Elizabeth Sun – Director, Corporate Communications Lora Ho – SVP, CFO and Spokesperson Morris Chang – Chairman and CEO

Dan Heyler – Bank of America Mehdi Hosseini – Susquehanna Michael Chou – Deutsche Bank William Lu – Morgan Stanley Andrew Lu – Barclays Roland Shu – Citigroup Brett Winston – RA Mahesh Sanganeria – RBC Capital Markets Steven Pelayo – HSBC Randy Abrams – Credit Suisse

Welcome to TSMC’s second quarter 2012 earnings conference and conference call. This is Elizabeth Sun, TSMC’s Director of Corporate Communications, and your host for today. This is the first time that we are combining the quarterly earnings conference with the conference call, and event is webcast live via TSMC’s website at www.tsmc.com. If you’re joining us through the conference call, your dialing lines are in listen-only mode. As this conference is being viewed by investors around the world, we will conduct this event in English only. The format for today’s event will be as follows. First, TSMC’s Senior Vice President and CFO Ms. Lora Ho will summarize our operations in the second quarter and give you our guidance for the next quarter. Afterwards TSMC’s Chairman and CEO Dr. Morris Chang will provide his general remarks on business outlook and state a couple of key messages. Then we will open the floor to questions. For those participants on the call, if you do not yet have a copy of the press release, you may download it from the TSMC’s website at www.tsmc.com. Please also download the summary slides in relation to today’s earnings conference presentation. Before we begin, I would like to remind everybody that today’s discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears on our press release. Now I would like to turn the podium to TSMC’s CFO Ms. Lora Ho.

Thank you, Elizabeth. Good afternoon, good evening and good morning to everyone. We had a very good second quarter. The financial results came in at the high end of each of the guidance. Revenue grew 21% QoverQ to set a record of NT$128 billion. This strong demand for mobile computing devices and our leadership in 28 nanometer give us a strong growth in the second quarter. On the margin side, second quarter gross margin was 48.6% or 0.9 percentage points higher than that in the first quarter. The increase of gross margin mainly came from the higher capacity utilization across all technologies, although 28 nanometer gross margin is currently below corporate average. We expect it will reach to corporate average by the first quarter of 2013. Operating margin was 36.5% in second quarter, up 2.9 percentage points, both R&D and SG&A expense as a percentage of revenue decreased by about 1 percentage points each. You may notice that we had a loss of NT$0.8 billion in a non-operating item. This is mainly due to a one-time impairment charge of NT$2.68 billion on our 5.6% holdings in SMIC shares. This contributed to NT$0.09 drop of our second quarter EPS. Overall, our second quarter EPS was NT$1.61, ROE was 26%. Let’s move on to revenue by product segment. We have seen revenues from all applications increased sequentially among the four major product segments. Communications increased by 27%; computer increased by 20%; consumer increased by 9%; and industry-related revenue increased by 39% in the second quarter. The high growth of industrial and standard application is mainly due to strong demand for ICs used in mobile computing devices such as power management IC and a touch controller. In terms of technology, revenue from 28 nanometer grew nearly 90% in the second quarter. We expect shipment of 28 nanometer to double in the third quarter. Revenue from advanced technologies, that is 69 nanometer and below technology and beyond technology, accounts for 61% of our second quarter revenue. Take a look at the balance sheet. The cash and marketable securities ended the second quarter at NT$188 billion. Accounts receivable and the inventory amount went up as a result of business growth. Current liability increased by NT$86 billion mainly due to the accrual of dividend payable of NT$78 billion. On the cash flow side, we generated NT$70 billion from operations, invested NT$59 billion in capital expenditures, repaid NT$3.9 billion in short-term loan. As a result, our cash balance increased NT$7.6 billion to NT$178 billion at the end of the second quarter. Free cash flow generated in the second quarter was NT$10.5 billion. Let’s look at the capacity. On February 15, we began volume production of 28 nanometer in the second quarter and we expect to ramp at a faster pace in the second half of this year. Given our CapEx, we expect our total capacity to increase by about 14% year over year and 12-inch capacity will increase about 21%. Now, let me provide you our guidance for the third quarter. Based on our current business expectations and a forecast exchange rate of 29.76, we expect our revenue to be between NT$136 billion and NT$138 billion, which is a sequential growth of 6% to 8%. We expect the third quarter gross margin is to be between 46% and 48% and operating margin between 34% and 36%. This concludes my remarks. Let me turn the podium to the Chairman.

