Elizabeth Sun - Head, Investor Relations Lora Ho - SVP, CFO & Spokesperson Morris Chang - Chairman & CEO

Randy Abrams - Credit Suisse Mehdi Hosseini - Susquehanna International Group Mike McConnell - Pacific Securities Donald Lu - Goldman Sachs Dan Heyler - Bank of America Robert Lea - Jefferies

Welcome to the TSMC’s 3Q11 Results Webcast Conference Call. 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. I would now like to turn the conference over to Dr. Elizabeth Sun, TSMC’s Head of Investor Relations.

Thank you Andrea. Good morning, and good evening, everyone. Welcome to TSMC’s third quarter 2011 conference call. Joining us on the call are Dr. Morris Chang, our Chairman and Chief Executive Officer; and Ms. Lora Ho, our Senior Vice President and Chief Financial Officer. The format for today’s conference call will be as follows. First, Lora will summarize our operations in the third quarter and give you our guidance for the next quarter. Afterwards, TSMC’s Chairman, Dr. Chang, will provide his general remark on the business outlook and a couple of key messages. Then we will open the floor to questions. For those participants who do not yet have a copy of the press release, you may download it from TSMC’s website at www.tsmc.com. Please also download the summary slides in relation to today’s quarterly review presentation. I would like to remind all listeners that the following 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. Information as to those factors that could cause actual results to differ materially from TSMC’s forward-looking statements may be found in TSMC’s Annual Report on Form 20-F filed with the United States Securities and Exchange Commission on April 15, 2011 and such other documents as TSMC may file with or submit to the SEC from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. And now, I will like to turn the call over to Lora.

Thank you, Elizabeth. Good morning, and good evening to everyone. Welcome to our 2011 third quarter earnings conference call. I’ll start with the financial highlights in the third quarter. Then we will move on to the outlook for the fourth quarter. All dollars presented are the NT dollars unless otherwise stated. In the third quarter our revenue was higher than the guidance provided on July 28 thanks to some rush orders in August and some and more favorably change rate. Third quarter revenue decreased 3.6% sequentially to NT$106.5 billion and the wafer shipments decreased 3% with 3.2 million inch equivalent wafer. Our wafer demand was expected by a weakened slow growth economy conditions in customer’s inventory adjustment. Computer and consumer related revenue was more of packet and decreased by 16% and 18% respectively whereas communication and industrial increase by a 3% and 9% from the second quarter. Overall, communication accounted for 48% of our total wafer revenue in this quarter, while computer, consumer and industrial accounted for 21%, 10% and 41% of wafer sales respectively. By technology demand for 40-nanometer and below technologies jumped up relatively well and the reached 27% of wafer revenue in third quarter, including 0.5% from 28-nanometer and we expect our 28-nanometer ramp to accelerate in our next few quarter. Combined contributing for 65-nanometer and below, represented 54% of total wafer sales in the third quarter which is 1 percentage point lower than the second quarter as revenue from the 65 now decreased by two percentage points in the third quarter. Gross margin was 42% and operating margin was 49.7%. The sequential decline in margins was mainly due to lower utilization. Operating expense increased 1.4% on a previous quarter mainly due to higher R&D spending on 20-nanometer and higher patent filing fees. In the future, we will continue to increase R&D spending to expand our leading technology and keep SG&A tight at the same time. Overall our third quarter net margin arise at 28.5% EPS or $1.17. In nine weeks what we said in the last conference, we have successfully reduced the inventory level during this quarter. Our inventory turnover days significantly reduced by 8 days to the company’s normal level of 45 days mainly reflecting lower inventory levels in finished goods and working process inventories. Cash from operation totaled $55 billion, free cash flow was $17 billion during the quarter, up from an outflow of $1.8 billion in the second quarter due to less capital expenditure. Combined with $78 billion cash dividend payment and $18 billion proceeds from a corporate bond issuance. Our cash and short-term investment decreased $39 billion to $120 billion. In the light of weakening demand, we decided to further revise down 2011 capital expenditure to $7.3 billion. Total capital expenditure in the first three quarters reached $6.3 million. As a result of the adjustment, our total capacity would be flat in the fourth quarter. Full-year total capacity will increase 17% to 13.2 million 8-inch equivalent wafers while 12-inch way for capacity will increase by 29%. Now, let's turn to the outlook for the fourth quarter. Based on current business expectations and a forecast exchange rate of $38.3 we expect our consolidated revenue in the fourth quarter to come in between NT$103 billion and NT$105 billion. In terms of margins, we expect our fourth quarter gross margin to be between 43.5% and 45.5%. Operating margin to be between 30% and 32%. The reason for the lower revenue guidance but higher margin guidance is due to the following reasons. Number one in fourth quarter we have better cost control. So the cost saving contributed to margin improvement. Also the fourth quarter utilization will be slightly higher than the third quarter. In addition to that, the exchange rate in fourth quarter is higher than third quarter which is the favorable to the company. The three favorable will be offset slightly by an unfavorable product mix due to the ramping of 28-nanometer. This concludes my remarks today. Now I would like to turn the call over to Dr. Morris Chang, our Chairman and CEO for his remarks.

