Richard Yu - Head, IR Shih-Wei Sun - CEO Chi-Tung Liu - CFO

Aaron Husock - Lanexa Global Mahesh Sanganeria - RBC Capital Markets Pranab Sarmah - Daiwa Capital Markets

Welcome everyone to UMC's 2011 Q1 earnings conference call. (Operator Instructions) I would like to introduce Mr. Richard Yu, Head of Investor Relations at UMC.

Thank you, and welcome to UMC's conference call for the first quarter of 2011. With me today is the CEO of UMC, Dr. Shih-Wei Sun; and the CFO, Mr. Chi-Tung Liu. During this conference we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements 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 filings with the SEC in the U.S. and the ROC Securities authorities. I'd now like to introduce UMC's CFO, Mr. Chi-Tung Liu to explain Q1 2011's business results. Chi-Tung Liu: Thank you, Richard. For the first quarter of 2011, revenue was NT$28.12 billion, a 10.2% quarter-over-quarter decrease from NT$31.32 billion in Q4 2010, and a 5.3% year-over-year increase from NT$26.72 billion in Q1 2010. Gross margin was 27.5%, operating margin was 15.8%, net income was NT$4.48 billion, and earnings per ordinary shares were NT$0.36. Above, there is a short summary for the results on Q1, 2011. More details are available in the quarterly report, which has been posted on our website. I would now turn the call over to Dr. Sun. Shih-Wei Sun: Thanks, Chi-Tung. In Q1 2011, wafer shipments reached 1.12 million, 8-inch equivalent wafers. Capacity utilization was 90% with revenue in line with projection. For Q2, we have tempered our expectations for revenue and profit, since more time is needed to accurately assess worldwide semiconductor demand due to Japan's March 11 earthquake and its impact on the global supply chain. With regard to UMCs whole operation, the company's supply of raw materials and equipment components remained secure, while production at our UMCJ factory in Tateyama, Japan, recovered in minimum time. Following the quake, we promptly allocated resources to support customers' demands, while also assisting suppliers and partners that sustained earthquake damage which needed materials and supplies to help accelerate supply chain recovery. The next several quarters involve several uncertainties, such as the schedule for supply chain recovery, inflation in emerging markets, European sovereign debt, and exit of the U.S. quantitative easing program. These factors may potentially impact the global economy, as well as UMCs performance in the second half of the year. Nevertheless, UMC remains optimistic about mid to long-term foundry growth and will proceed rationally with financial discipline. To ensure our core competitiveness, the company is moving forward as planned with R&D and capacity expansion for advanced technologies. Revenue contribution from UMCs volume production 40-nanometer technology is expected to continue growing in the second half of 2011. 28-nanometer R&D collaboration with customers is also progressing smoothly and is scheduled for pilot production by mid-year. To maintain favorable ROE, the Board of Directors has proposed for shareholder approval a cash dividend payout of NT$1.12 per share. Going forward, we will further improve technology and service quality to enhance the company's performance for the maximum benefit of customers, shareholders, and UMC. Now let me provide you with the guidance for the second quarter of 2011. Wafer shipments and ASP will remain flat. Capacity utilization will be in the mid 80% range. Gross margin will be in the low to mid 20% range. The consumer and the computer segments will outpace the communication sector. That concludes my comments. We are now ready for questions. Operator, please open the lines up for questions.

(Operator Instructions) Your first question comes from the line of Mehdi Hosseini of Susquehanna International. Mehdi Hosseini - Susquehanna International: Regarding the updated Q2 guidance, how should we interpret that? Does that mean that some of that wafer shipment is being pushed from Q2 into Q3, and would that make Q3 better than seasonal pattern? And the second question has to do with the CapEx. Given the change in wafer shipment pattern, does that have any impact on the overall CapEx budget for this year? Chi-Tung Liu: I will answer the latter question first. CapEx stays the same, $1.8 billion, and the CapEx is longer range arrangement for our advanced technology commitment and expansion. In the past two years actually, we have been relatively disciplined in our CapEx, and it's in line with our customer requirements especially in the 42 and 28-nanomenter requirements down the road. Your earlier question was about the Q2 result. Now, this is clearly just our Q2 guidance. And there are certainly some factors about Q3. Sorry, your question was about the push-out. We are not considering any push-out, and we are not giving guidance for Q3 either. Mehdi Hosseini - Susquehanna International: Right, but qualitatively, Q3 could potentially turn out to be better than seasonal, especially with the build-up of back-to-school and holiday season after that. So directionally, with the lower base in Q2, Q3 mathematically looks better than seasonal. Is that the right way of thinking about it? Chi-Tung Liu: That's why in our description earlier, after the Japanese earthquake the uncertainty becomes much higher. And we need approximately one more month to clarify the demand situation. And after the earthquake, certain customers, they are putting in orders to build more inventory, and are concerned about the shortage of components. On the other hand, some other customers, they are stepping on to the brakes, worried about the end system level product ship-out being delayed due to the shortage of key components. So it's a very kind of a complicated situation at this moment. Also I mentioned earlier about the inflation situation in the emerging market and the European sovereign debt. And actually you have the US quantitative easing programs. So these are all creating uncertainties down the road. So we are trying to be on the conservative side. And we need about one more month to see a better situation in the second half. Mehdi Hosseini - Susquehanna International: And just back to CapEx very quickly. Is that equally distributed throughout the year or is that front- end loaded? Chi-Tung Liu: For this year, the capacity release is front-end loaded.

