台積電 ADR (TSM) 2008 Q1 法說會逐字稿

Ladies and gentlemen, I'd like to welcome you to TSMC's First Quarter 2008 Results Webcast Conference Call.

Today's event is chaired by Ms.

Lora Ho, Chief Financial Officer and Vice President, Dr.

Rick Tsai, Chief Executive Officer and President.

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.

At the conclusion of the management presentation, we will be opening the floor for questions.

At that time, further instructions will be provided as to the procedure to follow if you would like to ask any questions.

Please be advised, 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.

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 proceed.

Thank you, Alexis.

Good morning, and good evening to all participants.

This is Elizabeth Sun, Head of Investor Relations for TSMC.

Before we begin, I would like to state that management's comments about TSMC's current expectations made during this conference call are 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 15, 2008 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 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 First Quarter 2008 Earning Conference Call.

Today, I will first go over the highlights from our first quarter 2008 results, including the impact of employee profit sharing expensing.

As you may be aware, we began implementing a new ROC accounting rule, which requires the expensing of employee profit sharing.

Starting from the first quarter, we began the accrual of such expenses each quarter.

I will give you a more detailed explanation of the impact from this accounting change in my presentation.

Then, I will give you the outlook for the second quarter 2008.

Please refer the quarterly financial summary slide on our website.

All dollar figures are in NT dollars unless otherwise stated.

On page four, now let me go over some highlights for the quarter.

Our first quarter business follow a normal seasonal pattern.

We shipped 2.2 million eight-inch equivalent wafers, which was about 7% less compared to the previous quarter.

NT dollars appreciated 2.6% on average over the quarter, which was higher than our earlier forecast, and it had a negative impact to our reported revenue and margins.

In spite of that, we are still able to deliver results that meet the guidance.

Our revenue was NT$87.5 billion, and our gross and operating margin were 43.7% and 33.6% respectively.

EPS was NT$1.10 for the quarter, a sequential decline of 16.4%.

Free cash flow generated during the first quarter totaled NT$42 billion, up 5%, and return on equity was 22.6%.

Now, let's take a closer look at our income statement for sequential and year-over-year comparison.

Please let me remind you that the accounting numbers reported for 2007 do not reflect effects from employee profit sharing expensing.

This is a major difference from 2008.

That being said, our first quarter revenue declined 6.8% sequentially but increased 34.8% year-over-year.

Compared with the fourth quarter '07, gross margin rate declined 4.1 percentage points and operating margin rate declined 5.9 points, mainly due to the unfavorable change of exchange rate and implementation of employee profit sharing expensing.

Non operating income was NT$1.8 billion, and we booked NT$600 million long-term investment gains from the quarter.

Net profit margin rate was 32.2%.

On page six, now I would like to elaborate more on the impact of the employee profit sharing expensing and impact from NT dollar appreciation against the U.S.

dollar.

Our employee profit sharing, we accrue 15% of quarterly net income in accordance with the plan that we announced earlier.

Accordingly, we accrued NT$4.22 billion in the first quarter, which reduced our gross margin rate by 2.5 percentage points, our operating margin rate by 4.8 percentage points, and net margin rate by four points.

Now, let me explain the impact of NT dollar exchange rate.

Since almost all our revenue are denominated in U.S.

dollars, the 2.6% appreciation of the NT dollar against the U.S.

dollar averaged over the first quarter reduced our revenue, which is reported in NT dollars, by NT$2.3 billion.

Meanwhile, its impact to our gross margin rate was roughly one percentage point, and impact to operating margin rate and net margin rate were 1.2 points and .9 points respectively.

In dollar terms, the 2.6 appreciation of the local currency reduced our net income by NT$1.6 billion and EPS by NT$0.06.

As this slide shows, if we did not have the 2.6% NT dollar appreciation, and if we also did not expense employee profit sharing, then our gross margin rate could have reached 47.2%, and our EPS could have been NT$1.03.

That being said, we are happy to point out that, despite a negative impact from foreign exchange rate and expensed employee profit sharing, we focus more on cost controls, productivity improvement, so we were able to deliver results in line with our previous guidance.

On page seven, in order to help you model the employee profit sharing better, we have performed assimilation to 2007's profits using the closing price of our common stock on December 31, 2007 adjusted for dividends as the basis for calculated total value of 2007 employee profit sharing.

This has enabled a like-for-like comparison with our first quarter 2008 results.

