1) TSMC is the world's largest dedicated semiconductor foundry, offering advanced fabrication technologies and manufacturing capacity. 2) In 2005, TSMC maintained its leading market share of 49% and continued advancing its manufacturing process to 45nm and below. Nearly half of its wafer revenue came from processes at 0.13-micron and below. 3) Global semiconductor revenues grew 6.8% in 2005, with fabless company revenues increasing 10% and dedicated foundry revenues growing 2%. TSMC led the foundry segment in volume production of 90-nanometer and below technologies.

1. 4
recommendations on issues related to employee and executive compensa-
A BRIEF tion.
1.1 Core Values
INTRODUCTION TO Integrity - a central value of the Company. TSMC's commitment to integrity
can be best illustrated by our strong corporate governance standards and by
the requirement that all TSMC employees act with honesty and uprightness,
TSMC as set forth in the Company's ethics policy and standard operating proce-
dures.
1. Company Profile Customer Partnership - an essential component of the Company's competitive
strength. TSMC's dedication to customer partnership helps to optimize the
TSMC is the world's largest dedicated semiconductor foundry, offering competitiveness of our customers and to maximize returns for our share-
industry-leading fabrication process technologies, the largest manufacturing holders.
capacity among the dedicated foundries, extensive library and IP portfolios,
and other advanced foundry services. Innovation - the wellspring of the Company's growth. TSMC encourages cre-
ativity among our employees and provides the stimulating work environment
TSMC currently operates two 12-inch wafer fabs, five 8-inch wafer fabs and necessary for their development. The spirit of innovation is applied to every
one 6-inch wafer fab. The Company also has substantial capacity commit- aspect of the Company's business, from strategic planning, marketing and
ments at two wholly owned subsidiaries, WaferTech in the U.S. and TSMC management, to technology and manufacturing.
(Shanghai) Company, Ltd. in China, as well as at a joint-venture fab, Systems
on Silicon Manufacturing Co. ("SSMC"), in Singapore. Commitment - the driving force that makes things happen. TSMC asks of its
entire staff their personal commitment to their job and to the Company. In
TSMC was incorporated on February 21, 1987. TSMC's common shares are turn, the Company is committed to uphold the welfare of its employees, its
listed on the Taiwan Stock Exchange. About 17.5% of our common shares customers and its shareholders.
are also listed on the New York Stock Exchange (NYSE) in the form of
American Depositary Receipts under the symbol TSM. 1.2 Statement of Company Vision
Our vision is to be the most advanced and largest technology and foundry
As a responsible corporate citizen, the Company is committed to public serv- services provider to fabless companies and IDMs, and in partnership with
ice and to maintaining strong relationships with our customers, investors, them, to forge a powerful competitive force in the semiconductor industry.
employees, and the communities where TSMC does business.
To realize our vision, we must have a trinity of strengths:
Sound corporate governance is rooted in a strong Board of Directors com-
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a technology leader, competitive with the leading IDM
prised of experienced business leaders and distinguished scholars. The Board
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the lowest-cost manufacturer
reinforces the Company's commitment to financial integrity and manage-
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the most reputable, service-oriented and maximum-total-benefits silicon
ment soundness. There are three independent Board members among a foundry
total of nine directors. The Audit Committee, which reports to the Board,
was established in 2002. It oversees the integrity of TSMC's financial and 1.3 Corporate Recognition
audit systems. The Audit Committee is comprised solely of independent With innovative technologies and a commitment to corporate governance,
members of the Board. The Compensation Committee was established in TSMC has been recognized with many awards of excellence. Awards honor-
June 2003 and is comprised of three voting members, who are independent ing TSMC in 2005 included:
Board members, as well as two non-voting members. It reviews and makes
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Most Admired Company in Taiwan (CommonWealth Magazine, October
2005 - for the ninth consecutive year)

2. 5
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Best Managed Companies in Taiwan Large Cap (Asiamoney, January advanced process node. The Company also continued to generate many
2006) times the 0.13-micron revenue of our nearest foundry competitor.