And your next question comes from the line of Randy Abrams of Credit Suisse. Randy Abrams - Credit Suisse: I wanted another try at what you are seeing for the flat guidance for second quarter. And I guess, within that comps will be declining. Could you maybe talk a bit more about, I guess the customers that are quishing out or who are delaying orders, how much of that is slowing demand or inventory-related? And is any part of that a supply issue? Or I guess from what you can assess today what you are seeing? Shih-Wei Sun: I guess you meant the supply issue from the earthquake? Randy Abrams - Credit Suisse: Yes, from the earthquake. Shih-Wei Sun: So for us, we have been managing the supply side very well. The silicon wafers, the metal targets, resist masks and chemicals, they are all well managed. We don't have any material impact from the supply side. So the flat guidance is mainly reflecting the added certainty down the road. And as I mentioned earlier, after the earthquake, the inventory situation in the supply chain, we felt they are being shifted; some are more aggressively adding inventory, some are really concerned, trying to drain the inventory. So it's a more complicated situation. We are still trying to understand more clearly. And we need about one more month to see a better picture for the second half. Randy Abrams - Credit Suisse: And maybe on more UMC-specific, if you look at 40-nanometer, how quickly do you see that ramping through the year? And if you can maybe look out to the next node, some of the applications like graphics or PLDs, do you see any potential to come back in as second source for some of that business as the nodes mature? Shih-Wei Sun: So in general, for the 28-nanometer engagement, we are adopting a very customer-driven and trying to lower customers' and engagement barrier. So they are pretty good. 40-nanometer, we are still targeting to reach 10% of our revenue in the second half of this year. 28-nanometer, we are scheduled to have a customer product pilot around Q3 this year. Certainly they include certain application process and other applications. As far as multi-sourcing, we are having a great position. For example, in 28-nanometer high k/metal gate, we are adopting (K-Labs), the high k/metal gate approach, which is very popular and aligned with mainstream logic technology. Randy Abrams - Credit Suisse: I think there was some press about this salary increases around 7%. Should we start to assume OpEx, or how do you see R&D and SG&A tracking over the next few quarters and should we start seeing labor cost rising at a faster pace? Chi-Tung Liu: Well, the labor cost increase happen every year, and from a percentage of cost of goods sold, OpEx point of view, it's really not that significant. So I think the main factor still will be on our depreciation this year. And depreciation, as we discussed before, we expect to see no more than 10% overall depreciation expenses increase this year, whereas the pickup increase maybe happen in quarter Q2.

Your next question comes from the line of Aaron Husock of Lanexa Global. Aaron Husock - Lanexa Global: Can you talk a little bit more about ASPs? What gives you confidence that ASPs should hold flat sequentially in Q2 after declining in Q1, especially given how it seems like 65-nanometer pricing has gotten a lot more aggressive in the market. Chi-Tung Liu: So ASP is mostly a factor of our product and technology mix quarter after quarter. So far, as you know the Q1 situation, usually at the beginning of the year, usually we have some adjustment for the ASP itself. We've seen that technology. But overall speaking, we are also trying very hard to improve and enrich our technology and the product mix. That's how it's balancing all the ASP. Aaron Husock - Lanexa Global: Can you talk a little bit more about 65-nanometer pricing in general? Are you seeing an unusual level of aggressiveness from some of your competitors there? Chi-Tung Liu: Again the pricing is negotiated out case-by-case. And in the long run, I don't see any major difference. Again the pricing, usually when we discuss with our customer, we will on a roadmap kind of basis or more on a long range instead of stock market kind of deals. Aaron Husock - Lanexa Global: And just following up on an earlier question, I mean not looking across the goods sold, but just looking at your operating expenses, R&D, SG&A, how should we be thinking about operating expenses in Q2? Chi-Tung Liu: For the coming quarter, the June quarter, we expect to see a few percentage increase in operating expenses due to the factor of salary increase we just highlighted, as well as summer tariff for electricity, which will have become effective in June.

