Chitung Liu, Chief Financial Officer Jackson Hu, Chairman and Chief Executive Officer

Shailesh Jaitly, Nomura Singapore Randy Abrams, Credit Suisse Pranab Sarmah, Daiwa Securities (David Wu?) Matt Gable, Wise Partners Ivan Goh, Dresdner Kleinwort Mark Fitzgerald, Bank of America Securities Mehdi Hosseini, FBR Satya Kumar, Credit Suisse

Operator instructions.: Chitung Liu, Chief Financial Officer: Thank you. Good morning everyone and thanks for joining us for a review of our 2006 Q2 results and a discussion regarding our strategy and outlook. With me here is Mr. Jackson Hu, UMC’s Chairman and CEO. During today’s call, we will discuss the following topics: our financial results for Q2, an update on our business and forward-looking guidance. We will then leave some time for Q&A. Before we get started, I would like to remind you of UMC's safe harbor policy. Please bear with me for a few seconds as I will take you through this. Certain statements made during the course of our discussion today may constitute forward-looking statements that are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond the company's control. For these risks, please refer to UMC's filing with the Security Authority in both the U.S. and the RRC. With that behind us, as you know from our press release issued earlier today, revenue for Q2 2006 was $25.75 billion, representing a 5.6% QoverQ increase from $24.38 billion in Q1 2006 and a 32.4% YoverY increase from the $19.44 billion in Q2 2005. Gross margin for the quarter was NT$5.17 billion, or 20.1% of our revenue. Compared to the NT$2.36 billion or 13.3% of Q1 2006 revenue, operating profit was NT$1.63 billion or 6.3% of revenue and it was much higher than the NT$35 million or 0.3% of Q1 2006 revenue. Improvement on our two 300mm fab utilization rate was the primary reason for the better than expected gross margin during Q2. Net income came in at NT$6.05 billion in Q2 2006, compared to a net income of NT$12.29 billion in Q1 2006. Earnings per ordinary share, or EPS for the quarter was NT$0.34. Earnings per ADS were US$0.053. This compared with Q1 2006 EPS of NT$0.67 and EPADS of US$0.0104. More details are included within the financial data that accompanies our press release this morning. I would like not to turn the call over to Jackson for a discussion of our business and an update on Q3 2006. Jackson Hu, Chairman and Chief Executive Officer: Thanks, Chitung, and welcome to everyone who has joined us on this call today. Very quickly, I would like to review the Q2 results again. Basically, the results of Q2 were in line with our earlier forecast. As per Chitung’s estimation, revenue reached NT$25.75 billion, which represents a 5.6% growth over Q1. ASP increased by 1%. Wafer shipments increased by 4%. We are also happy to report that the gross profit margin grew by seven percentage points. In terms of our market view, there has been a significant change in market conditions over the last three months. We have seen clear signs of higher inventory levels from some of our customers. However, inventory levels vary from application to application. For ICs relating to flat panel displays and digital TVs, overproduction from anticipation of high demand related to the World Cup has resulted in inventory buildup, which will take some time to digest. For PC-related applications, Q2 is traditionally slow, and although there is typically a pick-up in demand in Q3, there are signs that demand is being postponed as the market is still waiting for the release of new CPUs and operating systems. Recently, the two largest CPU providers have lowered prices and the industry is evidently looking for indications that this lower price will stimulate demand. For handset products, inventory levels are normal for the major brand-name providers, although there is inventory buildup at second-tier and non-brand name providers. Next, I would like to provide an update on our financial guidance for Q3. Based on our current business outlooks, management expectations for Q3 2006 performance area as follows. Wafer shipments are expected to increase by zero to two percentage points. Wafer ASP in US dollars is expected to increase by six to eight percentage points. The capacity utilization rate will be approximately 80%. As for profitability, operating profit margin will be approximately 10%. The percentage of revenues from 90-nanometer is expected to be over 20%. The breakdown among applications in terms of communication, PC, and consumer segments is expected to be similar to Q2. Finally, our 2006 capex budget remains unchanged at US$1 billion. The 65-nanometer technology node is progressing smoothly and is in the rollout stage. We believes UMC's success at 65-nanometer and 90-nanometer will accelerate its growth and improve profitability in the coming years. We are also working diligently on a 45-nanometer development with customers and are conducting research on SOI, or silicon-on-insulators. Overall, our performance for Q3 2006 is expected to represent a strong operation financial execution as we continue to further build a foundation for future growth, profitability, and the long-term shareholder value creation. Now I would like to turn the call back over to Chitung. Chitung?

