Good day, ladies and gentlemen. Welcome to TSMC's Third Quarter '06 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 also being webcast live via the TSMC website at www.tsmc.com and only in audio mode. Your dialing lines are also in listen-only mode. At the conclusion of management presentation, we will be opening the floor for questions. At that time, further instructions will be provided as to the procedure as to follow if you would ask any question. Please be advised, for those participants who do not yet have 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 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 go ahead.

Good morning and good evening to all participants. This is Elizabeth Sun, Head of Investor Relations for TSMC. Before we begin, I will like to state that the management's comments about TSMC's current expectations made during this conference call and 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 our 2006 Earnings Conference Call.

Ladies and gentlemen please stand by, your conference will resume momentarily. Elizabeth you may proceed.

Alright. I apologize for a short pause because we -- our line was temporarily disconnected. My apology to all of you and now we will resume our call and let's just start with Ms. Lora Ho, our Chief Financial Officer and Vice President.

Thank you Elizabeth. Good morning and good evening to everyone. Welcome to our Third Quarter 2006 Earnings Conference Call. I would start today's call with highlights from our third quarter results and then give you an overview of our expectation for the fourth quarter. As a reminder, we would discuss the third quarter results and provide fourth quarter guidance on consolidated basis only. Please also refer to the quarterly financial summary slides on your website. All dollar figures are in NT dollars unless otherwise stated. With that let me start with slide number five. Total revenue for the quarter was over $82 billion, up 17% year-over-year and up 0.4% sequentially slightly above the high end of our guidance mainly driven by better than expected demand in computer related applications. Revenue from consumer and communications both increased by 2% quarter-over-quarter. While revenue from computer application declined by 6%. In terms of revenue by technology, revenue for advanced technologies accounted for 49% of wafer revenues, while revenue from 90-nanometer alone accounted for 24% of the total wafer sales. Those were flat from the previous quarter. Gross margin was at a high end of the guidance for which 49.9% for the quarter, 1.9 percentage points lower than in the previous quarter mainly due to low capacity utilization. Total operating expenses in the third quarter was slightly higher than the previous quarter, mostly due to increased R&D on 45 and 65-nanometer project, as well as opening expenses for Phase II of Fab 14. As a result, our operating margin was 40.8% for the quarter, also at a high end of our guidance. Diluted EPS were $1.26, up 32.5% year-over-year and down 4.4% quarter-over-quarter. I will leave most of the balance sheet and cash flow items for you to review. However, let me make a few comments. TSMC continues to generate strong cash flow from our operations. Cash flow from operations was NT$53 billion in the quarter, and we spend NT$28 billion on CapEx. In the third quarter, we also returned NT$62 billion in cash to our investor in the form of cash dividends, as compared to NT$46 billion in a one year in 2005. As a result, we ended the quarter with NT$164 billion in total cash and marketable securities down NT$49 billion from quarter two. On quarter-over-quarter basis, our accounts receivable turnover days declined by one day, and our inventory turnover days increased by one day. Both were within our normal range. In terms of capacity, the total installed capacity for the first quarter was 1.8 million 8-inch equivalent wafers inline with our previous expectations. We expect our fourth quarter capacity to be slightly above 1.90 million 8-inch equivalent wafers or a 6% sequential increase. We expect total capacity for 2006 to be slightly above 7 million 8-inch equivalent wafers unchanged from our previous guidance provided in July. The full year 2006 capacity was (inaudible) an 18.6% increase over 2005. On a year-over-year -- on a year-to-date basis, CapEx totaled US$1.9 billion. We now expect our full year CapEx to be above NT$2.6 billion. This is at the low end of the range which we've provided earlier. Page 10 through page 13 of the slide breakdown our sales by technology applications, geography and customer, which I will not go through in detail. With that let me turn to the outlook for the fourth quarter of 2006. Based on current business and foreign exchange rate expectations, we expect consolidated revenue to be between NT$74 billion to NT$76 billion. Our expectation for gross margin in the fourth quarter is between 45% and 47%. The operating profit margin is expected to be between 35% to 37%. This concludes my remarks today. We will now open the conference call for Q&A.

