Bowen Huang - Head of Investor Relations Po Wen Yen - Chief Executive Officer Chi Tung Liu - Chief Financial Officer

Steven Pelayo - HSBC Szeho Ng - BNP Donald Lu - Goldman Sachs Steven Pelayo - HSBC Donald Lu - Goldman Sachs

Welcome everyone to UMC’s 2013 Q1 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. For your information, this conference call is now being broadcasted live over the internet. Webcast replay will be available within an hour after the conference is finished. Please visit our website, www.umc.com under the Investor Relations, Investor Events section. I would like to introduce Mr. Bowen Huang, Head of Investor Relations at UMC. Mr. Huang, you may begin.

Thank you and welcome to UMC’s conference call for the first quarter of 2013. With me today is the CEO of UMC, Mr. Po Wen Yen, 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 the 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 would now like to introduce UMC’s CFO, Mr. Chi Tung Liu to explain UMC’s first quarter 2013 business results.

Thank you, Bowen. For the first quarter of 2013, revenue was NT$27.78 billion, with gross margin at 16.2% and operating margin at 1.1%. The net income attributable to the shareholders of the parent was NT$6.59 billion and the earnings per ordinary shares were NT$0.52. The above is a short summary of UMC’s results for Q1 2013. More details are available in the report, which has been posted on our website. I will now turn the call over to Mr. Yen, CEO of UMC.

Okay. Thank you, Chi Tung. Good morning, good afternoon and good evening to everyone on the line. Firstly I would like to talk about UMC's first quarter operating results. UMC's overall first quarter operating results exceeded expectations. The Foundry segment posted revenues of NT$26.37 million, profit margin from foundry operations was 4.1% and the wafer shipment reached 1.125 million 8-inch equivalent wafers, bringing overall capacity utilization rate to 78%. Revenue contribution from 40nm and below technologies grew from 15% in 4Q 2012 to 18% this quarter. The New Business segment recorded NT$1.44 billion in revenue with operating loss of NT$0.79 billion. Losses mainly came from the solar subsidiaries as competition intensified across the industry. As part of our long-term commitment to customers, we have continued to dedicate resources toward R&D and capacity expansion for 28nm and below technologies. We are also developing specialty technologies that cover a wide range of geometries to provide more comprehensive solutions, demonstrating our flexible approach to accommodate different customer business models. Recently, we jointly collaborated with a leading NOR flash solution provider, Spansion, to deliver a System-on-Chip (SoC) platform on UMC's high-performance 40nm process. Leveraging the core expertise of the R&D, we are committed to develop solid partnerships by offering flexible, cost effective and innovative technologies to customers in more diversified market segments. Following several months of industry -- inventory correction in the semiconductor market, demand has stabilized. With the communication sector, driving increasing demand, we anticipate 2Q foundry operating results to improve with wafer shipments projected to exceed 10% growth rate. In the meantime, while we race ahead with R&D efforts and capacity expansion, management's priority is also focused on maintaining shareholders' interest. Considering the overall financial health and long term capital needs of the company, the Board of Directors has proposed for shareholders' approval a cash dividend payout of NT$0.40 per share, which constitutes about 60% cash dividend payout ratio. Looking forward, we will sustain our efforts toward improving operating results solidifying UMC's profitability and maintaining business growth to maximize benefits to shareholders and customers. Now let me provide you with guidance for the second quarter of 2013. For the foundry segment, the wafer shipment I just mentioned was around 12% to 14% increase. For foundry segment, the ASP in US$ will remain flat. For foundry segment profitability will be around low single digit percentage operating margin. The foundry segment capacity utilization will be around low 80% range. Guidance to New Business segment, revenue to be approximately NT$1.5 billion and operating loss will be around NT$800 million. That concludes my comments. We are now ready for questions. Operator, please open the lines up. Thanks.

(Operator instructions) Your first question comes from Steven Pelayo from HSBC. Please ask your question. Steven Pelayo – HSBC: Yes, if we can focus on margins, your guidance for the second quarter low single digits for foundry margin, operating margins, that's a lower margin than what you were doing a year ago on lower revenues but a similar utilization rate. So can you kind of itemize what are the drags that are pulling down your gross margin despite higher revenues and similar utilization rates? Your gross and operating margins and specifically I am very anxious to then how -- much of the margin pressure is coming at the gross line versus the operating line as well, thank you?

