11,633 million. Operating income declined 52.8% to NT$2,893 million. Net income declined 62.6% to NT$2,524 million. Diluted earnings per share declined 62.6% to NT$0.42 from NT$1.121

Net Sales:

Net sales in 4Q98 totaled NT$11,633 million, down 24.1% compared with the same period of 1997, as a combined result of lower unit sales of 8-inch equivalent wafers and a lower average selling price (ASP). The unit sales of 8-inch equivalent wafers fell 20.4% to 286.2K units in 4Q98 from 359.4K in the same period of 1997. Pure price erosion was 16.3%, which was offset by favorable product mix and favorable foreign exchange rate. In US dollar terms, quarterly ASP declined 10.1% to US$1,164 per 8" equivalent wafer. The ASP in the New Taiwan dollar declined by 1.5% YoY. New Taiwan dollar depreciated from the weighted average rate of NT$30.70 to NT$33.33 per US dollar during this period.

Gross Margins:

The gross margin declined to 33.8% in 4Q98 compared with 53.1% in 4Q97 mainly due to price erosion and lower capacity utilization.

Operating Expenses:

Operating expenses in the 4Q98 declined 48.6% from the same period a year ago to NT$1,040 million due to cost control efforts. Operating expenses as percent of net sales decreased to 8.9% in 4Q98 from 13.2% in the same period of 1997.

Non-Operating Income/Expenses:

Non-operating income increased to NT$514 million in 4Q98 from NT$62 million in 4Q97 due mainly to NT$302 million foreign exchange gain and NT$224 million proceeds from sale of equity holdings in Vanguard International Semiconductor Company (VISC). Non-operating expenses increased to NT$881 million from NT$219 million a year ago primarily due to higher interest expenses (NT$123 million) and investment losses of NT$610 million from VISC (NT$185 million) and WaferTech (NT$425 million).2 Consequently, the profit margin before tax declined to 21.7 from 38.9% a year ago.

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.

Net Income:

Net income declined 62.6% to NT$2,524 million in 4Q98. Diluted earnings per share were NT$0.42 for 4Q98, down from NT$1.12 in the same period of 1997.3

Operations Highlights:

During the 4Q98, average fab utilization rate improved to 68% versus 58% in the 3Q98, due to mostly seasonal factors. Sales to the fabless segment as percent of total sales reach 76% (vs. 70% in 3Q98). Sales to North America regions as percent of total sales continue to rise, reaching 64% (vs. 60% in 3Q98). Product mix in logic represented 91% of TSMC revenue, while memory represented 9%. Revenue breakdown by end market was computer 31%, communication 26%, consumer 32%, and industrial/others 10%.

4Q98 Results: Sequential Comparison

Net sales increased 3.3% to NT$11,633 million. Operating income increased 2.3% to NT$2,893 million. Net income increased 19.4% to NT$2,524 million. Diluted earnings per share were NT$0.42, an increase of 19.4% from NT$0.35.

Net Sales:

Net sales in 4Q98 totaled NT$11,633 million, up 3.3% compared with 3Q98, as a result of higher unit sales of 8-inch equivalent wafers. Unit sales of 8-inch equivalent wafers grew 8.7% to 286.2K units in 4Q98 from 263.4K in 3Q98