Elizabeth Sun - Head, Investor Relations Lora Ho - Senior Vice President and Chief Financial Officer Morris Chang - Chairman and Chief Executive Officer C.C. Wei - Senior Vice President of Business Development

Dan Heyler - Bank of America Merrill Lynch Mahesh Sanganeria - RBC Capital Markets Mehdi Hosseini - Susquehanna Szeho Ng - BNP Paribas Michael Chou - Deutsche Bank Steven Pelayo - HSBC Brett Simpson - Arete Research

Ladies and gentlemen thank you for standing by and welcome to TSMC’s 4Q11 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. Please go ahead Dr. Sun.

Thank you. Good morning and good evening, everyone. Welcome to TSMC’s fourth 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; and Dr. C.C. Wei, TSMC’s Senior Vice President of Business Development. The format for today’s conference call will be as follows. First, Lora will summarize our operations in the fourth 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 fourth quarter earnings conference call. Before I start I want to extend by my best wishes for year of the dragon. It is only few days before the Chinese lunar New Year. During today's call I will start with the financial highlights in the fourth quarter followed by a recap of 2011. Then we will move on to the outlook for the first quarter 2012. All dollars figures are in NT dollars unless otherwise stated. Our fourth quarter revenue decreased 1.7% sequentially to NT$104.7 billion. In the U.S. dollar terms, revenue decreased 5.4% compared with the third quarter. Our wafer shipment decreased 8% to NT$2.9 million 8-inch equivalent wafers in this quarter. This customers’ inventory adjustment continued to affect TSMCs wafer demand. By applications, computer consumer and industrial revenue were more affected and decreased by 13%, 10% and 14% respectively. Whereas communication increased by 6%, thanks to the demand for smartphones. Overall, communication accounted for 53% of our total wafer sales in this quarter, while computer, consumer and industrial accounted for 20%, 9% and 18% of our wafer sales respectively. By technology contribution from 28-nanometer process technology already represented 2% of the total wafer sales. We believe 28-nanometer contribution will be more than 10% in the second half of 2012, also for the whole year. 40-nanometer contribution remained at 27% in the fourth quarter, while 65-nanometer increased 3 percentage points to 30% of total wafer sales. Combined contribution from 65-nanometer and below represented 59% of total wafer sales in this quarter, which is 5 percentage points higher than the previous quarter. Gross margin was 44.7%, up 2.7 percentage points from third quarter, mainly attributed to a favorable exchange rate and a higher utilization rate. Operating margin was 31.4%, up 1.7 percentage points. Operating expenses increased 5% from the previous quarter mainly due to higher opening expense for Fab 15 in Taichung. Overall, our fourth quarter’s net margin arrived at 30.2%. EPS was NT$1.22. During this quarter we further reduced our inventory level by 2 days to 43 days. We believe this inventory level is healthy. Cash flow from operations totaled $73 billion, up $18 billion from third quarter, primarily due to higher other operating process. Also our capital expenditure decreased by NT$8 billion in the quarter. These two factors helped us -- helped our free cash flow increase from $17 billion to $43 billion during the fourth quarter. Overall our cash and short-term investments increased $30 billion to $151 billion. Our capital expenditure was US$1 billion in the fourth quarter. Total capital expenditure for the whole year was US$7.3 billion. Our total capacity slightly declined in the fourth quarter as a result of capacity conversion in 12-inch fab and annual maintenance in certain 8-inch fab. Full year total capacity increased by 17% year-over-year to 13.2 million 8-inch equivalent wafer while 12-inch wafer capacity increased by 29%. We expect our total capacity to increase by 5% sequentially to 3.6 million 8-inch equivalent wafers in first quarter of 2012, mainly due to increase in 28-nanometer capacity. Next, let me give you a recap of our performance in 2011. 2011 revenue was NT$427 billion. Gross margin was 45.4%, operating margin was 33.1% and the EPS was NT$5.18. 2011 was a challenging year for the semiconductor industry. Despite a difficult macro environment TSMC still achieved top line growth. In U.S. dollar terms our revenue increased 9% year-over-year to US$14.5 billion in 2011, continually, outperforming the foundry industry regarding profitability. Despite rising deprecation, R&D expense and unfavorable exchange rate, we still maintain gross margin at above 45% and achieve our long term financial targets of and above 20% ROE. Supported by solid financial performance we are committed to invest in R&D for future growth and strive for long-term shareholder value. Now let's turn to the outlook for the first quarter 2012. Based on the current business expectation and the forecast exchange rate of 30.25, we expect our consolidated revenue in the first quarter to come in between NT$103 billion and NT$105 billion. In terms of margins, we expect our first quarter gross margins to be between 42.5% and 44.5%. Operating margin to be between 28.5%-30.5%. Our first quarter revenue outlook is similar to revenue in the previous quarter but profit margin is slightly lower. The main reason is that our 28-millimeter wafer sales contribution will increase rapidly to around 5% in the first quarter from 2% in the fourth quarter 2011. As margins of any process technology are typically lower then corporate average at initial stage of roll-in production. This increase in 28-millimeter contribution will have some temporary negative impact on our margin. This concludes my remark today, now I would like to turn the call over to Dr. Morris Chang, our Chairman and CEO for his remarks.

