Welcome to TSMC's second quarter 2006 results Webcast Conference Call. Today's event is chaired by Ms. Lora Ho, Chief Financial Officer and Vice President, and Dr. Rick Tsai, Chief Executive Officer and President. This conference call is being Webcast live via the TSMC Website at www.tsmc.com and only in audio mode. Your dial in lines are also in listen only mode. At the conclusion of the management presentation, we will be opening the floor for questions. At that time further instructions will be provided as to the procedure to follow if you would like to ask any question. Please be advised, for those participants who do not yet have a copy of the press release, you may download it from TSMC's Website at www.tsmc.com. Please also download the summary slides in relation to today's quarterly review presentation. Once again, the URL is www.tsmc.com. I would now like to turn the conference over to Dr. Elizabeth Sun, TSMC's Head of Investor Relations, for the cautionary statement before the main presentation by Ms. Ho and Dr. Tsai. Please proceed.

Good morning and good evening to all participants. This is Elizabeth Sun, Head of Investor Relations for TSMC. Welcome to join our second quarter conference call, today’s call will have three main parts. First is our CFO MS. Lora Ho’s report on the second quarter results and the quarter guidance. Then it will be a presentation by Dr. Jack Sun, TSMC’s Vice President of R&D, who will be talking about our recent top line in advanced technology. And finally we will have Dr. Rick Tsai chairs to question and answer session. Before we begin, I would like to state that management's comments about TSMC's current expectations made during this conference call are forward looking statements, subject to significant risks and uncertainties, and that actual results may 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 20, 2006, 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 statement, whether as a result of new information, future events or otherwise. And now, I would like to turn the conference call over to Ms. Lora Ho, our Chief Financial Officer and Vice President.

