2007 ANNUAL REPORT TSE:2303 NYSE:UMC Corporate Information Spokesperson Fab 8C ADR Depositary and Registrar Chitung Liu No.6 Li-Hsin 3rd Rd., Hsinchu Science Citibank, N.A. Chief Financial Officer Park, Hsinchu, Taiwan 30078, R.O.C. Depositary Receipt Services 886 (2) 2700 6999 886 (3) 578 2258 14F, 388 Greenwich Street, [email protected] New York, NY 10013, U.S.A. Fab 8D 1 (877) 248 4237 (Toll-free) Deputy Spokesperson(s) No.8 Li-Hsin 3rd Rd., Hsinchu Science Stockholder Service Representatives are Sandy Yen Park, Hsinchu, Taiwan 30078, R.O.C. available Monday through Friday, The Chairman and CEO Office 886 (3) 578 2258 8:30a.m. to 6:00p.m., Eastern Time. Senior Manager http://wwss.citissb.com/adr/www/ 886 (2) 2700 6999 Fab 8E [email protected] [email protected] No.17 Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. ADR Exchange Marketplace Bowen Huang 886 (3) 578 2258 New York Stock Exchange, Inc. Finance Division 11 Wall Street Senior Manager Fab 8F New York, NY 10005, U.S.A. 886 (2) 2700 6999 No.3 Li-Hsin 6th Rd., Hsinchu Science 1 (212) 656 3000 [email protected] Park, Hsinchu, Taiwan 30078, R.O.C. www.nyse.com 886 (3) 578 2258 Ticker/Search Code: UMC Headquarters No.3 Li-Hsin 2nd Rd., Hsinchu Science Fab 8S Exchangeable Bond Exchange Park, Hsinchu, Taiwan 30078, R.O.C. No.16 Creation 1st Rd., Hsinchu Science Marketplace 886 (3) 578 2258 Park, Hsinchu, Taiwan 30077, R.O.C. Luxembourg Stock Exchange 886 (3) 578 2258 11, av de la Porte-Neuve L-2227 Luxembourg Taipei Office Fab 12A 352 (47) 79 36 - 1 3F, No.76, Sec. 2, Tunhwa S. Rd., No.18 Nan-Ke 2nd Rd., Tainan Science www.bourse.lu Taipei, Taiwan 10683, R.O.C. Park, Sinshih, Tainan, Taiwan 74147, Ticker: UniMicElexCorp 886 (2) 2700 6999 R.O.C. EB Search Code: ISIN XS0147090533 886 (6) 505 4888 ECB Search Code: ISIN XS0231460709 Fab 6A No.10 Innovation 1st Rd., Hsinchu Singapore Branch Auditors Science Park, Hsinchu, Taiwan 30076, Fab 12i Ernst & Young R.O.C. No.3 Pasir Ris Drive 12, Singapore James Wang, MY Lee 886 (3) 578 2258 519528 9th Fl., 333 Keelung Rd., Sec.1 65 6213 0018 Taipei 11012, Taiwan, R.O.C. Fab 8A www.ey.com/tw No.3 Li-Hsin 2nd Rd., Hsinchu Securities Dealing Institute 886 (2) 2720 4000 Science Park, Hsinchu, Taiwan 30078, Horizon Securities Co., Ltd. R.O.C. Stock Registration Department UMC Website 886 (3) 578 2258 3F, No.236 Hsin-Yi Rd. Sec. 4, Taipei, www.umc.com Taiwan 10680, R.O.C. Fab 8B 886 (2) 2326 8818 No.5 Li-Hsin 2nd Rd., Hsinchu Science www.honsec.com.tw Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258 UMC ANNUAL REPORT INFORMATION CAN BE ACCESSED FROM THE FOLLOWING WEBSITES: www.umc.com newmops.tse.com.tw TSE Code : 2303 Printed on March 17, 2008 NYSE Symbol : UMC United Microelectronics Corporation | Annual Report 2007 Table of Contents Letter to Shareholders Operations Overview 61 Business Scope Corporate Overview 61 Industry Scope 62 Research & Development Achievements and Plans 9 Corporate Profile 66 Market and Sales Conditions 10 Milestones 70 Employee Analysis 71 Environmental Protection Information Corporate Governance Report 72 Labor Relations 14 Corporate Organization 73 Major Agreements 16 Directors’, Supervisors’ and Managers’ Information 31 Corporate Governance Practices Review of Financial Position, 33 Status of Internal Control Operating Results, Risk Management 35 Auditing Notes 36 Change in Shareholding of Directors, Supervisors, and Evaluation Managers and Major Shareholders 77 Analysis of Financial Position 36 Information Disclosing the Relationship Between 78 Analysis of Operating Results Any of the Company’s Top Ten Shareholders 79 Liquidity Analysis 37 Total Percentage of Ownership of Investees 79 Major Capital Expenditures and Sources of Funding 79 Analysis for Investment Capital Overview 80 Risk Management and Evaluation 41 Capital and Shares 48 Corporate Bonds Social Responsibility 51 Preferred Stock 85 Social Responsibility Efforts 52 American Depositary Receipts 88 Environmental, Safety and Management Activities 54 Employee Stock Option Certificates 59 Mergers and Acquisitions 59 Financing Plans and Execution Status 2 Special Disclosures Financial Review Unconsolidated 93 Summary of Affiliated Enterprises 105 Condensed Balance Sheets 98 Acquisition or Disposal of UMC Shares by 106 Condensed Statements of Income Subsidiaries 107 Financial Analysis 99 Disclosures of Events which may Have a Significant 108 Supervisors’ Report Influence on Stockholders’ Equity or Share Price, in 110 Report of Independent Auditors Compliance with Item 2, Paragraph 2 in Article 36 111 Balance Sheets of the Securities and Exchange Law of the R.O.C. 112 Statements of Income 113 Statements of Changes in Stockholders’ Equity Disclosure According to 114 Statements of Cash Flows US Security Authorities Regulation 116 Notes to Financial Statements 101 Disclosure Committee 159 Attachments to Notes 101 Audit Committee 101 Corporate Governance Difference Financial Review Consolidated 101 Code of Ethics 194 Representation Letter 101 Employee Code