1934 Act Registration No. 1-14700

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

No. 8, Li-Hsin Rd. 6,
Hsinchu Science Park,
Taiwan
(Address of Principal Executive Offices)

     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F þ                    Form 40-F o

     (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes o                    No þ

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82: ______.)

 

 

Taiwan Semiconductor Manufacturing
Company Limited

Financial Statements for the
Three Months Ended March 31, 2008 and 2007 and
Independent Accountants’ Review Report

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of March 31, 2008 and 2007, and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36, “Review of Financial Statements” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

As discussed in Note 3 to the financial statements, effective January 1, 2008, Taiwan Semiconductor Manufacturing Company Limited adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors” issued by the Accounting Research and Development Foundation of the Republic of China and relevant requirements promulgated by the Financial Supervisory Commission of the Executive Yuan.

We have also reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the three months ended March 31, 2008 and 2007, and have issued thereon an unqualified review report with an explanatory paragraph relating to the adoption of Interpretation 2007-052 and an unqualified review report, respectively.

April 9, 2008

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the accountants’ review report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants’ review report and financial statements shall prevail.

Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS
MARCH 31, 2008 AND 2007
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)

		2008								2007
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	115,869,440				20			$	119,752,168				20
Financial assets at fair value through profit or loss (Notes 2 and 5)			160,249				—				159				—
Available-for-sale financial assets (Notes 2 and 6)			18,591,721				4				26,325,390				4
Held-to-maturity financial assets (Notes 2 and 7)			9,976,745				2				6,523,668				1
Receivables from related parties (Note 24)			24,687,419				4				19,157,572				3
Notes and accounts receivable			16,099,860				3				14,682,899				3
Allowance for doubtful receivables (Notes 2 and 8)			(687,619	)			—				(690,931	)			—
Allowance for sales returns and others (Notes 2 and 8)			(4,167,643	)			(1	)			(2,476,287	)			—
Other receivables from related parties (Note 24)			2,221,204				—				487,266				—
Other financial assets			395,342				—				686,670				—
Inventories, net (Notes 2 and 9)			19,252,120				4				19,933,360				3
Deferred income tax assets (Notes 2 and 17)			8,094,973				1				9,486,631				2
Prepaid expenses and other current assets			809,189				—				1,362,053				—
Total current assets			211,303,000				37				215,230,618				36
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10 and 11)
Investments accounted for using equity method			107,596,741				19				105,135,305				18
Available-for-sale financial assets			—				—				6,466,605				1
Held-to-maturity financial assets			8,023,394				1				26,697,128				5
Financial assets carried at cost			748,160				—				746,405				—
Total long-term investments			116,368,295				20				139,045,443				24
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)
Cost
Buildings			102,763,591				18				98,752,832				17
Machinery and equipment			598,750,110				103				538,459,403				91
Office equipment			9,424,541				2				8,722,604				1
			710,938,242				123				645,934,839				109
Accumulated depreciation			(503,748,572	)			(87	)			(435,129,667	)			(73	)
Advance payments and construction in progress			28,503,739				5				11,740,887				2
Net property, plant and equipment			235,693,409				41				222,546,059				38
INTANGIBLE ASSETS
Goodwill (Note 2)			1,567,756				—				1,567,756				—
Deferred charges, net (Notes 2 and 13)			6,781,759				1				5,593,638				1
Total intangible assets			8,349,515				1				7,161,394				1
OTHER ASSETS
Deferred income tax assets (Notes 2 and 17)			3,916,735				1				5,001,596				1
Refundable deposits			2,748,142				—				2,576,685				—
Others (Note 2)			295,217				—				65,712				—
Total other assets			6,960,094				1				7,643,993				1
TOTAL		$	578,674,313				100			$	591,627,507				100

