1934 Act Registration No. 1-14700

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the month of April 2006

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

No. 8, Li-Hsin Rd. 6,
Hsinchu Science Park,
Taiwan
(Address of Principal Executive Offices)

     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F þ		Form 40-F o

     (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes o		No þ

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82:                     .)

 

 

Taiwan Semiconductor Manufacturing
Company Limited

Financial Statements for the
Three Months Ended March 31, 2006 and 2005 and
Independent Accountants’ Review Report

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of March 31, 2006 and 2005, and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36 “Review of Financial Statements” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

April 13, 2006

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the accountants’ review report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants’ review report and financial statements shall prevail.

Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS
MARCH 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)

		2006								2005
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	109,989,790				20			$	60,218,990				12
Financial assets at fair value through profit or loss (Notes 2, 3 and 5)			58,545				—				302,708				—
Available-for-sale financial assets (Notes 2, 3 and 6)			58,815,063				11				48,601,822				10
Held-to-maturity financial assets (Notes 2, 3 and 7)			9,120,093				2				3,036,348				1
Receivables from related parties (Note 23)			21,248,956				4				14,079,482				3
Notes and accounts receivable			19,986,591				4				13,069,620				3
Allowance for doubtful receivables (Note 2)			(975,704	)			—				(978,577	)			—
Allowance for sales returns and others (Note 2)			(4,479,954	)			(1	)			(3,741,534	)			(1	)
Other receivables from related parties (Note 23)			683,675				—				2,645,421				—
Other financial assets (Note 3)			784,723				—				828,065				—
Inventories, net (Notes 2 and 8)			16,901,113				3				13,428,985				3
Deferred income taxes assets (Notes 2 and 16)			7,276,728				1				7,296,000				2
Prepaid expenses and other current assets (Note 3)			1,378,283				—				957,067				—
Total current assets			240,787,902				44				159,744,397				33
LONG-TERM INVESTMENTS (Notes 2, 3, 6, 7, 9 and 10)
Available-for-sale financial assets			1,900,885				—				—				—
Held-to-maturity financial assets			18,677,604				4				26,940,409				6
Financial assets carried at cost			813,354				—				779,340				—
Investments accounted for using equity method			54,047,343				10				49,157,468				10
Total long-term investments			75,439,186				14				76,877,217				16
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 23)
Cost
Buildings			91,408,209				17				87,452,818				18
Machinery and equipment			468,724,647				86				424,088,493				88
Office equipment			7,978,549				2				7,360,112				2
			568,111,405				105				518,901,423				108
Accumulated depreciation			(373,690,326	)			(69	)			(315,454,528	)			(65	)
Advance payments and construction in progress			18,101,402				3				26,406,814				5
Net property, plant, and equipment			212,522,481				39				229,853,709				48
GOODWILL (Note 2)			1,567,756				—				1,829,049				—
OTHER ASSETS
Deferred income tax assets (Notes 2 and 16)			7,064,964				2				3,751,059				1
Deferred charges, net (Notes 2 and 12)			6,179,470				1				8,438,529				2
Refundable deposits			83,642				—				85,542				—
Assets leased to others, net (Note 2)			71,446				—				77,180				—
Idle assets (Note 2)			6,789				—				17,130				—
Total other assets			13,406,311				3				12,369,440				3
TOTAL		$	543,723,636				100			$	480,673,812				100