Thank you, Lora and good afternoon mainly, ladies and gentlemen. Today I will make few comments on the second quarter and third quarter, and then I will also give you some color on world economy, the supply chain inventory and our fourth quarter outlook. Then I’ll talk about a few major technologies of ours. And then lastly, I will talk about CapEx, capital intensity and growth. Second quarter was a good one. We were actually quite pleased with it. This year, every quarter the major effort has been to ramp up 28 nanometers. And in doing so, of course, we did incur a lot of costs and also as a result, the gross margin of 20 nanometer all year this year would not be up to the corporate average standard. In spite of all that, and also, in spite of an extraordinary item in the second quarter, which Lora mentioned, the impairment charge of SMIC shares, which actually accounted for NT$0.09 earnings per share, in spite of the unusual costs in the 28 nanometer ramp up and the unusual item relating to the impairment charge of the SMIC shares, second quarter was good, was very good, and we expect a good third quarter. We will see a growth, as Lora has already guided, at the midpoint of our guidance, we will see a growth of about 7% in revenue in the third quarter, sequential quarter to quarter revenue growth of about 7%. And since we will not have the impairment charge in the third quarter, our EPS growth between second quarter and third quarter will actually be stronger than 7%. Now, so it looks okay. Now, as we look further into the future, fourth quarter and the first quarter of next year, we do have some worrisome signs. World economy, as you know, and I would not go into the outlook, I am actually talking about the outlook, the future outlook of world economy, and I’m comparing it now with the outlook as most people saw it four months ago, three months ago or six months ago. The outlook now certainly has deteriorated in the last three to six months. The US, which matters the most to us because our market is still very much, is majorly, majorly in the US. So the US economy matters to us the most. It has gone into a less optimistic situation than we saw it even three months ago. The very good job creations record early in the year has now disappeared and there does not seem to be any political solution in sight for the forthcoming financial cliff at the end of the year. And the retail sales, the recent data are not good. And so, the outlook for the US economy has deteriorated in the last few months. And then, next importance to us of the US economy, you have Europe, Japan, mainland China, and Taiwan, and I will say that the outlook for any of those economies has not improved in the last three months. Now, we, of course, have do thorough, pretty extensive market research on our business and one key factor besides the world economy, one key factor, of course, is the supply chain inventory of our products, and that is not good. And I will give you some numbers. At the end of the first quarter, the overall supply chain inventory in days of inventory at the end of first quarter was six days below seasonal. At the end of second quarter, it was three days above seasonal. And we’re forecasting that at the end of the third quarter, it will be 12 days above seasonal. And this, of course, indicates that there would be a correction in the fourth quarter. And we, indeed, are forecasting that there will be inventory correction in the fourth quarter to about at the end of fourth quarter we had forecasted that the inventory will be only eight days above seasonal. So, 12 days above at the end of the third quarter and eight days above at the end of the fourth quarter. And we are also looking our customers’ days of inventory. The fabless customers at the end of first quarter was two days below and at the end of the second quarter was four days above. And we are forecasting that at the end of third quarter customers’ DOI will be 10 days above. And there will be a correction, but at the end of the fourth quarter, it will still be six days above. Now those numbers are for the fabless customers. For IDM customers, the pattern is similar but numbers are different but the pattern is similar, so I’m not going to talk about them. Fabless customers accounted for a very large, dominant majority of sales, anyway. We are now seeing a dip in our revenue in the fourth quarter, a dip from the third quarter level. I think it will be a dip in our forecast, not just I think, our forecast is that the dip will not be nearly as serious as the dip we experienced in the fourth quarter of 2008. That I wouldn’t even call a dip, I would call that a plunge, this one I think is a dip of certainly far more modest magnitude than that one. Now, as to exactly how much it will be, I think it’s too early to say but we can see that there will be a dip and then we have, of course, accordingly made the preparations, we have seen it coming for at least a month, maybe two months now. We saw early signs of it actually three months ago but those were very, very early signs but two months ago we became sure and one month ago we became pretty sure that there will be a dip in the fourth quarter. Now, further, we also think that the dip will continue into the first quarter. And then still further, we see a pretty healthy recovery in the second quarter. So in summary, I am saying that we will have a dip that will last two quarters, fourth quarter and first quarter next year, and by the second quarter, we will have rebounded pretty strongly. Those are the indications that we have now. Now I would like to say a few words about our technology progress. Twenty eight nanometer is progressing very well. Our output and our yields are both above the plans that we set for ourselves and the plans that we communicated to our customers early in the year. Early in the year means January-February of the year, we set our plans in output and in yields and we, of course, ever since then we tried to exceed the plan and we had also communicated the plan to our customers at the time. And we have indeed exceeded the planned in both output and yields. We expect to ramp up to about 68,000 wafers per month by the end of the year, 28 nanometer, 68,000 12-inch wafers per month by the end of the year. And by fourth quarter, we will be nearly caught up with the demand and we expect to fully meet the demand from the first quarter of 2013 on we will fully meet the 28 nanometer demand. It is also then that we expect that the 28 nanometer gross margin will catch up with the corporate average. As I said today, both the defect density and use are better than 40 nanometer at the same stage of the volume ramp and they are also better than what we have – what we planned early in the year and what we communicated to our customers at that time. Now, next a few words on 20 nanometer, 20 SoC. We have made very good progress on the 112 megabit SRAM yield. Now there are still challenges to overcome in