		2008								2007
		Amount				%				Amount				%
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2 and 5)		$	239,893				—			$	133,802				—
Accounts payable			7,491,302				1				6,811,587				1
Payables to related parties (Note 24)			1,986,731				—				2,377,933				—
Income tax payable (Notes 2 and 17)			13,743,060				3				9,801,787				2
Accrued bonuses to employees and directors (Notes 3 and 19)			4,321,538				1				—				—
Accrued expenses and other current liabilities (Note 15)			9,925,414				2				8,497,965				1
Payables to contractors and equipment suppliers			11,413,544				2				8,694,304				2
Current portion of bonds payable (Note 14)			8,000,000				1				4,500,000				1
Total current liabilities			57,121,482				10				40,817,378				7
LONG-TERM LIABILITIES
Bonds payable (Note 14)			4,500,000				1				12,500,000				2
Other long-term payables (Note 15)			1,335,996				—				1,623,181				—
Total long-term liabilities			5,835,996				1				14,123,181				2
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 16)			3,666,177				1				3,546,228				1
Guarantee deposits (Note 26)			1,869,126				—				3,424,737				1
Deferred credits (Notes 2 and 24)			887,838				—				1,090,364				—
Total other liabilities			6,423,141				1				8,061,329				2
Total liabilities			69,380,619				12				63,001,888				11
CAPITAL STOCK — $10 PAR VALUE
Authorized: 28,050,000 thousand shares in 2008
27,050,000 thousand shares in 2007
Issued: 25,629,242 thousand shares in 2008
25,832,959 thousand shares in 2007			256,292,416				44				258,329,592				44
CAPITAL SURPLUS (Notes 2 and 19)			51,696,165				9				54,231,465				9
RETAINED EARNINGS (Note 19)
Appropriated as legal capital reserve			56,406,684				10				43,705,711				7
Appropriated as special capital reserve			629,550				—				640,742				—
Unappropriated earnings			151,596,813				26				171,616,718				29
			208,633,047				36				215,963,171				36
OTHERS (Notes 2, 21 and 23)
Cumulative translation adjustments			(6,810,720	)			(1	)			299,332				—
Unrealized gains on financial instruments			400,861				—				720,134				—
Treasury stock: 34,096 thousand shares in 2008			(918,075	)			—				(918,075	)			—
33,926 thousand shares in 2007
			(7,327,934	)			(1	)			101,391				—
Total shareholders’ equity			509,293,694				88				528,625,619				89
TOTAL		$	578,674,313				100			$	591,627,507				100

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche review report dated April 9, 2008)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2008								2007
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 24)		$	86,911,072							$	64,054,647
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			1,680,969								708,058
NET SALES			85,230,103				100				63,346,589				100
COST OF SALES (Notes 18 and 24)			47,864,496				56				39,378,386				62
GROSS PROFIT			37,365,607				44				23,968,203				38
UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)			63,912				—				198,973				—
REALIZED GROSS PROFIT			37,301,695				44				23,769,230				38
OPERATING EXPENSES (Notes 18 and 24)
Research and development			4,912,037				6				3,479,141				5
General and administrative			2,388,738				3				1,617,600				3
Marketing			586,390				—				310,529				1
Total operating expenses			7,887,165				9				5,407,270				9
INCOME FROM OPERATIONS			29,414,530				35				18,361,960				29
NON-OPERATING INCOME AND GAINS
Gain on settlement and disposal of financial instruments, net (Notes 2, 5 and 23)			1,638,057				2				—				—
Equity in earnings of equity method investees, net (Notes 2 and 10)			1,043,790				1				853,184				1
Interest income			642,460				1				652,231				1
Technical service income (Notes 24 and 26)			205,295				—				161,161				—
Valuation gain of financial instruments, net (Notes 2, 5 and 23)			125,919				—				—				—
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 24)			77,850				—				69,982				—
Rental income (Note 24)			64,549				—				55,614				—
Foreign exchange gain, net (Note 2)			—				—				440,867				1
Others (Note 24)			81,042				—				114,532				—
Total non-operating income and gains			3,878,962				4				2,347,571				3