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Best Managed Company, Best Corporate Governance, Most Committed to
Strong Dividend Policy (2nd place), and Best Investor Relations in the In line with its unwavering focus on customer partnership, TSMC offers inno-
Taiwan region (FinanceAsia, 2005) vative service as well as advanced technologies. In 2005, TSMC introduced
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Grand Prix for Best Overall Investor Relations - Large Cap, Best Annual the foundry industry's first comprehensive Design For Manufacturing (DFM)
Report and Other Corporate Literature, Best Investor Relations Officer - toolkits, which improve product yield, increase device performance and
Large Cap, Best Corporate Governance, Best Web Site, and Best Investor enhance semiconductor companies' return on design investment. These
Relations by a CEO or Chairman in Hong Kong and Taiwan (IR Magazine, process-based toolkits, "Yield Plus" and "Yield Pro", allow designers to build
November 2005) on their best efforts, thereby generating greater returns to the bottom line.
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Best Asia Investor Relations in Technology (Semiconductor) Sector - Buy- By providing these two DFM tool kits, TSMC extends its foundry leadership.
Side View, Best Asia CFO in Technology (Semiconductor) Sector Sell-Side TSMC also enhanced its advanced process design reference flows to provide
View, Best Asia Investor Relations in Technology (Semiconductor) Sector - state-of-the-art access to the Company's 65nm process technology. The new
Sell-Side View, Best Investor Relations in Taiwan - Buy-Side View Reference Flow 6.0 provides innovative power management features within a
(Institutional Investor, November 2005) comprehensive EDA methodology that is supported by TSMC's low-power
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Top 50 Management Teams in Asia excluding Japan (CFO Asia, October libraries, as well as new DFM capabilities for faster yield ramps and increased
2005) return on investment. Reference Flow 6.0 lowers the initial learning-curve for
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First Outstanding Nano-Tech Award (Industrial Development Bureau of designers wishing to create leading-edge products using advanced processes.
Ministry of Economic Affairs, ROC, September 2005)
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Corporate Social Responsibility Award (Globalviews Magazine, May 2005) TSMC continued to advance the semiconductor roadmap in 2005. Examples
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Prize for Innovation in Human Resource Development (Council of Labor of technologies the Company developed or rolled out this year include:
Affairs, September 2005) ●
Extension of advanced technologies to 45nm
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Chairman, Dr. Morris Chang, received Nikkei Asia Prize for Regional Growth ●
Extension of SiGe BiCMOS processes to 0.18µm
(Nikkei News, May 2005) ●
Development of immersion lithography for 65nm geometries and below
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Chairman, Dr. Morris Chang, received Award for Outstanding Achievement ●
Extension of mixed-signal and radio frequency (MS/RF) technologies to
among the Industrial Elites (Industrial Development Bureau of Ministry of 90nm
Economic Affairs, ROC, November 2005) ●
Extension of high density embedded memory processes to 65nm
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Proving of logic processes with nonvolatile memory at 0.13µm
2. Market Overview ●
Extension of high voltage processes to 0.18µm
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Development of 80-volt, 1.0µm high voltage technology
2.1 TSMC Achievements
In 2005, TSMC maintained its leading position in the dedicated foundry seg- 2.2 Market Analysis
ment of the semiconductor industry, with an estimated market share of Global semiconductor revenues increased about 6.8% in 2005 to US$227.5
49%. billion. Fabless company revenues grew about 10% to US$37 billion, com-
prising 16.3% of total semiconductor revenues in 2005, up from 15.8% in
A key factor in TSMC's strong position is our lead in advanced process tech- 2004. Dedicated semiconductor foundry revenues grew about 2% in 2005
nologies: in 2005, 45% of TSMC's wafer revenue came from manufacturing to US$16.4 billion. The value of dedicated foundry output at the semicon-
processes with geometries of 0.13-micron and below. Working closely with ductor market level is roughly two and a half times the foundry revenues
our customers, TSMC took the lead in volume production of many products and accounted for about 18% of semiconductor revenues in 2005.
designed with our 90-nanometer technology. By the fourth quarter of 2005,
more than 17% of TSMC's wafer revenue came from 90-nanometer process-
es or below, placing TSMC at the top of the foundry segment at this