		2006								2005
		Amount				%				Amount				%
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2, 3 and 5)		$	354,214				—			$	854,087				—
Accounts payable			7,360,964				1				5,344,256				1
Payables to related parties (Note 23)			3,512,804				1				2,863,489				1
Income tax payable (Notes 2 and 16)			6,110,590				1				379,903				—
Payables to contractors and equipment suppliers			11,621,333				2				10,920,422				2
Accrued expenses and other current liabilities (Notes 2, 3 and 14)			6,886,738				1				7,028,701				2
Current portion of bonds payable (Note 13)			2,500,000				1				10,500,000				2
Total current liabilities			38,346,643				7				37,890,858				8
LONG-TERM LIABILITIES
Bonds payable (Note 13)			17,000,000				3				19,500,000				4
Other long-term payables (Note 14)			1,493,160				—				1,911,506				1
Other payables to related parties (Notes 23 and 26)			1,087,410				—				1,722,326				—
Total long-term liabilities			19,580,570				3				23,133,832				5
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 15)			3,437,287				1				3,240,343				1
Guarantee deposits (Note 26)			3,215,089				1				370,876				—
Deferred credits (Notes 2 and 23)			1,211,019				—				684,423				—
Total other liabilities			7,863,395				2				4,295,642				1
Total liabilities			65,790,608				12				65,320,332				14
CAPITAL STOCK — $10 PAR VALUE
Authorized: 27,050,000 thousand shares in 2006 24,600,000 thousand shares in 2005
Issued: 24,733,053 thousand shares in 2006 23,252,863 thousand shares in 2005			247,330,530				45				232,528,635				48
CAPITAL SURPLUS (Notes 2 and 18)			57,208,367				11				56,574,377				12
RETAINED EARNINGS (Note 18)
Appropriated as legal capital reserve			34,348,208				6				25,528,007				5
Appropriated as special capital reserve			2,226,427				—				—				—
Unappropriated earnings			138,803,185				26				105,020,406				22
			175,377,820				32				130,548,413				27
OTHERS (Notes 2 and 3)
Cumulative translation adjustments			(1,098,483	)			—				(2,725,918	)			(1	)
Unrealized gains on financial instruments			32,869				—				—				—
			(1,065,614	)			—				(2,725,918	)			(1	)
TREASURY STOCK (AT COST (Notes 2 and 20) 32,938 thousand shares in 2006 and 45,037 thousand shares in 2005			(918,075	)			—				(1,572,027	)			—
Total shareholders’ equity			477,933,028				88				415,353,480				86
TOTAL		$	543,723,636				100			$	480,673,812				100

The accompanying notes are an integral part of the financial statements.

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2006								2005
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 23)		$	78,637,640							$	56,413,097
SALES RETURNS AND ALLOWANCES (Note 2)			1,344,296								759,880
NET SALES			77,293,344				100				55,653,217				100
COST OF SALES (Notes 17 and 23)			40,651,362				53				34,004,376				61
GROSS PROFIT			36,641,982				47				21,648,841				39
OPERATING EXPENSES (Notes 17 and 23)
Research and development			3,548,886				5				3,348,555				6
General and administrative			1,554,351				2				1,944,834				3
Sales and marketing			671,400				—				278,876				1
Total operating expenses			5,774,637				7				5,572,265				10
INCOME FROM OPERATIONS			30,867,345				40				16,076,576				29
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)			2,972,039				4				—				—
Gain on disposal of financial instruments, net (Notes 2, 3, 5 and 22)			1,115,518				2				1,897,289				4
Interest income (Notes 2 and 3)			902,043				1				619,986				1
Technical service income (Notes 23 and 26)			142,631				—				77,111				—
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 23)			96,141				—				60,707				—
Settlement income (Note 25)			—				—				569,276				1
Others (Note 23)			78,440				—				68,272				—
Total non-operating income and gains			5,306,812				7				3,292,641				6
NON-OPERATING EXPENSES AND LOSSES
Foreign exchange loss, net (Note 2)			1,032,555				2				2,282,461				4
Valuation loss on financial instruments, net (Notes 2, 3, 5 and 22)			295,669				—				257,718				1
Interest expense (Notes 3 and 13)			165,300				—				303,112				1

(Continued)

		2006								2005
		Amount				%				Amount				%
Equity in losses of equity method investees, net (Notes 2 and 10)		$	—				—			$	198,178				—
Others (Note 2)			25,292				—				62,407				—
Total non-operating expenses and losses			1,518,816				2				3,103,876				6
INCOME BEFORE INCOME TAX			34,655,341				45				16,265,341				29
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 16)			(1,802,369	)			(3	)			553,056				1
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES			32,852,972				42				16,818,397				30
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF NT$82,062 THOUSAND (Note 3)			(246,186	)			—				—				—
NET INCOME		$	32,606,786				42			$	16,818,397				30

		2006								2005
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (Note 21)
Basic earnings per share		$	1.39			$	1.32			$	0.66			$	0.68
Diluted earnings per share		$	1.39			$	1.32			$	0.66			$	0.68

The pro forma net income and after income tax earnings per share are shown as follows, based on the assumption that the Company’s stock held by its subsidiaries is treated as an investment instead of treasury stock (Notes 2 and 20):

		2006				2005
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES		$	32,852,972			$	16,821,282
NET INCOME		$	32,606,786			$	16,821,282
EARNINGS PER SHARE (NT$)
Basic earnings per share		$	1.32			$	0.68
Diluted earnings per share		$	1.32			$	0.68