Thank you Jackson and all of you again for your attendance. I will turn it over to the operator now and we will give you the Q&A instructions. Operator, please?

Operator instructions.: Q - Shailesh Jaitly, Nomura Singapore: Yes, hi. Thanks for taking my questions. Just wanted to just have some clarification on the inventories that you have highlighted, particularly starting with the handsets. You mentioned that you have seen some or you have heard of some inventories of the second tier on the non-brand makers, I believe it was the end market. Now, when it comes to the items like this, would it be fair to assume that the Tier 1 customers are still lacking (sense?), in the sense of shipments you are ordering and orders that have come only from the Tier 2 customers? A – Jackson Hu: There was a little breaking up on your question and I will try to answer as much as I understood you. If it’s not clear, please repeat part of your question. Basically, as I mentioned earlier, that we observed that the brand-name handset providers are doing well and they have reasonably low inventory. As far as the second tier or non-brand-name providers have their inventory. And using China as an example, China used to have low-end or entry-level handsets for the white label handsets. And since the brand-name providers have decided to enter the entry level in a big way, so they have been able to take some of the market share of some of the white label providers. So that is, for example, a clear indication of these non-brand-name companies are affected. Q - Shailesh Jaitly, Nomura Singapore: Sure. Thanks. In the China market, when you talk about the inventories, in your assessment, would it be possible for you to quantify as to what kind of inventories are there? Or if not quantification, if you could help provide as to when do you expect these inventories to clear off. A – Jackson Hu: It’s not proper for me to state that. It’s better for you to question the IP providers or even the handset providers. Q - Shailesh Jaitly, Nomura Singapore: Okay. Just one follow up on the LCD part. LCD drivers, as a proportion of your overall shipments, what was it in Q2 and how does it compare with Q1? A – Jackson Hu: In Q2 it was 10%. Q - Shailesh Jaitly, Nomura Singapore: 10%, thanks. And can you talk about… A – Jackson Hu: Q1 was 15. Q1 was 15%. Q - Shailesh Jaitly, Nomura Singapore: So 15%. And when you talk about the inventories here, are you seeing inventories permanently in the controller and demodulator ICs or are you seeing LCD driver inventories also in the TV space relatively at a high level? A – Jackson Hu: We also see some inventory for the LCD drivers.

Our next question will come from the line of Randy Abrams from Credit Suisse. Please proceed. Q - Randy Abrams, Credit Suisse: Yes. Good evening guys. I wanted to ask you about the end-market guidance you gave, that you have the same mix in Q3 as you had in Q2. Could you talk within that mix? Are there any applications that you’ve seen come back sooner or lagging more due to lingering inventory? A – Jackson Hu: Right now the situation is not that clear. Some of the customers actually are more optimistic about the situation and they felt the inventory correction could be as short as a couple of months, while other do not have such clear visibility. Q - Randy Abrams, Credit Suisse: Okay. And I wanted to ask on the ASPs, after the 6 to 8% balance in Q3, maybe talk about your prospects for continued ASP improvement. How much more leg room do you still have to get relative mix shift to leading edge that can drive that again in the following quarters? A – Jackson Hu: So what we can say is that we have more and more customers and more and more number of products going into production. And those customers and products are - I’m talking about the advanced technology nodes, such as 0.13 micron and the 90 nanometer. So as long as the demand stays reasonably strong, then we expect to see more high-end products in terms of a percentage. And that would help the ASP situation.

Our next question comes from the line of (Matt Gabell?) from Thomas Wise Partners. Please proceed. Q – (Matt Gabell?), Thomas Wise Partners: Hi. Thanks. Could you talk about the current wafer start environment? Have wafer starts leveled off… Hello?

