TSE Code: 2303 | NYSE Symbol: UMC ANNUAL REPORT 2005 YEARS of United Microelectronics Corporation Corporate Information Spokesperson Fab 8D ADR Exchange Marketplace Chitung Liu 8 Li-Hsin 3rd Rd., Hsinchu Science New York Stock Exchange, Inc. Chief Financial Officer Park, Hsinchu, Taiwan 300, 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 17 Li-Hsin Rd., Hsinchu Science Ticker/Search Code: UMC Sandy Yen Park, Hsinchu, Taiwan 300, 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] 3 Li-Hsin 6th Rd., Hsinchu Science 11, av de la Porte-Neuve Park, Hsinchu, Taiwan 300, 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 16 Creation 1st Rd., Hsinchu Science EB Search Code: ISIN XS0147090533 [email protected] Park, Hsinchu, Taiwan 308, R.O.C. ECB Search Code: ISIN XS0231460709 886 (3) 578 2258 Headquarters Auditors 3 Li-Hsin 2nd Rd., Hsinchu Science Fab 12A Diwan, Ernst & Young Park, Hsinchu, Taiwan 300, R.O.C. 18 Nan-Ke 2nd Rd., Tainan Science James Wang, MY Lee 886 (3) 578 2258 Park, Sinshih, Tainan, Taiwan 744, 9th Fl., 333 Keelung Rd., Sec.1 R.O.C. Taipei 110, Taiwan , R.O.C. Taipei Office 886 (6) 505 4888 www.dey.com.tw 3F, 76, Sec. 2, Tunhwa S. Rd., Taipei, 886 (2) 2720 4000 Taiwan 106, R.O.C. Singapore Branch 886 (2) 2700 6999 Fab 12i UMC Website 3 Pasir Ris Drive 12, Singapore 519528 www.umc.com Fab 6A 65 6213 0018 10 Innovation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 308, R.O.C. Securities Dealing Institute 886 (3) 578 2258 Horizon Securities Co., Ltd. Stock Registration Department Fab 8A 3rd Fl., 236 Hsin-Yi Rd. Sec. 4, Taipei, 3 Li-Hsin 2nd Rd., Hsinchu Science Taiwan 106, R.O.C. Park, Hsinchu, Taiwan 300, R.O.C. 886 (2) 7719 8899 886 (3) 578 2258 www.honsec.com.tw Fab 8B ADR Depositary and Registrar 5 Li-Hsin 2nd Rd., Hsinchu Science Citibank, N.A. Park, Hsinchu, Taiwan 300, R.O.C. Depositary Receipt Services 886 (3) 578 2258 388 Greenwich Street, 14th Floor New York, NY 10013, U.S.A. Fab 8C 1 (877) 248 4237 (Toll-free) 6 Li-Hsin 3rd Rd., Hsinchu Science Stockholder Service Representatives Park, Hsinchu, Taiwan 300, 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 Printed on March 17, 2006 ANNUAL REPORT 2005 25 YEARS of UMC Incorporated in 1980, UMC has firmly established itself over its 25-year history as one of today’s global leaders in IC technology and manufacturing. United Microelectronics Corporation | Annual Report 2005 Table of Contents Introduction Review of Financial Position, Operating Results, Risk 4 25 Years of UMC 1 66 Management and Evaluation, 6 Letter to Shareholders Corporate Governance Practices and Auditing Notes Corporate Overview 67 Analysis of Financial Position 13 Corporate Profile 12 68 Analysis of Operating Results 14 Corporate Organization 69 Liquidity Analysis 32 Capital and Shares 69 Major Capital Expenditures and Sources of Funding 38 Corporate Bonds 70 Analysis for Investment 43 Preferred Stock 71 Risk Management and Evaluation 44 American Depositary Receipts 75 Corporate Governance Practices 77 Auditing Notes 46 Employee Stock Option Certificates 50 Mergers and Acquisitions Affiliated Enterprises Overview 79 Summary of Affiliated Enterprises 78 Operations Overview 53 Business Scope 52 Special Disclosures 53 Industry Scope 85 Status of Internal Control 84 54 Research & Development Achievements and Plans 86 Acquisition or Disposal of UMC Shares by 56 Market and Sales Conditions Subsidiaries 60 Employee Analysis 87 Major Resolutions of the Shareholders’ Meeting 61 Environmental Protection Information and the Board of Directors’ Meeting 61 Labor Relations 62 Major Agreements 64 Financing Plans and Execution Status 2 Letter to25 Shareholders Years of UMC Disclosure According to US Financial Review Consolidated Security Authorities Regulation 90 189 Representation Letter 188 91 Disclosure Committee 191 Report of Independent Auditors 91 Audit Committee 192 Consolidated Balance Sheets 91 Corporate Governance Difference 193 Consolidated Statements of Income 91 Code of Ethics 194 Consolidated Statements of Changes in 91 Employee Code of Conduct Stockholders’ Equity 91 US GAAP Financial Information 195 Consolidated Statements of Cash Flows 92 Consolidated Balance Sheets 197 Notes to Consolidated Financial Statements 94 Consolidated Statements of Income 258 Attachments to Notes Financial Review Unconsolidated 97 Condensed Balance Sheets 96 98 Condensed Statements of Income 99 Financial Analysis 100 Supervisors’ Report 102 Report of Independent Auditors 103 Balance Sheets 104 Statements of Income 105 Statements of Changes in Stockholders’ Equity 106 Statements of Cash Flows 108 Notes to Financial Statements 159 Attachments to Notes 3 United Microelectronics Corporation | Annual Report 2005 Our first 25 years UMC was established in 1980 as Taiwan’s first semiconductor company. In 1995, UMC began operating as a pure-play IC foundry. Since then, UMC has grown to become a global IC technology and manufacturing leader. Today, UMC delivers comprehensive SoC solutions that complement its leading- edge 90-nanometer and 65-nanometer production technologies. 