(Operator Instructions). Your first question will come from the line of Mehdi Hosseini of FBR.

Yes. Thank you. I do recognize that you don't really provide any commentary on shipment and pricing into Q4, but I would imagine that given your customers' inventory adjustments the wafer shipment decline should be at least in the high single digit with pricing pressure coming in. Am I in the right direction if you could help me understand the trend here?

I think if you look at our guidance for the fourth quarter, we are guiding NT$74 to NT$76 billion, which represents a roughly 8% to 10% revenue drop for this combination of utilization for our mix and ASP also. We don't break down that anymore.

Okay, and then just one more question as a follow up, your competitor UMC is talking about at least $1 billion in spending for next year as they bring up 55 nanometer capacity. How should we think about adjustments you are going to make your capacity for next year, in terms of capital intensity do you expect increased spending just to bring up the 55 nanometer. Dr. Rick Tsai: Yeah, we do plan to add capacity at 55 nanometer next year, because we have some 90 nanometer but I think mainly have been more for this 55 nanometer. We did say in the afternoon that the tape-out for 2007, as far as we can tell now, the number of course is still being worked out, we will give you more definitive numbers by January timeframe. But now, what we're seeing now is a modest increase over that of 2006, which Lora just reported, that's about NT$2.6 billion.

Thank you.

And your next question is from the line of Bhavin Shah of JP Morgan.

Yes, can I ask for a clarification? I think in the afternoon you discussed the integration possibilities with [VUN Graphics] and how that’s going to expand the market, so, the -- expand the available market for foundries and for you I guess. So, is the expansion of our market you believe is a possibility or you feel definitely happening? Dr. Rick Tsai: Bhavin as I said also in the afternoon I think, well, we are still studying that ourselves here. What I understand is that there can be both high-end application or for low-end application, well, high performance or very low cost application. So if you look at the -- if this -- if you can work out a good solution for the very low cost PC then there is a -- we believe that is still very large market out there in different countries that can use this kind of a ultra low cost PCs.

A second question on the -- last two years you have operated at average utilization of 100% on ROIC or return on capital. So that's excluding cash of 40% or somewhere in that ballpark. Also your revenue growth has been a lot stronger than the longer-term semiconductor industry growth and that you talk about. So is it a fair statement to say that your ROE target of 20% and industry growth forecast of sort of high single digits, both seem to be too conservative especially compared to what semiconductor industry has done over the last 4, 5 years and what you have done specifically over the last three years. Dr. Rick Tsai: Good question. We set the ROE target of better than 20% for one based on I think kind of a global look of many, many different companies in the -- many different industries. ROE of 20% seems to be a good benchmark, above which consistently by the way over a long period of time, good average better than 20% ROE seems to be a benchmark for this company. Further of course, it doesn't mean that we were going to be contended -- contend with the just 20% ROE. We - I agree with you Bhavin that the ROE or ROIC during the recent past has been quite good. We -- you can be assured that the management team continues to do that. Important --- as in the other important thing of course is, as we move forward we need to continue to find growth opportunity, so we need to -- and by that, we define the growth of EPS, not just revenue but EPS growth. So, I think sometimes you need to have a balance between the growth and the possibility, so that we continue to weigh those things very carefully so that we hope that ROE of 20% or better is really what do we want to achieve as the minimal goal.

Right, Rick, and what about the growth part of my questions? Dr. Rick Tsai: The growth part, I think if we look at semiconductor growth of a high single digit to our growth, the semiconductor industry for company like TSMC, of our current -- our size, of course it's quite challenging, that’s why we are looking at opportunities that we have not done for quite a few years before. I think, we continue to -- I mean in addition to where we have been very successful, we need to look at the semiconductor area, the obvious sectors where we are not present or we have low penetration, as I said before. We have some of the best (inaudible) in I think while it is just a start I should at least [put that]. I think we have a reasonably good start in the NOR flash. I feel that would contribute to some of our growth. We continue to look at other segments that we have low penetration. And, we look at those on organic and to use just the nearest [of course] inorganic manner.