Hi everyone I am Morris Chang, CEO of TSMC. I want first to talk about the world semiconductor market and foundry market this year. The weakening world economic outlook has impacted the demand for semiconductors. We now forecast this year’s world semiconductor at 1%. We had forecast 5% in January and 2% in April and we now forecast only 1% growth for world semiconductor market this year. And we have also trimmed our forecast for semiconductor foundry revenue growth to 4% this year. We had forecast to about 7% as late as July, all these are in US dollars. Now TSMC’s growth this year in US dollars will be 9%. I want to talk about the supply chain inventory. In our last quarterly conference, we said that the excess inventory in the semiconductor supply chain will be mostly adjusted in 3Q and that the DOI will be at a seasonal level by end of 3Q. We also said that TSMC’s utilization rate will be higher in 4Q compared to 3Q. These statements hold true today. The supply chain inventory is estimated to be three days below seasonal at the end of 3Q. And TSMC has reduced our old DOI by eight days to 45 days in 3Q which is about our normal level. However, the increasing uncertainty of future demand has continued to prompt the IC vendors namely our customers to destock. We believe this effective supply chain DOI will be further reduced to several days below seasonal by the end of 4Q. We do expect our fourth quarter utilization level rate to be slightly higher than 3Q. Now I would like to talk about our competitive trends. In these economic uncertain times TSMC’s competitive position is stronger than ever. Our technology development is progressing well and I’ll talk about a few of them here. First, 28-nanometer; our 28-nanometer process is in volume production. More than 40,000 12-inch wafers will be shipped to customers in the next few months and we anticipate the ramp next year will be best. Three out of the four 28-nanometer process are in volume production. They are 28 HP, HPL and LP. The remaining version 28 HPM will be ready for production by end of this year. Our 28-nanometer process has surpassed the previous generation’s production ramps at the same point in time. And product yield continues to improve and is on-track. We expect 28-nanometer to be an important engine of our growth next year. Since we are the only person, only foundry to volume produce 28-nanometer. We not only proved, we not only demonstrated already this new technology, but also provide arsenal for our customers for their design wins with competitive products. Now a few words on 20-nanometer. Our 20-nanometer development is on-track and demonstrated the fully functional SRAM’s. Notable customers have already engaged for more than a year with TSMC on the development of 20-nanometer. We plan to operate for the 20-nanometer process. The 20G or high performance product such CPU, GPU and server and 20 SOC or high performance and low leakage product, such as mobile, computing devices. Risk production for 20-nanometer G is scheduled for 3Q call next year and risk production for 20-nanometer SOC will start in January of 2013 We are the world’s first and only foundry to have complete the Tape Out of 20-nanometer ARM Cortex-A15 MP core processor which is high performance for future mobile computing product. We have also started the development of 14-nanometer FinFET. The device tech finding has been ongoing for more than one year and we plan to risk start our 14-nanometer process in 2014. A few words on COWOS; it stands for chip-on-wafer-on-substrate. Last quarter, I showed you a framework or success from integration to silicon in proposal. This time I am able to show you the picture of the actual test chips; let’s view that one. The logic chip and the DRAM chips or cubes are placed on top of the silicon interposer. This is COW, chip-on-wafer and then packaged on a substrate, this is POWOS, chip-on-wafer-on-substrate. We have received very good yields and obtained encouraging reliability on these test vehicles. The process flow for COWOS is shown on the next view graph. The advantages of COWOS indicate the resolution for wall pitch and the thin wafer issues. A clear ownership of the long process flow simplifies supply chain and shorter cycle time. The improvement on yield cost reduction and reliability can be continuous, efficient and effective. With this COWOS technology our business model is such that we will provide service in one [pop] die logic wafer process, wafer slot and micro pumping, and two, integrated backend assembly solution or for [indisposer] wafer, final assembly and final test. We do not plan to sell just the indiposer. A few words on embedded flash. Our business in embedded flash has grown by 30% to a level close to $800 million this year. Thanks to the strong growth in smartphones and tablet. Battery management, IC as well as touch sense controllers enjoy the highest growth within the embedded flash segment. TSMC’s 0.18 micron embedded flash for the complete platform solutions saw record level of new product tape outs this year. Our 90-nanometer embedded flash has started production ramp this year. 65-nanometer joint development programs and 90-nanometer phased-in in MCU has been established. And we expect to launch 40-nanometer embedded flash program in 4Q this year. Now a few words about next year's semiconductor and TSMC outlook. We expect next year's semiconductor growth, semiconductor market to grow 3% to 5% over this year. TSMC with 28 high ramp up, constituting our important engine for growth will grow several points higher than the semiconductor market. All these are costs in U.S. dollars. Now a few words on capital expenditure, CapEx. We have two operative forces in action here. We have a relatively soft growth outlook in the semiconductor market and yet we are going to ramp up our 28-nanometer wafers next year. Now this year we have already trimmed our 2011 capital spending to $7.3 billion, just lower as this project. It is $100 million less than we announced last quarter. For next year, we planned to reduce our 2012 capital spending. It will be at a lower lever than this year. Those are all the prepared comments I have.