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2008								2007
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Foreign exchange loss, net (Note 2)		$	1,774,578				2			$	—				—
Interest expense			88,750				—				151,922				—
Loss on settlement and disposal of financial instruments, net (Notes 2, 5 and 23)			—				—				480,826				1
Valuation loss on financial instruments, net (Notes 2, 5 and 23)			—				—				167,493				—
Others			23,009				—				14,382				—
Total non-operating expenses and losses			1,886,337				2				814,623				1
INCOME BEFORE INCOME TAX EXPENSE			31,407,155				37				19,894,908				31
INCOME TAX EXPENSE (Notes 2 and 17)			3,263,773				4				1,056,269				1
NET INCOME		$	28,143,382				33			$	18,838,639				30

		2008								2007
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (NT$, Note 22)
Basic earnings per share		$	1.23			$	1.10			$	0.75			$	0.71
Diluted earnings per share		$	1.23			$	1.10			$	0.75			$	0.71

Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by subsidiaries is treated as available-for-sale financial assets instead of treasury stock (Notes 2 and 21):

		2008				2007
NET INCOME		$	28,143,382			$	18,838,639
EARNINGS PER SHARE (NT$)
Basic earnings per share		$	1.10			$	0.71
Diluted earnings per share		$	1.10			$	0.71

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche review report dated April 9, 2008)		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	28,143,382			$	18,838,639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18,041,872				18,488,096
Unrealized gross profit from affiliates			63,912				198,973
Amortization of premium/discount of financial assets			(25,931	)			(31,517	)
Gain on disposal of available-for-sale financial assets, net			(23,271	)			(29,611	)
Equity in earnings of equity method investees, net			(1,043,790	)			(853,184	)
Dividends received from equity method investees			589,071				—
Gain on disposal of property, plant and equipment and other assets, net			(77,850	)			(67,949	)
Deferred income tax			498,225				(895,100	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss			(125,919	)			167,493
Receivables from related parties			2,014,229				(2,288,063	)
Notes and accounts receivable			1,811,468				1,595,265
Allowance for doubtful receivables			(1,353	)			—
Allowance for sales returns and others			310,958				(274,778	)
Other receivables from related parties			64,957				(38,000	)
Other financial assets			(63,644	)			(33,210	)
Inventories			1,735,022				(781,146	)
Prepaid expenses and other current assets			52,276				(140,854	)
Increase (decrease) in:
Accounts payable			(1,994,516	)			667,908
Payables to related parties			(1,012,899	)			(948,983	)
Income tax payable			2,765,097				1,951,369
Accrued bonuses to employees and directors			4,321,538				—
Accrued expenses and other current liabilities			(1,581,849	)			343,035
Accrued pension cost			8,498				16,112
Deferred credits			(23,937	)			(23,936	)
Net cash provided by operating activities			54,445,546				35,860,559
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			—				(2,151,253	)
Financial assets carried at cost			—				(33,562	)
Investments accounted for using equity method			(217,348	)			(1,631,986	)
Property, plant and equipment			(14,294,648	)			(13,783,013	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			5,154,736				2,080,000
Held-to-maturity financial assets			2,238,000				4,282,320
Property, plant and equipment and other assets			1,157				1,165

