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Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM)

Q2 2011 Earnings Call

July 28, 2011 8:00 am ET

Executives

Elizabeth Sun – Head of Investor Relations

Lora Ho – Senior Vice President and Chief Financial Officer

Morris Chang – Chairman and Chief Executive Officer

Analysts

Randy Abrams – Credit Suisse

Edwin Mok – Needham & Company

Mehdi Hosseini – Susquehanna

Zhou Ying – BNP

Satya Kumar – Credit Suisse

Donald Lu – Goldman Sachs

Steven Pelayo – HSBC

Michael McConnell – Pacific Crest Securities

Operator

Welcome to the TSMC’s Second Quarter 2011 Results Webcast Conference Call. 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.

I’d now like to turn the conference over to Dr. Elizabeth Sun, TSMC’s Head of Investor Relations.

Elizabeth Sun

Thank you. Good morning, and good evening, everyone. Welcome to the TSMC’s second quarter 2011 conference call. Joining us on the call are Dr. Morris Chang, our Chairman and Chief Executive Officer; and Ms. Lora Ho, our Senior Vice President and Chief Financial Officer.

The format for today’s conference call will be as follows: First, Lora will summarize our operations in the second quarter and give you our guidance for the third quarter. Afterwards, TSMC’s Chairman, Dr. Chang, will provide his general remark on the business outlook and a couple of key messages. Then we will open the floor to questions.

For those participants who do not yet have a copy of the press release, you may download it now from TSMC’s website at www.tsmc.com. Please also download the summary slides in relation to today’s quarterly review presentation.

I would like to remind all listeners that following discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to 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, 2011 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 will like to turn the call over to Lora.

Lora Ho

Thank you, Elizabeth. Good morning, and good evening to everyone. Welcome to our second quarter earnings conference call. During today’s call I will start with the financial highlights in the second quarter, then we will move on to the outlook for the third quarter. You may also refer to the quarterly financial summary slides on our website or dollar figures in NT dollars unless otherwise stated.

Looking at the highlights, our second quarter revenue had increased by 4.9% sequentially. Our gross margin was 46% and operating margin was 34.3%. The sequential decline in margin was mainly due to lower utilization in NT dollar appreciation. Second quarter wafer shipments were 3.3 million inch equivalent wafer, up 4% from the prior quarter.

Let me move to the income statement. Our operating expense increased by 3.9% from the previous quarter mainly due to higher R&D spending on 20 nanometer. The percentage of sales is 11.7% similar to the level in the first quarter. Overall, our second quarter net margin arrived at 32.5% down 1.9 percentage points from the first quarter and EPS was NT $1.39.

Now let’s take a look at our revenue by applications. In the second quarter communication related revenue decreased by 2% from the first quarter while Computer, Consumer, Industrial increased by 15%, 10%, and 6%. Revenue from communication related applications represents 45% of our total wafer revenue in this quarter. But our Computer, Consumer, and Industrial applications account for 25%, 11%, and 19% of our wafer sales respectively.

Now let's turn to revenue by technology, we continued to see strong demand for advanced technologies, 40 nanometer remains the strongest in all and it’s contributing to our total wafer sales, increased by 4 percentage points to 26% in the second quarter. Overall, combined contribution for 40-nanometer and 65-nanometer had increased by 1 percentage point to 55% of total wafer sales in the second quarter.

On balance sheet, we ended the second quarter with NT$159 billion in cash and short-term investments similar to the level in prior quarter. AS for liabilities almost all the increase was for dividend payables and dividends that had been paid down on July 20.

Our Inventory turnover days decreased by three days in the second quarter and we are expecting a larger scale of decline in the third quarter to be below 50 days.

Let's proceed with cash flows. Cash flows generated from operating activities totalled NT$63 billion, up NT$7 billion from the prior quarter mainly due to change in working capital.

Capital expenditure was NT$65 billion in the second quarter. As a result our free cash flow was a net outflow of NT$2 billion during the quarter, up from an outflow of NT$25 billion in the prior quarter, thanks to a less capital expenditure.

Next on capital expenditure, we decided to revise down 2011 full year capital expenditure to NT$7.4 billion from original plan of $7.8 billion as the weakened economic conditions that’s impacting our wafers in the second half of the year.