Hi everyone. First I would like to look at the 2011 in retrospect. In 2011, the world’s semiconductor growth was close to zero. The world’s foundry industry growth was 4%. TSMC growth was 9%. All these figures were in U.S. dollars. TSMC growth was mainly driven by the strength of 40 and 45-nanometer nodes and the emergence of the 28-nanometer nodes. Revenues from our advanced technology, that is 65-nanometer and below, grew from 46% of total wafer revenue in 2010 to 55% in 2011. Now, a few words on supply chain inventory. The supply chain inventory has been working down throughout the second half of 2011. We expect that the supply chain’s BOI in aggregate is about 7 days below seasonal at the end of 4Q ’11, and will continue to be below seasonal throughout 1Q ’12. Next, I would like to say a few words about this year 2012s semiconductor and foundry outlook. The outlook for 2012s economic condition is, for world GDP to grow at 2.4%, that’s how estimates are. It’s higher than some and lower than others. We expect the world semiconductor market to grow at about 2%. In the semiconductor market, mobile part of our product will enjoy particularly strong growth. TSMC is well positioned in the mobile part of market with the right technology and we have the manufacturing capacity. We shall perform better than the overall semiconductor and foundry industry this year. I have asked C.C. Wei, Senior VP of Business Development to give a special presentation on TSMCs positioning in the mobile products today. He will speak after me. TSMCs Q1 revenue is about flat from last year’s Q4, but stronger than seasonal. According to our current booking forecast our second quarter revenue will be stronger than first quarter. On our capital expenditures. In order to leverage our leadership position in 28-nanometer and to expand out development work in 20-nanometer and beyond, we expect to spend about US$6 billion in capital expenditure. About 80% of the spending is for tools, loadings and facilities for 28-nanometer and 20- nanometer nodes, and 12% of the total spending is for R&D. I will say a few words on the status of our 28-nanometer ramp. Our 28-nanometer entered volume production last year and contributed 2% of 4Q '11s wafer revenue. Defect density and new progress is ahead of schedule and is better than 40-45-nanometer at the corresponding stage of the ramp-up. We expect 28-nanometer ramp this year to be fast and we expect 28-nanometer will contribute more than 10% of total wafer revenue this year. Our tape-outs on the 28-nanometer. We have so far completed 36 individual tape-outs and have scheduled another 132 individual product tape-out in 2012. While three versions of the 28-nanometer technology, the LP, the HP and the HPL have entered volume production, the fourth version, the HPM, has entered risk production this quarter and is expected to begin volume production in the second half of this year. Now, I will give you report on some technology development. First, on 20-nanometers and beyond. Our 20-nanometer development is on track to start risk production at the end of this year. We combine our high performance planar transistors with system integration such as COWOS and our ecosystems partners. We think that with the combination of those three, the high performance planar transistor, the high-density system integration, such as COWOS, that’s essentially chip-on-wafer-on-substrate by the way. And our ecosystems partners such as ARM and other EDAs. TSMC’s 20-nanometer technology will be most competitive in the marketplace. For FinFET, TSMC will also have second generation FinFET transistors at 14-nanometer node, with risk productions in 2014. Their feasibility has been proven. We are in the process of integrating it into the technology platform. To solidify and enhance our R&D efforts we have invested a few hundred million dollars of additional equipment and put in hundreds of engineers to start up a R&D process center in order to deliver the 20-nanometer and 40-nanometer prototypes with quick cycle time. I wanted to say a few words on high voltage. The fast growth of mobile computing devices has fueled the growth of demand for high voltage, HV technology. The HV technology is needed for power management IC and for display driver. The mobile computing devices require smaller footprint, high efficiency, with predictable use and large capacity to support. TSMCs strength of integrating logic and HV fits well in this trend. For power management IC, TSMC's 0.25 micron PCB is in volume production, and customers are designing into our 0.18 micron PCB while 0.13 micron PCB is under development. For display driver the requirements include high resolution, thinner frame to narrow the edge and faster data rate to refresh the screen. TSMC's 110 nanometer HV and 80 nanometer HV fit well in this trend with the smallest design volts and the largest capacity for the market. We plan to offer 55-nanometer HV next year to further extend our leadership. Next chip-on-wafer-on-substrate, COWOS. TSMC offers a robust COWOS solution to enable future advanced products featuring low power and consumption. The solution integrates advanced silicon technology and interposer technology. We expect COWOS to start at 28-nanometer and become significant at 20-nanometer and below. We've been collaborating with customers to develop COWOS product for qualification in 2012 and industrial production in 2013. That will be the 28-nanometer