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united microelectronics corporation United Microelectronics Corporation Corporation Microelectronics United era of the THE SoC SOLUTION FOUNDRY 2004 Report Annual Sannuoal repoCrt 2004 NYSE: UMC TSE: 2303 TSE: UMC NYSE: www.umc.com Headquarters Securities Dealing Institute 3 Li-Hsin 2nd Rd., SinoPac Securities Corp. Hsinchu Science Park, Stock Registration Department Hsinchu, Taiwan 300, R.O.C. 3F, 53 Po-Ai Rd., 886 (3) 578 2258 Taipei, Taiwan 100, R.O.C. 886 (2) 2381 6288 Taipei Office www.sinotrade.com.tw 3F, 76, Sec. 2, Tunhwa S. Rd., Taipei, Taiwan 106, R.O.C. ADR Depositary and Registrar 886 (2) 2700 6999 Citibank, N.A. Depositary Receipt Services Fab 6A 388 Greenwich Street, 14th Floor 10 Innovation 1st Rd., New York, NY 10013, U.S.A. Hsinchu Science Park, 1 (877) 248 4237 (Toll-free) Hsinchu, Taiwan 308, R.O.C. Stockholder Service Representatives 886 (3) 578 2258 are available Monday through Friday, 8:30a.m. to 6:00p.m., Eastern Time. Fab 8A http://wwss.citissb.com/adr/www/ 3 Li-Hsin 2nd Rd., [email protected] Hsinchu Science Park, Hsinchu, Taiwan 300, R.O.C. ADR Exchange Marketplace 886 (3) 578 2258 New York Stock Exchange, Inc. 11 Wall Street Fab 8B New York, NY 10005, U.S.A. 5 Li-Hsin 2nd Rd., 1 (212) 656 3000 Hsinchu Science Park, www.nyse.com Hsinchu, Taiwan 300, R.O.C. Ticker/Search Code: UMC 886 (3) 578 2258 Exchangeable Bond Fab 8C Exchange Marketplace 6 Li-Hsin 3rd Rd., Luxembourg Stock Exchange Hsinchu Science Park, 11, Av de la Porte-Neuve Hsinchu, Taiwan 300, R.O.C. L-2227 Luxembourg 886 (3) 578 2258 352 (47) 79 36 - 1 www.bourse.lu Fab 8D Ticker: UniMicElexCorp Corporate Information 8 Li-Hsin 3rd Rd., EB Search Code: Hsinchu Science Park, ISIN XS0147090533 Spokesperson Hsinchu, Taiwan 300, R.O.C. Chitung Liu 886 (3) 578 2258 Auditors Finance Division Diwan, Ernst & Young Director Fab 8E Kim Chang, MY Lee 17 Li-Hsin Rd., 9F, 333, Sec. 1, Keelung Rd., 886 (2) 2700 6999 Hsinchu Science Park, Taipei, Taiwan 110, R.O.C. [email protected] Hsinchu, Taiwan 300, R.O.C. www.ey.com.tw 886 (3) 578 2258 886 (2) 2720 4000 Deputy Spokespersons Sandy Yen Fab 8F The Chairman and President’s Office 3 Li-Hsin 6th Rd., Senior Manager Hsinchu Science Park, 886 (2) 2700 6999 Hsinchu, Taiwan 300, R.O.C. 886 (3) 578 2258 [email protected] Fab 8S Sheng Yui Wang 16 Creation 1st Rd., Finance Division Hsinchu Science Park, Deputy Director Hsinchu, Taiwan 308, R.O.C. 886 (2) 2700 6999 886 (3) 578 2258 [email protected] Fab 12A 18 Nan-Ke 2nd Rd., UMC Annual Report Information can be Accessed from the Following Websites: Tainan Science Park, Sinshih, www.umc.com Tainan, Taiwan 744, R.O.C. newmops.tse.com.tw 886 (6) 505 4888 Printed on March 21, 2005 united microelectronics corporation eraera ofof tthehe SoC Table of Introduction 4 Letter to Shareholders Contents 8 Era of the SoC Corporate Overview 21 Corporate Profile 24 Corporate Organization 38 Capital and Shares 42 Corporate Bonds 45 Preferred Stock 46 American Depositary Receipts 48 Employee Stock Option Certificates 50 Mergers and Acquisitions Operations Overview 53 Business Scope 53 Industry Scope 54 Research & Development Achievements and Plans 56 Market and Sales Conditions 60 Employee Analysis 61 Environmental Protection Information 61 Labor Relations 62 Major Agreements 64 Financing Plans and Execution Status Financial Review Unconsolidated Review of Financial Position, Operating Results, 67 Condensed Balance Sheets Risk Management and Evaluation, and Corporate Governance Practices 68 Condensed Statements of Income 169 Analysis of Financial Position 69 Financial Analysis 170 Analysis of Operating Results 70 Supervisors’ Report 171 Liquidity Analysis 71 Report of Independent Auditors 171 Major Capital Expenditures and Sources of Funding 72 Balance Sheets 171 Analysis for Investment 74 Statements of Income 172 Risk Management and Evaluation 75 Statements of Changes in Stockholders’ Equity 175 Corporate Governance Practices 76 Statements of Cash Flows 78 Notes to Financial Statements Affiliated Enterprises Overview 102 Attachments to Notes 177 Summary of Affiliated Enterprises Financial Review Consolidated Special Disclosures 118 Representation Letter 181 Status of Internal Control 119 Report of Independent Auditors 182 Acquisition or Disposal of UMC Shares by Subsidiaries 120 Consolidated Balance Sheets 183 Major Resolutions of the Shareholders’ Meeting 122 Consolidated Statements of Income and the Board of Directors’ Meetings 123 Consolidated Statements of Changes in Stockholders’ Equity The Disclosure According to US Security 124 Consolidated Statements of Cash Flows Authorities Regulation 126 Notes to Consolidated Financial Statements 187 Disclosure Committee 154 Attachments to Notes 187 Audit Committee 187 Corporate Governance Difference 187 Code of Ethics 187 Employee Code of Conduct 187 US GAAP Financial Information 188 Consolidated Balance Sheets 190 Consolidated Statements of Income 4 United Microelectronics Corporation Annual Report 2004 Letter to Shareholders 5 Dear Shareholders, In 2004, UMC achieved historical record revenues of NTD 117.3 billion, a 