RM TSMC June - 2008

1. SCRLC #6 Meeting RM TSMC June - 2008

2. Outline: • Foundry’s next Challenges • Supply Chain Risk in Asia • Some Economic Studies of Asia

3. Foundry’s next Challenges • The foundry market segment is now an integral and symbiotic part of the overall semiconductor supply chain • The foundry business model exerts a positive and important influence on the health of the overall IC industry • The foundry segment must support the IC industry to maintain, or increase, historic growth rates

4. Semiconductor Industry Revenues What are the key challenges, and business opportunities to provide for future growth?

5. Increasing Foundry Revenue Impact Impact Revenue: Revenue from finished products derived from foundry wafers Impact Revenue Direct Revenue Foundry impact revenue will rise to close to 40% of overall semiconductor revenue by 2012

6. Escalating Costs by Technology Node • Design costs • 9 times cost for N65 than 0.18 m • 5 times cost for N65 than 0.13 m • R&D cost • 10 times cost for N65 than 0.25 m • 14 times cost for N32 than 0.25 m • Wafer Fab. cost • around twice for N32 than N90

7. Continuing R&D and Capital Investment • Foundries will continue to be leaders in introduction of advanced process technology • Manufacturing capacity will grow • Collaboration with equipment vendors is important to contain costs

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

9. Nature disasters Financial risk Infrastructure risks Social risks Regulatory risk Supply Chain Risk Map in Asia Quality and counterfeiting Terrorism Pandemics Ethical risks Fraud and corruption Note: Likelihood: Sum(% of occasional,frequent and very frequent) Severity: Sum(% of severe and catastrophic) (Source: 62 companies based in Asia, with firms in China, Marsh Survey 2006)

10. Infrastructure Risk • Infrastructure is less developed in Asia • Many respondents were not satisfied with the local infrastructure situation • To meet expected infrastructure services needs, East Asia would have to spend $165 billion a year over the next five years – or roughly 6.2 percent of its GDP annually ??? – on electricity, telecommunications, water and sanitation, and major transport networks [Source: World Bank, 2005 (Connecting East Asia: A New Framework for Infrastructure)]

11. Nature Disaster • Asia experiences the greatest regional number of natural catastrophes and fatalities globally • Major natural disasters that may cause supply chain disruption • Marsh’s Asia survey shows that only 28% of respondents have fully prepared for natural disasters

12. Economic Study of Asia **Compared with 2020/2005, Asia economic to world economic will increase 8%. From 35%(2005) to 43%(2020). It’s Increasingly important to world economic. (Source:Economist Intelligence Unit, EIU)

13. China, In 2020, will be the largest economic state around the world. GDP will be 30 trillion USD. Which is higher than 2nd highest GDP state, USA with 29 trillion USD. (Source:Economist Intelligence Unit, EIU) • Some Challenges to China • Inflation • Rising in energy price • The unequal distribution of wealth • (Source: Interviewed with Yifu Lin, • CommonWealth, May 2008)

14. The unequal distribution of wealth in China • Financial structure - Unequal loan/remedy of banks to large and small enterprise • Resource prices - Excess profits from low tax and fees to new entrance of mining companies • Monopolistic Enterprise - Excess profits of state-own enterprise from regulated monopolistic protection, cause unfair salary compared with non-monopolized enterprise Note: Per capita GDP at 8 super cities of China will be 20 to 25K USD at 2025(Mckinsy Global Research Report) (Source: Interviewed with Yifu Lin, CommonWealth, May 2008)