We will have to move to the next one please. Technical difficulties.:

The next question will come from the line of Pranab Sarmah. Q – Pranab Sarmah, Daiwa Securities: I have a couple of first housekeeping questions. First of all on your guidance. What is the depreciation guidance for Q3? A - Chitung Liu: Depreciation, first of all, for the whole year will be about 7% lower than the previous year. This quarter we will see a linear decline. Q – Pranab Sarmah, Daiwa Securities: On Q£, your six fab is supposed to be fully depreciated. In that case you should be able to get about $1b benefit, right? A - Chitung Liu: Say that again please? Q – Pranab Sarmah, Daiwa Securities: The six fab will be fully depreciated by Q2, so your depreciation in Q3 should have gone by about $1b. A – Jackson Hu: No. No. Again, the whole depreciation charge for 2006 for UMC as a whole will be 7% less than 2005. And each quarter we will see a sequential decline for throughout the year. And just to recap about our total depreciation expenses for 2005, it was around $47 billion, if you include UMCi. Q – Pranab Sarmah, Daiwa Securities: Okay. And could you let us know like on Q3 what percentage of revenue will come from 130nanometer? A – Jackson Hu: It will be slightly higher than 32% in quarter two. Again, the whole target for UMC by year end, we expect to see 0.13 and below, including 90 and 65nm to be 50% of our total revenue. Q – Pranab Sarmah, Daiwa Securities: Okay. That is Q4 50% of revenue by 130 nanometer and below is that? A – Jackson Hu: Yes. But the year, it may not be the whole Q4. But certainly one of the three months in Q4. Q – Pranab Sarmah, Daiwa Securities: Okay. Then if you continue that trend, ideally you should improve your ASP in the fourth quarter as well? A – Jackson Hu: Hopefully. Q – Pranab Sarmah, Daiwa Securities: Hopefully. Okay. Thank you. And my next one is basically your operating expenses have gone up because of some (oxyl ethanol?). Is that to continue forever in going forward? A - Chitung Liu: In absolute dollar terms it should be similar to quarter two. Of course, R&D will be growing in absolute terms. But hopefully not faster than the revenue growth. So hopefully we can at least maintain the same percentage for R&D, while the other expenses should somewhat stay in a similar absolute amount. Q – Pranab Sarmah, Daiwa Securities: And my last question is on the 8 inch fab. I understand your 8 inch fab utilization has been pretty low at this point. And when do you think that it will probably turn back and what measures you have taken basically to reduce down the cost structure in 8 inch fab? A – Jackson Hu: I think as soon as the inventory correction improves, then the 8 inch loading will improve. As I mentioned earlier, some customers see the inventory correction period to be as short as two months. We did see some pick up in September from consumer products.

Our next question will come from the line of (David Wu?). Please proceed. Q - (David Wu?): Yes. Thank you for taking my call. I just wondered, since you have lead times for customer orders, how did – assume third quarter’s taken care of at this point, can you give us a little color on what kind of order patterns are you seeing for fourth quarter wafer delivery to your large OEMs? And you mentioned also that the flat panel – the TV business was – it had excess inventory that would take some time to clean out. Specifically on digital television, it seems that the LCD monitor type people are talking fairly optimistically about Q3 outlook, at least those that use some of the ones that use UMC as a foundry partner. And I was wondering specifically on HDTV. We are into the seasonal build. Do you see any signs that any excess inventory there is gone? Lastly, on the PC side, I assume that you sell to the chipset people. And the price reduction by both Intel and AMD was one week in the past. So if there’s any response to lower prices, we should see it now. Have you seen it from your customers’ orders, whether there’s any reaction to the long-anticipated big price cut a week ago? A – Jackson Hu: Okay, you asked several questions. First of all regarding the flat panel display. I think for digital TV the inventory situation, it’s too early to tell how quickly the correction has been. For monitor, it depends on the PC actually. When you talk about the monitors, probably due to the PCs and laptops. And that is related to your third question. And the information we’ve got is it’s a little too early to say whether the price cut has generated significant demand yet. I think it will take a little bit more time. Q - (David Wu?): Okay. What about the early read on orders for Q4 delivery from your OEM customers? A – Jackson Hu: It’s too early to talk about the Q4. I have learned not to make any forecasts beyond three months. Q - (David Wu?): Okay. But your lead times are such that customers are beginning to place some orders for Q4 delivery, right? A – Jackson Hu: Yes, but it’s still early in the quarter.

