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Taiwan Semiconductor Manufacturing Company Ltd. (



Q4 2010 Earnings Call

January 27, 2010 8:00 am ET


Elizabeth Sun - Head IR

Morris Chang - Chairman and CEO

Lora Ho - SVP and CFO


Randy Abrams - Credit Suisse

Mehdi Hosseini - Susquehanna International

Dan Heyler - Bank of America/Merrill Lynch

Pranab Sarmah - Daiwa Capital Markets

Steven Pelayo - HSBC


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Welcome to the TSMC's fourth quarter 2010 results webcast conference call. (Operator Instructions) I would now like to turn the conference over to Dr. Elizabeth Sun, TSMC's Head of Investor Relations.

Elizabeth Sun

Good morning and good evening everyone, welcome to TSMC's fourth quarter 2010 conference call. Let me wish all of you a very Happy New Year. Joining us today on the call are Dr. Morris Chang, our Chairman and Chief Executive Officer, and Ms. Lora Ho, our Senior Vice President and Chief Financial Officer.

The format for today's conference call will be as follows. First, Lora will summarize our operations in the fourth quarter and give you our guidance for the next quarter. Then, TSMC's Chairman, Dr. Chang will provide his general remarks on the business outlook and a couple of key messages. Then we will open the floor to questions.

For those participants who do not yet have a copy of the press release, you may download it from TSMC's website at Please also download the summary slides in relation to today's quarterly review presentation.

I would like to remind all listeners that following discussions may contain forward-looking statements that subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements.

Information as to those factors that could cause actual results to differ materially from TSMC's forward-looking statements may be found in TSMC's annual report on Form 20-F filed with the United States Securities and Exchange Commission on April 15, 2010, and such other documents as TSMC may file with or submit to the SEC from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

And now, I would like to turn the call over to Lora.

Lora Ho

Thank you, Elizabeth. Good morning and good evening to everyone, welcome to our fourth quarter earnings conference call. This next week will be the Chinese New Year, before I start, I want to sent to you my best wishes for good year of the rabbit.

During today's call, I will start with the financial highlights in fourth quarter, followed by a recap of 2010, then we will move on to the outlook for the first quarter 2011. You may also refer to the quarterly financial summary slides on our website. All dollar figures are in NT dollars unless otherwise stated.

In the fourth quarter, the NT dollar appreciated more than we originally expected. The actual exchange rate reached NT$30.4 to US$1 compared with the planned NT$30.60 when we gave our guidance in the last conference. However, our fourth quarter revenue still exceeded our guidance with the profit margins reaching the high-end of our outlook.

Fourth quarter revenue was NT$110 billion, representing a 1.9% sequentially decline. However, in the U.S. dollar terms, the fourth quarter marked a 3% growth compared with the third quarter. Wafer shipments were 3.2 million 8-inch equivalent wafers, flat from the prior quarter and up 31.5% from a year ago quarter.

Gross margin was 49.8 %, down 0.2 percentage point from the third quarter, but up 1.3 percentage points from last year. Operating margin was 37.7%, down 0.7 percentage point sequentially, but up 1.2 percentage points compared with the year ago quarter. EPS in the fourth quarter was NT$1.57. ROE was 29.3%.

Now let's move on the income statement. The NT dollar appreciated roughly 5% in the fourth quarter and thus negatively impacted our margins. However, due to our continued cost improvement, our gross margin managed to stay at 49.8% slightly down 0.2 percentage point from the third quarter.

Operating expenses increased NT$205 million from the third quarter, primarily due to higher operating expenses. Opening expenses for Fab 14 and Fab 12, Phase V. Non-operating income decreased by NT$5 million from the third quarter, reflecting the absence of receipts of SMIC shares from the SMIC litigation settlement.

Meanwhile, in December, we acquired a partially constructed fab from Powerchip with NT$2.9 billion, including a steel plant will be disposed and rebuilt to our fab specification. Therefore, we recorded a net loss of NT$800 million in this quarter.

Net investment gain was NT$690 million compared with NT$900 million in the prior quarter with slightly lower profit from certain invested companies. Net margin was 37%, down 4.8 percentage points sequentially and up 1.5percentage points year-over-year.

Now, let's look at our revenue by applications. In the fourth quarter, we continued to see growth in communications and industrial-related applications, which grew 3% and 4% respectively. Computer declined 6% sequentially, while consumer was down 26% from the last quarter.

Revenue from communications-related applications represented 47% of our total wafer revenue in the fourth quarter. Meanwhile, computer, consumer and industrial applications accounted for 24%, 11% and 18% of our wafer sales.

By technology, 40-nanometer and 65-nanometer continued to grow and represented 21% and 31% of our total wafer revenue respectively. These two nodes combined were 52% of our wafer sales, up from 46% in the last quarter. Meanwhile, revenue from 0.13-micron and below accounted for 73% of total wafer sales from 72% in third quarter of '10.

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