Thank you, Elizabeth. Good morning and good evening to everyone. Welcome to the TSMC's Second Quarter 2006 Earnings Conference Call. As mentioned during our first quarter earnings conference, TSMC will shift the basis for our financial reporting from unconsolidated basis to consolidated basis. For our first quarter earning release we presented our financial result on an unconsolidated basis with the reconciliation of material differences between the two reporting basis provided in the management report. For the second quarter we will report a financial result of TSMC on the consolidated basis, a reconciliation of material differences between the two reporting basis, will also be provided in the management report as to where as in my presentation. Starting from the third quarter of 2006, we will shift over to consolidated reports only. Now, I would like to walk you through our second quarter consolidated results, followed by a discussion of our second quarter unconsolidated results. I will then go over our guidance for the third quarter 2006. We have posted our quarterly financial summary slide on our Website, though slides are intended to assist you to follow the floor of our presentation. Slide numbers are posted on the bottom half of each slide and we may repurchase certain slides throughout the presentation for your convenience. All dollar figures are in NT dollars unless otherwise stated. With that please turn to slide number 5. Let me start with some of the highlights of the quarter. We had a good second quarter, total revenue for the quarter was over $82 billion in a high end of our guidance, mainly driven by strong demand from our customers in consumer and communication segment. Earnings per share was $1.32, up 85% year-over-year and up 4% quarter-over-quarter. Now, let's take a closer look at our income statement. During the second quarter of 2006, we delivered 37% year-over-year and over 5% quarter-over-quarter top line growth. We felt strength in consumer and communication segment with revenue from consumer and communication applications registering 21% and 19% sequential growth respectively. On the other hand, revenue from computer applications declined by 16% quarter-over-quarter, as a result of inventory correction in a PC related supply chain. Gross margin improved by 3.3 percentage points Q-over-Q to reach 51.8%, largely due to higher level of wafer output and productivity in footprints. We grew operating income faster than revenue, operating margins was 43% for the quarter which was 1 percentage point higher than the high end of our expectations. Finally, our net income increased by 85% year-over-year and 4% quarter-over-quarter with a one time gain of 1.6 billion included in the net income of the first quarter. Now, let me turn to the balance sheet, we ended the quarter with $212 billion in cash and marketable securities which is a 19 billion increase from Q1. Our current liabilities increased by $69 billion as a result of 65 billion payable for cash dividend and employee bonus. Our account receivables turnover days declined by 2 days Q-over-Q, in the mean time our inventory turnover days increased by 3 days Q-over-Q in part of due to an increase in our turnkey business. Now, please turn to page 8 for a brief summary of our cash flow statement. We generated over 50 billion in cash from all operations up 76% from the prior year, we spend over NT$21 billion or US$634 million on capital expenditure during the second quarter which brings our first half capital spending with NT$33 billion or a bit over US$1 billion. We maintain our CapEx guidance for the whole year at between US$2.6 billion to US$2.8 billion. As a result, total cash increased by 20 billion from the last quarter and now its $640 billion. In terms of all capacity, total installed capacity for the second quarter was 1.7 million eight-inch equivalent wafers inline with our previous expectation. We expect our third quarter capacity to which close to 1.8 million eight-inch equivalent wafers or a 5.8% sequential growth, compared to the capacity guidance that we provided in April we had slightly increased our 2006 total capacity by about 60,000 wafers. Most of the capacity increase is for the mature technology. Page 11 through page 14 of the slides breakdown our sales by technology application, geography and customer which I will now go through in detail. Forever I would like to point out that our 90 nanometer revenue continue to increase and accounted for 24% of our total wafer sales in the second quarter up from 20% in the first quarter. Before I go over to next quarter guidance I would like to quickly go through our unconsolidated results for the second quarter, please turn to page 15. For the second quarter of 2006 the consolidated net sales were higher than the unconsolidated net sales by about 1%. The consolidated gross margin was also higher by about 1.4 percentage points reflecting the true gross margins from the consolidated entities. For TSMC the major income payment refers between the two reporting basis were pretty expensive and now abiding the guidance. Consolidated operating expenses were higher mainly due to additional operating expense from our overseas sales office, WaferTech and certain venture capital funds. The difference in non-operating items was largely due to the consolidating of subsidiaries, upon consolidation the financial results of our consolidating subsidiaries are no longer including our investment income. Instead, they are included in appropriate categories of our income statements. Now let me move to balance sheet, on unconsolidated balance sheet, TSMC’s share of its consolidated subsidiaries is included in the long-term investment on the balance sheet. Upon consolidation the asset and liabilities of these subsidiaries are included in appropriate category of the balance sheet. As a result except for long term investment both of the asset and liability items are higher on the consolidated basis. At the end of the second quarter among the balance sheet item which had the largest difference between the two reporting basis were cash and marketable securities and the fixed assets. On the liability side, total consolidated liability was about $11 billion higher largely due to borrowings by TSMC Shanghai. Finally the difference between the shareholder equity was due to minority interest. Now, a brief summary of our unconsolidated cash flow statement. When comparing the cash flow statement we generated slightly more cash from our operations and spent a bit more cash for investment on consolidated basis. As a result net cash increase was $2.5 billion more on a consolidated basis in the second quarter. With that, I will turn to our guidance for the third quarter of 2006. Since