As this slide shows, the impact of employee profit sharing expensing to fourth quarter '07, gross margin rate and operating profit margin rate were 4.6 percentage points and 9 percentage points.

This represent a much higher impact to profit compared to first quarter '08.

Under the like-for-like comparison, first quarter gross margin and operating margin rate both improved sequentially as well as year-over-year.

Now, let's examine our revenue by application.

On a quarter-over-quarter basis, revenue from Consumer Applications increased 3%, while revenue from Communication and Computer Applications declined 9% and 12% respectively.

Overall, revenue from Computer, Communication and Consumer Applications accounted for 34%, 42% and 17% of our wafer sales respectively.

On page nine, in terms of revenue by technology, we continue our strong ramp with 65-nanometer during the quarter.

Revenue from 65 accounted for 15% of our wafer revenue, up 5 percentage points sequentially.

We expect to see continuing strength in the ramping of our 65-nanometer business for the whole year.

Total revenue from Advanced Technologies accounted for 63% of wafer sales, up 4 percentage points from the previous quarter.

Now, let's turn to page 10.

Let's move on the balance sheet and cash flow statements.

We ended the first quarter with NT$210 billion in cash and in short-term investments, up from NT$175 billion in the last quarter.

Average collection period for accounts receivable came down one day to 43 days, while days of inventory came down by two days to 46 days.

Our net fixed assets turnover was 1.3 times.

On page 11, total cash inflow generated from operating activities in the first quarter reached NT$57 billion.

Capital expenditure was NT$15.3 billion, which was NT$4.5 billion less than the previous quarter.

Free cash flow went up to NT$42 billion.

There was a NT$3 billion remaining settlement of share buyback completed on December 31st, 2007.

We ended the quarter with NT$49.3 billion more cash.

Now, let's turn to capacity and Kpcs.

Total installed capacity for the first quarter was about 2.2 million 8-inch equivalent wafers.

Due to fewer working days and a scheduled annual planned maintenance, first quarter capacity was about 4% less compared with fourth quarter '07.

We expect the second quarter capacity to be 2.3 million wafers, up 6% sequentially.

2008 capacity is expected to reach 9.3 million wafers, up 13% year-over-year, with 25% growth for 12-inch wafer capacity.

We spent US$484 million in Kpcs during the first quarter.

2008 full year Kpcs will remain at around US$1.8 billion.

With that, let me give you the outlook of the second quarter of 2008.

Based on current business expectations and a forecast exchange rate of 30.24, we expect our consolidated revenue to come in between NT$87 billion to NT$89 billion.

In terms of margins, we expect our second quarter gross margins to be between 43% and 45%, including approximately 1.7 percentage point negative impact from a forecast appreciation of NT dollar.

Operating profit margins will be between 32% to 34%, reflecting approximately 1.9 percentage point negative impact from the same forecast exchange rate.

This conclude my remark today.

Now I will turn the call over to Dr.

Rick Tsai, our CEO, for his remarks.

Thank you, Lora.

What I'd like to do in following is to comment on a few areas that many of you have questions about, the first being the business outlook.

Our guidance that Lora just gave showed pretty much a flat revenue for the second quarter compared to first quarter in NT dollars.

But, if you consider the foreign exchange rate that we used between second quarter and first quarter, you'll find that the revenue in the second quarter represents roughly between 4% to 6% increase if you used U.S.

dollar.

This is what we're seeing.

We are seeing a steady increase in demand in our second quarter.

We have talked to many customers just recently, and what they are seeing, it's about the same.

They stay cautious because of the, I would say, severe macroeconomic situation in the U.S.

However, their business outlook for the next quarter in general looks positive, in general looks positive.

In our business in second quarter, Consumer-related applications are expected to grow strongly.

Communication applications will remain about flat, while our Computer applications may see a small decline in the second quarter.

For the whole year of 2008, we maintain our view that we have stated in last quarter in January, that is for the semiconductor industry, the growth in 2008 will remain at about between 4% to 6%.

Actually, if you take out the Memory part of the semiconductor business, the growth rate will be better than 4% to 6%.

Foundry sector is expected to outperform the semiconductor by a few points, and TSMC will grow faster than the semiconductor industry.

Next, I would like to comment on the pricing, Kpcs, foreign exchange rate, et cetera.

As we have stated in the last two investor conferences, we have become firmer on pricing, and we will stay the course, even if the demand should weaken.

