Corporate Information Spokesperson Fab 8D ADR Exchange Marketplace Chitung Liu No.8 Li-Hsin 3rd Rd., Hsinchu Science New York Stock Exchange, Inc. Chief Financial Officer Park, Hsinchu, Taiwan 30078, R.O.C. 11 Wall Street 886 (2) 2700 6999 886 (3) 578 2258 New York, NY 10005, U.S.A. [email protected] 1 (212) 656 3000 Fab 8E www.nyse.com Deputy Spokesperson No.17 Li-Hsin Rd., Hsinchu Science Ticker/Search Code: UMC Sandy Yen Park, Hsinchu, Taiwan 30078, R.O.C. The Chairman and CEO Office 886 (3) 578 2258 Exchangeable Bond Exchange Senior Manager Marketplace 886 (2) 2700 6999 Fab 8F Luxembourg Stock Exchange [email protected] No.3 Li-Hsin 6th Rd., Hsinchu Science 11, av de la Porte-Neuve Park, Hsinchu, Taiwan 30078, R.O.C. L-2227 Luxembourg Bowen Huang 886 (3) 578 2258 352 (47) 79 36 - 1 Finance Division www.bourse.lu Senior Manager Fab 8S Ticker: UniMicElexCorp 886 (2) 2700 6999 No.16 Creation 1st Rd., Hsinchu EB Search Code: ISIN XS0147090533 [email protected] Science Park, Hsinchu, Taiwan 30077, ECB Search Code: ISIN XS0231460709 R.O.C. Headquarters 886 (3) 578 2258 Auditors No.3 Li-Hsin 2nd Rd., Hsinchu Science Ernst & Young Park, Hsinchu, Taiwan 30078, R.O.C. Fab 12A James Wang, MY Lee 886 (3) 578 2258 No.18 Nan-Ke 2nd Rd., Tainan Science 9th Fl., 333 Keelung Rd., Sec.1 Park, Sinshih, Tainan, Taiwan 74147, Taipei 11012, Taiwan , R.O.C. Taipei Office R.O.C. www.ey.com/tw 3F, No.76, Sec. 2, Tunhwa S. Rd., 886 (6) 505 4888 886 (2) 2720 4000 Taipei, Taiwan 10683, R.O.C. 886 (2) 2700 6999 Singapore Branch UMC Website Fab 12i www.umc.com Fab 6A No.3 Pasir Ris Drive 12, Singapore No.10 Innovation 1st Rd., Hsinchu 519528 Science Park, Hsinchu, Taiwan 30076, 65 6213 0018 R.O.C. 886 (3) 578 2258 Securities Dealing Institute Horizon Securities Co., Ltd. Fab 8A Stock Registration Department No.3 Li-Hsin 2nd Rd., Hsinchu Science 3F, No.236 Hsin-Yi Rd. Sec. 4, Taipei, Park, Hsinchu, Taiwan 30078, R.O.C. Taiwan 10680, R.O.C. 886 (3) 578 2258 886 (2) 2326 8818 www.honsec.com.tw Fab 8B No.5 Li-Hsin 2nd Rd., Hsinchu ADR Depositary and Registrar Science Park, Hsinchu, Taiwan 30078, Citibank, N.A. R.O.C. Depositary Receipt Services 886 (3) 578 2258 14F, 388 Greenwich Street, New York, NY 10013, U.S.A. Fab 8C 1 (877) 248 4237 (Toll-free) No.6 Li-Hsin 3rd Rd., Hsinchu Science Stockholder Service Representatives Park, Hsinchu, Taiwan 30078, R.O.C. are available Monday through Friday, 886 (3) 578 2258 8:30a.m. to 6:00p.m., Eastern Time. http://wwss.citissb.com/adr/www/ [email protected] UMC ANNUAL REPORT INFORMATION CAN BE ACCESSED FROM THE FOLLOWING WEBSITES: www.umc.com newmops.tse.com.tw TSE Code : 2303 Printed on March 15, 2007 NYSE Symbol : UMC United Microelectronics Corporation | Annual Report 2006 Table of Contents Letter to Shareholders Operation Overview 65 Business Scope Corporate Overview 65 Industry Scope 66 Research & Development Achievements and Plans 11 Corporate Profile 68 Market and Sales Conditions 12 Milestones 72 Employee Analysis 73 Environmental Protection Information Corporate Governance Report 74 Labor Relations 16 Corporate Organization 75 Major Agreements 18 Directors’, Supervisors’ and Managers’ Information 33 Corporate Governance Practices Review of Financial Position, 35 Status of Internal Control Operating Results, Risk Management 37 Auditing Notes and Evaluation 38 Change in Shareholding of Directors, Supervisors, 79 Analysis of Financial Position Managers and Major Shareholders 80 Analysis of Operating Results 39 Information Disclosuring the Relationship Between 81 Liquidity Analysis Any of the Company’s Top Ten Shareholders 81 Major Capital Expenditures and Sources of Funding 40 Total Percentage of Ownership of Investees 82 Analysis for Investment 83 Risk Management and Evaluation Capital Overview 43 Capital and Shares 50 Corporate Bonds 55 Preferred Stock 56 American Depositary Receipts 58 Employee Stock Option Certificates 63 Mergers and Acquisitions 63 Financing Plans and Execution Status 2 Special Disclosures Financial Review Unconsolidated 87 Summary of Affiliated Enterprises 101 Condensed Balance Sheets 92 Acquisition or Disposal of UMC Shares by 102 Condensed Statements of Income Subsidiaries 103 Financial Analysis 93 Disclosures of Events which May Have a Significant 104 Supervisors’ Report Influence on Stockholders’ Equity or Share Price, in 106 Report of Independent Auditors Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C. 107 Balance Sheets 108 Statements of Income Disclosure According to 109 Statements of Changes in Stockholders’ Equity US Security Authorities Regulation 110 Statements of Cash Flows 95 Disclosure Committee 112 Notes to Financial Statements 95 Audit Committee 160 Attachments to Notes 95 Corporate Governance Difference 95 Code of Ethics Financial Review Consolidated 95 Employee Code of Conduct 198 Representation Letter 95 US GAAP Financial Information 199 Report