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2008				2007
Proceeds from return of capital by investees		$	55,056			$	14,068
Increase in deferred charges			(584,370	)			(992,173	)
Increase in refundable deposits			(6,604	)			(1,270,451	)
Net cash used in investing activities			(7,654,021	)			(13,484,885	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term bonds payable			—				(2,500,000	)
Decrease in guarantee deposits			(371,551	)			(385,224	)
Proceeds from exercise of employee stock options			80,948				122,009
Payment for repurchase of treasury stock			(3,053,584	)			—
Net cash used in financing activities			(3,344,187	)			(2,763,215	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			43,447,338				19,612,459
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			72,422,102				100,139,709
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	115,869,440			$	119,752,168
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	355,000			$	420,000
Income tax paid		$	63,801			$	52,670
INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	20,318,452			$	11,807,794
Decrease (increase) in payables to contractors and equipment suppliers			(6,023,804	)			1,975,219
Cash paid		$	14,294,648			$	13,783,013
Disposal of property, plant and equipment and other assets		$	1,762,010			$	1,165
Increase in other payables to related parties			(1,760,853	)			—
Cash received		$	1,157			$	1,165
NON-CASH INVESTMENT AND FINANCING ACTIVITIES
Current portion of bonds payable		$	8,000,000			$	4,500,000
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	3,308,040			$	2,371,524

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche review report dated April 9, 2008)		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)

1.		GENERAL
		Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
		The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks.
		As of March 31, 2008 and 2007, the Company had 20,519 and 20,222 employees, respectively.
2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.
		For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.
		Significant accounting policies are summarized as follows:
		Use of Estimates
		The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.
		Classification of Current and Noncurrent Assets and Liabilities
		Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.
		Cash Equivalents
		Repurchase agreements collateralized by government bonds and asset-backed commercial papers acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

		Financial Assets/Liabilities at Fair Value Through Profit or Loss
		Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.
		Available-for-sale Financial Assets
		Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		The fair value of structured time deposits is estimated using valuation techniques. Fair value of open-end mutual funds is determined using the net assets value at the end of the period. For debt securities, fair value is determined using the average of bid and asked prices at the end of the period.
		Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
		If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.
		Held-to-maturity Financial Assets
		Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost under the effective interest method except for structured time deposits which are carried at acquisition cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.
		Allowance for Doubtful Receivables
		An allowance for doubtful receivables is provided based on a review of the collectibility of notes and accounts receivable. The Company determines the amount of the allowance for doubtful receivables by examining the aging analysis of outstanding notes and accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies.

		Revenue Recognition and Allowance for Sales Returns and Others
		The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectibility is reasonably assured. Provisions for estimated sales returns and others are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.
		Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.
		Inventories
		Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Period-end inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses.
		Investments Accounted for Using Equity Method
		Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5, “Long-term Investments Accounted for Using the Equity Method”, the cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). The accounting treatment for the investment premiums paid before January 1, 2006 is the same as that for goodwill which is no longer being amortized; while investment discounts continue to be amortized over the remaining periods. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.
		When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.
		Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method

		investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are recorded until they are realized through transactions with third parties.
		If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.
		Financial Assets Carried at Cost
		Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.
		Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.
		Property, Plant and Equipment, Assets Leased to Others and Idle Assets
		Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.
		Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
		Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.
		When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.
		Intangible Assets
		Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised Statement of Financial Accounting Standards No. 25, “Business Combinations — Accounting Treatment under Purchase Method”, goodwill is no longer amortized and instead is tested for impairment annually. If an event occurs or circumstances change which indicated that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

		Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees — the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges — 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.
		Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expenses when incurred.
		Pension Costs
		For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.
		Income Tax
		The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
		Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures, and investments in important technology-based enterprises are recognized using the flow-through method.
		Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s tax provision.
		Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.
		The R.O.C. government enacted the Alternative Minimum Tax Act (AMT Act), which became effective on January 1, 2006. The alternative minimum tax (AMT) imposed under the AMT Act is a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most of the tax-exempt income under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities.
		Stock-based Compensation
		Employee stock options that were modified or granted in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment”. The Company did not grant or modify employee stock options during the three months ended March 31, 2008.