However, we do not expect the demand to weaken in the next quarter or so.

We believe we must maintain our structured profitability, and we believe, through the values that we have created for our customers, that we can achieve such objectives in the future and now.

The demand for advanced technology actually looks quite good.

It looks sustainably strong.

It has been better than what we have forecasted before.

As a result, we have taken steps to pull in equipment in order to meet such demand.

We have been thoroughly successful in pulling in equipment in the first quarter so we can build some more capacity in order to fulfill our customers' requirements.

In the meantime, we continue to assess our Kpcs and capacity plan every month, and sometimes every week.

As to the foreign exchange rate, Lora has done a good job in explaining in details.

I would just add that, for each 1% of NT dollar appreciation against the U.S.

dollar, our gross margin will be reduced by 40 basis points.

However, we will make it up by more cost reduction and firmer pricing.

Many of you also asked about the technology, in some cases about the open innovation platform that Chairman has discussed last week, so let me elaborate on these things a little bit more.

As we also have talked about many times before, in order to manage the design complexity, especially in the leading-edge technologies, a foundry must provide our customers with many design-related things, such as IPs, especially foundation IPs, that is the libraries, the memory compilers, et cetera.

We need to be able also to facilitate our customers so that they can have early access to such IPs.

We also work closely with the third-party EDA suppliers and third-party IP suppliers so we can build the comprehensive design infrastructure and design ecosystem for our customers, and we're also qualifying the third-party design service providers so they can provide a quality service to our customers.

All those things we are doing in order to enable our customers in using the advanced technologies that we can provide to them.

And when we integrate our advanced and mainstream process technologies, as well as the design infrastructure and design ecosystem together with the wafer-level packaging technologies that we are developing, these will form the open innovation platform.

We basically [assess] TSMC is a standard bearer.

And through this platform, we can enable our customers' product differentiation, our customers' faster time to market, and cost improvement.

Many of you also asked about the Moore's Law.

I would say the Moore's Law definitely still works.

You can tell by our track record that we basically migrate our technology node roughly about every two years.

However, it is also a fact the semiconductor industry, from revenue point of view, the growth has moderated.

It has moderated, but it has been also steady in the last few years.

TSMC continues to putting our resources in R&D, both from process point of view and from design infrastructure ecosystem point of view, so that we can lower the barriers for our customers to use our technologies.

Of course, the investment for such technology continue to be very high, so, through firmer pricing and tighter Kpcs, we aim to improve our return on investment of such technologies.

Lastly, many of you also ask about growth.

Let me also talk about that, especially in the [LED] part.

TSMC throughout the years have been working on, of course, growth, mostly in the growth of our core business.

However, we also look at areas or applications that represents good growth potential and that we can leverage our core competencies in creating differentiations in such areas.

And [LED], or you can call that solid-state lighting, can be one area.

TSMC is seriously evaluating such opportunity.

However, we have not made a decision as to how we want to approach that yet.

Next, on CPU.

TSMC is very interested on CPU and embedded CPU, both on embedded and from standalone point of view.

This is one area that we can still grow our market share quite a bit.

What we have done, in order to go into that arena, is to hone our technology.

Our technology at the 40-nanometer, basically 40-nanometer G or G-plus technology right now is already quite effective as a technology for the embedded and the standalone CPUs, and we also are investing our resources in our 32-nanometer technology using high-K/Metal-gate processes for our CPU version of the 32-nanometer technology.

In addition, we are also aggressively recruiting talent in the CPU area so that we can provide also a platform for our customers who want to do either standalone CPU or embedded CPUs.

Lastly, I want to comment on the flash memory.

The general business environment is quite difficult for such business, and it is, as a result, quite difficult to have a win-win foundry model for TSMC and our partners in the flash memory.

As a result, we have decided to slow down our business in the flash memory from a standalone point of view.

However, we will continue developing embedded flash technologies for our SOC applications, which we have done in the past and we will continue doing that, going forward.

That is my comments today.

Now, Elizabeth?

Thank you, Rick.

Before we begin the Q&A, in the interest of time, I would like to request that you limit your questions to no more than two each time.

Should you have more questions beyond the two questions, you can always come back to the queue.

Thank you for your cooperation.

Operator, we can open the floor to questions now.

(OPERATOR INSTRUCTIONS.)

Bhavin Shah with JP Morgan.

