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1.3 Net Sales over the Last Two Years OPERATIONAL Unit: Shipments (8-inch equivalent wafers) / Amount (NT$ thousands) 2005 2004 Shipments Amount Shipments Amount HIGHLIGHTS Domestic 991,870 26,895,512 1,012,161 33,226,052 Wafer Export 4,356,434 204,286,181 3,781,577 192,108,136 Domestic 137 10,808 110 12,135 Package 1. Business Activities Export 273,546 14,366,355 213,568 12,749,599 Domestic 14,601 2,103,030 13,497 1,891,630 Other 1.1 Business Scope Export 40,128 16,926,478 39,298 16,004,875 Domestic 1,006,608 29,009,350 1,025,768 35,129,817 TSMC excels in all aspects of its business. This excellence includes semicon- Total Export 4,670,108 235,579,014 4,034,443 220,862,610 ductor process technology research and development, wafer manufacturing, logistics management, capacity utilization, customer service, as well as a wide range of support services including design services, mask manufactur- 1.4 Production over the Last Two Years

ing, wafer probing, in-house bumping and testing. The essence of our Unit:Capacity / Output (8-inch equivalent wafers) / Amount (NT$ thousands)

foundry business is the success of our customers. TSMC continually strives to Wafers provide the overall best value to its customers. Year Capacity Output Amount

2005 5,954,600 5,451,384 138,182,812 1.2 Customer Applications 2004 4,787,523 4,799,657 127,840,620 Over the past 19 years, more than 500 customers worldwide have relied on TSMC to manufacture chips used across the entire spectrum of electronic applications. A far from exhaustive list of applications includes computers 2. Customers and peripherals, information appliances, wired and wireless communications systems, automotive and industrial equipment, as well as consumer electron- We count among our customers many of the world's leading semiconductor ics such as DVDs, digital TVs, game consoles, and digital still cameras (DSCs). companies, ranging from fabless semiconductor companies such as Altera Corporation, ATI Technologies Inc., Broadcom Corporation, Marvell The rapid evolution of end products drives our customers to utilize TSMC's Semiconductor Inc., nVIDIA Corporation, Qualcomm Inc., and VIA innovative technologies and services, while at the same time spurring TSMC's Technologies Inc., to integrated device manufacturing companies such as own technology development. As always, success depends on leading rather Analog Devices, Inc., Freescale Semiconductor Inc., and Philips, to systems companies. Revenue from ATI Technologies Inc. amounted to over 10% of than following industry trends. our revenue in 2005. In comparison, no single customer accounted for more than 10% of our revenue in 2004. 37

2.1 Customer Service 2.2 Customer Satisfaction TSMC is committed to providing the best services to our customers and TSMC conducts regular surveys and reviews to ensure that customers' needs believes that customer service is critical to enhancing customer loyalty. In and wants are being adequately addressed. Continual improvement plans turn, customer loyalty leads to higher levels of customer retention and to supplemented by customer feedback are an integral part of this business expansion of business relationships. TSMC's goal is to maintain its position as process. the most advanced and largest provider of semiconductor manufacturing technology and foundry services. TSMC believes that achieving this goal will 2.3 Market Expansion/Penetration help retain existing customers, attract new customers, and strengthen exist- TSMC continues to diversify its customer base while supporting the growth ing partnership relationships. of our existing customers. TSMC engaged more than 50 new customers in 2005. TSMC's customers also gained market share, notably in a number of To facilitate customer interaction and information access on a real-time end applications in computers, wired communications, wireless communica- basis, TSMC has established a wide range of web-based services covering tions and consumer electronics. applications in design, engineering, and logistic collaborations. They are col- lectively branded as eFoundry sm.

3. Raw Material Supply

Major Materials Major Suppliers Market Status Procurement Strategy

Raw Wafers F.K.S. These five suppliers provide over 85% of the world's wafer supply on a com- TSMC's suppliers of silicon wafers are required to pass stringent quality certifi- bined basis. cation procedures. MEMC Each supplier has multiple manufacturing sites in order to meet customer TSMC procures wafers from multiple sources to ensure adequate supplies for S.E.H. demands, including plants in the North America, Asia, and Europe. volume manufacturing and to appropriately manage supply risk. Siltronic TSMC maintains competitive price and service agreements with its wafer sup- SUMCO pliers, and when necessary enters into strategic and collaborative agreements with key suppliers.

TSMC regularly reviews the quality, delivery, cost and service performance of its wafer suppliers. The results of these reviews are incorporated in TSMC's subse- quent purchasing decisions.

A periodic audit of each wafer supplier's quality assurance systems ensures that TSMC can maintain the highest quality for its own products.

Chemicals BASF These two companies are the major suppliers for bulk chemical. Both suppliers have relocated many of their operations closer to TSMC's major manufacturing facilities, therefore improving the procurement logistics signifi- Tai-Young High Tech (TYS) cantly.

The suppliers' products are reviewed regularly to ensure that TSMC's specifica- tions are met and product quality is satisfactory.

(Continued)