Our second quarter capital expenditure totalled $2.3 billion during the first half capital expenditure to two-thirds of our overall year’s budget. As a result of our capital expenditure adjustments, our total capacity in 2011 will be 2% lower than the previous plan. Under the current capacity plan, overall capacity is expected to increase 17% to 13.2 million inch equivalent wafers in 2011. 12-inch wafer capacity will increase by 30%.

Total installed capacity was above 3.3 million wafers in the second quarter representing an 8% growth from the prior quarter and we expect to grow by another 3% in the third quarter and keep flat in the fourth quarter.

Now, let's turn to the outlook for the third quarter. Based on current business expectations and a forecast exchange rate of NT$28.72 we expect our consolidated revenue in the third quarter to come in between NT$102 and NT$104 billion. The third quarter guidance reflects the consolidation of Global Unichip, which contribute around 1% of our consolidated revenue in the previous quarter. However, the change of (inaudible) will not impact our strategic relationship with Global Unichip.

In terms of margins, we expect our third quarter gross margin to be between 40.5% and 42.5%. Operating margin to be between 28% and 30%.

This concludes my remarks today. Now I will like to turn the call over to Dr. Morris Chang, our Chairman and CEO for his remarks.

Morris Chang

Good evening and good morning. I like to talk about the world economy and the semiconductor market first, and then I like to comment on the supply chain inventories, demand, prices and foundry market, and then I like to say a few words about the third quarter gross margin, and then I like to report our progress in technology.

First, on world economy and semiconductor market, world economic growth this year is below earlier expectation. US growth is below earlier expectation and is mainly coupled by debt limit uncertainties. Europe has been troubled by debt problems of several countries. Japan's slow growth has been exacerbated by the March earthquake tsunami. China trying to control inflation.

We now forecast world GDP growth rate at 2.8% down from 3.8% at the beginning of the year. The lower revision of world GDP growth has impacted our semiconductor growth. We now expect semiconductor ex-memory, semiconductor ex-memory to grow at 4% this year, down from the 7% we expected earlier this year.

Now I want to make a few comments on supply chain inventory demand and the foundry market. The semiconductor foundry sector has been further impacted us by inventory adjustment follow. Earlier in the year, semiconductor supply chain anticipated a better second half of 2011 in spite of the building inventory. The March 11 earthquake in Japan further prompted us the supply chain to build more inventory for precautionary purposes.

Now that Japan supply its recovery has been better than expected, but the end demand has softened due to a slow economic growth. Many IC companies need to reduce their inventory levels. In our current estimate the supply chains days of inventory at the end of 2Q is about five days above seasonal and since all of the companies are managing inventory (inaudible) we believe the inventory adjustment will be mostly done by the end of third quarter. While the demand for PSMG wafers in 3Q has been negatively impacted by both the softening economy and the supply chain inventory management.

Prices have remained stable and because of our differentiated technologies and our customer partnerships, we expect that down. The prices will remain stable in the foreseeable future. We now expect the world foundry sector revenue to grow 7% versus the 15% growth that we expected in January.

Now I would like to make a few moments on the third quarter gross margin. If we compare 3Q ’11 gross margin guidances mid point, which is 41.5% with a year ago, 3Q 2010, when we had gross margin of 50% is an 8.5 percentage point decline. 360 basis points is attribute to foreign exchange rate change. The NT has risen 10% from 3Q 10 to 3Q 11. 1,150 basis points is attributed to lower utilization. Utilization was significantly above 100% in 3Q 10 and is now below 100%. So that's a total of 1,510 basis points.

Our cost reduction offsets approximately 660 basis points, making the difference now about 850 basis points. Beyond 3Q, we expect foreign exchange to be stable. We expect that inventory correction have run its course (inaudible) by the end of the third quarter. So our utilization should improve in the fourth quarter. The negative elements will be diminished, our cost reduction momentum is expected to continue, and therefore we are optimistic about our margin improvement from the third quarter on.

Now, I’d like to report on our technology progress specifically first on 28-nanometer. We reported earlier that we had tape outs for 89 individual products and the tape out of each of those is on schedule. The first silicon of every tape out was fully functional would consistently satisfactory. In fact density reduction is on plan. The ramp of 28-nanometer however is taking longer than expected due to the softening economy and the demand outlook of 2011.