Our next question will again come from the line of Matt Gable from Wise Partners. Sir, please proceed. Q – Matt Gable, Wise Partners: I was just wondering if you could talk about the current wafer start environment. Have wafer starts now leveled off at a lower level or are they still declining? A - Chitung Liu: Wafer starts has leveled off or declining? You are making assumptions here? Q – Matt Gable, Wise Partners: No, I’m asking. Could you describe your current situation with your wafer starts? A – Jackson Hu: Wafer starts have been matching with the guidance that we have provided since the quarter. We are only at the beginning of August. And a lot of the wafer started will contribute to the Q3 revenues. So the situation looks quite normal.

Our next question will be a follow-up question from the line of Shailesh Jaitly from Nomura Securities. Proceed. Q - Shailesh Jaitly, Nomura Singapore: Yes. Thanks again for taking my question. Jackson, I just wanted to clarify on your previous guidance. On the last conference call you spoke about Q2. At that point of time you were relatively optimistic about Q3. Based on all the more qualitative statements what you made without quantifying the utilizations, firstly, I want to understand when you saw the inventories, when exactly were you surprised? Was it more towards the later part of the quarter? And the second part of the same question, what I wanted to understand, if in fact you have already seen quite sizable declines and you’re not expecting any pick up, have you seen any kind of declines on the handset side, given the inventories that you talked about, because your overall shipments are still expected to go up, yes? A – Jackson Hu: Yes. Let me answer your first question first. I think in the last quarterly conference that I was making a rosy forecast for Q3. And, indeed, the demand looked very, very strong at that point. Especially in the wireless communication segment, it was strong, pretty much across the board. And then, maybe after a month after the conference, then the situation started to change. Then what we observed is that the leaders and the brand-name leaders still hold on their demand, whereas the second tier and the non-brand suppliers dropped their demand for that. Okay? Yes. And the second question, can you repeat that a little bit? Q - Shailesh Jaitly, Nomura Singapore: Yes. What I was asking is the PC side you have already seen a decline. On the other segments, are you still seeing the wafer starts being reduced as you progressively move ahead, or are you seeing a certain amount of recovery? A – Jackson Hu: Yes. I think the question was similar to the wafer start question earlier that right now, all the wafers that we started at this time will contribute to the Q3 revenue. And therefore that situation looks quite normal. And there are a couple of customers that slightly modified up their demand on the consumer product side. That’s the situation we are seeing. Q - Shailesh Jaitly, Nomura Singapore: Which applications in the consumer space where you are seeing this demand recovery? A – Jackson Hu: On the LCD - driver related. Q - Shailesh Jaitly, Nomura Singapore: Wonderful. And my final question, if you could also help at least qualitatively explain the utilization improvements you have seen at UMCi, and how does it differ with your overall average utilizations for the Group? A – Jackson Hu: The UMCi’s utilization is very healthy. It’s more than 90% and in line with our expectation. We have more and more customers enter production in 0.13 micron and the 90 nanometer technology nodes at the UMCi.

And we have a question comes from the line of Ivan Goh from Dresdner Kleinwort. Please proceed. Q – Ivan Goh, Dresdner Kleinwort: Okay. I have three questions. First of all, can you give me the capacity growth in Q4 sequentially from Q3? A - Chitung Liu: For the whole year for 2006, we are talking about roughly 5% capacity increase from 2005. So you have the first three quarters and should be able to get the number for Q4. But it is like in between 1 to 2% sequentially. Q – Ivan Goh, Dresdner Kleinwort: Okay. I think a couple of quarters ago you said that most of your capex will be coming up in the second half. And right now you haven’t really changed your capex guidance for the full year, even though, as you yourself said, the market situation has changed significantly. How should we read into you holding onto your capex budget for the year? Is it because you think that we will be recovering very quickly or is it because you think there is no point in changing your equipment deliveries at all? A - Chitung Liu: Yes, first of all, the majority of our capex, if not all of them, is for 12 inch expansion. And the current inventory correction situation does not affect our advanced technology nodes. It affected the mature nodes more. Therefore the expansion continues. We do have more customers and more products in advanced nodes, in terms of 0.13 micron and the 90 nanometer, entering production. So we have customers waiting for those capacities. Q – Ivan Goh, Dresdner Kleinwort: Okay. And my second question is regards to your comment that by some time in the fourth quarter, about 50% of your sales will be for 0.13 micron and below. Can you break that up by 65nm, 90 nanometer, 0.13? Can you be more specific? A – Jackson Hu: Roughly, I think 0.13 micron would be 35%. And then 90 plus 65 will be another 25%. Q – Ivan Goh, Dresdner Kleinwort: And just a follow up to that. When do you think your 65nm will account for about 1% of your revenues? What do you think 65 nanometer will be by the middle of 2007? A – Jackson Hu: I think by the end of Q3, the revenue contribution from 65nm will exceed 1%. And as far as 2007 is concerned, it’s too early to tell.