meeting our yield plan of the entire chip. We have made very good progress on 112 megabit SRAM, there are still challenges to overcome in meeting our yield plan of the entire chip, which has both the logic and the SRAM on that, of course. Now, our 20 nanometer SoC, we believe, is fully competitive with industry leaders, other companies’ 22 nanometer for the served available markets that we serve. For our markets, we believe our 20 SoC is fully competitive with anyone’s 20 nanometer or 22 nanometer offering. And, one important point to make is that our 20 nanometer has the industry’s leading metal pitch of 64 nanometers. Our leading competitors have 80 nanometer metal pitch. That allows an advantage in the device’s density and die size. Now, as for the timing, we expect our 20 nanometer technology to be qualified by the end of this year and will be ready to support customers (inaudible) in Q1 of 2013. Now today, last time I mentioned that we will have a FinFET product after 20 SoC. And today, I’m glad to say that we have been planning the 16 nanometer FinFET. Right after our 20 nanometer (inaudible), which is the 20 SoC, we will offer FinFET at 16 nanometer for significant active power reduction. We expect to achieve speed and density, speed and logic density levels comparable to industry’s leading players 14 nanometer FinFET. So, we expect our 20 SoC to be competitive with competitors’ 22 nanometer or 20 nanometer products and we expect our 16 nanometer FinFET to be competitive with our competitors’ 14 nanometer FinFET products. You might ask why are we calling it 16. The only reason, in fact, until two days ago, we were undecided on whether to call it 14 or 16 FinFET. Now the only reason we decided to call it 16 FinFET is first, we want to be somewhat modest; second, we are told quite a few major customers ask the 16 FinFET, that designation and we didn’t want to confuse our customers by now switching to 14. But we expect it to be competitive with other people’s 14 nanometer offerings. Now 16 nanometer FinFET, our 16 nanometer FinFET, is expected to deliver about 25% speed gain given the same standby power over the 20 nanometer SoC. It is expected to give 25% to 30% power reduction at the same speed and the same standby power, and for mobile products, it is expected to give 10% to 20% speed gain at the same total power. As for timing, we expect it to be about one year after 20 SoC namely it should be ready for risk production at the end of 2013 or early 2014, about one year later than the 20 SoC. Now, I want to make some comments about CapEx, capital intensity and growth. I know that several analysts have written about foundry industry’s capital intensity and our TSMC’s capital intensity and so on and so on. And so, I’m addressing the subject today because I have seen all these reports. I have seen them without agreeing with them – without agreeing with some of them, anyway, there are some that I do agree with. Now, why are we having such high capital intensity? Now, well, I think this is actually a focus point of our internal discussion among our top level managers for the last two years now. And basically, we invest in capacity to get future growth. So you look back at history. If you look at our TSMC’s history, during ‘97 and ‘02, between 1997 and 2002, during that six-year period, TSMC’s capital intensity ratio stayed mostly above 60%, 60% during that six-year period. And then was, as you recall, there was a high-tech bubble bursting in late 2000 and early 2001. But in spite of that, our revenue CAGR between ‘97 and ‘07, here after having spending a lot of capital, having sustained high capital intensity for six years, ‘97 to ‘02, our revenue CAGR between ‘97 and ‘07, that’s a 10-year period, was 20%, compounded annual growth rate of 20% in revenue during the 10-year period; the first six of which was marked by high capital intensity. During that 1997 to 2007 period, foundry industry growth was 16% in the same period and ours was 20%. As a result, our market share rose from – foundry market share – from 31% in ‘97 to 43% in ‘07. So, when we had those internal discussions about capital and that’s really a major focus of our internal discussions, top level managers, I mean, we looked at four things. First, are we going to be the technology leader in the capacities that we are investing in? So the first question is are we going to be the technology leader. The second question we asked ourselves is are we going to be able to retain our leadership in flexible and responsive manufacturing. So we asked ourselves the question technology, are we going to be the leader; manufacturing, are we going to be the leader. Third question that we asked ourselves are we going to retain the customers’ trust, major, major customers’ trust or perhaps, are we going to even add customers. And then, the fourth question we asked ourselves is at the price and cost we expect on the new technologies, the capacities at which we are investing in, at the expected cost and price, are we going to be profitable, are we going to be able to make the same kind of money that we have gotten accustomed to. Only if the answers to all four questions is yes, only if we are confident in those four issues, four points, do we start to spend the capital money. Now, I actually have not made a secret of that, in 2010, I believe late 2010, I told you that 2010 was the first year we started to spend a lot of capital. In late 2010, I told you that our goal was to achieve in the following five years achieve a growth of – I am sorry, a pretax income, pretax profit growth of 10% CAGR in the 2010 through 2015 period. At that time, which was late 2010, I said that our goal – financial goal was to achieve a 10% pre-tax income growth CAGR and retained or exceed ROE of 20%. 10% pre-tax income growth, 20% ROE, well, that was two years ago, 2010. And we have now raised our goals. It is not 10% anymore. Although, the ROE we still keep it at equal or greater than 20% ROE, but the growth – the pre-tax income growth – pre-tax income growth goal is more than 10% now. I’m not prepared to answer you yet, what it is. But let me assure you that when I say it’s more than 10%, I don’t mean there is 10.1%, okay? It’s significantly above 10%. And so and we believe that this is not only the right strategy, it is the only strategy. If you want to do well by your shareholders, I believe it’s the only strategy. And as far as this year’s CapEx is concerned at this point, we are still following the guidance that we gave you last time; I believe NT$8 million to NT$8.5 million. At this point we are still following that. But next year, I am – we are not going to forecast until early next year. But I think I have already given you a view of our reasoning and our strategy and our objectives. So but as to the exact number, I will not give you until early next year. All right. I believe those – I have finished my prepared comments I believe we are open for questions are we not?

