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 October 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
Nine Months Ended September 30, 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 September 30, 2006 and 2005, and the related statements of income and cash flows for the nine 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.

October 11, 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
SEPTEMBER 30, 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)		$	77,785,750				14			$	58,467,326				12
Financial assets at fair value through profit or loss (Notes 2, 3 and 5)			45,295				—				103,214				—
Available-for-sale financial assets (Notes 2, 3 and 6)			35,749,909				7				48,216,860				10
Held-to-maturity financial assets (Notes 2, 3 and 7)			6,220,737				1				605,110				—
Notes and accounts receivable			19,339,939				4				18,605,971				4
Receivables from related parties (Note 23)			22,030,420				4				23,036,804				5
Allowance for doubtful receivables (Note 2)			(975,705	)			—				(977,365	)			—
Allowance for sales returns and others (Note 2)			(5,012,934	)			(1	)			(3,417,328	)			—
Other receivables from related parties (Note 23)			1,042,223				—				1,650,678				—
Other financial assets (Note 3)			747,755				—				1,144,264				—
Inventories, net (Notes 2 and 8)			18,369,130				3				15,070,064				3
Deferred income taxes assets (Notes 2 and 16)			2,683,412				1				1,781,000				—
Prepaid expenses and other current assets (Note 3)			704,492				—				767,457				—
Total current assets			178,730,423				33				165,054,055				34
LONG-TERM INVESTMENTS (Notes 2, 3, 6, 7, 9 and 10)
Investments accounted for using equity method			84,640,267				15				50,235,546				10
Available-for-sale financial assets			4,893,355				1				—				—
Held-to-maturity financial assets			30,747,122				6				27,948,533				6
Financial assets carried at cost			769,411				—				774,373				—
Total long-term investments			121,050,155				22				78,958,452				16
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 23)
Cost
Buildings			95,576,337				17				89,619,890				19
Machinery and equipment			508,975,810				92				453,130,574				94
Office equipment			8,443,812				2				7,726,708				1
			612,995,959				111				550,477,172				114
Accumulated depreciation			(401,098,736	)			(73	)			(346,517,367	)			(72	)
Advance payments and construction in progress			21,069,769				4				14,949,566				3
Net property, plant and equipment			232,966,992				42				218,909,371				45
GOODWILL (Note 2)			1,567,756				—				1,654,853				—
OTHER ASSETS
Deferred income tax assets (Notes 2 and 16)			10,989,791				2				11,042,079				3
Deferred charges, net (Notes 2 and 12)			5,639,776				1				7,322,444				2
Refundable deposits			83,738				—				83,642				—
Assets leased to others, net (Note 2)			68,579				—				74,312				—
Others			6,789				—				6,789				—
Total other assets			16,788,673				3				18,529,266				5
TOTAL		$	551,103,999				100			$	483,105,997				100
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2, 3 and 5)		$	458,808				—			$	1,599,615				—
Accounts payable			6,641,641				1				6,691,135				1
Payables to related parties (Note 23)			3,894,488				1				3,350,905				1
Income tax payable (Notes 2 and 16)			6,535,446				1				1,364,915				—
Accrued expenses and other current liabilities (Notes 3 and 14)			7,477,769				2				8,582,544				2
Payables to contractors and equipment suppliers			15,299,614				3				10,814,978				3
Current portion of bonds payable (Note 13)			2,500,000				—				10,500,000				2
Total current liabilities			42,807,766				8				42,904,092				9
LONG-TERM LIABILITIES
Bonds payable (Note 13)			17,000,000				3				19,500,000				4
Other long-term payables (Note 14)			1,291,484				—				1,526,648				1
Other payables to related parties (Notes 23 and 25)			409,588				—				1,111,798				—
Total long-term liabilities			18,701,072				3				22,138,446				5
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 15)			3,502,475				1				3,451,671				1
Guarantee deposits (Note 25)			3,680,687				1				2,363,889				—
Deferred credits (Notes 2 and 23)			1,275,872				—				1,136,767				—
Total other liabilities			8,459,034				2				6,952,327				1
Total liabilities			69,967,872				13				71,994,865				15
CAPITAL STOCK — NT$10 PAR VALUE
Authorized: 27,050,000 thousand shares
Issued: 25,825,840 thousand shares in 2006
24,727,348 thousand shares in 2005			258,258,398				47				247,273,476				51
CAPITAL SURPLUS (Notes 2 and 18)			53,857,667				10				56,777,040				12
RETAINED EARNINGS (Note 18)
Appropriated as legal capital reserve			43,705,711				8				34,348,208				7
Appropriated as special capital reserve			640,742				—				2,226,427				—
Unappropriated earnings			124,866,387				22				72,296,264				15
			169,212,840				30				108,870,899				22
OTHERS (Notes 2 and 3)
Cumulative translation adjustments			223,105				—				(260,171	)			—
Unrealized gains on financial instruments			502,192				—				—				—
			725,297				—				(260,171	)			—
TREASURY STOCK (AT COST, Notes 2 and 20)
33,926 thousand shares in 2006 and 46,808 thousand shares in 2005			(918,075	)			—				(1,550,112	)			—
Total shareholders’ equity			481,136,127				87				411,111,132				85
TOTAL		$	551,103,999				100			$	483,105,997				100