Yes, hi, everyone.

I have got -- well, let me ask the first question on the outlook for the industry growth and TSMC's growth.

Rick, you mentioned your 4% to 6% for semiconductor industry, and TSMC doing somewhat better than that.

If I take your (inaudible) and assume that there is some growth in third quarter, which I believe there is, and even if I assume flat fourth quarter, you end up with 13% revenue growth.

So, is that a case for revising up your sort of outlook for the industry?

Or more importantly, for TSMC for 2008?

Yes, Bhavin.

I think you're -- of course, your arithmetic is correct.

Actually, if you look at the first quarter and the second quarter guidance, which represent already I think roughly 25% growth year-over-year compared to the first half of last year, for the whole year I cannot really comment on your number, but I think it's not really that difficult to calculate for the second half.

Basically, this year, year 2008, I still want to -- although we see a steady increase in our demand in second quarter and we do not see a slowdown in such demand, but, considering the severity, I should say, of the macroeconomic situation in the U.S.

and now maybe in the developed economies, we certainly want to emphasize caution, and we will not want to be too aggressive in projecting our whole year results just yet.

All right?

Okay.

Yes.

Second question is for Lora.

In first quarter, currency ended up being stronger than your expectation, and that probably contributed a little bit perhaps to the fact that revenue didn't go all the way to the high end of your guidance.

But, your gross margin was closer to the high end of the guidance in spite of this -- currencies or price.

So, what contributed to this stronger profitability in light of the change in currency?

I think it's basically a combination of better cost control, operating expense saving, eliminating waste, and, from time to time, the productivity improvement that we have seen from our fab people continued doing that.

So, it's no secret, just a lot of hard working and continuing improvement.

Yes.

I guess the only thing is that I would have part -- those things you mentioned were already perhaps expected, at least in your planning, at the big (inaudible).

So, the [time] getting that in for the first quarter.

We have been doing that from -- but, with this business condition, we just feel we needed to more and more and harder and harder.

[Bill Liu] with Morgan Stanley.

Yes, hi there.

Good evening.

I have two questions as well.

The first one is on the 40 or 45-nanometers.

I guess I had always assumed that, for this year, that was going to be a pretty small revenue contributor.

But, last week on QualComm's conference call, they basically said they're going to start ramping that in the June timeframe.

Without commenting on any specific customer, I'm wondering if you can just help me with 40 and 45 might be as a percentage of sales by the fourth quarter.

I would say on the revenue, as you just said, Bill, that the -- from 45 -- 40-nanometer for this year will be insignificant.

We will start the production this year.

We are building production capacity in the second half of the year.

However, I would say, in the volume production, we'll really not start until first quarter next year.

So, I would really hesitate to speculate a number now for this year.

It will be pretty small.

Okay, fair enough.

Rick, the second question that I have is on pricing.

Remember on the last conference call, you had said that the pricing would take a while to work out because most of what's flowing through now was only negotiated a few quarters ago.

And now, it seems like you've got more confidence that pricing is, indeed, firming up.

And I'm just wondering if that's a comment on your current negotiations that will be reflected in your pricing for the second half of the year, or second quarter, second half of the year.

Or, are you saying that pricing the first quarter is already better than expected?

I think what we said last quarter was definitely a true statement.

A lot of the pricing negotiation were conducted and completed last year.

Of course, we basically -- roughly starting fourth quarter last year, we really -- well, let me put it this way -- put a brake on the pricing, and we continue to extract as much value as we could during this period.

So, I guess what we are saying is we are seeing results of such effort.

We have seen better pricing as a result of such effort.

However, we are not saying that the pricing negotiations conducted and completed last year were not effective anymore.

They are still effective.

But, we are -- it's just that we're -- I assume we're doing better than we would have if we didn't exercise all those efforts.

Suresh Balaraman with ThinkEquity.

Yes, just a follow-up on the pricing issue.

When we look at the utilization rates for other foundries that derive most of their revenues from older technology nodes, some of them seem to be at multi-year highs in terms of utilization rates.

And I'm wondering, are you seeing -- is there a scope for pricing to improve at 130-nanometers and 180-nanometers some time later this year, like you guys did in 2004 when, actually, pricing went up pretty meaningfully when we came off a downturn?

You're talking about the mainstream, the .18 micron and .13 micron pricing?

Essentially, yes, the nodes that took the biggest hit in the last couple of years.