Right. So, let me just ask you my last question on the inorganic opportunities. I see those coming up in two ways. One is because of [periodically] buyouts of some of the large IDMs, including one major investor, and second relatively -- well, very low valuation at which some of the smaller analog-type foundries are currently trading at, and how do you see that both areas evolving in terms of industry consolidation, acquisition opportunities, and how are you evaluating those opportunities? Dr. Rick Tsai: Actually for IDM, we strongly believe the outsourcing trend continues. Actually, I think, I read something today I believe of [ST] has their earnings conference, and they seem to also have stated that their outsourcing percentage will go up. We believe that the -- this trend will continue because it's mutually beneficial for the foundry industry and the IDM. But, I really cannot comment on how would we (inaudible) the impact on that. That's all. I don’t have enough exposure in that, and the other opportunities that closely. So, we need to take a curious look to see how that can impact our growth.

Alright. Again, what I meant by private equity was that as -- the private equity firms will be looking to dispose -- I mean do some sort of restructuring spin-off of fabs and so on, and that, I guess, in terms of (inaudible) potential acquirers [something] of too many companies maybe apart from someone like you, that’s why I am asking that question. Dr. Rick Tsai: Well, I think that we are -- I think we will basically we may -- or we will be interested but the -- if that should occur. We don’t have any data to say that now. But, of course that, it will be a strong -- a function of the returns in (inaudible). I think we --

Next question please, operator.

Your next question will come from the line of Randy Abrams of Credit Suisse.

Yes. Good evening guys. I wanted to ask you on your cash balance with you building up about 5 billion in cash now, could you talk about what level of cash you believe is reasonable and what would your thinking be behind a more intense share buyback or capital reduction?

Your [cashier] I think used to support operation in CapEx. We have some inorganic merger or acquisition opportunities that will also come in from cash. [Even then] we have said many times that we have committed to issue certain increased dividend and we will also not rule out the opportunity of buyback. It is indeed that the cash that recurring that you have 5 billion we have some exact cash and we have been doing the cash dividends in the past few years and we will continue to do so. As I've said earlier, we will also complete the buyback.

Okay. And this afternoon you mentioned that PCs are further along in their judgment than communications. Can you give some color on what you are seeing in the consumer space having in the fourth quarter? Dr. Rick Tsai: Consumer, I think, mixed -- we see a mixed picture. We will see -- as far as what we can -- flat panel TV is doing quite well -- very well. On the other hand, DVD player into the -- to have a inventory still being digested. So, we don't -- it's not as clear as the front-end PC and handsets but on the other hand consumer [funds cover] a lot of stuff to begin with. So, I am pretty surprised to that, it’s a mixed picture.

Yeah, just one final question, you mentioned that end demand from your perspective seems that it's okay and it's largely inventory reductions taking place. Can you may be talk about the mentality of your customers, why you feel they are cutting inventory deeply if there are some product cycles going on and there are some looming into next year with things like Vista? Dr. Rick Tsai: Actually, Randy, I think if you look at the data that inventory level I think reduced at the end of the third quarter. It is at a level that I think they would do something to reduce. I am not getting a feeling that they want to cut that to, I don’t know, level that was cut to the bone. I don’t have that feeling. As I have said in the afternoon, I feel in the PC area, of course, not all components in PC but in some PC area we see a customer is ordering only what they believe they need just for the season. But having such, as I've said also they started off bit late. So, they are still maybe trying to digest.

All right, thanks a lot. Dr. Rick Tsai: Sure.

And your next question will come from the line of William Dung with UBS.

Hi, good evening. I have a quick question on the NOR Flash side. I think in the afternoon session, Rick you mentioned that 70% equipments are similar to the NOR production versus sort of Logic. I was wondering in terms of production planning how do you -- how do we optimize that production given that this is sort of a mix? Dr. Rick Tsai: I guess, I need to go back to my operation in order to answer your question. I think it can be right into two kind of situations, one being we try to start producing the flash is existing wafer fabs. We've an already large installed base of equipment, and the other case being a relatively new fab. I think for the existing fab with installed rate something, we don’t ever -- can't give out the -- our cost structure. From planning point of view let me see. Let me say this, with revenues at the way to do the things usually what you can do is actually what you may want to ramp this product early during the ramp up stage of the fab. So that can save some kind of a low of -- to help ramp in advance than while we bring the new customers to their logic application, and then we add some of the equipment with more little metals that sort of thing.