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

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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)		$	245,148,192							$	187,279,666
SALES RETURNS AND ALLOWANCES (Note 2)			5,202,252								3,852,617
NET SALES			239,945,940				100				183,427,049				100
COST OF SALES (Notes 17 and 23)			123,155,982				51				108,047,657				59
GROSS PROFIT			116,789,958				49				75,379,392				41
OPERATING EXPENSES (Notes 17 and 23)
Research and development			11,206,265				5				9,972,853				5
General and administrative			5,348,876				2				5,625,306				3
Marketing			1,360,794				1				991,423				1
Total operating expenses			17,915,935				8				16,589,582				9
INCOME FROM OPERATIONS			98,874,023				41				58,789,810				32
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 9)			4,696,522				2				—				—
Interest income (Notes 2 and 3)			2,734,401				1				1,747,952				1
Technical service income (Notes 23 and 25)			514,995				1				322,976				—
Settlement income (Note 25)			483,734				—				711,324				1
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 23)			480,944				—				149,014				—
Foreign exchange gain, net (Note 2)			28,165				—				491,442				—
Others (Note 23)			342,234				—				248,776				—
Total non-operating income and gains			9,280,995				4				3,671,484				2
NON-OPERATING EXPENSES AND LOSSES
Loss on disposal of financial instruments, net (Notes 2, 3 and 5)			1,395,264				1				1,383,563				1
Interest expense (Note 3 )			495,900				—				909,337				—
Valuation loss on financial instruments, net (Notes 2, 3, 5 and 22)			413,514				—				264,068				—
Loss on disposal of property, plant and equipment (Note 2)			225,781				—				60,565				—

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2006								2005
		Amount				%				Amount				%
Equity in losses of equity method investees, net (Notes 2 and 9)		$	—				—			$	1,277,187				1
Others			129,031				—				148,384				—
Total non-operating expenses and losses			2,659,490				1				4,043,104				2
INCOME BEFORE INCOME TAX			105,495,528				44				58,418,190				32
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 16)			(6,151,303	)			(3	)			1,256,710				1
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES			99,344,225				41				59,674,900				33
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF NT$82,062 THOUSAND (Note 3)			(246,186	)			—				—				—
NET INCOME		$	99,098,039				41			$	59,674,900				33

		2006								2005
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (NT$, Note 21)
Basic earnings per share		$	4.08			$	3.84			$	2.27			$	2.32
Diluted earnings per share		$	4.07			$	3.84			$	2.27			$	2.32

Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by 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		$	99,426,545			$	59,766,385
NET INCOME		$	99,180,359			$	59,766,385
EARNINGS PER SHARE (NT$)
Basic earnings per share		$	3.84			$	2.32
Diluted earnings per share		$	3.84			$	2.31