Yes. This concludes our prepared statements. Before, we begin the Q&A session; I want to remind everybody to please limit your questions to two, no more than two at a time, to allow all participants an opportunity to ask questions to the management. Questions will be taken from the floor as well as from the call. Should you wish to raise your question in Chinese, I will translate it to English before our CEO; our CFO answers your question.

(Operator Instructions) Now let’s begin the Q&A session. Our first question comes from the floor and that goes to Bank of America/Merrill Lynch, Dan Heyler. Dan Heyler – Bank of America: Thank you very much, Elizabeth and thanks for the new format. Hopefully, we’ll all get more sleep. And hope you’re feeling better, sounds like you have the same cold that I have, Dr. Chang. Quick question on the IDM model here and we’ve seen the IDEM model work for kind of high volume businesses such as the CPU business and the memory business. Given the huge amount of demand and growth in the application processor market that we are seeing proliferate in the mobile area, and with our competitors scaling up there, manufacturing facilities. I am wondering would help TSMC’s efficiencies to start to dedicate some lines or specific fabs to be more product focused as you go forward in these very high volume businesses or you keep your very large broad based apps?

So the question is are we willing to dedicate more price to products is that I got right? Dan Heyler – Bank of America: Will your manufacturing strategy change, yes?

No. Well, you – you first started talking about IDM, and where you’re asking me about the future of the foundry fabric model. You wrote about that, yeah. Dan Heyler – Bank of America: Did you think you need to dedicate some times to product specific areas that are very high volume?

Actually yes. I think that’s almost a natural outcome the way market is trending. I think that they are going to be larger customers, and now it makes complete sense to dedicate a whole fab to just one customer and hold that – to hold fabs in fact to just one customer. Now remember, we made our mark in serving many customers. In fact, that’s a really part of our secret source of success. The ability to serve many customers to their satisfaction and we’ll still will retain that capability, but there are customers that are getting bigger and bigger. So it makes sense that we dedicate a whole fab or even more than a whole fab to just one customer. As far as specific products are concerned, well, right now we are already concentrating for instance, Taichung will have the vast majority of 28-nanometer, whereas Tainan will have the vast majority 20 SoC and 16 FinFET. And both those are manufacturing centers are under one manager. Taichung is under one manger. Tainan is under one manager. I don’t know whether I answered the questions Dan Heyler – Bank of America: Yeah, you did. Thank you very much. Second questions and then I will get back in the queue. We heard you today as well as ASML talk about 20-nanometer ramp towards, I think, tape outs in next year in 2013 and we are seeing obviously some significant challenges currently as you highlighted in 20 – 28-nanometer with high-K metal gate. Given that you have got a high-K metal gate challenges, double patterning on 28 two big changes, what’s the visibility, you know, in your sense in really being able to execute 20-nanometer in the second half of next year. Would we – would we see – be able to see volume there? And what gives you a level of confidence?

I think that we’ll start some production of 20-nanometer next year, but the small scale, very, very low, what we would call risk type of production basically, but 2014 will be a ramp year for 20-SoC. Dan Heyler – Bank of America: Okay.

We’re pretty sure of that. Dan Heyler – Bank of America: Just a quick clarification. Your earlier comment you talked about FinFET that you would be competitive of 20-nanometer...

Well... Dan Heyler – Bank of America: With your...

No, yeah. The answer, you know, I haven’t... Dan Heyler – Bank of America: Okay.

Included it. 20-SoC which is 20-nanometer will ramp in 2014. And we believe that the 16 FinFET will ramp in, perhaps the second half of 2015. Dan Heyler – Bank of America: Okay. Great. And just one clarification on something you said if I may. You talked about TSMC being competitive at 20-nanometer relative to the industry leader who is at 22.

Competitive. Dan Heyler – Bank of America: Competitive, right. That competitor I believe is doing FinFET at 22. So, are you including that in your statement? Okay. Thank you.

I – but I also said our served markets, yeah. Dan Heyler – Bank of America: True.

Which, would not include high-performance CPUs. Dan Heyler – Bank of America: Sure, mobile. Thank you.

All right. Since we have people on the conference call, so I am just going to open the line to the call first. We’ll take our next question from the call. Operator, please proceed with the first caller.

The first question today comes from line of Mehdi Hosseini of Susquehanna. Mehdi your line is now open. Mehdi Hosseini – Susquehanna: Yes. Thanks for taking my question and thanks for the new format. I’ve two questions. Dr. Chang you talked about the Q4-Q1 trend. At the same time the 28-nanometer gross margin should reach the corporate average. So how should we reconcile lower shipment as a result of customers reducing inventory with a better margin profile for 28-nanometer and I have a follow-up.

The question is why couldn’t we delay shipments until the margin becomes better, if not wrong?

I think... Mehdi Hosseini – Susquehanna: No, no, no. As you mentioned a dip in shipment in Q4-Q1 timeframe and that obviously will have an impact on utilization rate and margin. How should I reconcile that with 28-nanometer margin profile that is actually improving and reaching the corporate average?