regime. The COWOS echo system improves memory manufacturers and wholesale partners. Initial applications will be in the areas of high-end GPU, FPGA and networking. And now a few words on the status of our solar and solid state lighting business. This year, we have seen very quick price jumps in both solar and solid state lightning. In this environment, we are proceeding cautiously and hopefully prudently. We are spending somewhat longer time in getting the technology to even higher performance than we originally planned, before we switch to production. We are still focusing most of our efforts on development and that will last well into 2012, our development will last well into 2012. Although we do expect modest revenue in 2012 for both solar and solid state lighting. Our goal in solar is to produce high quality solar modules at competitive cost. And we have started to move in tools into our new solar fab in Taichung. And recently we're able to demonstrate a circuit efficiency of 17.12% on 30x30 centimeter cells. To the best of our knowledge, the highest efficiency that has been achieved anywhere is 17.2% for a cell of similar size, and as I said we achieved 17.12%, very close to the highest efficiency that has been achieved anywhere. And in solid state lighting our goal is to produce immensely stable high quality level, and are making good progress in developing our technology and converting them from R&D to pilot production. We are now approaching the 120-lumen per watt level, also bringing this new activity in the top bracket of technical performance. Now, I would like to turn the talk over to Dr. C.C. Wei, TSMC's Senior VP for Business Development, and he will talk about mobile computer products. C.C.? C.C. Wei: Thank you, sir. Good day, everybody. Let me start with the two most important products in the mobile computing business, that is the smartphone and tablet. In year 2003 to year 2011, smartphones grew from 10 million units to 456 million units. Year 2011 is also the first year that smartphone outnumbered PCs. Looking forward for the next five years, the growth would likely continued with 21% CAGR and reaches about 1 billion units, probably in year 2015 but no later than 2016. In addition to smartphone, the tablets grew from 18 million units in year 2010, to 60 million in last year. We also expect that a greater than 30% CAGR for the next five years for tablets. So, both smartphones and tablets are expected to have very strong growth in the future. Equally important is the mobile data traffic. According to Cisco’s estimate, the number of mobile data traffic by smartphones and tablets almost double every year. From about 91 petabyte per months in year 2009, to 546 petabyte per month last year. And will increase to more than 1153 petabyte per month this year and more than 2,000 petabyte per month next year. The quantitative increase of data traffic almost as (inaudible). First, the number of smartphones and tablets all have a very strong growth in the future. And second, higher transmitting speed and larger bandwidth will become necessary. So as a result, better semiconductor technology is required and that what leads to my next topic, why TSMC has very strong positioning in the mobile computing market. As I mentioned, in the mobile computing world device speed is very important. But yet another factor to be considered, that is the power consumption. Lower power is essential because you want to determine the smartphone and tablet use time. So in summary, all in all, the speed, the low power that turned out to be the semiconductor technology is very very important. In the last three years we have increasingly invested on R&D to enhance our progress in the technology and so we are working with our customer. TSMC can provide to our customer the leading edge technology optimized for top speed and lower power consumption. In addition to processing technology we are also benefiting from the ARM architecture which is famous for the low power operation and have been used by almost all TSMC customers in their product. And in fact, it is no surprise that TSMC customers are gaining their market share in the mobile computing and we are growing with them. Further, needless to say that TSMC and ARM both are cooperating together to catch the great opportunity in this mobile computing area. Next, I want to talk about why TSMC good positioning in the wind of foundry market segments here. We have seen faster technology migration in the past two years. For example, a 65-nanometer node, we sold about 35 products at the initial volume ramp and the number growing to 43 products at 40, 45-nanometer node and about 80 products at 28-nanometer node. Not only the number of products increased, we also saw the same trend in the volume ramp compared with the same period of time. And the faster technology migration actually is mainly driven by the performance need in these three years, higher speeds, lower power, everything. In order to keep up this faster technology migration, there is shortened time to the market. TSMC customers has borne the increased expenditure to have earlier and deeper cooperation in technology definition. As a result, we believe this faster technology migration will help TSMC to gain foundry market segment share. And indeed we have observed foundry market share gains of about 2 points from the year 2008 to 2011 in spite of new entrants in the same period of time. Thank you.

