Quidong Liu - CFO Jackson Hu - Chairman and CEO

Bhavin Shah - JP Morgan Randy Abrams - Credit Suisse

Welcome everyoneto UMC's 2008 Quarter One 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 instruction given at that time. [Operator Instructions]. For your information this conference call is now being broadcast live over the internet. Broadcast replay will be available within an hour after the conference is finished, please visit www.umc.com under the Investor Relations/investor events section. I would now like to introduce Mr. Qidong Liu, who is Chief Financial Officer of UMC. Mr. Liu, you may begin. Quidong Liu - Chief Financial Officer: Thank you and welcome everyone and thank you for joining our first quarter earnings conference call. We are hosting this conference call from Taipei and with me here are Dr. Jackson Hu, Chairman and CEO of UMC and Mr. Bowen Huang, Senior IR Manager. Dr. Hu will help to report our first quarter results. During today's conference call we will first review our financial results for the first quarter of 2008. Then Dr. Hu will provide an update for our business and forward-looking guidance followed late... lastly with Q&A session. Before we get started, I would like to remind you of UMC's Safe Harbor policy. i.e., certain statement made during the course of our discussion today may constitute forward-looking statements which 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 beyond the company's control. For these risks please refer to UMC's filing with the SEC in the U.S. and ROC Security Authority. Now, let me begin with the financial review for Q1 2008. Revenue was NT$24 billion, representing 13.1% quarter-over-quarter decrease from NT$27.62 billion in Q4 2007. And a 4.2% year-over-year increase from NT$23.03 billion in Q1 '07. Gross margin for the quarter was NT$3.58 billion or 14.9% of revenue, compared to NT$5.65 billion or 20.5% of Q4 2007 revenue. Operating profit was NT$190 million or 0.8% of revenue. This is compared to NT$1.33 billion or 4.8% of Q4 2007 revenue. Net income was NT$206 million in Q1 '08 compared to a net income of NT$1.36 billion in Q4 2007. EPS for the quarter was NT$0.02 and ADS was $0.003. You can look for more details within the financial data that accompany our press release today. Now, let me turn the call over to Jackson and he will provide you with the business update and outlook for the second quarter of 2008. Jackson, please. Jackson Hu - Chairman and Chief Executive Officer:: Thank you, Quidong. Hello everyone and welcome again to our conference call and thank you for joining us today. As always, we appreciate your interest in UMC. First of all, I would like to touch on the highlights and then provide further details on our performance and to the key activities impacting our business. Q1 was traditionally a slow season for the foundry industry due to inventory adjustments. Q1, 2008 added another net in variable that is the NT appreciation against U.S. dollars. We are glad to report that even during such a challenging situation UMC has managed to have its quarterly performance exceeding our original guidance. Wafer shipment was 12.4% down form Q4 2007. ASP increased by 2% and then we have a minus 3% of exchange its advantage. So if you must also read together you get 13.1% down in revenue from Q4. Our Q1 utilization was 73%. Gross margin was approximately 15% and operating margin was 0.8%. We are happy to see that the revenue contribution from 0.13 micron, 90-nanometer and 65-nanometer accounted for 58% of total revenue. Both 90-nanometer and 65-nanometer showed healthy growth at 30% and 7% respectively. In Q1, we started to see some effect with cost reduction measures that we have taken in last year. Loss due to currency exchange was NT$46 million, which is relatively insignificant considering UMC's business size. Moving into Q2 we noticed the pick up of orders and anticipate revenue growth of 5%. This was estimated using the exchange rate of NT$30.3 total wafer shipment will grow by 10% and ASP will drop by 2%. This is due to increasing volume of mature technology nodes. Overall utilization is expected to increase to 80% and 12-inch utilization is higher than average. Gross margin improve to approximately 20%. From application point of view, communication will be even stronger followed by consumers and then computer. Our leading technology customers continue to prepare for production of 65-nanometer. We therefore, expect a continuous increase in volume and revenues during the rest of the year. By the year end 65-nanometer contribution will be between 10% to 15% of total revenue. We are also working closely with early adopters of 45-nanometer and the 40-nanometer. Most of them will be in prototype development stage this year any may have a small production volumes near year end. Finally, we are developing 32-nanometer with customers as well. Besides logic [ph] process our collaboration with Elpida in improving the DRAM process is progressing well. Our goal is to develop the logistic process to broaden our technology offerings eventually. The details will be disclosed at a proper time later. Our CapEx plans for the year stays unchanged. In Q1, we have spent about $187 million. So, let me provide you with the guidance for the second quarter 2008. Wafer shipment to increase by approximately 10 points; Wafer ASP in U.S. dollars to decrease by approximately 2% points...2 percentage points; impact from currency fluctuations between minus 3% to minus 5% on revenues. Capacity utilization rate are approximately 80%. Profitability... gross profit margin is to be approximately 20% and communication segment is expected to be the strongest followed by the consumer and computer segments. 2008 CapEx budget is between $500 to $700 million. That is all from my report. Now I'd like to begin the Q&A session. Question And Answer

Thank you very much. [Operator Instructions]. And our first question comes form Pranab Sharma of Dallar Securities [ph]. Please go ahead and ask your question Pranab.

Thank you for taking my question. My first question is basically on your second quarter product mix. Could you give little bit of idea like how many percentage of your revenue are you expecting at 65 and 90-nanometer in second quarter? And how that is panning out with ASP, because you have given ASP decline guidance for second quarter? Jackson Hu - Chairman and Chief Executive Officer: Just a second please. And combining 65 and 90-nanometer, the contribution would be around the 35%.