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

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	99,098,039			$	59,674,900
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			48,809,141				51,437,043
Amortization of premium/discount of financial assets			16,004				91,155
Loss on disposal of available-for-sale financial assets, net			11,258				134,440
Equity in losses (earnings) of equity method investees, net			(4,696,522	)			1,277,187
Dividends received from equity method investees			626,367				668,464
Gain on disposal of financial assets carried at cost, net			—				(2,810	)
Gain on disposal of property, plant and equipment and other assets, net			(255,163	)			(88,449	)
Deferred income taxes			99,752				(2,329,076	)
Loss on idle assets			37,283				106,964
Donation of idle assets			—				7,207
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss			1,560,139				2,653,766
Notes and accounts receivable			1,251,879				(3,279,090	)
Receivables from related parties			(979,816	)			(6,900,765	)
Allowance for doubtful receivables			(639	)			(3,096	)
Allowance for sales returns and others			742,965				89,414
Other receivables from related parties			688,353				(1,376,333	)
Other financial assets			105,781				26,054
Inventories, net			(2,111,175	)			(898,119	)
Prepaid expenses and other current assets			467,281				319,975
Increase (decrease) in:
Accounts payable			(1,410,465	)			202,518
Payables to related parties			(38,596	)			(1,115,663	)
Income tax payable			2,719,558				985,012
Accrued expenses and other current liabilities			(513,289	)			(392,616	)
Accrued pension cost			41,083				350,475
Deferred credits			(71,808	)			119,681
Net cash provided by operating activities			146,197,410				101,758,238
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(78,666,694	)			(71,367,811	)
Held-to-maturity financial assets			(16,141,019	)			(7,466,251	)
Investments accounted for using equity method			(1,495,552	)			(3,225,972	)
Financial assets carried at cost			(11,921	)			(14,427	)
Property, plant and equipment			(59,945,807	)			(60,336,499	)

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2006				2005
Proceeds from disposal of:
Available-for-sale financial assets		$	57,874,205			$	71,792,572
Financial assets carried at cost			50,000				15,498
Property, plant and equipment and other assets			927,200				1,502,142
Redemption of held-to-maturity financial assets upon maturity			8,512,000				8,716,394
Increase in deferred charges			(755,982	)			(735,673	)
Proceeds from return of capital by investee			162,354				—
Decrease (increase) in refundable deposits			(96	)			1,771
Net cash used in investing activities			(89,491,312	)			(61,118,256	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid for common stock			(61,825,061	)			(46,504,097	)
Cash bonus paid to employees			(3,432,129	)			(3,086,215	)
Increase in guarantee deposits			787,742				1,951,496
Proceeds from exercise of employee stock options			422,927				165,808
Bonus to directors and supervisors			(257,410	)			(231,466	)
Net cash used in financing activities			(64,303,931	)			(47,704,474	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(7,597,833	)			(7,064,492	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			85,383,583				65,531,818
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	77,785,750			$	58,467,326
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	420,000			$	420,000
Income tax paid		$	3,146,676			$	87,315
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant, and equipment		$	66,386,191			$	39,997,168
Decrease (increase) in payables to contractors and equipment suppliers			(6,440,384	)			20,339,331
Cash paid		$	59,945,807			$	60,336,499
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)		$	699,195			$	701,096
Current portion of other long-term payable (under accrued expenses and other current liabilities)		$	971,596			$	1,516,436
Transfer of available-for-sale financial assets and other net assets to investments accounted for using equity method (Note 6)		$	26,821,648			$	—