Yes Steven, there are two one-off events in quarter two may likely impact our operating margins. First of all, we will have some early win cost associated with 28nm development, so high expenses and some of the R&D wafers, those expenses will mostly happen in quarter two and secondly there will also be some liquidation expenses caused by UMCJ's closing. Although it used to be under non-operating line but after IFRS everything will be on the operating level. So those two are the main one-off events and for the 20nm related cost, we estimate it should be between NT$500 million to NT$1 billion and as for the possible UMCJ liquidation cost, we don’t have any estimate for now but it may just happen, depends on how quickly we can liquidate the operation. Steven Pelayo – HSBC: Okay. Then could you may be talk a little bit on a consolidated basis as you look at the second quarter, what type of gross margins you are going to have because it sounds like a lot of charges are going to be seen in the OpEx line and so I just want to make sure I understand on a consolidated basis I view that's more of a normalized number and how that runs out going into the second half of the year.

For us, we can only really give guidance on the foundry segment, which is looking for a 12% to 14% quarter-over-quarter shipment growth with flat ASP in US dollars. So that should give you a rough idea about how our foundry revenue is going to be in the second quarter and on top of that, we also provide guidance on our new business segment, which is mainly composed of solar business, which unfortunately will be similar situation like first quarter, which is about NT$1.5 billion in topline and operating loss is about NT$800 million. So altogether coupled with our low single digit guidance on foundry [ON], that should give you a full picture of what the consolidated number looks like. Steven Pelayo – HSBC: It gives me some picture of what it looks like at the operating profit line, but I am -- once again, I am a little unclear what the moving parts are, what's in OpEx and what's in gross margin, can you just talk about the foundry only specific gross margin for the second quarter then, that will be my last question?

It will be around 19%. Steven Pelayo – HSBC: Okay. Great. Thank you. I'll get back in the queue.

Thanks.

Your next question comes from Szeho Ng from BNP. Please ask your question. Szeho Ng – BNP: Hi. Good evening. With regards to the non-foundry business what are you aspiring to do to reduce the loss and improve the profitability?

This is mostly impacted by the global solar business demand-supply and which has been in difficult position for quite a few quarters already. And what we've been doing for the last two or three quarter is we have stopped all the capacity expansion related CapEx and putting all resources on driving the efficiencies and also looking for major acquisition opportunities externally. So before we can really reach any viable solutions, all we can do is really to cut down the cost, try to reach cash breakeven as early as possible. As a matter of fact, we should see some kind of improvement in the third quarter based upon the current forecast for the solar related business, but for the second quarter it will still be in similar position of that in quarter one. Szeho Ng – BNP: I see. Okay, and second question, is that much utilization difference between your 8-inch and [target operations].

Yes, so which quarter you are asking about? Szeho Ng – BNP: About Q2, yes.

Yes our Q2 8-inch is around 89% utilization rates and 12-inch is 28%. Szeho Ng – BNP: Okay. All right. Okay. Thank you very much.

Thank you.

Your next question comes from Donald Lu from Goldman Sachs. Please ask your question. Donald Lu - Goldman Sachs: Okay. Good evening. Yes first to follow-up on the last question, why is that you just said 12-inch utilization right now is only 39% in the second quarter, I mean, if that's true, what is causing such a low utilization?

Sorry, Donald, it should be high 70%, so between 70% to 80%.

And 12-inch higher [EBIT]. Donald Lu - Goldman Sachs: Okay. 8-inch is 89%, 12-inch is high 80%.

No, 12-inch is high 70% and 8-inch is high 80%. Donald Lu - Goldman Sachs: Got it. Thank you. Yes, my first question is on the [Hajien] investment gain, will there be any more in the second quarter or is that just a one-time event?

It's a one-off event. Donald Lu - Goldman Sachs: One-off event. Okay. Great, and also for the solar given this for our modelling purpose, what should be modelled revenue? Would that be gradual declines into your non-expanding capacity and also profit margin like you said in Q3, there might be a gradual improvement?

We will give quarter-by-quarter guidance for now, but like I said capacity times ASP, so their price has been stabilized and even rebound a little bit, so for quarter three and quarter four, you may have to consult with your solar analyst. For the time being, we will only give a quarter-by-quarter guidance. Donald Lu - Goldman Sachs: Okay. So but -- and but you are not going to expand capacity anymore?