The accompanying notes are an integral part of the financial statements.		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	32,606,786			$	16,818,397
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			15,974,533				16,668,655
Amortization of premium/discount of financial assets			(15,834	)			28,956
Loss (gain) on disposal of available-for-sale financial assets, net			(261,300	)			64,473
Deferred income taxes			(568,737	)			(553,056	)
Equity in losses (earnings) of equity method investees, net			(2,972,039	)			198,178
Gain on disposal of property, plant and equipment and other assets, net			(93,903	)			(22,785	)
Accrued pension cost			(24,105	)			139,147
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables from related parties			(198,352	)			2,056,557
Notes and accounts receivable			605,227				2,257,261
Allowance for doubtful receivables			(640	)			(1,884	)
Allowance for sales returns and others			209,985				413,620
Financial instruments at fair value through profit or loss			1,442,295				1,708,744
Other receivables from related parties			846,108				(881,321	)
Other financial assets			321,307				56,252
Inventories			(643,158	)			742,960
Prepaid expenses and other current assets			(206,510	)			129,751
Increase (decrease) in:
Accounts payable			(691,142	)			(1,144,361	)
Payables to related parties			257,542				(901,983	)
Income tax payable			2,294,702				—
Accrued expenses and other current liabilities			(1,110,647	)			(1,757,005	)
Deferred credits			(23,936	)			—
Net cash provided by operating activities			47,748,182				36,020,556
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(31,351,886	)			(18,632,579	)
Held-to-maturity financial assets			(1,379,009	)			(1,762,393	)
Financial assets carried at cost			(5,864	)			(6,706	)
Long-term investments accounted for using equity method			(19,214	)			(2,992,406	)
Property, plant and equipment			(11,114,607	)			(38,161,372	)

(Continued)

		2006				2005
Proceeds from disposal of
Available-for-sale financial assets		$	16,951,250			$	18,742,345
Property, plant and equipment and other assets			461,151				120,613
Redemption of held-to-maturity financial assets upon maturity			2,973,000				1,651,621
Increase in deferred charges			(96,335	)			(285,727	)
Increase in refundable deposits			—				(129	)
Net cash used in investing activities			(23,581,514	)			(41,326,733	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in guarantee deposits			322,144				(41,517	)
Proceeds from exercise of employee stock options			117,395				34,866
Net cash provided by (used in) financing activities			439,539				(6,651	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			24,606,207				(5,312,828	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			85,383,583				65,531,818
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	109,989,790			$	60,218,990
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	420,000			$	452,000
Income tax paid		$	67,924			$	22,522
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	13,876,710			$	17,927,484
Decrease (increase) in payables to contractors and equipment suppliers			(2,762,103	)			20,233,888
Cash paid		$	11,114,607			$	38,161,372
NON-CASH INVESTING AND FINANCING ACTIVITIES
Current portion of bonds payable		$	2,500,000			$	10,500,000
Current portion of other payables to related parties (under payables to related parties)		$	685,718			$	949,841
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	817,530			$	1,487,737

The accompanying notes are an integral part of the financial statements.		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006 AND 2005
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)

1.		GENERAL
		Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
		The Company is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks.
		As of March 31, 2006 and 2005, the Company had 20,027 and 18,648 employees, respectively.
2.		SIGNIFICANT ACCOUNTING POLICIES
		The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.
		For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.
		Significant accounting policies are summarized as follows:
		Use of Estimates
		The preparation of financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.
		Classification of Current and Noncurrent Assets and Liabilities
		Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations expected to be due within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.
		Cash Equivalents
		Government bonds under repurchase agreements and notes acquired with maturities less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

		Financial Assets/Liabilities at Fair Value Through Profit or Loss
		Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. After initial recognition, the derivatives are remeasured at fair value with the changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting.
		Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is a positive amount, the derivative is recognized as a financial asset; when the fair value is a negative amount, the derivative is recognized as a financial liability.
		Available-for-Sale Financial Assets
		Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. When subsequently measured at fair value, the changes in fair value are excluded from earnings and reported as a separate component of shareholders’ equity. The accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting.
		Cash dividends are recognized as investment income upon resolution of the shareholders of an investee but are accounted for as reductions to the original cost of investment if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new number of shares. Any difference between the initial carrying amount of a debt security and its amount at maturity is amortized and then recognized in earnings using the effective interest method.
		If there is objective evidence that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.
		Held-to-Maturity Financial Assets
		Debt securities for which the Company has a positive intent and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost using the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Earnings or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting.
		If there is objective evidence that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount of the financial asset that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