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

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2006 and 2005, the Company had 20,266 and 19,475 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 held for trading purposes and those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled 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
		Repurchase agreements collateralized by government bonds, corporate notes, commercial papers and treasury bills acquired with maturities of 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. The derivatives are remeasured at fair value subsequently with the changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for 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 positive, the derivative is recognized as a financial asset; when the fair value is negative, 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. The changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding 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 accounted for using settlement date accounting.
		Fair values of open-end mutual funds and publicly traded stocks are determined using the net assets value and the closing-price at the end of the period, respectively. For debt securities, fair value is determined using the average of bid and asked prices at the end of the period.
		Cash dividends are recognized as investment income upon resolution of 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 total number of shares. Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
		If there is objective evidence which indicates 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 intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost under the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		If there is objective evidence which indicates 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 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. Provisions for estimated sales returns and other allowances are generally recorded in the period the related revenue is recognized based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.
		Sales prices are determined using 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 the 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 work in process and finished goods. 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.
		Investments Accounted for Using Equity Method
		Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. 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. The difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s equity was previously amortized by the straight-line method over five years, with the amortization 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, 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, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share in the investee’s equity. The Company records such a 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 subsequent sales of the related products to third parties. Gains or losses on sales from equity method 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 equity method investees are deferred in proportion to the Company’s weighted-average ownership percentages in the investees until such gains or losses are 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.
		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 their original cost, such as non-publicly traded stocks and mutual funds. The costs of mutual funds and non-publicly traded stocks are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not 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.
		Property, Plant, and Equipment and Assets Leased to Others
		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 subsequent 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. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.
		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 deducted 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 which indicated that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent recovery in fair value of goodwill is not 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 subsequent period, the previously recognized impairment loss 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 during service periods. 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 whereby (1) a portion of current income tax expense is allocated to the cumulative effect of changes in accounting principles; and (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 at a rate 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 subsidiaries is treated as treasury stock and reclassified from investments accounted for 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 earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in earnings.
3.		ACCOUNTING CHANGES
		On January 1, 2006, the Company adopted the newly released Statements of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” (SFAS No. 34) and No. 36, “Financial Instruments: Disclosure and Presentation” 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 decrease in net income before cumulative effect of changes in accounting principles of NT$167,328 thousand, a decrease in net income of NT$413,514 thousand, and a decrease in basic earnings per share (after income tax) of NT$0.02, for the nine months ended September 30, 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 a change in accounting principle did not have a material effect on the Company’s financial statements as of and for the nine months ended September 30, 2006.

	b.		Reclassifications
			Upon the adoption of SFAS No. 34, certain accounts in the financial statements as of and for the nine months ended September 30, 2005 were reclassified to conform with the financial statements as of and for the nine months ended September 30, 2006. The previous issued financial statements as of and for the nine months ended September 30, 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 forward exchange 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 nine months ended September 30, 2005 have been reclassified to conform to the classifications prescribed by the newly released SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows:

		Before Reclassification				After Reclassification
Balance sheet
Short-term investments		$	48,821,970			$	—
Other financial assets			46,699				—
Prepaid expenses and other current assets			56,515				—
Long-term investments accounted for using cost method			774,373				—
Long-term bonds investment			19,647,173				—
Other long-term investments			8,301,360				—
Accrued expenses and other current liabilities			(1,599,615	)			—
Financial assets at fair value through profit or loss			—				103,214
Financial liabilities at fair value through profit or loss			—				(1,599,615	)
Available-for-sale financial assets			—				48,216,860
Held-to-maturity financial assets			—				28,553,643
Financial assets carried at cost			—				774,373
		$	76,048,475			$	76,048,475
Statement of income
Interest income		$	698,433			$	—
Foreign exchange loss, net			(608,743	)			—
Interest expense			(1,338,813	)			—
Unrealized valuation loss on short-term investments			(264,068	)			—
Loss on disposal of investment, net			(134,440	)			—
Loss on disposal of financial instruments, net			—				(1,383,563	)
Valuation loss on financial instruments, net			—				(264,068	)
		$	(1,647,631	)		$	(1,647,631	)

4.

CASH AND CASH EQUIVALENTS

		September 30
		2006				2005
Cash and deposits in banks		$	56,452,326			$	27,906,434
Repurchase agreements collaterized by government bonds			21,200,915				29,924,288
Corporate notes			132,509				314,090
Commercial papers			—				321,757
Treasury bills			—				757
		$	77,785,750			$	58,467,326

5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

		September 30
		2006				2005
Derivatives — financial assets
Forward exchange contracts		$	45,295			$	17,002
Cross currency swap contracts			—				86,212
		$	45,295			$	103,214
Derivatives — financial liabilities
Forward exchange contracts		$	—			$	302,260
Cross currency swap contracts			458,808				1,297,355
		$	458,808			$	1,599,615