This concludes our prepared statements. Operator please open the floor to questions.

At this time, we will open the floor for question. (Operator Instructions) Your first question comes from the line of Randy Abrams of Credit Suisse. Randy Abrams - Credit Suisse: Good evening. I wanted to ask a couple of follow ups on the COWOS and 3D packaging. The first one, if you think it makes more sense to vertically integrate more and offer more of the traditional backend assembly and test, even beyond some of the 3D packaging.

We consider even a further integration. Randy Abrams - Credit Suisse: Yes, further, so doing more of the backend. You’re starting to move into wafer level packaging and 2.5D and 3D packaging. But just more for how do you think backend assembly and test is an area that you can vertically integrate even more, full suite of steps there?

At this point, from the business point of view we’re not at this point from the business point of view, we’re not conserving closer to them now but we already have told you. Now, however, we’ve needed -- on a large 3D look and on research. They’re constantly looking at the possibility of further integration. Randy Abrams - Credit Suisse: Okay. I mean if the COWOS process, what technology would you see this getting adopted and maybe if you pick up how broad the application with scale across your business?

I think that it will stop in 28-nanometers and that it will be bigger in 20-nanometers. Randy Abrams - Credit Suisse: Okay. And to get a sense how you’re planning coming out of this inventory destocking, where in 2009 we had a strong rebound, are you planning to build -- I guess your planning, are you trying to put in place buffer capacity particularly in 28-nanometer in the event we have a speed up recovery or do you want to take a conservative approach given what you see out there?

At this point, we are taking the conservative approach, and I really don’t expect as strong a search if they -- Well I think there will be an increase, there will be search and I really -- I don’t expect a search to be as strong as the one we saw in second and third quarters of 2009. Randy Abrams - Credit Suisse: The last question I had was just and there were comments the press had about Oneida and Panasonic, but a few others have discussed the outsourcing more, it’s been very gradual over time, but are you starting to see any acceleration in outsourcing in that market?

Yes I can. I am not going to comment on any specific customer, but the answer to your question is yes.

Your next question comes from Steven (inaudible) of [HTBS]

I am curious about your guidance. You are guiding for utilization rates to increase a little bit more of a tailwind from currency and total revenues to decline 1 to 3% or so. It seems to me and that will mean your ASPs have to be falling off quite a bit, so could you help me reconcile that and may be talk about pricing, both in terms of like for like and mix?

Steven, for the fourth quarter we will ramp 28-nanometer. So if you talk about from the company-wide average ASP point of view is we will support it, we will go up because of 28-nanometer. Other than that as I just described the fourth quarter revenue declined just slightly with the support of FX which will be 4% appreciation, this third quarter. So that is actually settling to about 4% of our revenue. Did I answer your question?