		Allowance for Doubtful Receivables
		An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies.
		Revenue Recognition and Allowance for Sales Returns and Others
		The Company recognizes revenue when evidence of an arrangement exists, shipment is made, price is fixed or determinable, and collectibility is reasonably assured. Revenues from the design and manufacturing of photo masks, which are used as manufacturing tools in the fabrication process, are recognized when the photo masks are qualified by customers. The Company records a provision for estimated future returns and other allowances in the period the related revenue is recorded. Provisions for estimated sales returns and other allowances are generally made based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.
		Sales prices are determined using the fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of cash to be received.
		Inventories
		Inventories are stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for finished goods and work in process. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Period-end inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses.
		Financial Assets Carried at Cost
		Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at original cost, such as non-publicly traded stocks and mutual funds. The costs of funds and non-publicly traded stocks are determined using the weighted-average method. If there is objective evidence that a financial asset is impaired, a loss is recognized. No recording of a subsequent recovery in fair value is allowed.
		The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.
		Investments Accounted for Using Equity Method
		Investments in companies wherein the Company exercises significant influence on the operating and financial policy decisions are accounted for using the equity method of accounting. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. When equity investments were made, the difference, if any, between the cost of investment and the Company’s share of the investee’s net equity was previously amortized using the straight-line method over five years and was also recorded in the “equity in earnings/losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5 “Long-term Investments in Equity Securities” (SFAS No. 5), investment premiums, representing goodwill, are no longer being amortized; while investment discounts continue to be

		amortized over the remaining periods. When an indication of impairment is identified in an investment, the carrying amount of the investment is reduced, with the related impairment loss charged to current income.
		When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage of equity interest, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share in the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.
		Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through the subsequent sales of the related products to third parties. Gains or losses on sales from investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties.
		Gains or losses on sales between investees accounted for using the equity method are deferred in proportion to the Company’s weighted-average ownership percentages in the investees until realized through transactions with third parties.
		If an investee’s functional currency is a foreign currency, translation adjustments will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of shareholders’ equity.
		Property, Plant and Equipment, Assets Leased to Others and Idle Assets
		Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Idle assets are stated at the lower of net realizable value or book value. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred. Interest expense incurred during the purchase and construction period is also capitalized.
		Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
		Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to non-operating gains or losses in the period of sale or disposal.
		Goodwill
		Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill was previously amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25 “Business Combinations — Accounting Treatment under Purchase Method” (SFAS No. 25), goodwill is no longer amortized and is assessed for impairment at least on an annual basis. If an event occurs or circumstances change that more likely than not reduce the fair value of the goodwill below its carrying amount, an impairment loss is charged to current income. No recording of a subsequent recovery in fair value of the goodwill is allowed.

		Deferred Charges
		Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees — the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges — 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.
		Pension Costs
		For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations.
		Income Tax
		The Company applies intra-period and inter-period allocations for its income tax, that is, (1) a portion of current period income tax expense is allocated to the cumulative effect of changes in accounting principles; (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
		Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.
		Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s tax provision.
		Income tax on unappropriated earnings of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.
		The R.O.C. government enacted the Alternative Minimum Tax Act (“AMT Act”), which became effective on January 1, 2006. The alternative minimum tax (“AMT”) imposed under the AMT Act is a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most of the income that is exempted from income tax under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities.
		Stock-based Compensation
		Employee stock option plans that are amended or have options granted on or after January 1, 2004 are accounted for by the interpretations issued by the Accounting Research and Development Foundation. The Company adopted the intrinsic value method and any compensation cost determined using this method is charged to expense over the employee vesting period.

		Treasury Stock
		The Company’s stock held by its subsidiaries is treated as treasury stock and reclassified from long-term investments accounted using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by the subsidiaries and cash dividends received by the subsidiaries from the Company are recorded under capital surplus — treasury stock transactions.
		Foreign-currency Transactions
		Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.
3.		ACCOUNTING CHANGES
		On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting Standards No. 34 “Accounting for Financial Instruments” (SFAS No. 34 ) and No. 36 “Disclosure and Presentation for Financial Instruments” and related revisions of previously released SFASs.

	a.		Effect of adopting the newly released SFASs and related revisions of previously released SFASs
			The Company had properly categorized its financial assets and liabilities upon initial adoption of the newly released SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; on the other hand, the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity.
			The effect of adopting the newly released SFASs is summarized as follows:

		Recognized as
		Cumulative
		Effect of				Recognized as
		Changes in				a Separate
		Accounting				Component of
		Principles				Shareholders’
		(Net of Tax)				Equity
Financial assets or liabilities at fair value through profit or loss		$	(246,186	)		$	—
Available-for-sale financial assets			—				—
		$	(246,186	)		$	—

