On Oct. 26, broad-line semiconductor foundry Taiwan Semiconductor Manufacturing (NYSE:TSM) released Q3 2006 earnings for the period ended Sept. 30.

  • Sales and margins are racing upwards in lockstep, making for impressive earnings gains. There are no share buybacks going on, but also no dilution.

  • TSM is spending some of its operating cash flow on 12-inch wafer production equipment this year, which leads to lower free cash flow than last year -- all in the name of investing in the future. Still, $750 million of FCF is nothing to sneeze at.

  • The balance sheet is very strong, with one weak spot -- inventories growing faster than sales.

(Figures in millions of dollars, except per-ADR data. Exchange rates averaged over the relevant quarters: New Taiwan Dollar 32.907 per dollar for Q3 2006; NTD33.261 per dollar for Q3 2005.)

Income Statement Highlights

Avg. Est.

Q3 2006

Q3 2005

Change

Sales

$2,490

$2,518.0

$2,119.6

18.8%

Net Profit

--

$993.0

$736.3

34.9%

Earnings per ADR

$0.19

$0.19

$0.14

35.7%

Diluted ADRs

--

5161.8

5161.8

0%


Get back to basics with a look at the income statement.

Margin Checkup

Q3 2006

Q3 2005

Change*

Gross Margin

49.88%

43.91%

5.97

Operating Margin

40.79%

34.30%

6.49

Net Margin

39.44%

34.74%

4.70
*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q3 2006

Q3 2005

Change

Cash + ST Invest.

$4,958.0

$3,577.5

38.6%

Accounts Rec.

$1,140.0

$1,176.7

(3.1%)

Inventory

$614.0

$488.2

25.8%

Liabilities

Q3 2006

Q3 2005

Change

Accounts Payable

$791.0

$634.3

24.7%

Long-Term Debt

$514.0

$586.3

(12.3%)


Learn the ways of the balance sheet.

Cash Flow Highlights

Q3 2006

Q3 2005

Change

Cash From Ops.

$1,600.8

$1,199.9

33.4%

Capital Expenditures

$852.1

$311.0

174%

Free Cash Flow

$748.7

$888.9

(15.8%)


Find out why Fools always follow the money.

Competitors:

  • United Microelectronics (NYSE:UMC)
  • Chartered Semiconductor Manufacturing (NASDAQ:CHRT)
  • Semiconductor Manufacturing International (NYSE:SMI)

Customers:

  • Marvell Technology (NASDAQ:MRVL)
  • Silicon Laboratories (NASDAQ:SLAB)
  • Eastman Kodak (NYSE:EK)

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

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At the time of publication, Anders Bylund was a TSM shareholder but had no other positions in the companies mentioned. Fool rules are here .