Fourth Quarter Results for the Period Ended
December 31, 1998

Hsin-Chu, Taiwan, R. O. C., January 26, 1998 !V Taiwan Semiconductor Manufacturing Company Ltd. (TAIEX: 2330, NYSE: TSM), ("TSMC" 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.

• 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 (EPS) declined 62.6% to NT$0.42 from NT$1.12.
• 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 eight-inch equivalent wafers and a lower average selling price (ASP). The unit sales of eight-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 eight-inch 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.
• Income Tax:
  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%.

• Net Income:
  • 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 of 1998 totaled NT$50,233 million, up 14.3% from the previous year, as a combined result from higher unit sales and higher ASP. The unit sales of eight-inch equivalent wafers increased 2.8% to 1,176.6K units in 1998 from 1,144.9K in 1997. Pure price erosion was 16.3%, which was offset by favorable product mix and foreign exchange rate. In the US dollar term, the ASP declined by 2.8% to US$1,182. The ASP in the New Taiwan dollar increased by 13.4%. The NT dollar depreciated against US dollar from the weighted average rate of NT$28.55 to NT$33.5 for the year.
• Gross Margins:
  The gross margin declined to 42.9% in 1998 compared with 48.0% in 1997 mainly due to lower capacity utilization from 102% to 74%.
• Operating Expenses:
  Operating expenses in 1998 decreased 4.7% to NT$5,339 million as a combined result of lower SGA and higher R&D expenses. R&D expenses increased by 29.6% to 3,246 million in 1998.
• Non-Operating Income/Expenses:
  Non-operating income increased by 74.3% (or NT$637 million) mainly due to NT$445 million proceeds from the sale of holdings in Taiwan Mask Corporation, Caesar Technology Inc., and VISC and NT$106 million foreign exchange gain compared to NT$189 million FX loss in 1997. NT$3,218 million increase in Non-operating expenses was primarily due to NT$435 million increase in interest expenses and NT$2,757 million of investment losses from VISC (NT$1,400 million) and WaferTech (NT$ 1,357 million).
• Net Income:
  Net income decreased 14.6% to NT$15.3 billion in 1998 from NT$18.0 billion in 1997. Diluted EPS declined 14.6%for 1998 to NT$2.54 from NT$2.97 in 1997.4
• Operations Highlights
  Average fab utilization rate was 74% for 1998 versus 102% in 1997. Revenue breakdown by customer type was fabless 71% (vs. 64% in 1997), IDM 27% (vs. 33% in 1997), and system house 2% (vs. 2% in 1997). Revenue breakdown by geographical market was North America 57% (vs. 46% in 1997), Europe 11% (vs. 14% in 1997), Asia Pacific 27% (vs. 30% in 1997), and Japan 5% (vs. 11% in 1997). Product mix in logic represented 82% of TSMC revenue, while memory represented 18%. Revenue breakdown by end market was computer 41% (vs. 55% in 1997), communication 21% (vs. 21% in 1997), consumer 29% (vs. 19% in 1997), and industrial/others 8% (vs. 5% in 1997).
• Highlights:
  • Net sales rose 14.3% to NT$50.2 billion from NT$43.9 billion due to an increase in unit sales and a higher ASP in New Taiwan dollar terms.
  • Unit sales increased by 2.8% and the ASP in NT dollar rose 13.4%.
  • Net income declined 14.6% to NT$15.3 billion from NT$18.0 billion.
  • Diluted earnings per share were NT$0.42, an increase of 19.4% from NT$0.35.
  • Diluted EPS for 1998 declined 14.6% to NT$2.54 from NT$2.97. 4

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 providing manufacturing services for advanced integrated circuits to 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. Production at WaferTech commenced in June 1998, one month ahead of schedule. Fab 6 and 7 will be located in the new Tainan Science-Based Industrial Park in Taiwan.

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