			The adoption of the newly released SFASs resulted in a decreased in net income before cumulative effect of changes in accounting principles of NT$295,669 thousand, a decrease in net income of NT$541,855 thousand, and a decrease in after income tax basic earnings per share of NT$0.02, for the three months ended March 31, 2006.
			Effective January 1, 2006, the Company adopted the newly revised SFAS No. 5 and SFAS No. 25, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such change in accounting principle did not have a material effect on the Company’s financial statements as of and for the three months ended March 31, 2006.

	b.		Reclassifications
			Upon the adoption of SFAS No. 34, certain accounts in the financial statements as of and for the three months ended March 31, 2005 were reclassified to conform with the financial statements as of and for the three months ended March 31, 2006. The previous issued financial statements as of and for the three months ended March 31, 2005 need not be restated.
			Certain accounting policies prior to the adoption of the newly released SFASs are summarized as follows:

	1)		Short-term investments
			Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with the investees were carried at the lower of cost or market value at the balance sheet date, with any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the period.
	2)		Derivative financial instruments
			The Company entered into foreign currency forward contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts were recorded in New Taiwan dollars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates were amortized over the terms of the forward contracts using the straight-line method. At the end of each period, the receivables or payables arising from forward contracts were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to the same forward contracts were netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement was credited or charged to income in the period of settlement.
			The Company entered into cross currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount was recorded using the current rates at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates were amortized over the terms of the contracts using the straight-line method. At the end of each period, the receivables or payables arising from cross-currency swap contracts were restated using the prevailing exchange rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party were netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date was recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement was credited or charged to income in the period of settlement.
			The Company entered into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions were accounted for on an accrual basis, in which the cash settlement receivable or payable was recorded as an adjustment to interest income or expense associated with the hedged items.

Certain accounts in the financial statements as of and for the three months ended March 31, 2005 have been reclassified to conform to the classifications prescribed by the newly released and revised SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows:

		Before				After
		Reclassification				Reclassification
Balance sheet
Short-term investments		$	51,638,170			$	—
Other financial assets			179,131				—
Prepaid expenses and other current assets			123,577				—
Long-term investments accounted for using cost method			779,340				—
Long-term bonds investment			16,503,809				—
Other long-term investments			10,436,600				—
Accrued expenses and other current liabilities			(854,087	)			—
Financial assets at fair value through profit or loss			—				302,708
Financial liabilities at fair value through profit or loss			—				(854,087	)
Available-for-sale financial assets			—				48,601,822
Held-to-maturity financial assets			—				29,976,757
Financial assets carried at cost			—				779,340
		$	78,806,540			$	78,806,540
Statement of income
Interest income		$	160,076			$	—
Foreign exchange gain, net			2,081,847				—
Interest expense			(280,161	)			—
Unrealized valuation loss on short-term investments			(257,718	)			—
Loss on disposal of investment, net			(64,473	)			—
Valuation loss on financial instruments, net			—				(257,718	)
Gain on disposal of financial instruments, net			—				1,897,289
		$	1,639,571			$	1,639,571

4.

CASH AND CASH EQUIVALENTS

		March 31
		2006				2005
Government bonds acquired under repurchase agreements		$	61,427,311			$	26,670,303
Cash and deposits in banks			48,126,259				33,198,480
Corporate notes			436,220				350,207
		$	109,989,790			$	60,218,990

5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

		March 31
		2006				2005
Derivatives — financial assets
Forward contracts		$	2,254			$	56,781
Cross currency swap contracts			56,291				245,927
		$	58,545			$	302,708
Derivatives — financial liabilities
Forward contracts		$	6,597			$	301,914
Cross currency swap contracts			347,617				552,173
		$	354,214			$	854,087

		The Company entered into derivative transactions during the three months ended March 31, 2006 and 2005 to manage exposures related to foreign exchange rate and interest rate fluctuations. The derivative transactions entered into by the Company did not meet the criteria for hedge accounting prescribed by SFAS No. 34. Therefore, effective January 1, 2006, the Company has discontinued hedge accounting.
		Outstanding forward contracts as of March 31, 2006 and 2005:

						Contract
						Amount
		Currency		Maturity		(in Thousands)
March 31, 2006
Sell		EUR/US$		April 2006		US$	36,882
March 31, 2005
Sell		US$/NT$		April 2005 to June 2005		US$	708,000
Buy		US$/NT$		April 2005		US$	40,000