we were shifting toward consolidated reporting, we will provide guidance on consolidated basis only. Based on our current business and foreign exchange rate expectations, we expect consolidated revenue to be between NT$79 billion to NT$82 billion. Our expectation for growth margin in the third quarter is between 48% to 50%. The operating profit margin is expected to be between 39% to 41%. I finished my presentation, now I would like to turn the call over to Dr. Jack Sun, our Vice President of R&D for an update of our advanced technology. Dr. Jack Sun: Good morning and good evening. It’s my pleasure to report some of the TSMC’s recent progress on advanced technology for example in 80 nanometer, 65 nanometer and 45 nanometer and here are the highlights. We have brought 80 nanometer process into mass production to provide both cost and performance benefits. In addition we are quantifying 65 nanometer process for full protection and we have started trending three products with SM (ph) yield ahead of the industry. As part of the technology package we have established a design from manufacturing DFM, a DFM standard for 65 nanometer and beyond which enable our customers time to market, shorter time to market and time to volume (ph). At the same time we continue to push more slot and we are accelerating 45 nanometer technology, all protection by the end of next year. And as part of this 45 nanometer trust, we have demonstrated protection capability for a new lithography capability, the immersion lithography which records these accounts. I will use a few slides to illustrate and highlight the immersion lithography progress and our innovation in DFM technology. Third let’s look at immersion lithography, immersion lithography allows more slot to continue beyond 65 nanometer and other way to 22 nanometer. Today’s (indiscernible) by TSMC, Dr. Bernie and got accepted by ITI’s Romac (ph) and the industry, helping lithography standard, how it works? by having water between the lens and wafer, we can improve the resolution and the depth of focus for better image quality. There are many challenges of immersion lithography and we have overcome almost all of them. And one of the chance is EPEC (ph), EPEC can come from particle, watermarks, bubbles and so forth. And we have protected the arch and demonstrate protection capability. And this slide show the example that we have low single-digit EPEC on 12-inch wafer and we have even demonstrated EOP effects while the others have double or triple digit (indiscernible) effects. And we have proven this protection capability also in 65 nanometer using a 16 megabit exchange vehicle. Now, let me turn into the yield and the DFM illustration. As you can see in this slide from 0.18 micron to 0.13 micron to 90 nanometer to 65 nanometer, on the defect density million rates standpoint we have generation to generation improvement. And the detection data are based on actual customer products, how can we do this, it is both in terms of solid technology and methodology, in addition, starting in 90 nanometer and 65 nanometer and beyond. Yields is no longer purely limited by physical defects and we need and we have in the basis designed for manufacturing DFM solutions to help our customers overcome residual process variances on the wafer and achieve consistent success and in fact time to money. What is DFM and what is TSMC’s innovation, I use a couple of slide to show you. Variations naturally occur on silicon wafers, for example lithography may not have a two square primal, you get a hole, a round hole. And when you try to finalize the wafer depending on density and the environment it may have different topography and thickness. And these physical defects could cause serious problems for advance technology and the old fashion DFM rules or guidelines can often, how often far to use or check. So designers often ignore them, or they go into problems. Our innovative DFM solution puts automated DFM capability at designer’s fingertip. So they can help become such type of variations and inactivity from the starts in the design things. They don’t necessary need to know the process and help interoperate all the severities in the design from manufacturing considerations. Let me use an amount you just drive or you try to new city or (indiscernible) area, even if you have the maths profitable in some text, it may still writing to (indiscernible) or get tickets and our DFM solution is like an enhanced GPS or auto pilot kind of program which can guide you other way through your destination safely and quickly, and the significant and value of TSMC’s DFM solution is illustrated in the following slides. If you look at the bottom cartoon in a non DFM design implementation or in a traditional way of doing it. You could easily run into (indiscernible) yields or performance problems when you try to clean up the yield and each score may take months to fix and you know ‘time is money’. So you want to be able to tackle this from the beginning and our automated DFM solution is easy to use and we can shorten the yield ramp cycle so that the customers can enjoy the early market benefits. And let me also make a comment here, a poor DFM or a poor process may cost too much time in the design phase to implement DFM or it would increase the die size when you implement the DFM. So our differentiation is ready in both process technology and also the DFM is used. And we have established a de facto DFM standard and a DFM platform, just like you need to define a DVD format when you try to create this market and make it easy to use for people to entertain themselves. So we have defined a DFM format, a standardized format. With this TSMC can release our proprietary encrypted process in a DFM data kit to designers and IT providers. And they can use in their own designs. And we are also working with the EDA industry and IT providers to have the DFM compliance ecosystem which also support our customers’ product design. In this way designers can gain the full benefit of DFM without any pain or errors, even if they don’t have the process technology expertise. And this ecosystem right now has close to 20 major EDA companies and all of them have been certified today. So, let me summarize, we continue to lead in advanced technology and we have established creative, novel design from manufacturing standard and a solution as a total integrated package to make the advanced technology very easy to adopt and to have product success and quick ramp for the money and the market share and we have been accelerating 45 nanometer technology to extend our leadership and we have continue to invest in exploratory advanced research to continue to push more slot ahead to create value for our customers. Thank you.