I think the efforts I just talk about in the pricing covers a whole range of our technologies, all the way from 40-nanometer down to .5 micron, .8 micron.

Whether we're seeing actually some of the -- and some of the question we got in the afternoon actually was on somewhat lower utilization for .18 micron and the [above] technologies and whether that would have adverse impact on pricing, somewhat different from yours.

But, in response to either observation, we believe our pricing position at .18 micron and .13 micron is firmer, is in better position than we would be in without such effort.

Also, on 65 nanometers, are you on a per-wafer pricing with all your customers, or are there still some on a per-die -- are still people paying on a per-die basis?

It's a combination of both.

I would say more wafer pricing than die pricing, but, yes, it's a combination of both.

Dan Heyler with Merrill Lynch.

Hi, good evening.

I had a question on technology, Rick.

As you've ramped 65-nanometer fairly aggressively here, it's now at 15% of sales in the first quarter, how does that look as the year progresses, and what are the implications for 90?

How will you go about -- will 90 continue to grow, or will it fall as a percentage of sales as a function of 65 ramping?

We certainly will continue -- I think 65-nanometer, as you just said, will continue ramping pretty vigorously.

The percentage of sales will continue to climb.

Ninety-nanometer business still very good.

Of course, I believe we have said a lot of time that the capacity in 90-nanometer increase is not as much compared to 65-nanometer.

So, from a percentage point of view, I think 90-nanometer revenue will not decline, but it's probably not going to increase much, either.

The business is good for 90, also.

We do not have, really, a problem in having the demand for such technology, even with many customers migrating to 65-nanometer and 55-nanometers.

Okay, great.

Thanks.

My second question was on capital spending.

It looks like about, I believe, NT$15 billion in the first quarter, US$500 million or so.

You're budgeting 1.8 billion for the year.

My understanding is that your CapEx was more front-end loaded this year.

Does that imply some significant spending in the second quarter, and what's the linearity in the second half of CapEx?

Dan, you're right.

All of the 1.8 billion is -- I would say more than 60% will be spent in the first half, you know, the first quarter number.

And the second quarter number will go up.

And the second half, of course, will go down.

Pranab Sarma with Daiwa Institute.

Thank you.

Rick, congratulations on getting your costs down so nicely.

And I have two questions.

The first one is, basically, could you give a little bit of an idea about how many percentage of your capacity would be at 45 nanometer, or 40 nanometer, by year-end?

Very small.

More than 5,000K or less than 5,000K?

5K, or less than 5K?

Probably less, yes.

But, we will -- but, we're building production capacity in second half, and it will be quite aggressive in the first half next year.

(Inaudible.) Okay.

The second one, could you elaborate a bit how the Global Unichip is helping you getting order from customer?

And is there any way to track down how many percentage of your revenue really come through because of the presence of Global Unichip?

Let me comment on that.

I think the most important part of the relationship between TSMC and Global Unichip of course is strategic in nature.

I think GUC is very instrumental, very critical in enabling some of our smaller customers and some of the system customers in helping them through the turnkey in designing their chips and providing the turnkey services.

They have been -- I checked the revenue.

They have been providing a good revenue to TSMC.

Again, I wouldn't want to speculate on what percentage.

It's a good percentage.

Of course, the higher, the better.

But, I think, even more importantly, is that the role that GUC play in, shall we say, cultivating the future customers and the future innovation.

David Wu with Global Crown Capital.

Yes.

My two questions are, first, can you explain why in the first calendar quarter, the seasonally weak quarter of the year, the Consumer business actually increased quarter-on-quarter?

And where is the strength that you saw in -- where you're guiding to Q2 is coming from?

Second question I have is on the CPU business.

I guess it's hardly a secret that one of the Silicon Valley companies is looking for outsourcing at least part of their CMOS business, microprocessor business.

When would it become a meaningful number for TSMC in terms of revenues in the CPU business?

Well, to answer your first question on the Consumer applications, I think you're right.

Usually when -- the first quarter is not a strong quarter.

However, obviously people are still flocking to buy TVs.

Our digital TV and high-definition TV chips have enjoyed very good business.

Probably some of our customers have taken shares from others.

In addition, I think the game console also is doing better than we expected.

On your CPU question, I commented earlier.

We are actually working with the -- more than a couple of customers on standalone CPUs, not to mention the embedded CPUs.