Mehdi, your question is Q4 and Q1 will appear to be a down quarter where we will have some margin pressure. At the same time our 28-nanometer margin will go the corporate level by first quarter. And so how do we reconcile these two?

Well. Mehdi Hosseini – Susquehanna: Yeah.

The way to reconcile those two is that 28-nanometer will only account for about 20% of our revenue in the fourth quarter this year and it will account for a little more than 20% of our revenue in the first quarter of next year. While the 28-nanometer gross margin will be timing – is timing and will be timing, the rest of the product margin will drop because of lower utilization. Mehdi Hosseini – Susquehanna: Got it. And then my follow-up has to do with the 28-nanometer and 20-nanometer capacity for next year. How should we think about that additional 28-nanometer capacity I compared to the 20-nanometer product line, do you have any thoughts on how aggressively you want to be, at the same time, you want your customers to try out 20-nanometer. And I am just kind of confused how those two – how the product portfolio for those two nodes are going converge?

So, you’re asking us about the capacity plan next year for 28-nanometer as well as for 20-nanometer, that’s right? Mehdi Hosseini – Susquehanna: Yes. Especially at some of 20-nanometer, may move to 20-nanometer.

Let me just describe our capacity plan in the following way. This year we’ll be spending between NT$8 billion and NT$8.5 billion in capital – CapEx. About NT$1 billion to NT$1.5 billion will be spent on 20-SoC, 20-nanomenter. I think around NT$6 billion will be spent on 28-nanometers and the rest just maintenance including R&D. So this year the vast majority of the covenant spending is still on 28. But 20-nanometer has already made a significant appearance in CapEx. Next year, there will still be some capital spending on 28-nanometer, but relatively small and the vast majority will be on 20-nanometer and that spending – that kind of spending, the pace of spending on 20-nanometer will continue into 2015. And then of course, in 2015, the 16-nanometer FinFET will also be making an appearance and fortunately may the conversion from 20 SoC to 16-FinFET is quite good. In other words, we don’t expect any significant loss in the conversion from 20-nanometer capacity to 60-nanometer capacity. Mehdi Hosseini – Susquehanna: Got it. Thank you.

All right. So now we will switch back to the floor. The first question goes to Deutsche Bank’s, Michael Chou. Michael Chou – Deutsche Bank: Hi, Chairman. One question is, would you invest in ASML, EUV given that the industry leader is going to invest in EUV and what’s your view...

...which industry leader? Michael Chou – Deutsche Bank: You know as you mentioned before. Yeah. And what’s your view for the competition between ASML, EUV and Nikon’s multiple EUV which one will be?

I am sorry, I didn’t get that. Michael Chou – Deutsche Bank: Okay.

You were asking about ASML? Michael Chou – Deutsche Bank: ASML.

What you said competition or... Michael Chou – Deutsche Bank: The competition between ASML, EUV and Nikon’s multiple EUV methodology. So which one would become the industry standard going forward?

Well, which one will become – well I think that it appears that EUV let me put it another way. It appears that EBM the module EBM is behind EUV. But EUV progress has not been very good either. But we – we are still going to need the EUV even though the progress today has not been very satisfying, but if you compare with E-Beam I would say that E-Beam is certainly behind EUV. Michael Chou – Deutsche Bank: Does it something – are you going to invest in ASML and EUV going forward given that your competitor move.

We are actively negotiating with ASML and actually ASML brought up this investment on the deal to three companies together, with three industry leaders itself. And now of course one of them decided to do it first. That’s okay. So – and we are you know we are having for – more than happy year now and recently of course since one of our colleagues has already signs so of course that kind of got our attention again. So our discussions with ASML have become even more active recent years. But, we have still impacted negotiations with ASML. Michael Chou – Deutsche Bank: Thank you.

Our next question goes to Morgan Stanley’s Bill Lu. William Lu – Morgan Stanley: Hi, Dr. Chang. You just raised your pre-tax income CAGR from 10% to something more than 10%. Can you talk about what is behind that because is it a high expectations now for market share? Is it the whole industry ratings kind of grow faster? Is it profitability? What is that behind that more bullish outlook? Thank you.

What – there are two main things behind that. One is that our lead in both technology and manufacturing. I believe is strengthening and strengthened. Remember, starting in 2010, we didn’t just increase CapEx, we also increased R&D. Our R&D – right now R&D is doubled, double, what it was in 2009. So it was a two-point plus – back in 2009, 2010. The two point plus was to increase both R&D and capital significantly. And R&D is now double, what it was in 2009. And any way so, I believe the region, two things behind why we’ve raised our pre-tax income growth number when is that we believe that our technology be strengthened. And we have maintained our manufacturing lead which we have had all along and our customer trust lead which we have had all along. And the other reason of course is that we have, have products, the mobile products, the smartphone and the tablets. I mean that was something that we do not completely foresee in 2010 and in 2010 we did not foresee this mobile products market not as clearly as we do now anyway, now. And so those are the two reasons why we raised our goal, well. William Lu – Morgan Stanley: Great. Thank you. My second question is more short-term, you talked about this debt or inventory correction in 4Q and 1Q of next year, because of the macro factors and such, that to me feels going to like a last year with a macro got a little bit worse, you saw a little bit of a – it maybe a two quarter period where you’re growing below seasonal patterns. If you look at this year versus last year, are they similar or worse or better?