At this point, I think our CEO Dr. Rick Tsai will give a few remarks before we open the floor for questions.

Hello, good morning or good evening, here is – there are a few question that are faxed by many people, so what I would like to do is to give my comments and answers to those questions at the beginning of the session. The first one obviously is the question on the inventory or the correction by the inventory buildup in the industry, and how that impact semiconductors in 2006, 2007 and how TSMC manage this correction. My comments are as follows, obviously from the guidance we just gave for the third quarter revenue you can see slow down in the growth of the business and this slow down is mainly due to the inventory in the supply chain and the correction as a result by our customer base. You look at -- there have been many data coming out from the second quarter (indiscernible) if you look through them, hopefully you would find that basically the inventory level either through the total value or DOI, it’s not coming down from the industry, overall the two large CPU manufactures represent very large chunk of the inventory buildup. If you take the large CPU manufactures you will find the inventory level in terms of the value already has come up by a couple of points to customer base, if you use a DOI measures the inventory stays pretty much flat at the end of the second quarter compared to that of the end of the first quarter; which means our customer base has already started the correction in the second quarter and going into the third quarter. However we believe this correction will probably go smoothly full year of year 2006. And as a result, the way we look at semiconductor industry gross rate for the whole year 2006 has some change. Three months ago we forecast 8% to 12% gross rate for the semiconductor industry as a whole for 2006, now we are revising that gross rate to the low end of the range that is 3%, maybe to 9%. Now to year 2007, right now we do not have a specific number for the whole industry, however we feel hold a positive view of year 2007. I like to remind you that 8% to 9% gross rate now for the industry in our view represents a very good healthy gross rate, which is also a gross rate that we expect industry to perform over a long period of time going forward. In year 2007, we expect the industry to perform as a similar rate to year 2006, we try to give you a more specific number, once we have a little better feeling in the future. Many people also, for the, it is very similar, this time inventory correction in 2006 compared to the correction which happened in the year 2004. Our observations are, yes there are similarities but there are also differences. Similarity being basically the correction is indeed produced by the yield up of the inventory, however we also have seen our customers to respond quite fact through the inventory buildup and also they are responding pretty large, I would say large magnitude versus inventory buildup, but the result we do expect this inventory correction to be more moderate, to be monitored compared to that of the year 2004. Well, what TSMC do? What is TSMC doing to manage this inventory correction, first of all things we believe with inventory correction is a mild and a short-term one, we do not plan to do things which are very drastic. The most important things for us to do is to have the fundamentals, we will not slow down any of our technology R&D and by this we need both process technology and design technology. We will continue inventing in the R&D and if anything we will invest more and we’ll try to accelerate our R&D, so that we can have a better technology leadership going forward. Of course the same thing will apply to our manufacturing without from cost reduction point of view. We will continue to work very hard to accelerate the cost improvement. Having said all that we are doing something for the short-term basically we are managing our capital investment for a short-term purpose, we are reducing some of our capital investment for the short-term, thereby moderate one. We will first, we will also manage our operating expenses other than R&D so that we don’t, we can have a better probability. TSMC has gone through many cycles during the past 5 to 7 years and you know our track record very well. I think we have, what we have shown is our ability to manage the cycle better each time. So, we spoke we have been doing and what we have learned from both technology, manufacturing, package management and a demand generation. We have full confidence that we will do better this time compared to what we have done during the last correction. And this is the comment for the third major I would say (indiscernible). There also quite a few people asking about our 65 nanometer status and the competitive landscape, so I would like also to spend a few minutes on that subject, of course Dr. Sun just now has made excellent presentation of our knowledge status, what I will give you is probably more towards the business side. 65 nanometer I am very pleased to say is really doing very well not only are we completing our qualification, but those low power and the general versions of the technology we have already started small significant volume of production for customer. In addition we have quite a few customers now qualifying their products in our 65 nanometer process, we expect 65 nanometer production to have a significant envelope starting (indiscernible) and we also according to our current forecast we are expecting that we can, the output of the 65 nanometer production will reach above 5% of the revenue by mid 2007, give and take. From a competitive landscape point of view we do expect 65 nanometer competition to continue to be fierce, just as we have seen in the 90 nanometer node. However I like to also show you the results that we have, we have shown over the past several quarters of our 90 nanometer performance. I think if you go and check the numbers you will find that TSMC has grabbed very strong market share in the 90 nanometer technology node with a very fierce competition and the -- I am very happy to report the overall pricing pressure is very high, the gross margin pressure is very high, the gross margin in the 90 nanometer technology node has done better than we expected, now we continue to see a gradual improvement of the 90 nanometer technology gross margin. You may ask why, by the way we certainly expect we continue to perform equally well or better for the 65 nanometer technology, why I think because for the advanced technology, the more advance it is, the more important to have a platform solution rather than just have a process. What do we mean by platform solution that is in addition to the process technology you need first and foremost, the design environment which provides potential IP to our customers, the memory compilers, the DFM, design for manufacturing that Dr. Sun just talk about, the back end technology compatibility, quite we need all alternatives, because as you also know the most important thing for a new technology is to be able to ramp it up fast with very good yield learning curve and nowadays the yield the liberating factors for the yield ramping lies not in the DFMs, the particles, I’m not saying they are not important, what I’m saying is that they are not as critical as before because the yield limiting factors now lies a lot more in the interaction between the process technology and the product design. The (indiscernible) goes in is to design the product with good yield, so that our customers can ramp their product sooner with higher volume and they can get a better profit, they can make more money and as a result we can be more profitable. So, to summarize, the 65 nanometer technology is doing very well, we will compete fiercely again in 65 nanometer as we have done in 90 nanometer and we have all the covidence or we will again do well in the 65 nanometer technology. Thank you that’s my comments. Elizabeth?

Operator please open the floor to questions.

[Operator’s Instruction]. Your first question comes from the line of Bhavin Shah with JP Morgan. Please proceed.

Yeah thank you and I apologize if there is any noise on the line. The question I wanted to ask you Rick was that when you speak to your customers and it looks like, you feel that they are working on bringing down the inventory levels already, do you feel that they are factoring in a potential scenario of a very weaker U.S. economy or you feel that they are still believing in a normal demand environment but simply trying to be, trying to bring inventories more in line and I have another question thank you.