I mean I guess it still doesn’t really add up that much without the currency impact your revenue guidance would have been something lower and how do I reconcile that with rising utilization rates, to me the one missing component was ASP, so I was trying to understand?

I think that you probably didn’t hear my statements on my prediction actually on last time three months ago, I actually predicted that the fourth quarter utilization will be higher than the third quarter. Even though the revenue would be flattish or might even be down, the reason I made a prediction and it has come true, the reason I made the prediction was that we reduced our own inventory in the third quarter and our reducing the inventory naturally the utilization was held low. Now, our own inventory reduction has been completed at the end of September and in the fourth quarter and our utilization reflects a normal mode of operation. You see by reducing inventory, you have to mix that stuff, therefore your utilization is low. Now after your inventory reduction has been completed, then you have to make it up slowly, therefore your utilization comes up.

Now I understand. That makes a lot of sense. Thank you for that restating that again. I am trying to understand a little bit with this COWOS process. You said it starts in 20-nanometer. Could you give us a general idea, the number of customer engagements you have or designs you are working with or someway that we can try to quantify the potential impact next year and beyond I guess.

I think well, customers, we are actually not working with a large number of, we are not working with several customers on the development phase. We are working with several customers on the development phase. The revenue impact to us will be minimal even next year. So 28 is going to run for quite a long time. So I do think that COWOS will start with 28 and I think that we are already working with a few customers also on the 20-nanometer COWOS. So by the time 20-nanometer gets the volume production, I think the impact on revenue will be reasonably significant, but I can't quantify it beyond that.

Today you mentioned that the depreciation would grow about 23% this year, but next year would be something lower, given that we are all a little concerned about margins impacts from higher depreciation. Can you quantify a bit more may be on what you think depreciation growth would be besides just lower than 23% next year?

We haven’t finished decision on the CapEx for 2012 depending on how much the 28-nanometer we want to be build, but with the last pretax for next year, we believe the depreciation year-over-year increase was less than 20%.

She said less than 20% and let me say this. Of course the ideal situation financially is for the increase of depreciation to be below the increase of revenue. Now, you have to keep in mind that depreciation is accounted in NT. Even though the expenditure is largely in US dollars but once we get the equipment, once we install the equipment, the depreciation phase is in NT. So the depreciation cost is in NT. So on that basis, this year, our revenue increase in NT is almost flat, isn’t it? It’s always flat and yet we had a depreciation increase of 23%, that is certainly far from ideal. Now next year, I said earlier that I expect our U.S. dollar revenue growth will be several points more than 3% to 5%. So we certainly, well I too think that the NT revenue growth will be comparable and that’s assuming the exchange rate does very well, very much. Now if the NT revenue growth is in the all lets say whatever 6% to 8% range, 6% to 8% range and the depreciation increased is less than 20% then that’s heck of a lot better situation then we had this year. Does that make sense?

Your next question comes from the line of….

I was hoping that the gentlemen.

Yeah, I think Andrea I think you cut off Steven’s line and Chairman is asking if Steven is satisfied with the answer.

If you can still hear me, yes I am satisfied. Thank you. Yes I am satisfied thank you for taking the time. I really appreciate it.

Thank you.

Your next question comes from the line of Mehdi Hosseini of SIG. Mehdi Hosseini - Susquehanna International Group: Thanks for taking my question. Dr. Chang, I want to ask you about the trend on the technology side. Your up and coming competitors obviously and moving towards 32-nanometer and planning to other one for 28-nanometer sometime next year, but they are still on the gate-first where TSMC is at gate-last; is that something that do you think people have still haven’t really understood the differences and is there something that really set TSMC apart from this new competitors and anything else that you can offer will be appreciated and I have a follow-up question?

The most people to understand are the customers and I believe that our customers unanimously, unanimously understand that the gate-last approach is the superior. Mehdi Hosseini - Susquehanna International Group: When you say customers, obviously designers prefer gate-last but then and when it comes to cost gate-first offers some advantages if you can resolve the yield issues. And so when you say customers does that refer to the decision makers or the people who are actually involved with the product design?

Well it’s certainly not obvious to me at all that gate-first offers even cost advantage. I believe that superficially it seems to be a simple process and yet there is a big difference between a simple process and lower cost. Because the simpler process may be harder to maintain the yields maybe lower and therefore the cost or yield will be higher. That’s why feeling about…. Mehdi Hosseini - Susquehanna International Group: Sure. When do you think there will be you know?