We will now have a question coming from the line of Mark Fitzgerald from Bank of America Securities. Please proceed. Q – Mark Fitzgerald, Bank of America Securities: Just two short questions. One on tax rate here. Is there any input you can give us for the balance of the year for 2007? A - Chitung Liu: Yes. Because of the minimum tax in Taiwan, we are expecting to pay about 5 to 10 or 5 to 8% of net income as 2006 tax rate. Q – Mark Fitzgerald, Bank of America Securities: And is that the same assumption for 2007? A - Chitung Liu: We will gradually set up other ways to maybe net out at 10% over the course of the next three to five years. Q – Mark Fitzgerald, Bank of America Securities: Okay. And then just on the share count here, it’s down significantly. I assume that’s the buyback. Are you continuing to buy back stock? A - Chitung Liu: The share decline is due to the buyback and cancellation. We actually cancelled our 5.1% shares in Q2. And as for share buyback, we’re always quite flexible. And we just complete our 11th run of share buybacks not too long ago. So it’s always one of the options. Q – Mark Fitzgerald, Bank of America Securities: Is there any guidance for the share count for Q3? A - Chitung Liu: For the time being there is no change. We actually have provided the details and numbers of shares in our press release.

We now have a follow-up question coming from the line of Pranab Sarmah from Daiwa Securities. Please proceed. Q – Pranab Sarmah, Daiwa Securities: Thank you for taking the call. Could you give us a non-operating number for third quarter? What is the number you are looking at? A – Jackson Hu: It should be in a similar range as that in Q2. Q – Pranab Sarmah, Daiwa Securities: That excludes the disposal gain, or including the disposal gain? A – Jackson Hu: Everything altogether. Q – Pranab Sarmah, Daiwa Securities: So about 5 billion? A – Jackson Hu: Close to 5 billion, yes Q – Pranab Sarmah, Daiwa Securities: Then clarifications on the utilization rate on Q2. I think if I calculate it out, it appears to be about 78%. But your press says 80%. So you have some excess production? A - Chitung Liu: That’s always different. There’s a small difference between wafer shipped and wafer out. And we calculate our capacity utilization rate based upon wafer out. And the revenue number or the wafer number you can see was shipped. Q – Pranab Sarmah, Daiwa Securities: So the wafer out is now holding as inventory on your balance sheet? A - Chitung Liu: It could be some quarterly adjustment. It could be just the base of invoice. So 2% is really not that big. Q – Pranab Sarmah, Daiwa Securities: Okay. That’s fine. And regarding UMC Japan, do you have any thought whether you will be holding the shares or do you intend to divest in some point? A – Jackson Hu: There is no plan for diversification at this point. Q – Pranab Sarmah, Daiwa Securities: Okay. My last question is on 200mm versus 300mm. Maybe one of your competitors has said they have seen some of the order push up, mainly on the 300mm rather than 200mm. And whereas I have seen like in your case, as you are growing quite strongly at 300m. What is that going on within the industry? It’s something like you are gaining market share on the 300mm aggressively, or how do you read on the industry trend at this point? A – Jackson Hu: Well what I can say is because we have new customers entering production, with increasing number of products entering production in advanced nodes. So that’s why the impact to our 300mm is minimal or none. And whereas our 8 inch capacity are mainly for mature technology and for consumer products, a large percentage of those is for consumer products. And therefore the impact there is higher. Q – Pranab Sarmah, Daiwa Securities: Okay. On the 300mm, how long you think that your initial production ramp for the new production continues? And after that I think it has to come fully to order. A – Jackson Hu: It will continue for a long time because we do have new design wins and new customers.