You’re right, it’s a very similar. I think it’s a very similar situation. Well, with some difference. And I think that the European situation was certainly, I think, this year we’re worst than last year. And Mainland China, I think, last year we’re talking a slowdown from 10% to 9%. This year we’re talking about a slowdown from 9% to may be 7.5%. So, – but basically, it is the high hopes early in the year and mainly those high hopes are based on general economic problems. Last year, early last year there was high hopes about world economy also, and then the hope was dashed later on in the year. And now this year, early this year there was high hope again there has been dashed now, yeah. And the inventories, I think we’re working – we’re based on that also. The high hopes gave rise to the high inventories in the supply chain everybody – everybody hoped – everybody had high hopes and... William Lu – Morgan Stanley: Yeah.

Okay. Next question is Barclays, Andrew Lu. Andrew Lu – Barclays: Hello.

Yeah, okay Andrew. Andrew Lu – Barclays: Hello.

Yeah, it’s working.

Okay, yeah. Andrew Lu – Barclays: Are you going to see – are we going to see a double-digit decline in any of this Q4 or Q1?

Double-digit decline in what? Andrew Lu – Barclays: Revenue.

You mean what time period you’re talking about. Andrew Lu – Barclays: Q4 or either Q1?

A sequential double-digit decline, as I said earlier I don’t really want to predict so early. But right now, you know, we’re looking at something that’s in the grey zone between single-digit and double-digit. Andrew Lu – Barclays: Thank you very much.

So, you know, I didn’t assume, you force me to give your answer and something don’t – don’t blame me if it turns out to be much better than that. Andrew Lu – Barclays: Always possible. Second question, I have, actually I did some calculation. Assuming due to all these 28, 20, 16 FinFET investment continued, we might remain to see the CapEx to sales ratio remain at 50% and plus I actually calculated cash dividend will stay at NT$3 per share and that will take above 15% to 16% revenue as well. So total combined was 65% revenue as a regular basis cash outflow and our EBITDA margin– EBITDA divide by revenue is about 60%. So each year we are going to have a 5% short on revenue as of cash and this doesn’t improve the potential we might invest ASML.

I think. Andrew Lu – Barclays: So what’s our financing plan, so the equity and debt for the next five years based on these exchanges? Thank you.

Lora would you relieve his concern...

Andrew, there will be few years that our free cash flow may not be good or may not be sufficient to pay the NT$3 dividend, but since we...

Yeah, you don’t mean – we are going to keep the NT$3 dividend..

Okay. Since we have quite strong balance sheet and we have started to borrow by issuing some corporate bond we are starting from last year. There’s timing for an interest rate very low so we were able to get out 1.3, 1.4 type of interest rate for five year or seven year. So we will leverage that for the period that we will have a very high capital intensity. And we believe, when the revenue catch-up and the profitability cash flow catch-up later and we’ll be in good shape. So we’re not too worried about that. Andrew Lu – Barclays: So (inaudible)?

Yes. Andrew Lu – Barclays: No, no equity...

No, no plan for equity. Andrew Lu – Barclays: Thank you.

Debt financing and actually the latest ASML view for the (inaudible) kind of a – maybe to think also only there are other normal ways, innovative ways and so on. I am not saying that we’ll do it. But the answer to your question is debt financing, no equity, maintenance of at least a NT$3 cash dividend. And now, in addition to those definite answers maybe there are innovations, which we haven’t decided on yet.

Next question goes to Citigroup’s, Roland Shu. Roland Shu – Citigroup: Good afternoon, Dr. Chang. Two questions for me. First, see now we’re talking about the 15-nanometer’s impact, so my question is part next to 15, so a 14-nanometer (inaudible) your roadmap or after 15 maybe we will move to maybe 11 or 10?

10 maybe, no. Roland Shu – Citigroup: Is 14 still in your roadmap?

Pardon me? Roland Shu – Citigroup: Is the 14-nanometer still on your roadmap?

14? Roland Shu – Citigroup: Yeah.

I don’t think so. I don’t think so. Roland Shu – Citigroup: Okay. So that means...

16, 16 – 16 we believe we’ll be competitive one, other people’s 14. Roland Shu – Citigroup: Yeah, understood. The 14 and the half of your EUV – what is your EUV?

What is our EUV? Roland Shu – Citigroup: EUV, yes. I think will be introduced as what kind of the technology node?

I think it will come in at 10, our 10. Roland Shu – Citigroup: And my second question actually is similar to Andrew’s question. I think that since given TSMC now we have a heavy invest on 28-nanometer ands this year 20 and going for 15, and also we have EUV around 10. So my question is TSMC considering to invite your key customers to invest in TSMC? Like what ASM – ASML is doing now, invest the technology leader to – invite technology leader to invest in ASML, so...

I must clarify the clearest comment I made earlier when I had talked about innovative things such as we’re not considering – but actually we’ve made a definite answer to Andrew’s question; we’re not considering any equity offering at all. Roland Shu – Citigroup: Okay.

Not even – we’re not considering equity offering, not to a customer, not to investors, no. Roland Shu – Citigroup: Thank you.