		Treasury Stock
		Treasury stock is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus — additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus — treasury stock transactions and to retained earnings for any remaining amount.
		The Company’s stock held by its subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by subsidiaries and cash dividends received by subsidiaries from the Company are recorded under capital surplus — treasury stock transactions.
		Foreign-currency Transactions
		Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.
		At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.
		Recent Accounting Pronouncements
		The Accounting Research and Development Foundation (ARDF) of the R.O.C. revised Statement of Financial Accounting Standards No. 10, “Accounting for Inventories” (SFAS No. 10) in November 2007, which requires inventories to be stated at the lower of cost or net realizable value item by item. Inventories are recorded by the specific identification method, first-in, first-out method or weighted average method. The last-in, first-out method is no longer permitted. The revised SFAS No. 10 should be applied to financial statements for the fiscal years beginning on or after January 1, 2009. Early adoption is permitted.
3.		ACCOUNTING CHANGES
		Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors” issued in March 2007 by the ARDF, which requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than as an appropriation of earnings. The adoption of this interpretation resulted in a decrease in net income and earnings per share (after income tax) of NT$3,586,877 thousand and NT$0.14, respectively, for the three months ended March 31, 2008.
		Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment”, which requires companies to record share-based payment transactions in the financial statements at fair value. Such a change in accounting principle did not have any effect on the Company’s financial statements as of and for the three months ended March 31, 2008.

4.

CASH AND CASH EQUIVALENTS

		March 31
		2008				2007
Cash and deposits in banks		$	109,361,907			$	77,169,400
Repurchase agreements collaterized by government bonds			5,995,378				41,985,407
Asset-backed commercial papers			512,155				597,361
		$	115,869,440			$	119,752,168

5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

		March 31
		2008				2007
Derivatives — financial assets
Cross currency swap contracts		$	160,249			$	159
Derivatives — financial liabilities
Forward exchange contracts		$	121,599			$	18,717
Cross currency swap contracts			118,294				115,085
		$	239,893			$	133,802

The Company entered into derivative contracts during the three months ended March 31, 2008 and 2007 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.

Outstanding forward exchange contracts as of March 31, 2008 and 2007:

				Contract
				Amount
		Maturity Date		(in Thousands)
March 31, 2008
Sell EUR/Buy NT$		April 2008 to July 2008		EUR 44,500
March 31, 2007
Sell EUR/Buy US$		April 2007		EUR 23,000

     Outstanding cross currency swap contracts as of March 31, 2008 and 2007:

Contract

Range of

Range of

Amount

Interest Rates

Interest Rates

Maturity Date

(in Thousands)

Paid

Received

March 31, 2008

April 2008

US $883,000

2.60%-3.75

%

1.28%-2.42

%

March 31, 2007

April 2007 to June 2007

US $835,000

2.65%-5.35

%

1.65%-5.16

%

For the three months ended March 31, 2008 and 2007, gains and losses arising from derivative financial instruments were net gains of NT$1,740,705 thousand (including realized settlement gains of NT$1,614,786 thousand and valuation gains of NT$125,919 thousand) and net losses of NT$677,929 thousand (including realized settlement losses of NT$510,436 thousand and valuation losses of NT$167,493 thousand), respectively.

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

		March 31
		2008				2007
Open-end mutual funds		$	14,126,171			$	23,976,854
Corporate bonds			4,065,233				4,163,115
Government bonds			400,317				4,152,738
Structured time deposits			—				499,288
			18,591,721				32,791,995
Current portion			(18,591,721	)			(26,325,390	)
		$	—			$	6,466,605

As of March 31, 2007, structured time deposits categorized as available-for-sale financial assets consisted of the following:

		Principal				Carrying
		Amount				Amount				Interest Rate				Maturity Date
Step-up callable deposits
Domestic deposits		$	500,000			$	499,288				1.76	%		March 2008

The interest rate of the step-up callable deposits was pre-determined by the Company and the banks.