So seems like -- so when the new fabs are ramping, is it correct to assume that there is more flexibility to actually run with an order? Dr. Rick Tsai: Yeah we can do that.

Thanks and the one last question for me is that, can you provide a quick update in terms of maybe what's happening in terms of the China operation as well as maybe some of the development revenue fabless in China and how they are coming along? Dr. Rick Tsai: Okay I think the fabless industry in China is growing quite fast. I don't mean just a number of companies but I think their output -- their product all starting from a relatively small base also. Our business in China also is growing very fast out of a small base too, but I feel pretty comfortable as to our operations in China both from a business point of view and from a production point of view -- from business point of view as I said we are growing leaps and bounds in China or we're still somewhat handicapped because of the restriction that we have in terms of the 0.18 micron technology or (inaudible) but still we -- I think we still manage to attracting up a lot of business from the Chinese fabless companies. I think we have -- they are moving to the remote event note of 0.13 micron for sure and they start looking at a 90-nanometer also. They also use our embedded flash technology quite well.

So would say they basically have reached the sort of minimum economy of scale to really have a sort of efficient supply chain in China now to make a difference? Dr. Rick Tsai: I think the infrastructure I think it's getting better and better, still some way off compared to what there are in Taiwan, its getting better, its getting better.

Okay thank you very much. Dr. Rick Tsai: Sure.

We have our next question is from the line of Dan Heyler of Merrill Lynch.

Good evening. A question on the flash business, Rick. What I was wondering is as [Zu Hi] talked about the divestment and diversification strategy that you are pursuing. You wanted to really target areas where there would be long term potential, not short term opportunities. And as you look at those business with AMD I understand that they are on a transition phase and that this is largely in their view an intermediate strategy before ramping more capacity. I guess a) whether or not you agree with that, and if that is the case would you be looking to expand your flash customer base since you are making investments in those capabilities and typically you like to have a lot of customers given capabilities anyway. So is this kind of an area you think you have diversified a lot? Dr. Rick Tsai: Dan I am not sure you mean diversified into flash -- what manner?

More customers within the flash capabilities that you are currently offering, currently right now it's -- on a large scale basis I believe it's just one customer. So since you are making commitment here would you looking for more partners in this area? Dr. Rick Tsai: I see. I assume that the -- right now we don’t have a plan. I do not of course rule out any opportunity for business. We do have another kind of a nonvolatile memory business with another customer, but it’s a quite different technology. But I think going to other customers and the -- that really a -- that depends a lot on other customers - on other company's strategy, their manufacturing strategy. Many of those products are run by IDM, memory IDM, and they still have a very stronghold in their path. So, I hope I answered all of your questions.

I'm wondering if you're considering this current partnership as a long-term partnership, or it's maybe a one-year opportunity? Dr. Rick Tsai: What do we have now? Oh, definitely a long-term, definitely a long-term. We’re talking not just of manufacturing, but also technology collaboration for the generations ahead.

Okay, great. And the way you view that, I guess, is they build their new capacities (inaudible) continue to generate values, and that would incentivize them to not build still more capacity on that right? Dr. Rick Tsai: Yes. I think, you know what for memory company usually they need some of their own capacities, but they -- certainly it is also wise for them to have a different source, both from a capacity and from technology point of view, you know how expensive nowadays, not major impact but also development.

Okay, great. And my second and last question is relating to mix. Your competitor has a roughly 79% revenue decline in the fourth quarter and that’s predominately on 200 millimeter, which I think is where you are seeing the majority of your correction and that’s resulting in -- most of the revenue decline is in ASP decline of 5% to 6% in that case because of the steep 200-millimeter decline. And as I looked at your previous adjustments, you did tend to see the order of magnitude in terms of that -- in terms of that decline mix driven, so are we falling, is it fair to say of your revenue decline of 8% to 10% most of that was ASP or mix or most of it is units? Dr. Rick Tsai: I think both, yeah both.

Okay, great. Thanks a lot. Dr. Rick Tsai: Sure.

The next question, please.