We will now take our next question from the call. Operator, please proceed with the next caller on the line.

The next question on the line today comes from Bret Winston from RA. Brett, please go ahead. Brett Winston – RA: Yeah, thanks very much. I have a question for Dr. Chang around 20-nanometer. We’ve seen Intel recently and several of your customers talk about concerns over the transistor cost at 20-nanometer. It’s not falling like it has in previous notes, at least not their perspective, because of the number of the process steps they are increasing at 20-nanometer. I wanted to get your perspective on this. And what do you think this means for the economics of established business model? To what extent, if the costs are going to be arising at 20-nanometer, can this cost to be passed on up the supply chain? Thank you.

20 meter – 20 nanometer transistor cost, basically the capital intensity has also introduced a pretty high component of depreciation cost has raised that component depreciation cost in the advanced technologies. And now the way we’re making it up is by – now here, you know, of course, the FinFET thus have an advantage in this ultimately. And we’re going to the FinFET in 16. But for 20-SoC, we do have the advantage of our dense metal pitch that I’ve talked about earlier. The dense metal hedge resulted in smaller die and so even though the resistor cost might be higher, but with a smaller die, smaller chip, the economics works out very competitively, that’s – it’s actually a pretty involved technical calculation, but that’s the conclusion. The higher transistors cost, which is mainly because of the higher tabular intensity, is compensated by the higher density and that’s basically the answer. Brett Winston – RA: Well. Thanks very much. And just a follow-up for Lora, Lora can you perhaps talk about the relationship between deprecation and CapEx as we sort of go through this higher level of capital intensity, because today those seems to be a big gap between depreciation to sales and CapEx versus history. So how do we – how do this really trend over the next couple of years and if you can maybe just give us some help that will be great?

Question is how would the trend be given the high capital cost was going to be the ratio between deprecation and CapEx for the next few years, right? Brett Winston – RA: Yeah. Yeah.

The ratio....

The ratio between what? Ratio between depreciation and CapEx, well actually, I mean every dollar of CapEx – equipment, every dollar spend on equipment is depreciated over five years and every dollar spend on facilities is depreciated, over 10 years.

10 years

Yeah. And there are some that....

Yeah and for the building is depreciated over 20 years, so we have 20-year, 40-year buildings, 10 year for facility and 5 year for equipments.

Well, of course while 80% of our CapEx is on equipment I think.

Exactly.

So you asked about the ratio between CapEx and depreciation, take 80% on the CapEx depending on what time – what point in time in the year it’s spent and then you spread it over five years. That’s 80% of the CapEx. And I think roughly 20-year depreciation stuff is...

Building.

Yeah, I know and it’s like – and it varies from year to year. This year and next year we are actually building quite a few buildings. So there are – there is a greater component in our CapEx that’s going to be depreciated over 20 years. So...

I think your question more to that. I can give you one example for this year. You are asking a relationship between depreciating CapEx. For example this year we were planning to spend 8 billion to 8.5 billion and with the depreciation about little bit more than 4 billion. So there is some relationship between the two. But going forward and actually it will depend on when you spend depreciation, when you spend the money, which quarter, on what technology. And we also have some tailwinds are coming down from depreciation. So every year the number is different. So it’s very difficult to answer – to give a very simple answer for you question. Brett Winston – RA: Yeah. Thanks very much.

So we will continue to take our next question from the call, operator, please proceed with the next caller.

The next question comes from the line of Mahesh Sanganeria from RBC Capital Markets. Mahesh, please go ahead. Mahesh Sanganeria – RBC Capital Markets: Thank you very much, Dr. Chang. I have a question on the 15-nanometer. What is your confidence that you can accomplish that without EUV and also related to that if ASML supplies a stable machine, how long will it take for you to put in production. I am pretty sure; you have – problems to solve like with the radical and (inaudible) so how long will it take to solve those problems to put it in production?

Could you repeat the question?

Your question is if we start with, you said 15-nanometer, but I suppose you are referring to 10-nanometer because that’s when we will start using the EUV. So –

No, no I think, his question was how confident are we that we can accomplish the 16-nanometer without EUV?

Okay.

Isn’t that right? Mahesh Sanganeria – RBC Capital Markets: Yes.

Yeah.

Without. Mahesh Sanganeria – RBC Capital Markets: Yes.

Yeah. Well, the answer is, yes. So we are quite confident. We are very confident. We can accomplish the 16 FinFET without EUV. Now, it’s the second question that I didn’t completely get. You talked about the radicals and all that.

So you say, if we get a machine from ASML on the EUV, how soon will we begin the production, how soon will we be able to put a machine into production, is that your question? Mahesh Sanganeria – RBC Capital Markets: That is correct. I assume that there are multiple problems to solve once the machine is there, also in the Fab so how many years we will take to put it in production?

After we get a machine, EUV machine how soon, how long that we will take to get into production, is that a question? Mahesh Sanganeria – RBC Capital Markets: Yeah.

