United Microelectronics Corporation 2019 Annual Report Printed on February 26, 2020 UMC Annual Report Information Can Be Accessed from the Following Websites: http://www.umc.com http://mops.twse.com.tw Annual Report TSE Code: 2303 NYSE Symbol: UMC 2019 Spokesperson Fab 8E Securities Dealing Institution Chitung Liu 17 Li-Hsin Rd., Hsinchu Science Park, Horizon Securities Co., Ltd. Senior Vice President and Hsinchu, Taiwan 30078, R.O.C. Stock Registration Department Chief Financial Officer 886 (3) 578 2258 3F, No.236 Hsin-Yi Rd. Sec. 4, Taipei, 886 (2) 2658 9168 Taiwan 10680, R.O.C. [email protected] Fab 8F 886 (2) 2326 8818 3 Li-Hsin 6th Rd., Hsinchu Science Park, http://www.honsec.com.tw Acting Spokesperson(s) Hsinchu, Taiwan 30078, R.O.C. Jinhong Lin 886 (3) 578 2258 ADR Depositary and Registrar Finance Division J.P. Morgan Depositary Receipts Director Fab 8S 383 Madison Avenue, 11th Floor 886 (2) 2658 9168 16 Creation 1st Rd., Hsinchu Science Park, New York, NY 10179, U.S.A. [email protected] Hsinchu, Taiwan 30077, R.O.C. General Contact：1 (800) 990 1135 886 (3) 578 2258 Outside the USA：1 (651) 453 2128 David Wong http://www.adr.com Finance Division Fab 12A Manager 18, 20 Nan-Ke 2nd Rd., & 57 Nan-Ke 3rd Rd., ADR Exchange Marketplace 886 (2) 2658 9168 Southern Taiwan Science Park, Sinshih, NYSE Euronext [email protected] Tainan, Taiwan 74147, R.O.C. 11 Wall Street, 886 (6) 505 4888 New York, NY 10005, U.S.A. Headquarters 1 (212) 656 3000 3 Li-Hsin 2nd Rd., Hsinchu Singapore Branch http://www.nyse.com Science Park, Hsinchu, Taiwan 3 Pasir Ris Drive 12, Singapore 519528 Ticker/Search Code: UMC 30078, R.O.C. 65 6213 0018 886 (3) 578 2258 Euro Convertible Bond Exchange Subsidiary in Mainland China Marketplace Taipei Office HJ Singapore Exchange Securities 8F, 68 Sec. 1, Neihu Rd., Taipei, 333 Xinghua St., Suzhou Industrial Park, Trading Limited Taiwan 11493, R.O.C. Suzhou, Jiangsu Province 215025, P.R.C. 2 Shenton Way 886 (2) 2658 9168 0512 65931299 #02-02 SGX Centre 1 Singapore 068804 Fab 8A Subsidiary in Mainland China 65 6236 8888 3, 5 Li-Hsin 2nd Rd., Hsinchu USCXM http://www.sgx.com Science Park, Hsinchu, Taiwan 899 Wan Jia Chun Road, Xiang’an District, ECB Search Code: ISIN XS1228110000 30078, R.O.C. Xiamen, Fujian Province, P.R.C. 886 (3) 578 2258 0592 7687888 Auditors Ernst & Young, Taiwan Fab 8C & Fab 8D Subsidiary in Japan Wan-Ju Chiu, Hsin-Min Hsu 6, 8 Li-Hsin 3rd Rd., Hsinchu USJC 9F, No. 333, Sec. 1 Keelung Road, Science Park, Hsinchu, Taiwan 3-1 Kinko-cho, Kanagawa-ku, Yokohama, Taipei, Taiwan 11012, R.O.C. 30078, R.O.C. Kanagawa, Japan 886 (2) 2757 8888 886 (3) 578 2258 81 45 620 2682 http://www.ey.com Wavetek Corporate Website 10 Chuangxin 1st Rd., Hsinchu Science Park, http://www.umc.com Baoshan Township, Hsinchu, Taiwan 30076, R.O.C. 886 (3) 578 1259 NexPower 2 Houke S. Rd., Central Taiwan Science Park, Houli District, Taichung, Taiwan 42152, R.O.C. 886 (4) 2580 8888 United Microelectronics Corporation | Annual Report 2019 Table of Contents Letter to Shareholders 4 Capital Overview 103 104 Capital and Shares Corporate Profile 8 109 Issuance of Corporate Bonds 9 Corporate Profile and Date of Establishment 115 Preferred Shares 10 Corporate Milestones 116 American Depositary Receipts 118 Employee Stock Option Handling Status 118 Issuance of New Restricted Employee Shares Corporate Governance Report 13 118 Status of New Shares Issuance in Connection with Mergers and Acquisitions 14 Corporate Organization 118 Financing Plans and Execution Status 16 Directors’ and Managers’ Information 38 Corporate Governance Practices 97 Certified Public Accountant (CPA) Fee Information Operations Overview 119 97 Information of CPA Change 120 Business Activities 97 UMC’s Chairman, Presidents, Chief Financial Officer, 127 Overview of Market, Production, and Sales and Managers in Charge of Its Finance and Accounting 133 Employees Operations Did Not Hold Any Positions in UMC’s Independent Auditing Firm or Its Affiliates in the Most 134 Environmental Expenditure Information Recent Year 134 Labor Relations 98 Change in Shareholding of Directors, Managers and 138 Major Contracts Major Shareholders Who Own 10% or More of UMC Shares 100 Relationship Among the Top Ten Shareholders 101 Shares Held by the Company, Directors, Managers and Companies Directly or Indirectly Controlled by the Company, and the Comprehensive Shareholding Ratio Based on Combined Calculation 2 Review of Financial Position, Operating 140 Financial Review 183 Results, Risk Management 184 Condensed Balance Sheets 141 Financial Position 186 Condensed Statements of Comprehensive Income 142 Financial Performance 188 Financial Analysis 143 Cash Flow 192 Audit Committee’s Review Report 143 Major Capital Expenditures from Recent Years and 193 Financial Statements – Consolidated Impact on Company’s Finance and Business 269 Financial Statements – Parent Company 143 Main Reasons and Improvement Plans for Recent Annual Reinvestment Policies and Profit or Loss, and Investment Plans for the Coming Year 144 Risk Management and Evaluation 153 Other Necessary