Your next question is from the line with Mark FitzGerald of Banc of America Securities.

Thank you. I am just curious given the inventory crunch in the fourth quarter, would you expect typical seasonality into the first quarter and are you going to shutdown in the first quarter? Dr. Rick Tsai: I mean, I think the first quarter is still -- our visibility is not yet good enough to -- and we don’t really forecast first quarter, but the seasonality certainly will be there, and I did comment on the -- our view of the inventory among different segment, I think you probably can deduce some of your opinion. To shutdown, you mean the fab shutdown or?

Yeah, certainly, switch circuits. Dr. Rick Tsai: Yeah, I think -- I mean we in light of -- we don't have a decision yet, but I think it is likely, though we will take the opportunity to do the things that we need to do before the business gets strong.

And then just one second question here, some of the Taiwanese memory manufacturers have talked about using their 200-millimeter lines to going to the foundry business, is that from advantage point a competitive issue or if you do not view these factors as really ultimately competitive with your own 200-millimeter lines? Dr. Rick Tsai: I do not know of course other peoples' plan, I wish they are fair. I think if certainly -- if you look at the history here, the success of the DRAM Fab converting into a foundry operation has been rare. Well, we do know when we can be the one that's Vanguard that's also we will very closely resume. There are both financial constraints and the operation constraints to mention the custom orientation doing large usually, but Logic is hugely many layers metal. So, you need to -- at the beginning you need to make some more investment in order to do all these Logic type of funding. But again, we do not really know enough about the people that plan to give you any more insight.

Thank you.

Next question is from Ivan Goh of Dresdner Kleinwort.

Hi, good evening, thank you. I have a number of questions. First of all, can you provide the percentage of your shipments in the third quarter that was sourced from external sources such as Vanguard and Powerchip?

No. The [past] revenue from Vanguard is usually not very big. I don’t know whether I can say of how much, but certainly it is not significant number.

If you can give it in a unit base that will be more helpful? Thank you.

Unit base? No. Vanguard has capacity that we can use. I think in the third quarter we can now give a whole lot of them. Dr. Rick Tsai: Ivan, I am sorry, if you need some better data we need to find the data. We don’t have them (inaudible) right now. But I can say that from the other company it's minimal. Ivan Goh-Dresdner Kleinwort: Okay. Let me move on to the next question then. I think in the afternoon session you’ve said that you will -- you foresee CapEx spending increasing picking up starting from the second quarter of next year. Given that there are some time lag between when your cash CapEx go out and when the capacity come on stream, can you perhaps use that comment and convert it into a comment on when do you think your capacity growth will pick up?

Although we do not have a full number for 2007, but usually first quarter capacity is probably flat to fourth quarter. And the capacity growth will start from second quarter '07. Ivan Goh-Dresdner Kleinwort: Okay. And then my last question is, as I look at your Shanghai fab, it seems to have reached fairly good skill. I think by the fourth quarter about 30,000 wafers per months. What is your strategic direction following that? Are you thinking about establishing another Chinese production facility or is that an option that you are thinking seriously about? Dr. Rick Tsai: We do have the -- actually, we do have the space for more -- for further expansion there. We have not made any decision on the (inaudible) as the current scale because we still need to have a new -- a better understanding as to what technology we'd have along there. And we continue to work very hard to hopefully that to be able to run some higher end technology in Shanghai before we can really say what we want to do longer term. Ivan Goh-Dresdner Kleinwort: So I think it mean that as you cannot go below 0.18 micron then you are not interested in establishing more capacity in China? Dr. Rick Tsai: Well, I am not saying that. I think the one important thing is -- quite important for -- but below 0.18 is not a must. You have a lot to do with how we can be more successful in growing our mature technology with it. Ivan Goh-Dresdner Kleinwort: Okay, thank you very much.

And your next question from the line of Michael McConnell of Pacific Crest Securities.

Thank you. Rick could you talk a little bit more in depth looking at the end markets the comments here are that all the three major sectors will be down sequentially in Q4. Are there any out layers in terms of products within those three outside of flat panel which you've already commented on that looks like they are going to be growing in Q4? Dr. Rick Tsai: I know it's difficult. I think in the fourth quarter our graphics should be in a better shape. I think the set-top box also is another brighter spot. We -- of course you know the story already we are going to produce more flash.