And your next question comes from the line of Mahesh Sanganeria of RBC Capital Markets. Mahesh Sanganeria - RBC Capital Markets: You mentioned that the response to the Japan earthquake has been that some customers are pushing out and some customers are pulling in. Can you talk a little bit about which verticals or which segment or which markets you are seeing these trends as to who is pushing out? I mean, Broadcom yesterday talked about weakness in the handset and smartphone market. So if you can give us some color that will be helpful. Shih-Wei Sun: I really cannot talk about any specific customers; it's really depending on customers', the position in the supply chain. And also, for the different applications, if they are closer to the end or it's on the upper stream. So it really varies a lot, even customers' inventory situation; some customers' inventory are actually dropping, some are increasing. So overall speaking, Q1 and Q4, if you average everything out, it's similar, the inventory level. But I think, still the other global macroeconomy determines the overall final demand of the semiconductor business. Mahesh Sanganeria - RBC Capital Markets: Is it fair to say that in general the handset and tablets you're probably seeing some push-out and on the PC side you are seeing some pull-in? Shih-Wei Sun: I cannot make this assertion at this moment. Actually its changing so fast, and PC was a little bit weak, but now we are seeing some strengths. So it's changing very fast, very dynamic. Mahesh Sanganeria - RBC Capital Markets: And one more quickly. If you can give us some color on your utilization, I am not looking for a precise number, by technology node, is it mostly 40-nanometer high utilization and 90 lower? Shih-Wei Sun: In general, 8-inch utilization is better than 12-inch. We are adding so much capacity in Q2. Total UMC, we adding over 5% capacity in Q2, mostly 12-inch and advanced capacity. But in the meantime, our engagement of 40 and 20 are very good if compared with past nodes. So overall speaking, that's the situation.

(Operator Instructions) Your next question comes from the line of Pranab Sarmah of Daiwa Capital Markets. Pranab Sarmah - Daiwa Capital Markets: My first question is on spare parts of equipment. Since some of the spare parts to come from Japan, do you think any bottleneck may happen if some of the spare parts for your existing equipment doesn't reach some time, or you think that your spare parts supply is unsecured? Shih-Wei Sun: Our spare parts and the raw material side, at this moment they are all secure pretty much through the year, so there is no major issue. I mentioned raw materials earlier. For increments, we do have some Japanese supplier in the earthquake region. But its just I think mainly due to the transportation right after the earthquake, but those delays are well within one month. So it's very much manageable at this moment. Pranab Sarmah - Daiwa Capital Markets: Then second one is, could you give some color on the linearity on the second quarter shipment? Shih-Wei Sun: It's about flat. Pranab Sarmah - Daiwa Capital Markets: Do you have any plan to push up any of that capacity expansion on second half of this year? Shih-Wei Sun: No, not at this moment. And our capacity expenditures in the past three years, I think we are on the disciplined side. And our mid to long-term demand rather, we need to take this good opportunity to actually accelerate R&D, move forward on the advanced capacity deployment. Pranab Sarmah - Daiwa Capital Markets: And my last question is on He Jian. I think you have increased price. Could you elaborate a bit like what type of balancing metrics you have used to increase the offer? Chi-Tung Liu: We did increase the price. There are two class of He Jian shares, Class A and Class B. And the original combination we hoped to get was 50% Class A, and 50% Class B, and that all added up will be around US$87 million. But Class A shares are currently under restriction by He Jian's Board to be transferred. So looks like if the He Jian Board did not change the rule, we can only buy Class B for now at this time. And Class B has higher nominal price and higher cost. So we may have to increase the ceiling if we also want to buy up to 70% of Class B shares only. But the total value we will pay eventually for 100% of the He Jian shares remain unchanged. Just we buy the mix of Class A and Class B this time will be pretty much all class B only.

There are no further questions at this time, and I'll hand it back over to Mr. Richard Yu.

Thank you for your interest in UMC. That pretty much concludes our call today. Please feel free to contact us directly if you have any additional questions.

Thank you for your participation in UMC's conference. There will be a webcast replay within an hour. Please visit www.umc.com under the Investor Relations/Investor Events section. You may now disconnect. Good bye.