Second item that I want to report on is that our close co-orporation ARM CPU core is allowing us to optimize our technology of ARM design. Recently in 28HP, which stands for 28 high-performance, we have delivered first industry silicon with higher speeds than any other computer using on. And in 28 HPM which tends to our 28 nanometer high-performance mobile we have enabled first tape out of even better performance.

The next item is our transistor, as a 40-nanometer node. We have demonstrated a high hide mobility p-channel, since that’s worth greater than 30% mobility gain over silicon channel for low voltage 40 nanometer SoC.

Next item is subsystem integration. We have demonstrated at floating functional subsystem having a larger chip silicon in disposal with both impassive components and bumps manufactured at TSMC. The entire component was assembled at TSMC. As we forge ahead with more slower NICB involvement, we’re also trying to realize the potential of system integration. This concept can be described in the following view graph. The silicon and disposal solution reduces packages from nine to one, reduces size of dollar and increases the memory bandwidth and the system speed.

The next item that I want to report on is bond on trace; BoT and we show the next view graph. This is the first time we have revealed this to the investing public. It is a TSMC invention protected by patents. We completed form reliability qualification of BoT process. This BoT process reduces substrate bond pitch from 140 microns to 100 microns with significant cost savings from using standard infrared result, eliminating paths and sort on less on substrates and potentially reducing net layers on sub streams. It also reduces form factor and also develop for mobile applications.

The last but not the least, I want to report the our CMOS image sensors we are ready to introduce, 1.1 micron pixel process early next year for 8 megapixel products. We have also demonstrated a 0.9 micron pixel for 16 Megapixel products to be released a year later. Both processes use our world leading (inaudible) elimination technology and are well-positioned for smartphone and tablet application. Thanks, these are my prepared comments.

Lora Ho

This concludes our prepared statements. Operator, please open the floor to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Randy Abrams of Credit Suisse. Please proceed.

Randy Abrams – Credit Suisse

Thank you. You gave good disclosure in the prepared remarks on the gross margin change on a year-over-year basis. I was wondering if you could do the same sequentially, so the different factors in gross margin from the second quarter to third quarter, for instance from utilization or from inventory or FX sequentially?

Lora Ho

Okay. Randy, second quarter margin was 46% and the mid-point of our third quarter guidance is 41.5%, so there is a 4.5 percentage point difference. The difference come from three parts, number one, is the utilization decrease in the third quarter. This cause accounts for a little bit over three percentage point of gross margin.

Number two, in third quarter, we will shift about three days of finished goods inventory, which was build in the second quarter. These three days of inventory has contributed to the second quarter productivity and the margin rate. Since these wafers are sold in this quarter, so we would need to reverse the favorable impact in this quarter. This accounts for about 1 percentage point of margin drop this quarter.

And lastly, there is foreign exchange rate during the quarter NT dollar has appreciate another 1.5%. This contributed to roughly 0.3 percentage point margin decrease. So if you add this three things together, 3 percentage point, that will be more than 1 percentage point more than once at any point another two or 3 percentage points, you get its 4.5 percentage point difference q-over-q. I hope I answered your question?

Randy Abrams – Credit Suisse

Okay. No, that’s helpful. The sold question you’ve mentioned some about the 3D packaging and the back end opportunity you said the afternoon conference. May be if you could talk about the potential contribution where as first go by CapEx back end opportunity to be, and the traditionally the back end margin curve are more 20 to 25% for the independent back end companies. But as you we balance your business, can you see similar type of profitability to the opportunities?

Morris Chang

Well, this is Morris Chang and Randy, now at this point it’s much too early to trying to answer that the margin contribution that the subsystem integration we’ll make. Now, you refer to back end assembly in Texas margin being at 27% and I don’t think that’s after comparison because in our case I think that the would consider this expansion of our IC processing technology and it will be incremental contribution, I think that certainly far too early to say quantitatively what the margin contribution will be.

Randy Abrams – Credit Suisse

Okay. If I can follow up may be on the 3 packaging, what applications are you seeing the interest now for these applications, maybe timeline, how quickly you think some of these start to ramp up?