Right. Okay. So those four are the kind of outliers that are kind of going against the trends? Dr. Rick Tsai: Yeah but I mean I also want to again reiterate what I said earlier. The PC is doing -- its consuming the inventory so that’s why you look at the third quarter on our PC shipment has a decline. So its I think fourth quarter it is picking up from some of the business that they have run low in their inventory.

Okay and then in today's view, I mean you've gone through several cycles and you talked about how demand while it may be not above seasonal clearly it's still ongoing. Based on just going through past cycles, can you kind of couch the probability that from at least your vantage point which is quite good that we can work through the inventory problems at various customers kind of get things back moving again in terms of your financial performance reaccelerating may be in Q2 of next year. Dr. Rick Tsai: I think, we have -- I think the inventory production will go into third quarter. But we -- the strength, you know, definitely feeling better. By the end of the first quarter, you have to couple with the seasonality factor into. So, right now, we cannot really -- again, we don’t have enough data and visibility to give you any further -- any comments further than that.

Okay, fair enough. And then -- thanks, that was helpful. And then Lora -- could you just, just a quick housekeeping, with respect to the environment, and looking at your operating expenses, you know, Q4 and Q1 obviously, we could kind of back into it, given your operating margins guidance, but should we weigh more of the growth on a sequential basis on the R&D line and then considering where we are, kind of in the cycle, the SG&A should gradually start to pick up if we believe that your financials start to pickup again reaccelerate, you know, towards the second half of next year, etcetera?

The thing is, on operating expenses, you can see our track record, we have very tight control, but, on the technology we see a lot of (inaudible) on R&D areas, we would continue to invest, especially it won't accelerate 65 nanometers and 45 nanometers well. So, I think it will be very close. You can assume that the R&D expense will not go down nor go higher. SG&A is probably more like skewed effect.

Great. Thank you very much.

And your next question will come from Mehdi Hosseini of FBR.

Thank you. I just want to go back to the comment that was made just a second ago. Do you mean to imply that you think inventory correction may continue into Q1 and if you could share with us what makes you think so? And then regarding the consumer-end markets, when do you think demand related to the game console would pick up? Dr. Rick Tsai: Well, the reason I talk about -- because Q1 is the comment that I made in the afternoon and earlier this evening that the handset inventory correction is starting -- has started I should say. But timing wise it's later compared to the PCs. So, we have -- it seems to us that the handset inventory [digestion] will improve into the third quarter. On game console, I think it's -- you have to excuse me if we are not commenting on that because that would basically give out customer information.

But is that -- when you talk about consumer being more confusing. Dr. Rick Tsai: Mixed.

Does the game console has an impact there to make it more confusing? Dr. Rick Tsai: We did use confusing as a mixed.

Mixed, I am sorry. Dr. Rick Tsai: Mixed picture. Yeah, of course game console is a part of that, of course, yes.

Thank you. Dr. Rick Tsai: Yes.

And your next question is from Satish Athavale of KSA Capital.

Yes, hi. I want to go back to your comments about the share buyback program, is this -- if you can provide more color, is this suppose to offset the share dilution through the share dividend or are you proposing a even bigger share buyback program given that you have lot of cash on the balance sheet and you are generating lot of cash every year? Thank you.

I think the thinking behind the possible share buyback is to use the cash as a way to retain a cash to shareholder. The dilution is coming from probably sharing in the past few years has been only one plus to -- 1.2%, 1.3% level, so I think the basic thinking is about a way to retain cash to shareholder.

Right, so just to clarify then, you are thinking about a bigger share buyback program that'll reduce the share count in a meaningful way?

We have not decided how big the scale will be, but once we decide it and it's not going to be very small or meaningless buyback.

Right and will that be in the local market or also for the ADR, can you clarify that?

It will be there in the local market.

Okay. Thank you.

And your next question will come from [Tidus Menzes] of Jefferies & Company.