Under current circumstance, no. Donald Lu - Goldman Sachs: Okay. My next question is on just overall strategy, I think in the last year what happened in the global foundry seemed to be referred you had in the 28nm as the second source foundry and what's the game plan now? Will UMC be more focused return or -- and you are going to try to catch up with global foundry? I think what I am trying to get is that the CapEx also may be you can give us some color in terms of the CapEx to sell or will that continue to decline or is that may be just opportunistically it can go out?

Yes. Thank you for your question and yes, we are now increasing our R&D resources and also our CapEx on 28nm high-K metal gate versions processes development. So you are going to see one of the two project company provide the gate loss high-K metal gate process platforms. So may be the -- we are still under our development stage at this moment and we see our progress on -- generally speaking it's on track. So -- and what is your... Donald Lu - Goldman Sachs: Should we expect CapEx to self opportunistically can still go up for UMC?

We were aligned with those capacity [measures] with our customer's request. So, so far we already built around 10-K from that capacity and again on the technologies. So going forward we will continue with customers and also UMC, we will follow UMC's progress technology development milestone and so we will continue -- so then we will continue beyond the capacity expansion to meet our customer's need. Donald Lu - Goldman Sachs: Great. Thank you. I'll go back to the queue. Thanks.

Your next question comes from Steven Pelayo from HSBC. Please ask your question. Steven Pelayo - HSBC: Yes, just a couple of quick ones here. 20nm, how do you expect that to track throughout the year, any targets as a percentage of mix by the end of the year, you just said, you had 10,000 wafer for a month of capacity built, I am curious what kind of utilization rates you then have at 28nm node as well. So an update on 28nm please.

Yes, our 28nm we believe -- we feel based on the customer's inputs and for most of the customers 28nm technology in terms of the percentage of this cost and device performance gain is not great compared with the previous technology node. So there are not many customers as in the foundry for 28nm technology and -- but a few customers or for those for they were trying to market products they would engage 20nm, but I believe this has not in UMC's technology milestone and so we are still looking for any customers to pay our request on 20nm and their 20nm technology milestone is in line with UMC's technology milestone and we will continue to explore this opportunity, but for now we are focused on 28nm and 40nm technology.

So Steven you are asking 28nm or 20nm? Steven Pelayo - HSBC: No, I had asked about 28nm, apologies if I missed out, so the 28nm your targets second quarter and end of the year as a percentage of mix or total wafers, any update on 28nm?

Yes, so 28nm we will still follow the guidance we provided last quarter, which is hopefully by the year end. We will see a low single digit coming from 28nm technology led by poly-SiON technology first. Steven Pelayo - HSBC: Okay. And a quick final question for me, a kind of housekeeping one. You talked about solar becoming less of a drag in the second half of the year, is that something where you actually think you can get it to breakeven by the end of this year and then my last question is just can you help me understand with all the movement going on in the operating expense line in the second quarter, what's a more normalized run rate of OpEx as I look into the second half of the year, so apart from second half of the year in solar drag and then operating expenses. Thank you.

Now for solar, it's really difficult to predict. We are only seeing the pricing is coming up a little bit, so that's why coupled with our efficiency improvement we expect to see better performance in the third quarter, but we won't be that aggressive to predict operative and in solar right now. We can only say quarter two will be similar to that of quarter one and quarter three should be supposedly a better performance coming out of our solar business. And your second question... Steven Pelayo - HSBC: Regarding the operating expenses and I think however we have in quarter one on your financial statement let’s say about NT$4.5 billion to NT$5 billion at max should be the range you, sorry on UMC.

Sorry NT$4.2 billion is the number for quarter one and I think you give a 10% up and down range should be a number for quarter two. Steven Pelayo - HSBC: But definitely a more normalized basis, so could you mention in the second quarter you have these liquidation issues in 28nm early ramp up.

That will be showed in the results, that's not included in the number I just quote you. Steven Pelayo - HSBC: Okay. All right, understood. Thank you very much.

Thank you.

Your next question comes from (inaudible). Please ask your question.

Great. Thanks for taking my question. May be first could you talk a little bit more about how you are thinking about R&D costs for the rest of the year? I was a little surprised that R&D spending was down quarter-over-quarter and only up a little bit year-over-year given how much you talk about investing in R&D for 28nm, should we think about R&D growing meaningfully from here over the course of the rest of the year?