Morris Chang

Actually all the – well, with the exception, I reported on six items of technology progress. The first item is 28-nanometer and I think 28-nanometer will be used of a lot of products other than this mobile products, but the other type of items the ARM CPU Core, the 14-nanometer transistor, the subsystem integration, the [BUM] entrees, and the CMOS image sensors are really primarily applicable, well, I need to accept the 40-nanometer transistor because I think that’s applicable to a lot of applications. But the ARM CPU Core, the subsystem integration, the BUM entrees and the CMOS image sensors they all share a common theme, which is that they are primarily used on mobile products.

Randy Abrams – Credit Suisse

Okay. Thanks a lot.

Operator

Our next question comes from the line of [Michael] from Needham & Company. Please proceed.

Unidentified Analyst

Looking at the commentary about the inventory correction being short lived really Q3 and the recovery in Q4 that’s a pretty important statement I think from TSMC. Morris, outside of just the inventories being five days above seasonal exiting Q2, what else give you some confidence to make a statement like that.

Morris Chang

It’s our internal forecasting, our internal market forecasting. The data that we gather from our customers and perhaps just also a feel that we get from talking to customers. I think that we have got it identified right, but no forecasting is absolutely guaranteed. I’m recently confident that the inventory adjustments will run its course in the, well, I would say that most of its cost in the third quarter and then in the fourth quarter, it will run further. So by the end of the year, I think that the inventory adjustment will run its course.

Unidentified Analyst

So with that commentary I guess my next question would be looking at the slope of your utilization improvements in Q4, should we anticipate a more moderate slope, obviously some improvement, but how sharper recoveries should we think about in terms of Q4 or do you think in terms of magnitude maybe Q2 next year would have more sharper increase in improvement with utilizations or even may be Q1, which I know is not normal.

Morris Chang

Well, in our case you have to remember, I think that Lora mentioned that, that we are reducing our own in process inventory too. We where at how many days?

Lora Ho

56 days in first quarter and 53 days in second quarter.

Morris Chang

And…

Lora Ho

Third quarter, we expect to further reduce below 50 days.

Morris Chang

Below 50 days. And so all the inventories, so the third quarter actually for us, the third quarter utilization is particularly low and I am pretty combatant of an increase of utilization in the fourth quarter. And you ask how shop would be, well it depends on what you mean by shop. In my mind, it will be a significant recovery, significant utilization recovery.

Operator

Our next question comes from the line of Edwin Mok from Needham & Company. Please proceed.

Edwin Mok – Needham & Company

Hi thanks for taking my question. So regarding your CapEx reduction and go work capacity increase in the back half of this year. You talked about utilizations volume pick up in the fourth quarter, would that imply that going look beyond the second half will imply that you would start to pick up and tap all the expansion again in the first half next year?

Morris Chang

We have reduced our capital expenditure by about 5% this year and at this moment we’re still planning next years capital. So at this point really I think it’s too early, I really think we have to see. Well, I am confident that the utilization will pick up and recovery will continue in the next year, but I think that by the end, by the time we have to make a decision on next year’s capital expenditure, we already have paid up and beta always beats even confident predictions.

Edwin Mok – Needham & Company

I see and then my fourth quarter is regarding 28-nanometer, you mentioned that 28-nanometer is taking a bit longer. Can you kind of describe if that is relate to just maturity of the process? Was it related to just customer not ramping the design that they have and you were previously, maybe previously expect them to ramp. And finally, how much of yourself do you expect to come with 28-nanometer for the second half or for the fourth quarter of this year?

Morris Chang

Lora, you want to answer that?

Lora Ho

Okay. The delay of 28-nanometer is not due to their quality issue, actually we have regular tape out and it is unplanned. The July ramping is mainly because of softening economy for our customers, so customers delayed a tape out to us. So therefore, the 28-nanometer revenue contribution by the end of fourth quarter this year will be roughly above 1% of our total wafer revenue.

Operator

Our next question comes from the line of Mehdi Hosseini from Susquehanna. Please proceed.

Mehdi Hosseini – Susquehanna

Yes, thanks for taking my question. This is follow-up to the previous question. With the 28-nanometer, to what extent the ramp beyond Q4 is going to be driven by attracting new customers, or is that going to be just the volume ramp of these 70 to 80 tape outs that you have?