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

(Operator Instructions) And our first question comes from the line of Dan Heyler from Bank of America Merrill Lynch. Please ask your question. Dan Heyler - Bank of America Merrill Lynch: Good morning and thanks for taking my call. I wanted to ask you about the 20-nanometer ramp, which appears to be fully ahead of your previous comments, that it would be above 10% in the second half of this year. You are now into getting 10%, higher than 10% for the full year. What's the status of the High-K metal gate portion of that? Will that start to kick-in soon, or would you expect that to be more meaningful in the second half of the year?

It’s going to be more than 10% for the year, Dan. The revenue contribution of the 28-nanometer is going to be more than 10% for the whole year this year. And roughly, in the first quarter, it will be 5%. As you know, and we said that in the fourth quarter, it was 2%. This quarter it will be 5% and it will gradually build up so that the whole year it will be 10% or a little more than 10%. And High-K metal gate, when does it kick in. It has already started to kick in but it's a little bit behind the oxynitride. But it will build up quite fast. So at the end of the year we expect about half, half oxynitride and half High-K metal gate. Dan Heyler - Bank of America Merrill Lynch: Okay. Great. I was just trying to get a sense of the dynamics there because how important that High-K metal gate is to achieve a high second half growth. Is that -- are you assuming that, that will occur and that that's one of the major drivers to the second half portion of 28, if my thinking is correct there.

Yeah. That’s right, but we don’t really have any doubt that High-K metal gate is going to work. In fact that's already started. Dan Heyler - Bank of America Merrill Lynch: Okay. Thank you. And then on the question may be for C.C. and for Dr. Chang. The collaboration with ARM and TSMC is one-on and it’s been going on for some time. I wonder if I could get a sense of your thought process in this ecosystem moving into the PC space. Is that something that we would -- that ecosystem would be positioned too in the 20-nanometer node with your three initiatives taking place combined? Does that position?

The collaboration with ARM will continue to 20-nanometers and beyond in the PC space also. Yeah, I very much expect that. Dan Heyler - Bank of America Merrill Lynch: I was just wondering whether you think the performance level would position TSMC and ARM for a PC presence at the 20-nanometer node or could it come earlier, say in the 28-nanometer node?

C.C., you want to answer that? C.C. Wei: Okay. Dan, I cannot say that the high speed CPU will enter in that area. But you know there is some CPU combined with graphic and we are gaining the market share from there.

In other words the... Dan Heyler - Bank of America Merrill Lynch: Standalone end market?

Combined CPU and graphics in that scale. C.C. Wei: Yes. Actually, I would not say it in low-end but let's say that in the mobile product. Dan Heyler - Bank of America Merrill Lynch: Okay. Thank you. Looking to hear more color on that going forward. That sounds like interesting initiative. And then finally a very quick questions for Lora. If I could get some color on the different fab capacity movements in the first quarter. I don't know if you can pull up that slide. It seems as though some of the 8-inch fab capacity, you've got some fabs declining, Fab 2 and 3 declining. Fabs 5 and 6 are actually increasing. The only reason why I am bringing it up is they have been pretty stable over the last couple of quarters and in the first quarter it seems to have some capacity movements on the 8-inch. And then as you look on the 12-inch front, the two big increases that you have already talked about on the first quarter, Fab 12 and Fab 14, I presume are 28-nanometer. And finally the third part of the question is, how much growth this year will you have in 40-nanometer? Because I do understand that you're upgrading some of your excess 65-nanometer to 40-nanometer. So how much growth in 40 will there be as a result of those upgrades?