Well first of all if you look at the consolidated number you would probably give you that -- give you the conclusion that we actually have lower R&D as a total percentage of revenue. However, if you only look at foundry alone, we actually still have more than 9% of our revenue spend on R&D and 9% to 10% is still the guideline generally we have to develop our technology roadmap.

Okay. Okay. Great. Can you talk a little bit about as we see the foundry business recover in Q2, can you talk about where you think customer inventory levels would be exiting Q2 and how much visibility you have into Q3 at this point?

So as we mentioned in our opening speech, we do believe the overall industry, the inventory level has come down over the course of first few weeks and that's the reason, one of the main reason why we are seeing stronger shipment in the second quarter. So we would like to say that industry inventory level at this moment should be in the normal range. Now our visibility normally is about two to three months and that's the current visibility we have.

Are you generally thinking that the business, the foundry business will grow again sequentially in Q3 or it's too early to say?

Yes, yes. It will continue to grow through the Q3.

Okay. Okay. Thank you.

Thank you.

(Operator instructions) Your next question comes from Donald Lu from Goldman Sachs. Please ask your question. Donald Lu - Goldman Sachs: Yes. I have a question on the solar business. Who are the minority shareholders for the business and also Chi Tung just mentioned that you are looking for M&A opportunity, you are obviously looking to both to buy the complete or the rest of the stake or if you obviously want to sell the whole solar business to someone else?

The minority shareholder varies company to company, for example our [AED] ventures, the other shareholder is [AIPTEK] and for many of the solar business their minority shareholders are our engineering teams. So it varies. As for the M&A opportunity of course no one can really predict or frame that. We are just looking for any methodology or possible ways to enhance the scale of economy or the competitiveness and then it looks like given what happened in the industry is one of the most likely solution as well. Donald Lu - Goldman Sachs: Yes, when I look at more on the demand side, can you tell us like in the second quarter you said communications is strong is up driven by tablet and smartphone and in terms of product is that more processor or LCD drivers and also how about other applications, that are trending in the second quarter. Thank you.

Yes, our Q2 the demand is mainly from actually across the sectors including the consumer DTV set-top box and how management see and sorry in communications sector, baseband and WiFi and in computer sector, it's touch controllers and large display interface IC yes. Donald Lu - Goldman Sachs: Got it. Thank you.

You're welcome.

Your last question comes from Steven Pelayo from HSBC. Please ask your question. Steven Pelayo - HSBC: Sorry, I just muted there, sorry. Can we have an update on customer concentrations? I guess as you look into the first and second quarter, a number of customers that, I don’t know, what's the top five represents, the number of customers over 10% of revenues each, some details on concentration?

Yes, the top 10 customer has occupied UMC's around 60% to 70% total revenue... Steven Pelayo - HSBC: And may be top five and how many customer are about 10% of revenue?

Yes, there is only one customer that's in the 10% revenue and the top five is around most of them located around the 5% to 10% range. Steven Pelayo - HSBC: Okay. And then may be just some more housekeeping ones. The tax rate expectations for this year and as you look into the second quarter the non-operating gains are always kind of surprise us every quarter, do you have any visibility on that line going into the second quarter?

Not so much. I expect it in the second quarter for non operating line, not much activity there and tax rate should be in between 15% to 20% this year. Steven Pelayo - HSBC: 20%, okay. Last question is just -- you talked about pricing actually relative stable. I think there has been some concern out there that SMIC getting more aggressive, GLOBALFOUNDRIES getting aggressive as well, that there will be more pricing pressures going on, is pricing stable for you because of just mix improvement or can you talk a little bit about apples-to-apples pricing and as you enter this new year, has there been pricing pressures given in more intense competitive environment.

Our guidance is flat in US dollars in the second quarter. Now of course it's a combination of mix improvement and also some nominal price decline and for us either one are relatively minor in second quarter. Steven Pelayo - HSBC: Okay. Thank you.

Thank you.

I would now like to hand the time back to today's presenter, Mr. Chi Tung Liu. Please continue.

Thank you. We would also like to take the opportunity to announce that our earnings conference call the schedule will be changed going forward due to the integration of our local earnings conference call and the evening international conference call. The call details will be send out through our normal email notification channel. So please feel free to contact us directly if you have any additional questions. Operator, back to you.

Ladies and gentlemen, that concludes our conference for today. 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. Goodbye.