However, I think, for the standalone CPUs, this business will take some time to develop into high volume.

I would expect some revenues to happen in 2009, but I really would like -- I would expect to see that blossom probably after that.

Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS.)

Bhavin Shah with JP Morgan.

Yes.

Rick, I wanted to ask a question regarding -- you mentioned about hardening of ARM core.

If you could just elaborate a little bit more on that?

I would imagine that's an ongoing activity, but there is some more emphasis there.

So, what's the -- if you can just elaborate a bit more on that?

Thanks.

Yes.

I did mention in the afternoon about us licensing ARM's core.

I assume we have -- I mean, I do not remember the exact model number.

We definitely have licensed both 900 -- one 900 core and the one 1100 core.

I think from -- we have two purposes.

One, of course, is to harden those cores in our most advanced technologies so that our customers can use that whenever they want to.

That's basically to enable them, and also to enable our business.

And certainly equally importantly, that is the -- we can develop our capability in implementing CPU core using TSMC technologies and TSMC IP.

Well, of course, CPU is difficult, a very difficult business.

Again, we do not, of course, intend to divert our own product whatsoever.

But, in order, I think, to develop some business in this area, it is critical, it is very important that we have some capability in-house.

That's why.

Pranab Sarma with Daiwa Institute.

I have follow-up questions on -- any plan for capital reductions in 2008 or '9, Lora?

Anything you are looking at, how to use your cash?

Pranab, the simple answer to that is there's no plan at this moment for capital reduction.

Okay.

What was the percentage of your revenue came from only wafer revenue last quarter?

Only wafer revenue out of total revenue.

Pranab, we do not disclose separately wafer revenues from other revenues.

We only disclose net sales.

Dan Heyler with Merrill Lynch.

Yes, hi, Rick.

I had a couple questions, follow-up.

On the CPU strategy, which is something you've been talking about for some time, the foundry business model is built to order, and you've done well at being mainstream and moving to leading-edge foundry.

As you invest a lot of R&D resources in this business, clearly your competitor there, Intel, puts a lot of marketing dollars behind pushing products out into the marketplace.

What's the risk that you invest lots of money here, but the actual customers themselves don't necessarily succeed?

Obviously that's a risk.

We've seen this at Chartered, whereby AMD, they executed okay for AMD, in fact quite well, and AMD then faced problems, and it created a $150 million hole in their business.

So, what can TSMC do to prevent something like that from happening?

Well, Dan, first, by having a broader base of customers, a broader portfolio.

I'm not saying this is easy at all, since, as you said, we have been talking about this for quite some time.

And certainly I would also say that the -- before our technology -- our process technology were not really ready to be a true CPU technology.

But, now we are confident that our technology, although may not be as good as Intel's from transistor point of view yet, but I think our technology certainly are now good enough to serve certain segment of the CPU market.

In addition, with TSMC's manufacturing capability and our process control competencies, we believe we can -- of course, with our design service capability, we will provide a much stronger technology platform for customers, I believe, compared to our competitors can.

Now, in addition, I think it's -- that's why I mentioned time and time again in my comments today, that is we also are looking at the embedded CPU applications.

We firmly believe that a CPU with the process technology capability that is available today and will be available in the next couple of years, embedded CPU will be very powerful, very efficient, and it will play a much greater role in many, many different applications for consumers and for other segments.

And TSMC will definitely again be the leading-edge supplier for such capability to our customers.

So, I really believe, Dan, this is almost a must for TSMC to continue to -- for our leadership position in the future.

(OPERATOR INSTRUCTIONS.)

Mike McConnell with Pacific Crest [Security].

Thank you.

Rick, interesting comments on the PC side for Q2, that they are actually going to be -- that that segment's going to be slightly down.

If I remember historically, usually that segment is up in Q2 for the seasonal build.

Can you just talk a little bit more in depth about what you're seeing in the PC market right now?

I think PC market itself, it's all right.

It's quite all right.

I think we've been forecasting that we believe the unit growth for the PC this year will be about 12%.

We continue to hold that view.

[Other some] -- I believe that, if you look at Intel's forecast, they also believe that the PC market is quite healthy.

So, I mean, although the forecast for us in the PC area is at, I said, a small downward trend, I would not -- I don't have really a major concern from that point of view.

I think it's just the combination of our customers in their products in their specific applications which causes this situation.

But, historically, usually in that PC segment, would that normally be up for you in Q2 if we look at recent historicals?