Supplements Social Responsibility 154 155 Description of Corporate Social Responsibility 157 About Social Charity 163 Environmental Protection, Safety and Health Management Instructions Special Disclosures 169 170 Summary of Affiliated Enterprises 182 Issuance of Private Placement Securities 182 Acquisition or Disposal of UMC Shares by Subsidiaries 182 Other Necessary Supplements 182 Disclosures of Events Which May Have a Significant Influence on Stockholders’ Equity or Share Price, in Compliance with Item 3, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C. 3 Dear Shareholders, In 2019, geopolitical tension and a constantly changing environment surrounding international affairs resulted in a sharp decline in semiconductor demand. Although UMC continued to explore various avenues of growth to continue progressing our technologies, increase production capacity and cultivate new customer engagements, the difficult macro environment led to UMC’s 2019 revenue declining slightly by 2% over the prior year. Our foundry segment shipped a total of 7.2 million 8-inch equivalent wafers for the year, with capacity utilization rate at 89%. From a consolidated basis, UMC’s annual revenue was NT$148.2 billion, gross profit margin was 14.4%, and operating profit Looking towards the future, UMC will proceed with margin was 3.2%. Profit attributable to the parent company the business strategy of strengthening our financial was NT$9.71 billion or an earnings per share of NT$0.82. performance and securing future growth opportunities. UMC’s capital expenditure was US$574 million, mainly UMC management team will focus on: (1) Integrating invested towards new R&D process equipment and capacity organizational effectiveness, developing technology, deployment of Fab 12A in Southern Taiwan Science Park, Fab comprehensively improving quality and productivity, and 12X in Xiamen and Fab 8N in Suzhou. pursuing excellence as the company’s goal; (2) Working UMC is committed to providing customers with an closely with the supply chain to improve product mix and extensive offering of process manufacturing solutions market share to maintain stable profitability; (3) Continuing by collaborating with partners across the supply chain our dedication to customer service, strengthening to develop process technologies and expand capacity. synergies and providing added value, growing with Future semiconductor demand will be driven by artificial customers, and creating win-win situations; (4) Enhancing intelligence (AI), Internet of Things (IoT), 5G communication the competitiveness of sustainable operations to protect (5G) and automotive electronics (AUTO). We will achieve shareholders’ best interests. business expansion by differentiating our logic and specialty technology solutions, with the latter being a core Advanced Technology Development focus of UMC’s continuous investment strategy. In response Research and Development has always been the focus of to market demand, UMC has diversified its 12-inch fabs UMC’s operations. In 2019, UMC invested NT$11.86 billion to diversify risk, highlighted by the recent acquisition of in R&D, continuing to recruit and develop new R&D talent, USJC (United Semiconductor Japan Corporation). This 12- which led to fruitful results in the field of research and inch wafer fab that will bring operating synergies through development within advanced and specialty technologies. enhanced productivity by joining UMC’s network and supply Our 14FFC (14nm FinFET Compact) process technology chain ecosystem while driving our long-term growth in development has fulfilled market requirements and has specialty technology segments. been introduced for 5G and networking applications. The 4 Letter to Shareholders 22nm ultra-low power consumption (22ULP) and ultra- low leakage current (22ULL) process platforms have now completed customer product verification, which can be applied for semiconductor applications including Internet of Things (IoT), mobile devices, automotive electronics, and technologies such as analog, mixed signal, and RF. In addition, our 28nm high-performance computing (28HPC +) process will provide new business opportunities in the field of image signal processors (ISP) found in smartphones; these ICs will be mass-produced in UMC’s Taiwan fab in 2020. We also have a 28-nanometer millimeter-wave (mmWave) process that provides a low-power CMOS solution. Specialty Technology Development In specialty technology applications, UMC’s 28nm high- voltage technology entered volume production in 2019. UMC also introduced the industry’s first 40nm high-voltage driver IC process technology designed to complement organic light- emitting displays (AMOLED). In addition, the development of 22nm high-voltage technology (22eHV) is in line with our customers’ expectations. Our world-class Radio Frequency Insulated Semiconductor (RFSOI) process technologies fulfill the stringent requirements of RF switches found in 4G & 5G mobile phones. At present, UMC’s 0.13 micron, 0.11 micron and 90nm RFSOI processes have entered mass production.