Okay, I assume it’s more towards the latter of your two point, the second point. I would say most customers feel fairly comfortable with the demand, I mean for instance, of course PC we all know, it’s not doing well. Okay, you said that many times that the delay of the system may have contributed to that, out of that, but other than that I think consumers communications remind you that the handsets shipments this year did very strong. Nokia have, I think some people probably got over excited in the early part of the year and build too much components. Changing question I think -- people are, most of people are feeling comfortable with the demand of the inventory efforts now distributed evenly.

Okay, I see, so, if in the scenario where U.S. economy actually does slowed sharply, that would bring a new element of risk, I guess.

Certainly, anytime with U.S. economy.

Fair enough.

Yeah.

Okay, second question I have was sort of, I think we clearly, the discrete graphics you dominate the market and that’s not going to change, but in the eventuality that CPU vendors start integrating graphics into the CPU. How do you see that developing is it like a three year out scenario? And also do you feel that in that situation you may be able to participate in the CPU market itself. Yeah, your thoughts on that please, thank you.

I think that scenario is fairly new scenario, I do not think there is consensus in the industry I believe as far as we can go, yes I do not mean, I mean obviously we need to pay very large tremendous amount of attention to that we view of course there is a potential opportunity of tools. Graphic is the very large share – very complicated share especially the higher performance one. I think TSMC really has math expertise in building those products. I think we have a very good position in working with the potential customers in that arena also. We will, we definitely view that as an opportunity.

Okay, thank you.

Thank you.

Your next question comes from the line of Johnny Chan with Deutsche Bank. Please proceed.

Hi Rick. I just have a question about the AMD’s recent acquisition of ATI and with that acquisition, you now have AMD a media Intel a lot of competition existing at the same time. How do you think going forward the acquisition is going to affect TSMC’s business on a PC side both near term and long term? And I have an other question.

Okay, I think the merger between the AMD and ATI short term should not have impact to our business, returning to longer term I expect to see opportunities. We have had a very long and a very strong partnership relationship with ATI, we do have some relationship with AMD also, we certainly view these opportunity for us to further strengthen the relationship and expand our future business in that area.

What do you mean your relationship with AMD is that coming from suspension or is it coming from something else, AMD on its own?

We do have some business reason not big one.

Okay. And my second question is the 45 nanometer I mean obviously Dr. Jack Sun just talked about immersion dissolver at the end obviously TSM is one of the leader in there and just given the TSMC’s precision there, do you think there is sufficient entry barrier if 45 that TSMC may have us even better margin if 45 nanometer compared to 65, and 90 nanometer. Thanks.

Okay, Johnny, first thing I think each new technology presents a barrier. I understand some people view sometimes certain technology, know it easier what I can say is going down to this very more dimension any kind of shrink presents a lot of difficulty however going down to 45 nanometer probably, I think it is fair to say the idea, the barrier probably higher because of the need of the immersion lithography and those will very likely another generation of the low k dielectric material for the materialization, across even more trip for the transistors to get the, and the design technique to reduce to lower the power consumption, oh yes, I think the technology barrier is indeed higher for 45 nanometer that’s why TSMC is following so much resources into the developing the technology and we’re trying to up the schedule that we are working very closely with some of our largest customer to ensure, we have a capability for them.

Yeah.

I do not want to say that we can just lift on that barrier. We will do everything we can to compete in this technology just as we have been doing before and now. Johnny?

If I can just quickly follow-up if you have compared 45 nanometer and 0.13 similar stage of development, which one do you think is technologically more challenging?

Very good question, my feeling is, I think similar about the 45 may be a bit challenging.

Thank you.

All right.

Your next question comes from the line of Mehdi Hosseini with FBR. Please proceed.

Sure. Actually my questions are answered, when you look at your overall capacity increase this year up by 20%. How do I think about wafer shipment as you decide to few utilization right there, was involved, should I expect down slightly in utilization rate and if you could give me some color on it. And also, in terms of your customers, if you can elaborate on the strength or weakness in a gain concept related orders, thank you.

You’re talking about a capacity increase, actually the 2006 versus last year was 18.5% increase?

Yeah, 18.5% increase, if it down to like, the wafer shipment in the second half with, overall wafer shipment would be more than 18.5% increase. Circuit utilization lift from a significant drop off?

I think you are asking whether this year will have more than 18.5% increase in wafer shipment, is that your question?

Yes.

We will now talk about wafer shipment and you do look at our guidance on the first quarter we are anticipating inventory correction, that will of course will effect some of the utilization as well.

So, will the utilization rate slow down?

Yeah, I believe so.

Yes.