Good evening, gentlemen, this is Tidus on behalf of [John Lou], just a couple of questions if I may. Firstly, we’ve been hearing a lot (inaudible) the IDM about plans to '07 to cut CapEx spending on equipment and look to use foundries more aggressively as you go forward. So, my question is, your plans for '07 of flattish CapEx spending, would -- is that modest or is that sufficient to meet the requirement for your IDM partners? Dr. Rick Tsai: We -- as we said, these numbers are still being worked on now. We set a modest increase over what we have in 2006, but the guiding principle is to meet. We worry about -- to meet our customers' demand, but that will force us also being worked out internally. So, we will not make the CapEx decisions because of the a quarter or two quarters inventory correction.

Okay, thank you. And in terms of your guidance, how much of your guidance is covered by already booked orders, and how much of that is left therefore -- left it today's current business requirement? Dr. Rick Tsai: We -- in all our business, I think right now is October, late October almost November. I think the cycle time -- if you consider the cycle time you can pretty much figure out the opportunity for turning business is getting smaller as smaller as days go out. So, I think -- I think the visibility is the reason the first quarter.

Okay and I guess the last question I will ask you, in terms of the overall utilization rate you expect for Q4 in general and if you will split that between advanced and trailing fab? Could you give some color on that please? Dr. Rick Tsai: We remarked (inaudible) at the event that the 12-inch wafer fab (inaudible) is greater than the companywide average but the 8-inch is a better than our company average.

Wonderful. Thank you, guys very much. Dr. Rick Tsai: Thank you.

And your next question is from Bhavin Shah of JP Morgan.

Yeah, just one follow-up. When I look at the non-depreciation cost of goods sold as a percentage of sales, there is an amazing improvement some 500 basis points from -- I kind of used two different -- various points and I looked at 2004 versus 2006 because this two years have similar utilization levels, so trying to eliminate any other variables that affect this. So there seems to be something going on with respect to your cost reduction that I have not seen before. Is there anything you can shed the light on? I might not -- it is not really a big issue.

Bhavin I was talking about the cost structure improvement over the past few years and I think we've seen the productivity improvement and continue cost reduction has been a major factor. On landline, as you can see, the depreciation cost coming down and we have more 8-inch depreciation to [quote] our sales ratio if it's less than five years as old. And another reason is we managed [capacity] center. So the ramp up is very fast and we can try to close (inaudible) down very fast, and so therefore the cost has been in greater advantage.

Right. The reason why this is particularly noticeable is that this was happening in spite of a fall in ASP. So as we go forward, can we assume that you have some more room for costs reduction because ASP fall doesn't seem to be stopping? Dr. Rick Tsai: We are setting a target for acquiring -- our operation have very stringent target for cost reduction, productivity improvement. We -- yeah, I guess, you probably are accretive.

Thank you. Dr. Rick Tsai: And may be I should get there a number from you?

No. No, I am just looking at the data and listening at the kind of statements. Thank you.

Operator in the inclusive time we're just allowed for one last question.

And your last question will come from the line of [Harneet Shuma of Dillard Institute of Research].

Thank you. I have one question about your China operation. Recently we have seen basically lot of Chinese government are approaching foundries to put up probably a facility may be coming from the local government. Are you being approached by those foundry to put up any mature technology fab and what is your stand like if your technology permits out there will you be taking those type of opportunity in China? Dr. Rick Tsai: Harneet, I think it is a quite complicated, very complicated because of the situation that we have no control over with. So again it is very difficult for us to really engage in such kind of discussion. We do not have any -- let me be very clear, we do not have any --

What about other countries? Any other country outside China that government are approaching you Dr. Rick Tsai: Yeah. All right. That is (inaudible).

And anything on that pipeline you can expect in next maybe one year timeframe? Any -- Dr. Rick Tsai: I assume that the thing I can say that is we continue to look at different sites in different area. We need to ensure that we have good cost structure and good human resources. I think we are making progress, we are making progress, but I really do not comment on specifics.

Okay. Thank you Rick. Dr. Rick Tsai: Sure.

Operator, I think we are done with the Q&A session.

That close the Q&A session. I would like to turn the call over to management for closing comments.

I would like to thank everybody for your participation, and we are happy we can answer most of the question. So looking forward to see you in next quarter. Bye, bye.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.