		The Company entered into derivative contracts for the nine months ended September 30, 2006 and 2005 to manage exposures due to the fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting prescribed by SFAS No. 34. Therefore, effective from January 1, 2006, the Company discontinued applying hedge accounting treatment for its derivative financial instruments.
		Outstanding forward contracts as of September 30, 2006 and 2005:

Contract

Amount

Currency

Maturity Date

(in Thousands)

September 30, 2006

Buy

US$/NT$

October 2006 to November 2006

US$145,000

September 30, 2005

Sell

US$/NT$

October 2005 to December 2005

US$680,000

Outstanding cross currency swap contracts as of September 30, 2006 and 2005:

Contract Amount

Range of Interest Rates

Range of Interest Rates

Maturity Date

(in Thousands)

Paid

Received

September 30, 2006

October 2006 to November 2006

US$1,550,000

3.34%—5.50

%

0.60%—2.72

%

September 30, 2005

October 2005 to December 2005

US$1,574,000

3.65%—4.01

%

1.17%—1.38

%

		The Company did not enter into any interest rate swap contracts during the nine months ended September 30, 2006. The Company rescinded all interest rate swap contracts in the second quarter of 2005 before their original maturities. The rescission loss of NT$28,295 thousand has been reclassified and included in the “loss on disposal of financial instrument” account.
		Net loss arising from derivative financial instruments for the nine months ended September 30, 2006 were NT$1,797,738 thousand (including realized settlement loss of NT$1,384,224 thousand and valuation loss of NT$413,514 thousand).
6.		AVAILABLE-FOR-SALE FINANCIAL ASSETS

		September 30
		2006				2005
Open-end mutual funds		$	21,781,496			$	8,186,687
Corporate bonds			9,137,742				12,327,416
Agency bonds			4,786,766				12,455,906
Corporate issued asset-backed securities			3,237,614				12,047,128
Government bonds			1,200,097				2,850,102
Structured time deposit			499,549				—
Corporate notes			—				265,958
Money market funds			—				58,184
Publicly-traded stocks			—				25,479
			40,643,264				48,216,860
Current portion			(35,749,909	)			(48,216,860	)
		$	4,893,355			$	—

		Before July 31, 2006 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. The Company transferred investment portfolios managed by two of the aforementioned fund managers to TSMC Global, Ltd. (TSMC-Global), a subsidiary of TSMC, in the third quarter of 2006. The transferred investment portfolios held by TSMC Global are still managed by the same fund managers in accordance with the aforementioned investment guidelines and terms. As of September 30, 2006, the Company’s investment portfolios managed by the remaining fund manager aggregated to an original amount of US$400,000 thousand. The investment portfolios included securities such as corporate bonds, agency bonds, asset-backed securities, government bonds and others. Securities acquired with maturities of less than three months from the date of purchase were classified as cash equivalents.
		As of September 30, 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 deposits

$

500,000

$

499,549

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

		September 30
		2006				2005
Corporate bonds		$	14,670,013			$	6,788,456
Structured time deposits			11,281,560				8,301,360
Government bonds			11,016,286				13,463,827
			36,967,859				28,553,643
Current portion			(6,220,737	)			(605,110	)
		$	30,747,122			$	27,948,533

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

		Principal				Interest				Range of
		Amount				Receivable				Interest Rates		Maturity Date
September 30, 2006
Step-up callable deposits
Domestic deposits		$	4,000,000			$	35,459			1.40%—2.01%		June 2007 to March 2009
Callable range accrual deposits
Domestic deposits			3,971,760				15,004			(See below)		September 2009 to December 2009
Foreign deposits			3,309,800				7,585			(See below)		October 2009 to January 2010
		$	11,281,560			$	58,048
September 30, 2005
Step-up callable deposits
Domestic deposits		$	1,000,000			$	422			1.40%—1.50%		June 2007
Callable range accrual deposits
Domestic deposits			3,982,560				16,218			(See below)		September 2009 to December 2009
Foreign deposits			3,318,800				11,653			(See below)		October 2009 to January 2010
		$	8,301,360			$	28,293