So you're asking about the fab. Some fabs have increased in the first quarter. You just mentioned, there were some changes in 8-inch. As I mentioned in my earlier remarks, there was some 8-inch coming down from the annual maintenance. So the capacity for those fabs will be slightly smaller than the fourth quarter. The two big 12-inch fab for 40-inch trials, they are all undertaking the expansion for 28-nanometer as a majority. In fact, 14 has a comfortable increase over 40-nanometer. So that’s your increased part. What’ your second part of the question? Dan Heyler - Bank of America Merrill Lynch: Well, 65-nanometer capacity declined this year, and how much will 40 increase?

40-nanometer will increase slightly. If you will talk about year-over-year, 40-nanometer increased about 20%. We are migrating 65 to 28. So overall, 65 nanometer capacity will go down.

The next question comes from the line of Mahesh Sanganeria from RBC Capital Markets. Please ask your question. Mahesh Sanganeria - RBC Capital Markets: Thank you very much. If I can just follow-up on the previous question. Did you say that you are migrating 65 into 28 nanometer, or 65 into 40-nanometer?

65 into 28-nanometer. Mahesh Sanganeria - RBC Capital Markets: Okay, and another question on 20-nanometer. You said you would start risk production by end of this year. When do you expect the wafer shipment for revenues?

The 20-nanometer we will start second half of 2013, not this year. 2013 second half. Mahesh Sanganeria - RBC Capital Markets: Okay. So one last question. How much capital are you allocating for 20-nanometer this year?

20-nanometer we are not spending very much tools money, very much equipment money, capital equipment money. However we are building facilities. Building plants in both Taichung and in Hsinchu. So we are not spending very much equipment money -- production equipment money. We are spending some R&D equipment money on the 20-nanometer. Mahesh Sanganeria - RBC Capital Markets: Can you give us an initial estimate if you have in terms of how much the cost will increase for 20-nanometer from 28-nanometer? Equipment cost?

It's about a ratio of 1.45 I think. 1.45 per 1000 wafers per month capacity. If that costs $1 capital in on the 28 it will cost $1.45 on 20. Did I explain myself? Mahesh Sanganeria - RBC Capital Markets: Okay. Thank you very much.

Your next question comes from the line of Mehdi Hosseini from Susquehanna. Please ask your question. Mehdi Hosseini - Susquehanna: Yes, thanks for taking my question. Going back to the margin commentary on 28-nanometer. When this year, would you expect the 28-nanometer gross margin to come up in line with corporate average and would there be -- and beyond that would margin actually for 28-nanometer increase above corporate average? And I have a follow-up?

Yeah. It will come very close to corporate average in the fourth quarter this year. And I really hope and expect that it will be above corporate average next year. Mehdi Hosseini - Susquehanna: Okay. And then regarding the CapEx. It is my understanding based on what I'm noticing at equipment vendors that maybe majority of CapEx has already been communicated, POs, plays. So would that be fair to say that the CapEx in 2012 is going to be front-loaded, spending in the first half much higher than the second half?

No, no. Lora you want to answer that question?

Yes. It's only slightly more than 50% first half, not much. Mehdi Hosseini - Susquehanna: I am sorry, more than 50%?

Little more than 50%. The number I remember is 52% or 53% in the first half and 47% to 48% in the second half. Mehdi Hosseini - Susquehanna: Okay. And then if the overall macro picture were to improve, what are the prospects or probability of increasing CapEx, let's say by summer time. Is that even under consideration?

Yes. There is some possibility and if you recall, last year in January, a year ago, we guided our capital spending last year at 7.8, it ended up at 7.3. And the year before, that's two years ago, January, we guided our capital spending in 2010 at 4.8, that ended up 5.9. So 2010 our capital expenditure exceeded our guidance early in the year, and 2011 our actual capital expenditure was less than what we guided. So yeah, in both years, you know what happened in both years. In 2010, the climate was better than we expected and then in 2011 it was worse than we expected. So this year depending on the macro situation, yeah, it could be up or down. Yeah. That’s right.

Your next question comes from the line of Szeho Ng from BNP. Please ask your question. Szeho Ng - BNP Paribas: Hi, good evening. Just out of curiosity, with regards to your R&D budget this year, what percentage would we allocate for that R&D?

What's that, I am sorry?

What percentage of R&D in the CapEx? Szeho Ng - BNP Paribas: For this year.

R&D, operating expense or R&D capital expense? Szeho Ng - BNP Paribas: Operating expense.

As a percent of what? Szeho Ng - BNP Paribas: The R&D expense allocated for backend.