But would the utilization rate down to 90% or below 90%?

I would not quantify that, we have dropped guidance on utilization two quarters ago. But if you look our guidance on revenue you can see that we are guiding the revenue slightly down on the third quarter to somewhat, so when that you can seek all the…

But we really don’t have much color on the ASP, so maybe you can rather on ASP trend another specifically hardly changing but is that drop off in ASP more than a drop off in wafer shipment?

We do not compare the ASP change versus the wafer shipment change this year, those two factor -- are the two factor constitute the total revenue, so we would talk about revenue only.

I think, you’re probably can, I don’t think the ASP decline will be abnormal, so with that, and I don’t believe, we don’t see the utilization rate to go down the number used by shipped.

Okay. And then regarding the game console market, they spending to have an interesting commentary regarding the cut back in wafer start from one of their larger customer, if you could elaborate on that, how you see that specific segment tracking?

You are asking, if the wafer task is slowing down, is that the question?

No, I’m talking about my second question, and that has to do with the game console market…

Game console.

(Multiple Speakers) they largely get, your wafer start from the largest customer related to game console has dropped out significantly for Q3. Do you see the same trend or how would you characterize the demand from the game console segment?

I’m sorry about the -- we cannot really comment on this question directly because you know the customer is and we cannot comment customer question or we can comment on the segments application although in general.

How would you characterize consumer market assuming that game console is included in that?

Again consumer segment will be slightly almost flat in third quarter that’s over future consumer.

Thank you.

Your next question comes from the line of Tidus Mercy (ph) with Jeffery. Please proceed.

Good evening gentlemen, thank you for taking my call, just couple of questions. Firstly could you give some color on your migration to 45 nanometer, -- your thermal 45 nanometer what type of numeral (indiscernible) will you be using in terms of achieving the yield? Dr. Jack Sun: I think one. It’s larger than one.

Sure.

But you are asking very….. Dr. Jack Sun: Technical question.

Okay.

Not only technical but also very critical from technical point of view.

That’s fair enough, they may, is this June a slow down in 2007 in terms of production from your end market. With your CapEx paying to these, will R&D remain unchanged over that also the revised downward to?

We were not revised on our R&D investment including CapEx for R&D to and engineering for R&D we will only increase and fairly our R&D activities.

Okay and last question, you spoke about increasing of power management or power consumption, having license of SOI technology into your portfolio, are you seeing any of your customers for development of SOI technology for production? Dr. Jack Sun: No. They are still too expensive and there are alternatives and the design barrier is quite high as you know SOI so far has been pretty in the niche market, I mean in CPU with custom design. And SOI introduce additional barring which everybody worry about and that require a lot of effort in design and most of the applications and most of the market cannot take that risk or cannot forward that kind of investment.

Thank you very much for your time. I appreciate it.

Your next question comes from the line of Ivan Goh with Dresdner Kleinwort. Please proceed.

Hi good evening. I have two questions, the first one is based on commencement by many semiconductor companies, it seem as if the order or forecast revisions for the third quarter happened quite late in the second quarter. Can you fit of all say whether these revisions are continuing into, this current time or have they kind of like finished?

Revision? I think as we said at very beginning, there is inventory correction going on and we expect to see this impact throughout the year for sure. Some customers started the correction sooner than the others, so I guess I would expect some to continue to do correction for a while.

Okay. And my second question is, at the start of the conference call, you said that you expect the correction to be carried through into the fourth quarter of this year or rather for the rest of 2006. What is your assumption as to the level of correction in the third quarter and the fourth quarter? Mainly I want to know, do you think that most of the correction will take place in Q3 with corrections actually kind of like moderating in Q4 or you think that it’s going to be one step at a time that customers will take, if it regards to rationalizing the inventory.

I think it will be, from that point of view it will be more similar to the (indiscernible) will be more similar to that of the 2004.

Would you be more specific, would it be one step at a time or would it be a big cut and then the smaller one in Q4?

It’s probably not a big part in one shot is progressing regularly side by side.

Is a spectrum of different customers correcting.

Can you perhaps elaborate on the wireless area, and that’s my last question.

See in the wireless, the handset shows a slightly down for the third quarter, for the third quarter.

Yeah.

Would they be making most of the big cuts earlier and then or kind of like taking one step at a time?

That’s difficult for us to tell you, but I think it was in a gradual manner.

Thank you very much.

All right.

Your next question comes from the line of Timothy Arcuri with Citigroup. Please proceed.

Hi couple of things, first of all, have your lead times when you go out and order a piece of equipment with your vendors have the times they have the, lead times for that equipment has that changed in the last couple of months.