Well, we have had one machine for a year already. And I don’t – I can’t tell when we will be using in production yet. So I think that actually the fact of matter is that by the time we used a EUV machine, which I think is in our 10-nanomenter generation. I think by that time this machine that we have had for a year will be absolute and will be getting new machines and as to how long and we will take to get a new machine well, I – that is – you can tell that. Okay. I will tell you about the immersion machines that, which we’re being using immersion machines for years. And sometimes don’t take very long, sometimes it takes several months or half a year long. Mahesh Sanganeria – RBC Capital Markets: Okay. That’s very helpful. And just one more follow-up on – can you give us an – your estimate of where your competitors are on 28-nanometer production?

There’s lot of rumors about, but I do not believe most of those rumors. I really haven’t seen anything real yet. Well, I’ve seen very, very little real yet. Mahesh Sanganeria – RBC Capital Markets: Okay. Thank you very much.

All right, now we will switch back to the floor. The next question go to HSBC, Steven Pelayo. Steven Pelayo – HSBC: Thank you. Very impressive performance on your industrial business, up nearly 40% quarter-on-quarter, 22% of revenues, that’s now bigger thing your computing segment. That growth rate is actually bigger than your 40-nanometer and below. So I want to understand the outlook for this business. Is this sustainable or this is a step function higher and now sustainable? What you’re thinking now for that industrial line?

A pretty large part of this goes into smartphones and tablets. And so we believe in the growth of those. Lora, you mentioned them already. You told everybody touch control and all that stuff and...

Those and Cu data converter, flash controller – flash controllers those type of things.

Yeah, power – power, yeah.

And power. Steven Pelayo – HSBC: So – but I guess the question is that these are new businesses for you, so there should be a level of sustainability to them or is this still kind of a cyclical thing and it will evolve up as well?

Well – but I thought I was answering that question. No, I mean mobile products are sustainable, aren’t they? Steven Pelayo – HSBC: All right, and then just maybe one more follow-up on the competitive...

Is it cyclical? I think everything is cyclical, except maybe bread and wine. Steven Pelayo – HSBC: And if I could just follow-up on the competitive landscape. We heard just this morning from Qualcomm, within qualify more competitors. Are you talked about how you’ve raised your guidance for pre-tax profit? You are surprised with strength of smartphones and tablets and so? Those customers are also looking for alternatives as well. The last question was really just specific to 28-nanometer, but I want ask in general the competitive landscape, do you feel that it is becoming more intense now your need to be much more aggressive in pushing 20 and 60-nanometer or do you think the competitive landscape is more of the same?

Well, competitive landscape has changed because competitors have changed. Three years ago – two years ago – three years ago – anyway when you talk about competitive landscape, you and I will both think of UMC et cetera with – at that time Global Foundry emerging. And now you ask me what the competitive landscape is? Competitive landscape is Intel, Samsung, Global Foundry, UMC. And now you know two or three years ago, Global Foundry and the UMC were almost the two only ones, and now they are the two less important ones. So, all right, you asked me whether compare landscape is, I think – I already think that you know the answer. I actually read the same thing that you do. May be you read even more than I do. Last thing I was reading was – well, I haven’t finish reading and that was Intel’s call, the transcripts, I read all those damn transcripts also. So, yeah – well, I think it’s a very – a very competitive environment. Very, very competitive. So it’s a – our competitors have changed and they are even more powerful and more intimidating than our own competitors, now that we are intimidated. Okay.

All right. So, for the interest of time, I’m just going to allow one last question from the floor and that’s Credit Suisse’s Randy Abrams. Randy Abrams – Credit Suisse: Okay. Thank you. In the prepared remarks you mentioned you’re taking preparations for the debt. Could you talk about some of those preparations if it’s any change in spending our plans?

Preparations for the debt? Randy Abrams – Credit Suisse: For the debt, the fourth quarter debt –

Oh, this, on a debt. Oh preparations, well, we have – already had two rounds if cost reduction in the last two months. The first round was I initiated that and I made a responsibility of every fab manager and every functional manger of a company. And that’s again I guess what’s about 30 or 40 of them and each of them had a unit, you know, as for cost reduction and as a results were complied and it was a pretty significant round. But just two weeks ago I called for another round of cost reduction. Currently, you know, our objective to keep the gross margin and operating profit margin up as high as possible. So yeah, preparations meant bonds of cost reduction, cost and expense reduction, COGS and operating expenses reduction. Randy Abrams – Credit Suisse: The follow-up question on the gross margin guidance you’ve got a very small decline in third quarter on rising sales. If you could may be talk about the factors in the margin decline and may be from these cost reductions what the – how we should think about our tax growth in the next few quarters?

Lora would you?

Randy, if you look at our capacity by quarters, actually third quarter our capacity will go up by about 5%. So – and that’s mainly the – for the 28-nanometer, of course. So that’s the main reason for this 7% growing revenue, but not as high as the bottom-line gross margin. But I believe that’s temporary. When we ramped the 28 to a bigger scale and with improvement of profitability, I think this issue can be resolved.

Okay. I think we’re about to wrap-up for today’s conference and conference call. And before we conclude, please be advised that the replay of the conference will be accessible three hours from now. Transcript will be available within 24 hours from now. Both of which will be available through our website at www.tsmc.com. Thank you for joining us today. We hope you’ll join us again next quarter. Good bye and have a good day.