Back end R&D. Well, I don’t have that number and it's not a major part of our total R&D. Szeho Ng - BNP Paribas: Okay. All right. And then the other question I have is on the tax rate for modeling purpose. Because last couple of years as the percentage was repeatedly low. So just want to know any number you have for modeling purpose.

You are asking about tax rate? Szeho Ng - BNP Paribas: Yeah.

Last year we were close to 7% and this year it will be 8%. Szeho Ng - BNP Paribas: You mean for this year?

This year will be around 8% including FX (inaudible) across the tax rate.

The next question comes from the line of Michael Chou from Deutsche Bank. Please ask your question. Michael Chou - Deutsche Bank: Good evening. Just a follow-up question for 28-nanometer High-K metal gate. Chairman, do you expect accelerated adoption of 28-nanometer High-K metal gate in mobile devices in 2013 or second half of this year. Given that it seems that there is limited adoption....

Michael, Michael, could you please repeat, do we expect accelerated what? Adoption of… Michael Chou - Deutsche Bank: Accelerated adoption of 28-nanometer High-K metal gate in mobile devices in 2013. Given there seems limited adoption in 2012?

Well, actually, I don't think the adoption in 2012 is limited. It is, frankly, it is limited above our capacity and it is limited by our capacity and our ability to ramp up the production. So to answer your question, yes, I do expect it will accelerate in 2013 but it will accelerate in 2012 also.

Next we have a follow up question from the line of Dan Heyler from Bank of America Merrill Lynch. Please ask your question. Dan Heyler - Bank of America Merrill Lynch: Thanks for the follow up. Dr. Chang, today, you had commented on the solar portion of your business perhaps contributing somewhat to revenue towards the latter part of the year. I was looking now to see if there were any comments on the LED bit. Do you anticipate some contribution to revenue this year as well as the solar or is that…

I said both, but it will be very modest. But it's not nothing, but it's modest. Dan Heyler - Bank of America Merrill Lynch: Okay. And then another follow-up was in relation to the backend strategy. I know that there has been, that’s still work in progress and you're consulting with your partners and customers on this. So, I wanted just to clarify, the ecosystem itself, you are working on the COWOS with your partners and the substrate attachment part would still be done by your backend partners. Are you 100% sure if that's the strategy now that the backend partners, the OSAT, the STs and the (inaudible) of the world will still be doing the substrate attachment. And I presume then, also the encapsulation in the packaging and test is why which --

I will let Dr. Wei, C.C. Wei answer to that. C.C. Wei: Okay. Dan, the substrate we corporate with OSAT partners and whether we put the die on substrate, we will put it by ourselves, we will put it by the partners, that at the beginning it would be done by TSMC and finally, I think that we would cooperate each other.

Did you hear that? Dan Heyler - Bank of America Merrill Lynch: Yes, I did.

He said that initially, we will probably do it ourselves, putting the chip on the-- C.C. Wei: In the powder and then on the substrate.

Well, we will always put the chip on the interposer ourselves. That's our business model of course. We will not use OSAT to put the chip on the interposer. But as far as putting the interposer on the substrate is concerned, then initially, we plan to do that too, but eventually, I think, that's what C.C. said, it will be done by OSAT. Is that right? Dan Heyler - Bank of America Merrill Lynch: Can you explain why the change, why would you do it first and then move it to the OSAT?

The wafer-on-substrate, why do we do that first? Dan Heyler - Bank of America Merrill Lynch: Yeah, why?

You are talking about the wafer-on-substrate now, right? Dan Heyler - Bank of America Merrill Lynch: Correct, yeah, and then moving on to OSAT. C.C. Wei: Okay, let me answer the question, Dan. At the beginning we want to do it ourselves because we have concern about the stress, about device matching and all kind of things together. And once we are very confident on doing that, because we have to buy the substrate from the OSAT people. And yet now we want to do it ourselves at the beginning due to the concern of mechanical stress, thermal stress and everything with (RBG) related. Once we are very familiar and we have confidence in which are the OSAT transposer technology we'll cooperate with them. So that in the mass production that they can also handle it. Dan Heyler - Bank of America Merrill Lynch: That’s great. I am trying to conceptualized this technology as how we should think about it. Is this something that we should think about as keeping Moore's Law going in another way? Given that a lot of chips are increasing their memory size, many SoCs, the memory bit is getting larger and dye sizes are getting quite large. So is perhaps the longer term outcome is that moving the memory off-chip on a interposer. That this is a meaningful cost reduction for your customers and therefore we are creating more value. Because I think some investors are confused whether this is you moving into the backend and taking away business from the backend process or is this really essentially a frontend value creation exercise? If you could just conceptualize this for the investors that would be great. Thanks.