Morris Chang

No, we’re not counting on attracting new customers. Actually we have almost all of the major customers of the foundry business anyway, and all them are using, are planning to use or I should say, almost all of them are planning to use our 28-nanometer. And our tape outs would be 89 tape outs that I have mentioned a couple of times, I think equal to 10 times the combined tape outs of all of our competitors. So now, we’re not planning on, we’re not coming on attracting new customers on the 28-nanometer. And I believe that – the ramp up of 28-nanometer is mainly a function of demand and it will I think it ws both, in the December, this coming December and January we sharply there will be a inflection point in the ramp up curve. At the end of the…

Mehdi Hosseini – Susquehanna

Got it and then Morris (inaudible) have talked about a 29% revenue growth target and given the reduced expectation for just virtually industries on the foundry growth. How should we think about your year end revenue growth target.

Morris Chang

I’m afraid that I for now at this point since the whole semiconductor market is going to be less, whole foundry market is going to be less. The 20% growth, which was always in U.S. dollars is now unachievable. And however, I would say that we still expect a very much year up year compared to last year.

Mehdi Hosseini – Susquehanna

Would you at least out grow the foundry growth of 7% by two times or less than that.

Morris Chang

Well, I cannot answer that question, we’re not modulating the guidelines of the Taiwan regulatory agency actually let me say that the even the 20% prediction I got to step on the risk already. Now, so I would have love to quantify for you, but I right now I think I can only say that we will be up this year.

Mehdi Hosseini – Susquehanna

Got it. Thank you.

Operator

Our next question comes from the line of Zhou Ying from BNP. Please proceed.

Zhou Ying – BNP

Hi, good evening. Two question from my side, first one the company has done a lot things on cost reduction, just want to know if you have to change in deflecting your (inaudible) for a company at later and also at EBITDA level?

Lora Ho

The breakeven utilization, I can say that today’s endowment will be at high 40. This has (inaudible) from the low 40s in the (inaudible).

Zhou Ying – BNP

All right.

Operator

Our next question comes from the line of Satya Kumar from Credit Suisse. Please proceed.

Satya Kumar – Credit Suisse

Yes, hi. Thanks for taking my question. Satya Kumar from Credit Suisse. I was wondering if you could add a little bit of color on capital intensity and what it means for you. In the past I think you had talked equipment cost for 28-nanometer has been significantly more than 65. First part of my question is do you any changes in that trend as you continue to ramp 28-nanometer and move to 20-nanometer later on.

And the second part of my question is given the fact that the equivalent cost is higher at this smaller technology node, does that result in a higher yield threshold that is required in order to ramp the volume to keep the economics attractive for you and your customers? The reason I ask is I know you mentioned that 28-nanometer yields good from your perspective, but are they good enough to ramp given the higher cost of 28-nanometer outside the economic issues you mentioned?

Morris Chang

Well, I will give you a straightforward answer. First and what perhaps Lora may elaborate on my answer. The straight answer to the capital intensity of the smaller nodes is that yes, the equipment cost is higher; therefore it would take a higher margin to get the same return on – return on invested capital. And that can of course be achieved by slightly higher price and slightly more aggressive cost reduction and we are actually pursuing both avenues.

Lora Ho

If I can elaborate a little bit more. For every advance node we invest for and we have a return model to make decision on how we should invest. As Chairman Jeff mentioned about if you add two components, the first one being the gross margin and pricing and cost relationship, the other one is the asset turnover. The CapEx was the leading now giving more expenses using asset turnover will be slightly lower, therefore reached the higher margins and managing by the cost and price.

So you can you get a same returns on invested capital so that is how we think, the right model for our decision making on capital investment.

Operator

Our next question comes from the line of (inaudible) from [Linux Global]. Please proceed.

Unidentified Analyst

Thanks for taking my questions. Can you give us some rough numbers on how much of your CapEx spend in the first half for 28-nanomter and how much you think you 28-nanometer CapEx spend will be in the second half of the year.

Lora Ho

This year we just revised the CapEx in 7.4, I can roughly tell you more than 2.5 billion will be on 28-nanometer, which is mainly on the first half of this year.

Unidentified Analyst

Okay. Have you seen the demand environment weaken some, have you seen any changes in competitive intensity or the competitive landscape, some people talked about 65-nanometer wafter placing giving verse what do you as opposed to competitive landscape.