4 Letter to25 Shareholders Years of UMC Milestones 1980 MAY UMC established. 1985 JUL. Becomes the first IC company to list on the Taiwan Stock Exchange. 1995 JUL. Begins transformation into a pure-play foundry. JUL. – SEP. Three joint venture foundry companies established. SEP. 200mm fab begins production. 1996 JAN. 0.35-micron mass production. 1997 OCT. 0.25-micron mass production. 1998 APR. Acquires Holtek Semiconductor. DEC. Acquires Nippon Steel Semiconductor Corp. (renamed UMCJ in 2001) 1999 MAR. 0.18-micron mass production. NOV. Begins construction of 300mm fab in Taiwan’s Tainan Science Park, Fab 12A. 2000 JAN. Completes consolidation of five companies: UMC, USC, UTEK, USI and UICC. MAR. Ships first foundry chips using copper process. MAY Produces foundry industry’s first 0.13-micron integrated circuits. SEP. Makes its debut on the New York Stock Exchange. DEC. Announces plan to establish advanced 300mm foundry in Singapore (UMCi). 2003 JAN. Announces equipment move-in at UMCi. MAR. Delivers foundry’s first customer ICs built on 90-nanometer. 2004 MAR. UMCi moves to full-scale 300mm production. MAY 90-nanometer full qualification and mass production. JUL. Completes acquisition of SiS Microelectronics Corp. DEC. Fully acquires its subsidiary UMCi. 2005 AUG. Achieves record milestone of over 100,000 90-nanometer wafer shipments. 5 United Microelectronics Corporation | Annual Report 2005 Dear Shareholders, In 2005, UMC achieved revenues of NTD visory roles. As UMC’s top executive, I believe 90,775 million, which was 22.6% below the it is important to share with you my vision of previous year’s performance. Net income UMC’s direction going forward. was NTD 7,027 million, or 77.9% below 2004 figures. This slowdown was largely attributed In order to best leverage Taiwan’s unique envi- to an industry-wide inventory correction that ronment and business culture, UMC will rein- began in late 2004, and lasted until the 3rd vent itself in the spirit of a start-up company. quarter of 2005. The attributes of a start-up company include solid execution, a low profile attitude, a strong A New Focus focus on customer satisfaction, and the ability On January 9, 2006, the UMC board elected to quickly deliver the technologies and ser- me to the position of Chairman following the vices that customers require. At the same time, resignation of former UMC Chairman Robert we are fully prepared to use the considerable H.C. Tsao and former Vice Chairman John financial strength that we have accumulated Hsuan, who will continue to serve UMC in ad- over the years to fund aggressive research and 6 Letter to Shareholders 7 United Microelectronics Corporation | Annual Report 2005 development programs, expand production Strengthening Our Foundation capacity, and retain and hire the best people in Although overall industry conditions caused the industry. our financial performance to decline in 2005, we saw great progress on many fronts. As far We will continue to focus on our core op- as process technology is concerned, we have erations and further strengthen our foundry closed the gap that existed with our competi- service model. UMC has an excellent team, tion on 0.13-micron technology. Furthermore, and over the last two years we have made great the status of our 90-nanometer technology strides in many areas including the develop- is on par with our largest competitor. We are ment of advanced process technologies, im- also confident that our 65-nanometer prog- proved production efficiency, the expansion ress puts us at the forefront of the industry of our customer base, and the development of for this next generation technology, having intellectual property. I am extremely proud delivered functional 65-nanometer silicon to of the accomplishments of UMC’s world-class one customer in mid-2005. Later, we delivered team, and fully expect to see a positive impact successful first silicon to another customer for on our operating results in the near future. their 65-nanometer product that utilizes some of our most advanced process technologies, 8 Letter to Shareholders 9 United Microelectronics Corporation | Annual Report 2005 including triple gate oxide and 11 layers of cop- for new products from new customers.