38% increase over 2003, far surpassing the previous record high set in the year 2000. Net income for the year increased 127% over 2003 to reach NTD 31.84 billion. These figures reflect the strength of the overall recovery in the semiconductor market in 2004, as well as UMC’s ability to effectively execute its business strategy. The SoC Solution Foundry Amidst the sharp industry recovery that we experienced through most of 2004, UMC received strong positive customer feedback to our decision to focus more sharply on the delivery of comprehensive System-on-Chip (SoC) solutions. Having moved steadily in this direction over the years, our enhanced “SoC Solution Foundry” strategy is allowing our customers to more readily leverage the performance advantages of our most advanced process technologies. These technologies leverage new materials and shrinking feature sizes that allow designers to integrate a huge number of transistors and a diverse range of functions to form complete systems on a single semiconductor chip. At the same time, integrating third-party intellectual property (IP), embedded memories, and other design elements and ensuring they work together successfully on a single semiconductor has become increasingly challenging. Today, we are not just providing customers with outstanding process technologies and cost- effective manufacturing based on our excellent yields and cycle times. In addition, UMC is offering total solutions for its customers’ System-on-Chip designs. These solutions include providing access to silicon-proven IP and design reference flows, cost effective prototyping through our multi-project wafer program (Silicon ShuttleTM), the latest design for manufacturing (DFM) solutions, and test and 4 United Microelectronics Corporation Annual Report 2004 Letter to Shareholders 5 packaging services and consultation. Moreover, we have leveraged our in-house team of system design experts to help our customers make informed decisions enabling them to navigate the most efficient course to product success. Our enhanced capabilities regarding system architecture and its implications allow us to engage in robust dialogue and offer suggestions on system partition and technology, IP, and packaging selection trade-offs for different product applications. This expertise has the potential to significantly bolster the competitiveness of UMC’s customers in today’s rapidly advancing semiconductor industry. Process Technology Leadership Providing advanced foundry process technologies remains UMC’s core competency. Our leadership in this area continued in 2004, and we attained several significant technology milestones over the course of the year. In the second quarter of 2004, UMC fully qualified customer products for mainstream volume production on 90-nanometer process technology. We were the first dedicated foundry company to reach this important milestone. Since then, we have experienced steady growth for this technology generation, which accounted for 8% of UMC’s total revenue by the end of 2004. We expect this momentum to continue into 2005 as more customers leverage our 90-nanometer resources and experience. Development of the next process generation, 65-nanometer, is also well underway with significant progress made by our research and development team. In 2004, we invested strategically to expand our 300mm capacity. UMC’s year-end capacity at Fab 12A and UMCi exceeded our originally forecasted figures of 20,000 and 10,000 wafers/month, respectively. Total actual CAPEX spending for 2004 was USD 2.56 billion, up from our previous 6 United Microelectronics Corporation Annual Report 2004 Letter to Shareholders 7 forecast of USD 2.15 billion. We were also happy to announce our decision to merge the operations of Singapore-based UMCi (now Fab 12i) into UMC. This consolidation will further enhance our ability to seamlessly serve our global customer base. As UMC recognizes revenues and profits from the operation of UMCi's fab, we will also improve our potential financial performance and achieve better financial transparency for our investors. With the demand for advanced process technology on 300mm wafers gaining momentum, this transaction will greatly increase the synergy of UMC's overall fab operations and expansion plans. This will be key to UMC’s future competitiveness, as almost all of our future capital expenditures will be for 300mm equipment and facilities. Positioned for Success After a year of strong financial growth and significant progress in aligning our organization to strengthen our SoC Solution Foundry strategy, we are well positioned to respond to whatever economic conditions face us in 2005. We will push forward with the expansion of our 90-nanometer production capabilities, as well as continue our strong emphasis on research and development, including 65- nanometer and 45-nanometer technologies. We will continue with our 300mm capacity expansion in Taiwan and Singapore, and advance our close partnerships with capital equipment vendors, EDA tool and IP providers, packaging and test partners, and customers to further enhance our SoC foundry solutions.