Morris Chang

Well, we have heard of some completive pricing, but I must as I said earlier our price is you have remained stable and I also attribute the stability to the fact that we do have, differentiated a proprietary technologies in every note actually.

Unidentified Analyst

Okay, good, thank you.

Operator

Our next question comes from the line of (inaudible) from Goldman Sachs. Please proceed.

Donald Lu – Goldman Sachs

Actually this is Donald Lu. My question is on the margin side, I think Lora had the afternoon conference call commented that the profitability, structural profitability should remain the same now verus a year ago? And would that mean that if your utilization recovers to about 100%, your gross profit margin would potentially recover to nearly 50%?

Lora Ho

I would say, I cannot comment with the 50%, I would say the structural profitability remains as good as before. You have to remember that also another sector that is exchange rate, which we cannot control. However, given these 10 structural profitability, if utilization rate improves, of course the margin goes up too.

Donald Lu – Goldman Sachs

But if the FX remains stable and utilization goes up to let’s say 100%, would the margin be relatively comparable with a year ago?

Morris Chang

Well, remember, actually last year almost all year last year we went – I use the word significantly, significantly above 100% last year. So last year was quite unusual. And also Lora mentioned the exchange rate, relative to this year, last year’s exchange rate was favorable. So yes, I think our structural profitability compared to last year has actually improved a little better, this year as we improved. However, this very high utilization rate of last year and the favorable exchange rate, I think made a comparison to last year very difficult.

Donald Lu – Goldman Sachs

Okay. Thank you.

Lora Ho

In the interest of time, I think we’ll only accommodate two more callers’ questions.

Operator

Our next question comes from the line of Steven Pelayo from HSBC. Please proceed.

Steven Pelayo – HSBC

Thank you for sneaking me in here. You’re expressing a lot of confidence about this fourth quarter pick up, significant utilization rate recovery. I guess kind of two questions along that. When I first look at your third quarter guidance down about 68%, does that imply that the Forex nodes and below are still growing quarter-on-quarter and all of the softness is kind of in the middle node, the 65-nanometer, 90-nanometer portions? And then further as I think about the fourth quarter significant utilization recovery, I guess that implies that it is in the middle node, you’re then assuming I guess those all that inventory burned and it’s the middle note is coming back driving utilization pick up. Give me a little color about the guidance in sequential growth rate by node.

Morris Chang

Lora you want to do that.

Unidentified Company Representative

I will answer the question actually the demand of 20-nanometer node is rising, has risen and is rising. The demand in the middle nodes at 65, 90 and 130 not good. Now, the demand on 0.18 and 0.25, 0.35, 0.6 are all very good. So it’s the middle nodes that we have insufficient demand on.

Lora Ho

One point to Chairman Jeff comment, we will have some 28-nanometer on fourth quarter as well.

Operator

Our next question comes from the line of Michael McConnell from Pacific Crest Securities. Please proceed.

Michael McConnell – Pacific Crest Securities

Thanks for allowing me to ask a follow up, just want to know when you say inventory levels are five days above seasonal, what were they be, what is seasonal in your view for those trying to get a base for that level DOA?

Lora Ho

Well, Michael this full supply chain is five days above seasonal and I have a graph but I have a hard time to read the numbers, but I can share with you, just our customer side which is above four days above seasonal. In this case, we think our fabulous customers current level is 69 days and the seasonal level is 65 days, and the IDM customers, the current level is 87 days and the seasonal levels 82 days, so that’s about 4 to 5 days up seasonal. But I also understand people calculated DOI a little bit differently. So this is a reality.

Michael McConnell – Pacific Crest Securities

Okay. It’s very helpful. And then last question, just [FINSET] ramp at 14 nanometer, is that 2014 or 2015?

Morris Chang

No that’s, lets see, that should be the fourth quarter of ’13.

Michael McConnell – Pacific Crest Securities

’13, okay.

Morris Chang

Fourth quarter of 2013.

Michael McConnell – Pacific Crest Securities

Okay, great. Thank you.

Operator

There are no further questions at this time.

Lora Ho

So this concludes our Q&A session. Thank you for joining us this morning and we hope that you will join us again next quarter and good-bye.

Operator

Before we conclude TSMC’s second quarter 2011 webcast conference call today. Please be advised that the replay of the conference call will only be accessible through TSMC’s website at www.tsmc.com. Thank you all.

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