My feeling I think is that’s important to our customers and I think our customers unanimously know that the gate-last – or actually you know for the matter our competitors have decided to change to gate-last also. Mehdi Hosseini - Susquehanna International Group: But not until 20-nanometer and I am just wondering from now till then there would be enough difference in performance, cost benefit of the product that would prevent these new competitors from gaining any more traction?

I don’t think so. I don’t think so. Well, there you know our technical people whom I respect; they have unanimously told me that the gate-last is the way to go. And so we will be competitive. Mehdi Hosseini - Susquehanna International Group: And then my final question, I kind of missed your commentary on inventory correction. Based on so I apologize if I am repeating the question already asked, when you look at the rolling forecast given what we now today of market demand and when you look into your rolling forecast for beyond December, how do you see the trend play now, specially when Christmas and Chinese New Year are back-to-back and when many chip companies have already told us over the past two weeks that chip inventory correction is going to come to an end by Q3. So what I am trying to figure out is, is there really a scenario to expect a pent-up demand if the sell through during the month of January doesn't fall off the cliff. Is this something that you are contemplating?

I am sorry, I am asking a little too low.

Well, I think your question is, some people are saying that inventory correction will be ending by end of Q3 instead of by end of Q4 right? Mehdi Hosseini - Susquehanna International Group: Yes, that's it. So when you look into your rolling forecast for beyond December, is anything that you can share with us and I am asking that because inventory correction coming to an end by Q3, then we have two major catalysts which are consumption, Christmas and then two weeks later Chinese New Year and if sell through doesn't fall off the cliff there could be a scenario where there is a pent-up demand and you thought your customers may rush back?

Look, I think that you know actually last quarter; three months ago, we thought that the supply chain inventory correction would probably end in September, but the inputs that we’ve been getting from our customers is that, I should say, the implications that we’ve been getting from our customers is that destocking is still going on. Now keep in mind that we’re not like an IBM such as Intel. We do have our customers as another layer between us and them, the market and the internal market. So in all, the IBMs can control their inventory very well and they can -- they’re in immediate contact with the internal market, whereas we are one layer more, one layer apart -- one layer more apart from the internal market. So therefore, the way we see destocking is a bit more complicated than the IBMs with destocking. I don’t know whether I made myself clear. Mehdi Hosseini - Susquehanna International Group: Should I assume, basically we just don’t know how the Q1 will be forecast and going to look like. Is that what you’re implying?

We don’t know. Our Q1 is a seasonally weak quarter for us, has always been anyway. So, and now with the continuous destocking, I mean there is -- if you allow me to say now what I expect, I expect that the Q1 will be seasonally weak in revenue, but I expect that season in Q1, maybe, like good in August.

Your next question comes from the line of Mike McConnell of Pacific Securities. Mike McConnell - Pacific Securities: Thank you. Just a follow up on Mehdi’s question. I wanted to see with the capacity slide in Q4 and you see utilizations are going to be up, does that mean starts will be up sequentially in Q4 to get the utilizations higher? Or is it just you are trying to rebuild back to normalize level for inventory and we should extrapolate starts begin up from your customers which will lead to potential growth in Q1? Just want to clarify that?

I don’t think that Q1 will be potential growth quarter. As I said that Q1 is seasonally weak anyway for us so. I don’t think --. Mike McConnell - Pacific Securities: And just last question on the 28-nanometer and how we should look about the ramps next year. You’ve talked a lot about key productivity begin exceptionally strong for this relative to some past meeting at geometries. Typically in the first year, generally the in the leading edge geometries you see revenue as an aggregate rate in that first year high-single digits. Do you think that this time we are looking at 28-nanometer and that of key productivity, and how that it could be in a double-digit range as negative rate in terms of percentage of revenue next year?

Well, we expect 28-nanometer to be ramping up continuously from this point on all through next year, but remember 28-nanometer still it’s a relatively small percentage of wafer stock though. Mike McConnell - Pacific Securities: Yes. So the revenue, though, do you think it could be about 10% of the negative rate for next year?

We’ll have about 2% in fourth quarter from 28-nanometer and we will come up and go up.

Percent for this fourth quarter.