Wei, do you want to answer? C.C. Wei: Okay. Dan, actually, we put – you're talking about quite a long sentence but let me answer in a very short one. We put the chip in, put the memory on interposer that we can – first we can move slow ahead. Secondly, actually it's for the performance because when you put two together, you can save the power consumption. You eliminate a lot of IOs, all right. And so the speed also has been reserved and because you're limiting the IOs, so that you save a lot of power consumption. That's the idea. And so the cost is lower. Dan Heyler - Bank of America Merrill Lynch: So this is the way for chip companies to effectively lower their die size but maintain the same performance level. Is that right? C.C. Wei: Yes. Dan Heyler - Bank of America Merrill Lynch: Okay. Thank you. And is it important for you to have a memory partner here? There has been also some arguments that those would have vertical integration and have the memory technology. Is that a differentiator for some of the nodes memory or is that not the case? C.C. Wei: Yes, we have partners in the memory field.

Is it important for us? I think so, yes. This is Morris, Dan. Your question, is it important for us to have a memory partner? Yes, I think so, because we need to put memories on the interposer also. Dan Heyler - Bank of America Merrill Lynch: Does you competitor have an advantage? I.e. Samsung within, say for memory?

I don't know about that because we're working with almost every memory manufacturer, except what you call our competitor. And they are – every one of them is quite eager to work with us, because they know that we are actually their defense against their competitor too.

The next question comes from the line of Mehdi Hosseini from Susquehanna. Please ask your question. Mehdi Hosseini - Susquehanna: Yes, two follow-up questions. First, on the depreciation. Can you remind me please the year-over-year growth from '11 into '12?

Okay, Mehdi. 6 billion CapEx will increase on depreciation with our current estimation of about 20% year-over-year. Mehdi Hosseini - Susquehanna: 20%. Okay. And then one other thing, I noticed, the mix of your revenue by fabless versus IDMs. Back in 2007, IDM accounted for a third of your revenue, now it has gone down to about 15%-16%. Is that a reflection of this secular change, more of a ARM ecosystem, or does that mean that when IDMs see full utilization rate, they are going to come back to you and it would have additional revenue opportunity for you?

Well, let me try this answer, this is Morris. The line between IDM and fabless is a very very much blurred one now. This has happened just in the last four, five years, and at leading edge technology in fact it started with 40-nanometer. There are only -- or I would say, two IDMs. And that’s true at 28-nanometer also. So all the rest at 28 and 40, everyone except those two is a fabless. Mehdi Hosseini - Susquehanna: Okay. Just as a follow-up, when we compare the 28-nanometer transition to prior transitions, let's say 65 to 40 and with IDMs not having any 28-nanometer capacity. Does that mean that the pricing power for TSM is better compared to the previous time? 28 is more capital intensive that’s why your margins are below corporate. But once you get a scale, does that change your pricing power compared to previous transitions?

The fact that 28 margin right now is below corporate average is a very natural one, I think. It happened to every generation and I expect that it will happen in the future, in future generations. 20-nanometer and 40-nanometer and so on. Because this is the well known learning curve effect, and when you start making something in production. It always is a pretty high cost. The scale is low and the use is generally still on the very sharp upslope and so -- you can possibly, if you try to charge a price that compensates you for the very inefficient manufacturing at the early stage of technology then you'll find that nobody is willing to pay it. So the fact that the margin is low this year to us, it's something that we accept in every new generation. And as I said earlier, I expect that the margin will become very close to the corporate average by the fourth quarter of this year and I expect it will actually surpass the corporate average next year. Mehdi Hosseini - Susquehanna: Got it, thank you.

As far as -- you also asked the question about pricing power. Mehdi Hosseini - Susquehanna: Pricing power.

Well, I don’t like to use that term because I don’t like -- all I would say is that we try to make the price... Mehdi Hosseini - Susquehanna: Let me simplify it for you. Your only other competitor this year is still on a gate-first technology, and then even beyond this year, let say a…

They are only competitor, I guess, so -- yeah, I am sorry. Yeah. Mehdi Hosseini - Susquehanna: Right. The one or two competitors are still at a gate-first technology and as you migrate to 20-nanometer, they still have some catching up to do. And I am just trying to stay rational, you are still the only viable foundry solution but also you have to be mindful of your customer's own pricing power. So I am just trying to reconcile if you would use your competitive advantage to ask for higher prices, or overall margins are going to remain close to what we have seen in the prior cycles?