7. HELD-TO-MATURITY FINANCIAL ASSETS

		March 31
		2008				2007
Corporate bonds		$	10,908,455			$	13,426,614
Government bonds			6,091,684				8,676,382
Structured time deposits			1,000,000				11,117,800
			18,000,139				33,220,796
Current portion			(9,976,745	)			(6,523,668	)
		$	8,023,394			$	26,697,128

As of March 31, 2008 and 2007, structured time deposits categorized as held-to-maturity financial assets consisted of the following:

		Principal				Interest				Range of
		Amount				Receivable				Interest Rates		Maturity Date
March 31, 2008
Step-up callable deposits
Domestic deposits		$	1,000,000			$	3,844			1.77%-1.83%		April 2008 to October 2008
March 31, 2007
Step-up callable deposits
Domestic deposits		$	4,500,000			$	13,593			1.50%-1.83%		June 2007 to October 2008
Callable range accrual deposits
Domestic deposits			3,970,680				14,752			(See below)		September 2009 to December 2009
Foreign deposits			2,647,120				7,390			(See below)		October 2009 to December 2009
		$	11,117,800			$	35,735

The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the contracts, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date.

As of March 31, 2008, no structured time deposit resided in banks located in foreign countries. As of March 31, 2007, the principal of the deposits that resided in banks located in Hong Kong and Singapore amounted to US$60,000 thousand and US$20,000 thousand, respectively.

8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

		Three Months Ended
		March 31
		2008				2007
Balance, beginning of period		$	688,972			$	690,931
Write-off			(1,353	)			—
Balance, end of period		$	687,619			$	690,931

Movements of the allowance for sales returns and others were as follows:

		Three Months Ended
		March 31
		2008				2007
Balance, beginning of period		$	3,856,685			$	2,751,065
Provision			1,680,969				708,058
Write-off			(1,370,011	)			(982,836	)
Balance, end of period		$	4,167,643			$	2,476,287

9. INVENTORIES, NET

		March 31
		2008				2007
Finished goods		$	3,884,951			$	3,477,094
Work in process			14,335,798				15,567,178
Raw materials			1,217,429				1,197,164
Supplies and spare parts			604,237				449,237
			20,042,415				20,690,673
Allowance for losses			(790,295	)			(757,313	)
		$	19,252,120			$	19,933,360

10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

		March 31
		2008								2007
						% of								% of
		Carrying				Owner-				Carrying				Owner-
		Amount				ship				Amount				ship
TSMC Global Ltd. (TSMC Global)		$	41,971,629				100			$	43,771,405				100
TSMC International Investment Ltd. (TSMC International)			27,063,207				100				26,934,392				100
Vanguard International Semiconductor Corporation (VIS)			11,183,477				36				5,999,943				27
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			8,352,727				39				8,134,439				39
TSMC (Shanghai) Company Limited (TSMC Shanghai)			7,895,259				100				9,127,747				100
TSMC Partners, Ltd. (TSMC Partners)			3,528,732				100				4,572,167				100
TSMC North America			2,184,900				100				2,107,864				100
XinTec Inc. (XinTec)			1,483,429				43				1,370,453				43
VentureTech Alliance Fund II, L.P. (VTAF II)			1,039,699				98				801,222				98
VentureTech Alliance Fund III, L.P. (VTAF III)			1,037,387				98				438,480				98
Global UniChip Corporation (GUC)			891,488				37				692,434				38
Emerging Alliance Fund, L.P. (Emerging Alliance)			390,518				99				779,280				99
Chi Cherng Investment Co., Ltd. (Chi Cherng)			175,689				36				118,167				36

(Continued)

		March 31
		2008								2007
						% of								% of
		Carrying				Owner-				Carrying				Owner-
		Amount				ship				Amount				ship
Hsin Ruey Investment Co., Ltd. (Hsin Ruey)		$	173,804				36			$	116,793				36
TSMC Japan Limited (TSMC Japan)			112,111				100				98,799				100
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC Europe)			97,152				100				56,633				100
TSMC Korea Limited (TSMC Korea)			15,533				100				15,087				100
		$	107,596,741							$	105,135,305