Actually, I think also (inaudible) somewhat lower second quarter, right, if you recall.

However, for the whole year, we remain quite confident.

Got you.

Thank you.

Thank you.

[Chun Pan] with [Nefski].

Hello, and good evening.

I've got a couple of questions.

My first question relates to your capacity.

What is your maximum capacity for Fabs 12 and 14, and when would you have a -- when's the earliest you would have a new 12-inch fab ready for ramp-up?

And my second question relates to 65-nanometers.

I just wanted to get some clarification on that.

I think it was quoted in the afternoon call that -- you mentioned that about -- that 65 nanometers would constitute about 20%-plus of your sales in 2008.

I just wanted to get some clarification whether you meant for the year as a whole or by 4Q '08.

Let me first comment on the capacity for Fab 12 and Fab 14.

It's actually a rather difficult question to answer because we continue to add modules to those two fabs.

Let me put it this way.

We just broke ground last month.

Our latest 12-inch fab, or you can call that module, in Hsinchu, which is dubbed the phase IV of our Fab 12.

In the meantime, our latest 12-inch fab in Tainan will be receiving equipment in the second half this year.

That one is dubbed phase III of our Fab 14.

The thing I can assure you is that each phase will, in general, have at least the same amount of capacity as any other phases before them.

I do not -- I think each -- usually each phase we have roughly 50 -- each phase has roughly 30 to 35K per month.

Actually, I think that, for our newer phase, sometimes I think it's bigger than that.

If I may, I can make some comment on that.

I think our Fab 12 will at least be bigger than 70,000, 70K per month capacity.

And Fab 14 eventually will get to that level, too.

Right now it's smaller than Fab 12.

So, these two fabs are the 12-inch that we have invented the gigafab concept, so the fab can be much bigger than the traditional fab that we have been [viewed] in the past.

Your second question about 65-nanometer revenue, my comment on the afternoon session is I really mean, for the whole year, the revenue contribution is going to exceed 20% on 65-nanometer.

So, now we are already 15% in the first quarter, and that number is continue grow so that it will give you more than 20% for the whole year.

Okay.

Thank you very much.

Dan Heyler with Merrill Lynch.

Sorry, it just got cut off.

On your open innovation platform, Rick, as you guys have got a big rush on U.S., I believe, in San Jose and Boston, what were some of the takeaways from that big conference in terms of the customer feedback and positives?

And any potential concerns that some industry people may have with regard to potential competition of competitors, et cetera?

Dan, well, I don't think I can give you a -- actually, as you know, we've been talking about a platform, at least its components, for quite some time.

I think all the design ecosystem and design infrastructure have been taken for granted by many of our customers.

They come to rely on many of our offerings, not all of our offerings for each case, for their design needs.

And they use them also to lower their R&D expenses, in addition to try to achieve the time to market.

I did not really ask many people specifically what they think of the open innovation platform by itself because it's rather -- still a rather new term for them.

But, my feeling there is for customers, they in general welcome that.

As I said, not everyone will use them, or at least not all of them.

But, they, in general I think, believe TSMC is doing things to help them, not to compete against them.

Great.

Thank you.

Thank you.

Bhavin Shah with JP Morgan.

Yes.

I wanted to go back to one of the comments you made about capital and its intensity, about 20% future, or next five-year basis.

I look at the CapEx this year, and obviously revenue will get maybe anywhere between at least, I guess based on your general comments as well as based on first half what you're assuming, at least 10%, maybe 13%, 14% revenue growth this year.

So, I sort of look at what needs to happen.

I mean, that would lead to capital intensity of about only 15%.

So, are you suggesting a big sort of steep jump in CapEx in 2009 or something?

Just trying to make some (inaudible).

Well, Bhavin, I think we said 20% is the plus-minus, in some years can be as -- higher than 20, and some years will be slower than 20.

But, we will not give you the whole year revenue, but I think 15% is probably on the lower side.

With that, I think, generally speaking, I think 20% capital intensity is roughly right, if we're talking about a longer-term instead of talking about maybe one or two years.

Okay.

Thanks.

Operator, I think, in the interest of time, we would end our conference call at this point.

Before we conclude TSMC's First Quarter 2008 Results Webcast Conference Call today, please be advised that the replay of the conference will only be accessible through TSMC's website at www.tsmc.com.

Thank you all, and have a great day.