Outstanding cross currency swap contracts as of March 31, 2006 and 2005:

Contract

Range of

Range of

Amount

Interest Rates

Interest Rates

Maturity Date

(in Thousands)

Paid

Received

March 31, 2006

April 2006 to June 2006

US$

2,311,000

2.91%-5.65

%

0.10%-2.04

%

March 31, 2005

April 2005 to June 2005

US$

1,395,000

1.28%-3.07

%

0.49%-1.15

%

The Company did not enter into any interest rate swap contracts during the three months ended March 31, 2006. The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand has been reclassified and included in the “losses on disposal of financial instrument” account.

		Net gains arising from derivative financial instruments for the three months ended March 31, 2006 were NT$558,549 thousand (including realized settlement gains of NT$854,218 thousand and valuation losses of NT$295,669 thousand).
6.		AVAILABLE-FOR-SALE FINANCIAL ASSETS

		March 31
		2006				2005
Bond funds		$	19,085,320			$	10,667,000
Agency bonds			13,154,575				10,464,473
Corporate bonds			11,961,405				11,003,652
Corporate issued asset — backed securities			10,936,373				12,084,193
Government bonds			4,884,533				3,424,308
Structured time deposits			499,091				—
Corporate notes			97,863				157,612
Money market funds			90,509				677,811
Publicly — traded stocks			6,279				28,267
Commercial papers			—				94,506
			60,715,948				48,601,822
Current portion			(58,815,063	)			(48,601,822	)
		$	1,900,885			$	—

The Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of March 31, 2006, the Company’s investment portfolios managed by these fund managers aggregated to an original amount of US$1,200,000 thousand. The investment portfolios included securities such as agency bonds, corporate bonds, asset-backed securities, government bonds and others. Securities acquired with maturities less than three months from the date of purchase were reclassified as cash equivalents.

As of March 31, 2006, structured time deposits categorized as available-for-sale financial assets consisted of the following:

Principal

Carrying

Range of

Amount

Amount

Interest Rates

Maturity Date

Step-up callable deposits

Domestic banks

$

500,000

$

499,091

1.76

%

March 2008

The interest rate of the step-up callable deposits is pre-determined by the Company and the banks.

7.

HELD-TO-MATURITY FINANCIAL ASSETS

		March 31
		2006				2005
Government bonds		$	7,868,330			$	11,819,517
Corporate bonds			9,288,167				7,720,640
Structured time deposits			10,641,200				10,436,600
			27,797,697				29,976,757
Current portion			(9,120,093	)			(3,036,348	)
		$	18,677,604			$	26,940,409

Structured time deposits categorized as held-to-maturity financial assets consisted of the following:

		Principal				Interest				Range of
		Amount				Receivable				Interest Rates		Maturity Date
March 31, 2006
Step-up callable deposits
Foreign bank		$	3,500,000			$	16,881			1.40%-2.01%		June 2007 to March 2009
Callable range accrual deposits
Foreign bank			7,141,200				26,986			(See below)		September 2009 to January 2010
		$	10,641,200			$	43,867
March 31, 2005
Step-up callable deposits
Domestic banks		$	2,000,000			$	7,551			2.05%-2.20%		July 2007 to August 2007
Foreign banks			1,500,000				7,988			1.44%-2.47%		July 2006 to July 2007
Callable range accrual deposits
Foreign bank			6,936,600				91,730			(See below)		September 2009 to January 2010
		$	10,436,600			$	107,269

		The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the deposits, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date.
		As of March 31, 2006 and 2005, the deposits (under both available-for-sale and held-to-maturity financial assets) that resided in banks located in Hong Kong amounted to NT$2,596,800 thousand and NT$2,522,400 thousand, respectively; those resided in banks located in Singapore amounted to NT$649,200 thousand and NT$630,600 thousand, respectively.

8.

INVENTORIES, NET

		March 31
		2006				2005
Finished goods		$	3,075,200			$	2,844,581
Work in process			12,192,651				10,359,806
Raw materials			1,899,428				896,897
Supplies and spare parts			795,070				684,714
			17,962,349				14,785,998
Allowance for valuation			(1,061,236	)			(1,357,013	)
		$	16,901,113			$	13,428,985

9.

FINANCIAL ASSETS CARRIED AT COST

		March 31
		2006				2005
Non-publicly traded stocks		$	472,500			$	482,500
Funds			340,854				296,840
		$	813,354			$	779,340