of Independent Auditors 96 Consolidated Balance Sheets 200 Consolidated Balance Sheets 98 Consolidated Statements of Income 201 Consolidated Statements of Income 202 Consolidated Statements of Changes in Stockholders’ Equity 203 Consolidated Statements of Cash Flows 205 Notes to Consolidated Financial Statements 260 Attachments to Notes 3 United Microelectronics Corporation | Annual Report 2006 4 Letter to Shareholders DearIn 2006, UMC achieved revenues Shareholders, of NTD 104.10 65-nanometer, with four products in pilot production billion, which was 14.7% above the previous year’s and more than 10 products taped out for various ap- performance. Net income was NTD 32.62 billion plications ranging from handset baseband to FPGA, or 364% above 2005. The positive gains and growth graphics and broadband. Yield improvement for our can be attributed to stronger demand across all ap- 65-nanometer volume production technology has plications, especially for the communications sec- been even faster than for the 90-nanometer genera- tor, and an improvement in product mix resulting tion. in a higher percentage of revenue from leading-edge process technologies. Strategic Expansion UMC has accelerated the expansion of its 300mm fab Technology Leadership complex in the Tainan Science Park to accommodate UMC’s strong 2006 performance was highlighted the next generation of advanced process technolo- by our large percentage of sales from 0.13-micron gies, most recently by adding a new R&D center for and below technologies, which accounted for 40% of nanometer technologies, the first of its kind in the UMC’s total revenue. Sales from our volume pro- Tainan Science Park. The center will become UMC’s duction 90-nanometer technology reached 17% for new R&D headquarters after its scheduled comple- the year. Particularly exciting was the rollout of our tion in April 2007. In 2006, we also began full-scale 65-nanometer process technology, which entered construction on our second 300mm fab at UMC’s volume production for several customer products. By Tainan site, which will give UMC a total of three the end of 2006, UMC had 9 customers engaged at advanced 300mm fabs to serve our customers’ manu- facturing needs. The new fab will add an additional 5 United Microelectronics Corporation | Annual Report 2006 6 Letter to Shareholders 50,000 wafer capacity (300 mm) to the site and will techniques, and ultra low-k dielectrics (k=2.5). cost approximately USD 5 billion when fully com- pleted and equipped. The 45-nanometer node is a challenging technology generation that simultaneously introduces new mate- The new fab and R&D center are being constructed rials and process modules. UMC’s wealth of experi- adjacent to UMC’s Fab 12A to allow for the easy ence in semiconductor R&D and manufacturing put transfer of engineering resources, technology, and us among the first companies in the world to produce equipment among the facilities, which will facili- working 45-nanometer silicon, with encouraging tate a more efficient ramp up for leading-edge 65- yield results realized for the initial 45-nanometer nanometer, 45-nanometer, and below processes. wafer lots. UMC will continue to build on its 45- Once the new fab is completed and ready for produc- nanometer momentum to prepare the technology for tion, the transition to mainstream manufacturing is adoption by our foundry customers. expected to be seamless since there is no new learn- ing curve to master; the production lines will be Enhancing Shareholder Value directly expanded from the neighboring Fab 12A. In addition to UMC’s commitment to improving process technology and manufacturing, we are also Next Generation Process Technology taking proactive measures to increase shareholders’ In 2006, UMC also successfully produced functional value. For example, UMC’s Board of Directors passed 45-nanometer SRAM chips. UMC’s independently a resolution to carry out a capital reduction of NTD developed 45-nanometer logic process uses sophisti- 57.394 billion with the cancellation of 5.739 billion of cated immersion lithography for its 12 critical layers its outstanding shares. The measure, which is expect- and incorporates the latest technology advancements ed to be ratified at our Annual General Shareholders such as ultra shallow junction, mobility enhancement meeting, will result in an NTD 3 cash return 7 United Microelectronics Corporation | Annual Report 2006 8 Letter to Shareholders Jackson Hu, Chairman and CEO per share to shareholders. Upon completion of the In 2007, our 300mm fabs in Taiwan and Singapore capital reduction, the paid-in capital of the company will begin high-volume production for 65-nanometer will be approximately NTD 133.92 billion. This ac- products. We will continue preparing our 45- tion will contribute positively to shareholders’ equity nanometer process for pilot production in 2008.