Not to a significant degree. I mean, I just read the news I think as you do, the semiconductor equipment industries have book to bill ratio seems to be doing well, that is reasonably well.

Okay, second question, I know that you don’t want to talk about capacity utilization but is it kind of safe to assume, you are guiding shipments down about 2% and capacities growing or so you are guiding revenue down about 2%. And capacity is growing about 6% sequentially. So, it is some kind of flattish ASPs, you are talking about a down taking utilization may be in the high single digits. And I just kind of wondering as you compare this downturn relative to 2004 when you saw your capacity utilization decline by about 25% in a 6 month period. I am wondering if there is reason to believe that the decline over a 6 month period would be similar to what you saw back in 2004.

Well I think of course we don’t have, we cannot guide fourth quarter right now but the, as a whole we do view this correction to be moderate, more moderate than the one in 2004.

Okay so you would think that if utilization is down high single digits, you are guiding to capacity increasing another 6% sequentially in Q4 so shipments were down again or revenues down again you are going to have another high single-digit to may be low double-digit sequential decline in capacity utilization, that’s almost as bad as it was in 2004 not that much better. But may be that math is wrong.

I guess I stick to my answer just now

Okay and then last thing, I understood that today on the other call you talked about ’07 CapEx trend being up, (a) is that right? and (b) how do have the visibility on that given that you are, you are actually cutting back on your 300 millimeter capacity right now. So I just wanted some color on that, thanks.

I don’t think we guided any results on 2007 CapEx, what I touched earlier in the afternoon was, since we view in general 2007 to be another positive year with a growth probably rather similar to that of the 2006, we will continue investing in advanced technology to meet all our customers. And we also we will look for cost effective mature technology capacity since we have been seeing pretty strong demand for our matured technology capability. For that this wont be larger or smaller compared to year 2006 we have not made that decision yet.

Okay, thanks a lot.

Your next question comes from the line of Shailesh Jaitly with Nomura Securities. Please proceed.

Hi thanks. Last quarter Rick you guided that your outsourcing relationship, that found a relationship with the DRAM company and you characterize that roughly about 5% of the output was outsourced in the previous quarter from the DRAM company, how has that changed as we go into 3Q?

There is no change – see the percentage but I had to remind you that also seeing, does not only cover the DRAM company also covered all the investments companies --.

Lora, in that case how has the outsourcing relationship with Venga (ph) changed as we go into 3Q?

That has not changed and we are to increase our low wing to Venga (ph) fabs they are actually only 21A micron.

Okay. In terms of your guidance for 3Q, just wanted to understand the linearity of this quarter when you comprehended the monthly revenue run rate, is it fair to assume that July would be the peak revenue month in 3Q?

Look at that coming, monthly revenue I think totally revenue should give you a good theme feeling of the trend.

But, as we go down the quarter are you seeing the cuts being progressively increasing or what is your feel as of now?

I think the three months will be very similar but we cannot say which one will be higher than the other, but what we can say is there should not be a big gap between the months.

Thanks, one last thing I wanted to clarify you mentioned earlier and I missed that. For 3Q if you look at various prospectus, you talked about PC wireless. Consumer, are you seeing an up quarter in 3Q or that is also likely to come down sequentially?

Consumer for the third quarter will be slightly up or flat in general.

Which are the areas, which are the applications where you are seeing the growth?

The application that has growth, DVD player, okay, DVD player and digital camera will be high and in second quarter and in fact to improve slightly in third quarter.

Thanks.

Your next question comes from the line of Barma Lu (ph) with (indiscernible) please proceed.

Hi Lora, can you give us the third quarter guidance and I am sorry they did face it, that would simplify a lot of little works, thanks.

So you like, probably more.

Just, I believe not only me, but some of us are going to steal report with the unconsolidated reporting this quarter. And so with that it clarify a lot of uncertainties.

Okay, similar to unconsolidated revenue is slightly smaller than consolidated revenue if I have to guide in unconsolidated basis, I would say 78 to 81 in terms of (indiscernible).

78 to 81.

How about margin, gross margin or base margin?

I’ll give you one point less 47 to 49.

Okay, great. Thank you so much. I have a follow-up question on the CapEx, I mean Rick has commented that you have pushed out some of the equipment delivery and for the second half like if customer want to ramp up very quickly in the second quarter and you, how do you prepare for that?

Barma, I think we, now it’s July for the second quarter next year what we have done, what we usually do as for the lumpy time equipment such as scanners, we do not really slow down the purchasing. So what we usually slow down are the ones that we can get relatively short, anytime like Siemens in that I think we have a good buffer plus reputation.

Okay, great. Thank you very much.