This fourth quarter 2% and by second half next year it will account for more than 10%.

Your next question comes from the line of Donald Lu of Goldman Sachs. Donald Lu - Goldman Sachs: Good evening. My first question is, you’ve been talking about 28-nanometer as a how much higher CapEx intensity and likely more expensive, and on the other hand, I would assume the wafer price will be a lot higher too. So when should we really see if any positive impact it has on ASP on a systematic way because of the higher 28-nanometer and 40-nanometer of your mix?

Yes, Donald, certainly it will have a positive impact on our blend of average price, because by price, 28-nanometer. How much impact, well, just as Lora said, the revenue impact will be 10% or more, more than 10% for the second half of next year. So, you know, you just figure out arithmetically, you can see that, while it has uplifting effect but in all basis, put it back, Donald, and the revenue impact is over 10% in the second half of next year. And in the first half of next year it will be smaller than that. So, it can have a too big an impact. Donald Lu - Goldman Sachs: And on that ASP change that you already included in your revenue assumptions for next year?

Yes, of course. Donald Lu - Goldman Sachs: I don’t know, you talked about your revenue will grow fewer percentage point higher than the industry? But when you earlier you said, TSMC’s revenue growth next year might be a few percentage points higher than the industry and I assume that’s already including its potential ASP impact.

That's correct. Actually to tell the truth, you know I am more confident of the growth in 28-nanometers than I am about the growth of everything else. So yeah, we have included the 28-nanometer, both in my overall estimate and I think that I have taken a really conservative approach on the rest of the portfolio which is by the way 80% to 90%, I mean more than 90% of the total you know. I think I have taken a reasonably conservative approach when I say that the total will be several points above 3% to 5%. Donald Lu - Goldman Sachs: And my second question is for Lora, I think in the afternoon you had a very clear explanation on the margin change in terms of how much is from FX and other things, can you please just repeat that so we can be sure we get the correct answer.

Donald I think you are talking about the third quarter versus our fourth quarter guidance, is that right? Donald Lu - Goldman Sachs: The margin, correct.

Margin expense, okay. If I take the midpoint of our fourth quarter guidance, the margin I guided will be 44.5, compared with third quarter of 42% is 2.5 percentage higher. The 2.5% percentage higher were higher for several factors. Number one, the better cost in fourth quarter, this is the 1.2%better utilization, this is 0.7% better foreign exchange rate, 1.7% and less desirable product mix because we’re ramping 28. This is a negative 1%. So if you add those four things up, you get roughly 2.5% point. Donald Lu - Goldman Sachs: Okay, all right. And your US dollar assumption for Q4 is?

30.3. Donald Lu - Goldman Sachs: 30.3, great. Thank you very much.

Your next question comes from the line of Dan Heyler of Bank of America. Dan Heyler - Bank of America: Two quick questions, one for Lora and one for Dr. Chang. Lora, I wanted to double check my numbers on the fourth quarter revenue, with your revenue guidance to be down about 1 to 3% sequentially in 4Q and the anti-dollar currency forecast to appreciate about 4% that would mean your US dollar-based decline is about 4% if we assume the midpoint of your guidance. Would the shipments be down about that much and thereby helping inventory digestion is that how we should think about this?

Shipments are down a little less than that. Dan Heyler - Bank of America: Little less, okay. Thank you. So you got a little bit of ASP decline a bit, not much, okay. And then I guess Dr. Chang thanks and the follow-up on today’s my question on the sense that because you did mention that TSMC contemplated deeply when to deploy you know, since that whether it would be 14 or earlier. I'm wondering why TSM wouldn’t deploy basically just as quickly as possible particularly since you guys have done so much work over the years in this process and the benefit to you know the power seem to be quite favorable. So I am wondering what the thought process is, you know could this be something that you would try to deploy it sooner and then why not?

: And we chose that alternative. We believe our 20-nanometer [plano] in its ecosystem is competitive what Intel’s 22 FinFET in Intel’s ecosystem, we believe that.

Your next question comes from the line of [Zo Yen] of BNP

The question is about R&D. R&D has gone up quite fast in the last couple of quarters, just want to know if the trend going forward or should we expect it to a level of upto 29?

That has been a deliberate policy to increase the R&D, both in amount and in percentage of revenue. And present thinking is to let R&D go up to about 9% of revenue which is where it is almost at now. And now of course as revenue grows on the amount, where it will still grow but my present thinking is to stabilize the R&D expenses at 9% of revenue.