Well, customers are our partners, and we are not going to do anything that would destroy that.

All right. Operator, in the interest of time we will only allow two more callers questions. Please go ahead.

Thank you. Next question comes from the line of Steven Pelayo from HSBC. Please ask your question. Steven Pelayo - HSBC: Yes, great. I wanted to ask a little bit about the 40-45 nanometer node. Right now, is your visibility suggesting that that continues to grow or are those people migrating out to 20-nanometer? I guess, I am just trying to understand on a dollar basis, as you look in the first quarter, the second quarter, are you pretty confident that 40-45 nanometer grow?

Yeah, 40-45 nanometers is continuing to grow. The volume this year will be higher than last year. Steven Pelayo - HSBC: And then earlier today, you had hinted that once you get up the yield curve, I think you said it takes about three quarters or so, it surpasses the corporate average margin. So is it safe for me to assume that your 40-45-nanometer today is surpassing your corporate average margins already.

Yes. 40-45-nanometer is higher than corporate average. Steven Pelayo - HSBC: Okay. And then my last question is, a lot of questions are being asked about structural profitability with your depreciation growing -- easing your revenue growth for a couple of years here or so. And we did talk about capital intensity being 1.4 times greater in each node. I know you don’t want to call it the call pricing power but I guess what it makes you, your customers, your partners really do understand the value you are delivering. On the ASPs that you are seeing at this particular stage, whatever it is 10, 000-20,000 wafers a month or something. For 20 nanometer also at similar multiples where it's 1.4 times greater, I am just trying to understand the difference (inaudible).

You are saying that you hope our customers understand the value we are offering to them. Is that what you are saying. Steven Pelayo - HSBC: I just want to make sure you are able to price for the value that you are bringing. Given that you have paid so much more for the CapEx.

Steve, we spare no effort in convincing our customer, persuading our customer that we are really giving them big value, even bigger value than he is willing to pay for. Steven Pelayo - HSBC: And is there any way you can quantify, kind of give color on what's 20-nanometer ASP as a multiple of your 40-nanometer, 65-nanometer, your blended average. Give me a general idea to help me understand given you had to pay so much more for the CapEx.

I can't comment, I don’t want to comment on 20-nanometer side, no.

Thank you. And your last question comes from the line of Brett Simpson from Arete Research. Please ask your question. Brett Simpson - Arete Research: Thanks very much. I have a question for Dr. Chang on Samsung. So, Dr. Chang, Samsung's logic business has grown something like 70% last year and they are talking about a big CapEx here again in 2012. How do you view their overall manufacturing capability, and given that they are only ARM chip maker with their own leading edge fabs. How do you think about Samsung? Do you think they are a long-term risk for the foundry sector?

I think they are a formidable competitor and I do expect that they will grow their, well, maybe not their foundry business. They will certainly grow their, what do they call it, the system LSI. Remember now, system LSI has a major role in supplying Samsung itself with logic products. And of course Samsung use, their own use of their logic ICs, in smartphones, in tablets and even in consumer electronics, the other consumer electronics has been growing now. And now, foundry, the way we do it is only a part of the system LSI business. Now I expect their system LSI business to grow very fast. The numbers you cited really apply to their system LSI business though, and foundry is only a part of it. But they are a formidable competitor in the foundry field, yeah. Brett Simpson - Arete Research: Great. Thanks and Lora just a follow-up. I think there was another question, depreciation. But I guess the last few quarters, 300-millimeter shipped wafers have been sequentially pretty flat, and now you are talking about growing it again in first quarter on a sequential basis. Can you, now that that's kicking up again, can you talk a bit about depreciation over the next few quarters, how that might trend?

First quarter depreciation will go up roughly 5%, and in the coming quarter it will go up more rapidly, for the (inaudible). So actually more than half would be first half of the year.

All right. This concludes our Q&A session, thank you for joining us today. We hope you will join us again next quarter. Goodbye.

Thank you. Before we conclude TSMC's 4Q '11 results webcast conference call today, please be advised that the replay of the conference call will be only be accessible through TSMC's website at www.tsmc.com. Thank you all and you may all disconnect.