Sure.

Your next question comes from the line of Fayad Abbasi with Neuberger. Please proceed.

Rick, I had a question for you regarding the commentary about the 45 nanometer and it looks like with the amount of time before you move from 65 to 45 is a lot shorter than in prior process nodes, so just curious is this, how do you, how would you characterize this change and our customers demanding it or is it you’re bringing it to the market and waiting for the customer is then to move to the node and also are you expecting these nodes then to see put the same level of ramp up that you have seen at prior notes. Thanks.

I think for your first question we have both, we have certain confront who are working closely with us we would like to take the leading position in the process technology, of course for benefits, but also I think TSMC, ideally have over the years we have the infrastructure, heavily I would also think very productively in our technology development and we were able to going someone to schedule. I do not underestimate the level of the effort to get 45 nanometer technology in to production into a large volume design -- sorry search earlier in the session technology is just getting more and more difficult both from design point of view and process point of view, however it is also obvious that economic worked very well for the technology moving forward. So you can view that also as the barrier we are definitely working with customers who believe they can take the advantage of the 45 nanometer technology and get ahead. They are competitors.

I guess if you look back in the past at the amount of revenue contribution from a particular node before you see the cross over to the next node is that percentage do you think that comes down then so in other words 65 nanometers may be not contributing north of 20 or north of 30% before you start initial contributions for 45.

I do not have that visibility right now, don’t get me wrong, I believe 65 nanometer will be a popular node simply by the share, number of customers who are already designing in that what we are seeing is, on the other hand, they are our customers who will jump ahead with 45 even, they are also using 65 nanometer, probably for their mainstream volume products.

And Rick, maybe one last question on this topic then on in terms of 45 nanometer a lot of discussions about big materials changes and at, if you’re pulling in the schedule for 45, have you made a discussion then to push back on some of the big changes, so I think a gate dielectric is one that usually comes up as an expected change in 45. Is that been, is that decision been finalized them?

Yeah, I mean we do not have time to change gate dielectrics at a 45 nanometer node. My feeling is that more industry trend, I do not know because I can say consensus but the TSMC does not plan to use different gate dielectrics material. I mean, it is complicated enough.

Al right, I guess emersion than it’s going to be the big change as we go to 45.

Oh I have said it, and as I said to you lower k dielectric for the recognition (ph) is not a piece of page either.

Sure. Thank you.

Thank you.

Ladies and gentleman in the interest of time we only have time for two more participants. Your next question comes from the line of Michael McConnell with Pacific Crest Securities. Please proceed.

Thank you, most of my questions have been answered. I just want a little bit more granularity on the end market outlook for Q3 understanding you already talk about consumer and wireless, but if you could maybe talk a little about PCs and the wireline markets as well please?

I think PC will continue the correction of inventory and we are anticipating major segment define among all segments.

Okay in wireline?

Okay on the wireline all I have the time moderating second quarter and we will improve moderating third quarter basically.

Great, that’s it. Thank you very much.

Your next question comes from the line of Mark FitzGerald with Banc of America Securities. Please proceed.

Thank you. Just a quick question on CapEx you commented its still 2.6 to 2.8 billion but then you commented later in your call that you would be adjusting CapEx from the short term, how can we just tell those two piece of the data?

We have not changed our guidance of CapEx for the full year, actually it actually when we preparing for the guidance actually it was in the low end and couple of months later it went out to the high end and now back to the low end again. So that’s more adjustment work Rick just mentioned is during this years -- doesn’t affect too much on our CapEx budget for the whole year.

Okay. And then quickly, a bigger issue design for manufacture ability of something we constantly hear about in the industry I am curious if this is a really important trend and if it forces your customers to be tied more closely to your own process technology we may design a chip.

Yes, we enable than to still had this kind of a close tie through two ways, one is our innovative design for manufacturing standard where we can pretty much provide them with ease of use proprietary DFM data or process data at your finger tips. And second is for early adopters we have established very good collaboration program with them, so they are involved collaboratively with us at the early stage of process development and we more or less are doing concurrent engineering with them so they are very much in thing with our process capability and where they should watch out to avoid design process. Also all our customers are quite smart, I like to think they understand the need to use DFM for better yield ready to win-win type of relationship rather than the kind of what if you describe, what do you say, try to (indiscernible) mean I don’t think -- I think the customers are too smart to do that, so that we.

Thank you.

Thank you.

There are no further questions in the queue. I would now like to turn the call over to management.

I would like to thank you very much for your time and we look forward to see you on October, next quarter. Bye bye.

Thank you for your participation in today’s conference, this concludes the presentation. You may now disconnect and have a great day.