Okay. And my question is also on the kind of [percentage base] and when do we expect it to be like a part of your business say like the 5% of revenue for example, yeah?

Well, I’ll try to answer to that question, I expect, I really can’t quantify, I expect that the COWOS will have a significant impact on revenue only two, three years away.

Okay.

In the next two or three years I do not think that the COWOS will have a significant impact on revenue.

Operator, in the interest of time we will only accommodate one more caller’s question.

And we have a question from the line of Robert Lea of Jefferies. Robert Lea - Jefferies: Thanks for taking my question. It’s been a very long day for you, so I just wanted to ask just looking at the costs and lower if that in fact that cost there in Q4 will help the margin. Just wondered if you can elaborate on that or if anything particularly in terms of the (inaudible) or is it general reduction in operating costs or manufacturing costs? And also if we do a quick analysis of the non-depreciation costs per wafer in the third quarter, it did rise by about 6% or 7% Q-over-Q, so I am just wondering specifically what drove the increase? Thanks very much.

Okay. Your first part of question you are talking about the cost improvement, I was referring to the manufacturing costs and when I said cost improvement, there are two things favor…

Manufacturing processing….

Okay. The cost improvement actually is what I am talking about is mainly the material wafer costs that had some improvement. Also in the fourth quarter utility cost will be less than third quarter compared to – well will be less than liquidity cost, that's the two major items of the cost improvement. Robert Lea - Jefferies: Got it. And what exactly did drives the small increase in non-depreciation cost that we saw in the third quarter within cost to goods sold?

Okay, Robert I think in the third quarter compared to the second quarter we actually have higher utility cost because its summer season. Secondly, because our utilization rates in third quarter is lower than the second quarter, so those non-depreciation fixed cost on a per wafer basis would be higher so that's why the manufacturing – the so-called non-depreciation manufacturing cost was higher in third quarter compared to the second quarter. Robert Lea - Jefferies: Got it, thanks very much and a very quick follow-up question. If you draw parallels with the challenging experience the industry went through in ’08-’09, what parallels are there at the moment in terms of what your customers are saying, sentiment wise, I mean just your gut feel? And I guess you are looking for the industry to essentially recover next year and to what extent – how far are we into the bottoming process for the industry based on where we are today and when does that inflation point come? I know this was being referred to earlier on in the call, essentially are we looking for the business and the industry to rebound into the second quarter.

Well, I think it’s problematic to try to predict the future on the basis of what happened in the past. But in the ’08-‘09 situation the depth of the plunge was much greater and the plunge was just for two quarters, fourth quarter of ‘08 and first quarter of ‘09. And then in the second quarter of ‘09 there was a surge began and the surge was very strong and it continued till the third quarter and then sort of stabilized a little bit from the fourth quarter on; but continued to grow actually. But the slope of the surge obviously became gentler from fourth quarter ‘09 on. So that was the experience. Now if you try to draw an exact analog here, I would think that in the first quarter of next year we will start to get orders, strong orders. And revenue will probably begin to surge in the second quarter of next year. Again, I mean I said earlier that it’s problematic to draw conclusions or to draw predictions about the future from experience in the past. Robert Lea - Jefferies: And I guess you have a read as to boost your sales and many of the companies in the sector, although things are may be getting incrementally worse, so nowhere near a comparison with the 08’-09 situation and actually in some respects things are holding up remarkably well despite all the you know frightening headlines in the newspaper along CNN?

I think the frightening headlines in CNN newspaper, you are talking American newspapers that so. I think they are about the general economy and you know the semiconductor is a little different because I think we do have a killer, this new version that’s the mobile product, that’s how our (inaudible). And then I think you can see is the even they are little more different than the semiconductor, so yeah the frightening news I think is probably true in the world economy I think, but we look very good. Robert Lea - Jefferies: Okay. That means your business is holding up well. Thank you very much.

Thank you.

Thank you, Robert. Well I think this concludes our Q&A session and thank you for joining us today. We hope you will join us again next quarter. Bye-bye.

Before we conclude TSMC’s 3Q ’11 results webcast conference call today, please be advised that the replay of this conference call will only be accessible through TSMC’s website at www.tsmc.com. Thank you all.