TSMC Property © 2008 TSMC, Ltd 1 RM TSMC June SCRLC #6 Meeting

TSMC Property © 2008 TSMC, Ltd 2 Outline:  Foundry’s next Challenges  Supply Chain Risk in Asia  Some Economic Studies of Asia

TSMC Property © 2008 TSMC, Ltd 3 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

TSMC Property © 2008 TSMC, Ltd 4 Semiconductor Industry Revenues What are the key challenges, and business opportunities to provide for future growth?

TSMC Property © 2008 TSMC, Ltd 5 Increasing Foundry Revenue Impact Direct Revenue Impact Revenue Impact Revenue: Revenue from finished products derived from foundry wafers Foundry impact revenue will rise to close to 40% of overall semiconductor revenue by 2012

TSMC Property © 2008 TSMC, Ltd 6 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

TSMC Property © 2008 TSMC, Ltd 7 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

TSMC Property © 2008 TSMC, Ltd 8 IC Production Product Ramp and Global SCM Foundry Customer Process DevelopmentIC Design Traditional Segregated Model Contribution % Foundry Customer Process R&D and Technology Definition IC Design and System Development Deeper Partnership - from Concept to Production Contribution % New Foundry-Customer Relationship

TSMC Property © 2008 TSMC, Ltd 9 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)

TSMC Property © 2008 TSMC, Ltd 10 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)]

TSMC Property © 2008 TSMC, Ltd 11 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

TSMC Property © 2008 TSMC, Ltd 12 ** 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

TSMC Property © 2008 TSMC, Ltd 13 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 2 nd highest GDP state, USA with 29 trillion USD. (Source:Economist Intelligence Unit, EIU)

TSMC Property © 2008 TSMC, Ltd 14 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)