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RM

TSMC

June - 2008

SCRLC #6 Meeting

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Outline: Foundry’s next Challenges

Supply Chain Risk in Asia

Some Economic Studies of Asia

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Foundry’s next Challenges

The foundry market segment is now an integral and symbiotic part of the overall semiconductor supply chain

The foundry business model exerts a positive and important influence on the health of the overall IC industry

The foundry segment must support the IC industry to maintain, or increase, historic growth rates

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Semiconductor Industry Revenues

What are the key challenges, and business

opportunities to provide for future growth?

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Year

1998 2000 2002 2004 2006 2008 2010 2012 2014Fo

un

dry

Rev

enu

e/T

ota

l IC

Rev

enu

e (%

)

5

10

15

20

25

30

35

40

Increasing Foundry Revenue Impact

Direct Revenue

Impact Revenue

Impact Revenue: Revenue from finished productsderived from foundry wafers

Foundry impact revenue will rise to close to 40% of overall semiconductor revenue by 2012

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Escalating Costs by Technology Node

• Design costs 9 times cost for N65 than 0.18 m 5 times cost for N65 than 0.13 m

• R&D cost 10 times cost for N65 than 0.25 m 14 times cost for N32 than 0.25 m

• Wafer Fab. cost around twice for N32 than N90

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Continuing R&D and Capital Investment

Foundries will continue to be leaders in

introduction of advanced process technology

Manufacturing capacity will grow

Collaboration with equipment vendors is

important to contain costs

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IC Production

Product Rampand Global SCM

Foundry FoundryCustomer

Process Development IC Design

Traditional Segregated Model

Co

ntr

ibu

tio

n %

Foundry Foundry

Customer

Process R&D and Technology Definition

IC Design andSystem Development

Deeper Partnership - from Concept to Production

Co

ntr

ibu

tio

n %

New Foundry-Customer Relationship

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Risk rating1 2 3 4 5

Likelihood5

4

3

2

1

Severity

Nature disasters

Terrorism Ethical risks

Infrastructure risks

Quality and counterfeiting Pandemics

Regulatory risk

Financial risk

Fraud and corruption Social risks

(Source: 62 companies based in Asia, with firms in China, Marsh Survey 2006)

Supply Chain Risk Map in Asia

Note: Likelihood: Sum(% of occasional,frequent and very frequent) Severity: Sum(% of severe and catastrophic)

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Infrastructure Risk

Infrastructure is less developed in Asia

Many respondents were not satisfied with the local

infrastructure situation

To meet expected infrastructure services needs, East

Asia would have to spend $165 billion a year over the

next five years – or roughly 6.2 percent of its GDP

annually ??? – on electricity, telecommunications,

water and sanitation, and major transport networks [Source: World Bank, 2005 (Connecting East Asia: A New Framework for Infrastructure)]

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Nature Disaster

Asia experiences the greatest regional number of

natural catastrophes and fatalities globally

Major natural disasters that may cause supply

chain disruption

Marsh’s Asia survey shows that only 28% of

respondents have fully prepared for natural

disasters

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Per Capita Gross Domestic Product (GDP)Unit：USA dollars

Year Taiwan China USA Japan Singapore

1980 2,397 307 12,080 9,184 4,853

1985 3,314 290 17,363 11,303 6,532

1990 8,132 354 22,660 24,606 12,234

1995 12,906 625 27,374 41,823 24,132

2000 14,519 941 34,463 36,742 23,079

2005 15,714 1,761 41,468 35,565 26,968

2006 16,073 2,110 43,570 34,125 30,160

Source：IMF International Financial Statistics (IFS), Taiwan

** Compared with 2020/2005, Asia economic to world economic will increase 8%. From 35%(2005) to 43%(2020). It’s Increasingly important to world economic.

(Source:Economist Intelligence Unit, EIU)

Economic Study of Asia

GDP PPP Per Capita Unit：USA dollars

Year Taiwan China USA Japan Singapore

2007 30,126 5,292 45,845 33,577 49,714

Source: IMF, 2007

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Some Challenges to China Inflation Rising in energy price The unequal distribution

of wealth

(Source: Interviewed with Yifu Lin,

CommonWealth, May 2008)

China, In 2020, will be the largest economic state around the world. GDP will be 30 trillion USD. Which is higher than 2nd highest GDP state, USA with 29 trillion USD.

(Source:Economist Intelligence Unit, EIU)

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The unequal distribution of wealth in China

Financial structure

- Unequal loan/remedy of banks to large and small enterprise

Resource prices

- Excess profits from low tax and fees to new entrance of mining companies

Monopolistic Enterprise

- Excess profits of state-own enterprise from regulated monopolistic protection, cause unfair salary compared with non-monopolized enterprise

Note: Per capita GDP at 8 super cities of China will be 20 to 25K USD at 2025 (Mckinsy Global Research Report)

(Source: Interviewed with Yifu Lin, CommonWealth, May 2008)