We now have a question coming from the line of Mehdi Hosseini from FBR. Please proceed. Q – Mehdi Hosseini, FBR: My name’s actually Mehdi Hosseini. I had a couple of questions, more a follow up. When I look at the ASP track at UMC, you’ve done, at worst case, flat on a sequential basis over the past maybe three or four quarters. But, generally speaking, the ASP track has been pretty much in a better shape compared to your local competitors. So I do understand the new customer and 300mm ramp. But is there anything else that I’m missing here? That’s my first question. The second question, with your Q3 wafer shipment guidance of plus up to 3%, is there a sensitivity here that the flat represents a worst-case scenario? And if you could help me understand what goes into that very tight guidance trend. And then my third question has to do with your new customers, like ATI. When would you expect their manufacturing strategy change, now that we know they are going to be part of AMD? Thank you. A – Jackson Hu: Just a second please. Yes. First of all, regarding the ASP increase or the sharp increase, mainly because of the increase of advanced technology products. And because several customers become ready and therefore their order came in. And, as I mentioned earlier, that’s why our 300mm load is not affected. And regarding the volume or wafer out forecast. I think it is, flat would be the worst case, because pretty much we got all the orders in, otherwise the lead time would not allow them to take the products before the end of the quarter. And regarding your last question, the ATI situation. We were told by customers the AMD acquisition has no impact in near-term business for us in terms of the number of products in production or in design. It will stay the same. And, over time, we believe the change of the landscape due to this acquisition actually will give us more opportunity because, as you noticed, the computer segment used to be a weaker segment of UMC. And now we do have more 90 nanometer and even 80nm products entering production. Q – Mehdi Hosseini, FBR: If I may just have a follow up regarding the guidance for Q3. So if the flattish wafer shipment is worst-case scenario, does that imply that any sustainable high inventory into the month of August would impact Q4? Is it too late to change the wafer shipments planned for Q3? A – Jackson Hu: We have not been requested by any customers to hold the wafer shipment. And usually we don’t do that once the order comes in and wafers are manufactured. So I do not know how to answer your hypothetical question. Q – Mehdi Hosseini, FBR: Well, I was just trying to understand if the current slow environment were to sustain for another month or so, it seems to me that it is too late to make any changes to the Q3 wafer shipment, it would impact your Q4 shipment. Would that be a fair thinking? A – Jackson Hu: I don’t know how to comment either. As I said, we have not seen any customers asking us to push out the delivery. Q – Mehdi Hosseini, FBR: Sure. Sure. But if they were to do it, if they were to do it, it would impact Q4 at this point, or at this juncture in Q3? A – Jackson Hu: Yes, again that is a hypothetical question that I cannot comment on.

Operator instructions.: Q – Satya Kumar, Credit Suisse: Could you give us an estimate as to what your fourth-quarter capacity will be? A - Chitung Liu: It will be about 1 to 2% higher than quarter-three capacity. Q – Satya Kumar, Credit Suisse: I was just trying to reconcile the capex going into capacity growth. If I look at the capacity growth over the last three quarters or so, it has been in the range of 1 to 2%. And I was noticing that your capex in the back half of the year will be significantly higher than the first half of the year. Will the rate of capacity increase show up higher in Q1 of next year maybe? A - Chitung Liu: Well, the equivalent delivery schedule may not be tied to the cash payment schedule. So most of the cash payment will happen in the second half. But the equipment delivery schedule is somewhat different. We will try to have a steady capacity ramp throughout the year for 2006. Some of the installations may make the effective capacity only available until Q1 next year. Q – Satya Kumar, Credit Suisse: Okay. And one quick question here. Could you talk about your utilizations on 300mm versus the other platforms, as 300 utilization rate’s a lot higher, or in line with average? A – Jackson Hu: Yes, the situation is that our 6 inch fab is fully loaded. Our 8 inch fab, the average utilization is around 70%. And for 12 inch, the utilization average is 90%. A - Chitung Liu: That’s for the Q3, the coming quarter.

I would now like to turn the call over to Mr. Chitung Liu for closing remarks. Sir, please proceed.

Thank you. That concludes our call today and thanks again for joining. If you have any further questions, please do not hesitate to email or call directly. Operator, back to you.

Thank you. Ladies and gentlemen, thank you for joining our presentation today. You may now disconnect.