of Conduct 195 Report of Independent Auditors 101 US GAAP Financial Information 196 Consolidated Balance Sheets 102 US GAAP Reconciliations of Stockholders’ Equity 197 Consolidated Statements of Income 103 US GAAP Reconciliations of Net Income 198 Consolidated Statements of Changes in Stockholders’ Equity 199 Consolidated Statements of Cash Flows 201 Notes to Consolidated Financial Statements 252 Attachments to Notes 3 United Microelectronics Corporation | Annual Report 2007 Letter to Shareholders Dear Shareholders, UMC achieved revenues of NTD 106.77 billion in Partnering for the Future 2007, which was a 2.6% improvement over the previ- We continue to see more and more IDMs adopting ous year. Operating income was 11.1% above 2006. the fab-lite or fabless business model, a trend that Net income for the year was NTD 16.96 billion. The we have been witnessing over the past several years. positive gains can be attributed to stronger demand UMC will benefit from this trend as these IDMs out- across all applications and a higher percentage of source their business to foundries. The trend will also revenue from leading edge process technologies. We allow us to collaborate with our IDM customers more shipped a record number of wafers in 2007, totaling closely in developing future technologies such as 45- 3.474 million 200mm wafer equivalents. However, nanometer and 32-nanometer. We believe that this is our revenues did not reach a record high due to a positive industry trend and a win-win situation for strong wafer pricing pressure. both IDMs and foundries, and a strong affirmation of foundry R&D capabilities. UMC has also been ac- By the end of 2007, revenue from 90-nanometer tively working with partners to develop technologies and below technology was 26%, which included other than CMOS logic. One example of our efforts 65-nanometer sales. We are excited to see the con- in this area was our decision to sign a technology tinuing acceleration of the manufacture of various cross license and joint development agreement with 65-nanometer customer products, and many of our Elpida in Q3 2007. This is a significant development, 65-nanometer customers are those who have migrat- as we will have access to Elpida’s DRAM process, ed from existing 0.13-micron and 90-nanometer pro- technology that we can offer as part of our customer duction at UMC. Furthermore, we worked through- SoC solutions for memory intensive applications. out the year with multiple partners to prepare IP Furthermore, we will jointly develop PRAM (phase- for 45-nanometer technologies. Our 45-nanometer change RAM) technology with Elpida for use in program is moving along smoothly with several future SoC designs. As process scaling continues, customer prototypes ready. We expect to see a small the ability to integrate various system memories will amount of 45-nanometer production by the second become very important. half of 2008. 4 Letter to Shareholders Jackson Hu, Chairman and CEO 5 United Microelectronics Corporation | Annual Report 2007 Our 32-nanometer development program remains on Strategic Expansion schedule and is progressing smoothly. In addition to In 2007, UMC opened its new R&D headquarters in joint development programs with our IDM and fab- Tainan Science Park next to Fab 12A, and successful- less customers, we continue to cooperate with many ly transferred UMC’s R&D operations to the new site of the industry’s leading research organizations, from Hsinchu. For 2008, capital expenditures will be such as ATDF and IME. Going forward, we do not between 500 and 700 million US dollars. The major rule out further technology development alliances, focus of this spending will be to improve product mix similar to our current activities with Elpida. We for our 8 and 12-inch production lines by increasing believe that future applications will make good use of the percentage of advanced technologies. Effective the increasing chip density offered by 45-nanometer, use of our capacity can support potential revenue 32-nanometer and beyond technologies, which will growth in excess of 20% in 2008 provided that we see enable the integration of more and more features on a that kind of demand growth in the coming year. single chip. The future of the semiconductor industry will be defined by the proliferation of these SoCs. Corporate Social Responsibility Electronic product companies will utilize these chips As UMC expands, we also recognize that corporate to roll out a continuous stream of innovative prod- social responsibility (CSR) has become a key element ucts that feature increased functionality, lower power for sustainable growth. UMC has put CSR into prac- consumption and higher performance, while current tice based on the principles of LOHAS, (Lifestyles of popular products such as the hottest multimedia Health and Sustainability) which focuses on healthy, phones and best-selling game consoles can be manu- sustainable living, environmental protection, per- factured more cost effectively.