Okay. Then how... why it's... why you see that ASP decline on second quarter? Jackson Hu - Chairman and Chief Executive Officer: It's because of the mix again, the volume for the matured technology nodes increase.

Okay. And secondly, could you also explain a bit about to your business model with Elpida, because you have two part of the business one is for DRAM related product and one is also technology licensing for foundry to Elpida. How it's going to benefit you on the long term. And in the DRAM business are you going to get similar type of returns whatever you are normally getting at logic operations? Jackson Hu - Chairman and Chief Executive Officer: First of all it's not proper to go into the detail of the business terms yet however we do have license fee or technology license and we also... we have an option to produce DRAM whenever we....if we like to.

Okay. And the last one is basically on the margin improvement on the second quarter. I think you have given a very decent improvement on the margin. Could you give what will be the depreciation on the second quarter and how many percentage point of the margin improvement has really come from cost cutting on the second quarter? Quidong Liu - Chief Financial Officer: Hi, Pranab. Depreciation for the quarter, from the first quarter of 2008 was around NT$9.22 billion. That's going to be the highest point of the whole year 2008. For the whole year 2008 we are looking for about 2.2% to 2.3% decline from that of 2007. And the whole quarterly depreciation is going to be trend down slightly on a quarterly basis throughout the rest of the year.

Okay. Yeah, the last question is the pricing on the 0.12 micron and 0.18 micron side. You have also seen some weakness on the 8-inch fab, TSMC has also seen some weakness under 8-inch fab utilization rate. How do you see the pricing at 0.18 micron in second/third quarter going forward? Jackson Hu - Chairman and Chief Executive Officer: Yeah, we don't see any meaningful job on...from 0.18 micron pricing.

Okay. So, it's a normal environment that's what you want to try to tell right? Jackson Hu - Chairman and Chief Executive Officer: Yeah. It's a pretty much a saturated.

Okay, thank you.

: Our next question comes from Bhavin Shah of JP Morgan. Bhavin, please go ahead and ask your question. Bhavin Shah - JP Morgan:: Yes. Quidong, you mentioned that depreciation will trend down through the year and now obviously you have an idea of CapEx for this year. So, how does the trend at least look for the early part of '09. You think depreciation continuous to fall or stabilize at year end levels any thoughts? Quidong Liu - Chief Financial Officer: The range of decline in '09 based upon today's CapEx budget is going to be greater than that of 2008. Bhavin Shah - JP Morgan: Right. Okay. And just on the response Dr. Hu, on Elpida's question. You mentioned that you have a license fee for the, license for the metal interconnect and is there any specific... you have an option to produce DRAM but would there be any sort of royalty or something to be paid in case you do excise that option? Jackson Hu - Chairman and Chief Executive Officer: I am not ready to get into the integrated [ph] details. But, it's a good arrangement for UMC. Bhavin Shah - JP Morgan: Right. And on 45-nanometer you mentioned that you might have small production by year end. What are the one or two most likely products that might be sort of bit ahead in terms of development with you on that front? Jackson Hu - Chairman and Chief Executive Officer: Okay. Yeah, let me give you a general and broad answer in this case that the applications that can embrace state of the art process technology, very few including GPUs and cell phones and high end consumer applications. Bhavin Shah - JP Morgan: Right. Okay, thank you.

There are currently no more questions in the queue. [Operator Instructions]. And we now have a question from Randy of Credit Suisse. Please go ahead. Randy Abrams - Credit Suisse: Yes, good evening. I wanted to ask a follow up on the gross margin to get to 20% even with depreciation following it implies pretty good savings and actually absolute costs going down. Maybe you can talk about some of the cost initiatives taking place and what's driving the big bounce aside from the depreciation again in second quarter? Jackson Hu - Chairman and Chief Executive Officer: Yeah, that's a good guess. Yeah we have taken cost reduction measures, multiple of them since last year and we started to see the possible [ph] since Q1 and that effect will continue. Randy Abrams - Credit Suisse: Okay. So to just think about it through like after second quarter at the base, do you expect an accelerated rate of cost reductions of that level where we could see margins start to get back towards mid 20s into the back half of the year. How do you see it progressing beyond second quarter? Jackson Hu - Chairman and Chief Executive Officer: I will have to wait for next quarter to answer your question, because as you know on the market is very dynamic and the product mix, the ASP mix can change. Randy Abrams - Credit Suisse: Okay. As I look at non-operating could you discuss what to expect for combination of dividends where equity sales and then interest go against the second quarter? Quidong Liu - Chief Financial Officer: Well we have several potential investments can be disposed in the open market and for the time being we don't have any concrete plan to do in larger scale. So you will have to follow our announcement after every tranche of our disposals. And that's pretty much I can answer for second quarter. As for cost reduction, I will say to see a significant jump in cost margin. This is much... as much as we can do on the cost saving side. And in order to see a bigger improvement, it had to come from better top line growth. Either the revenue should grow stronger in the second half in order to see a better profit margin. Randy Abrams - Credit Suisse: Okay. Andjust final question one of you can give an update on status of the relationship with Houjie [ph] and with the new government in Taiwan any chance for that the stake in Houjie [ph] back? Jackson Hu - Chairman and Chief Executive Officer: Yeah, unfortunately at this point we don't have anything new to report. And we are waiting for the new government to become operational after May 20. And then we...at a proper time we will approach the proper organizations and solicit help to address the Houjie issue. Randy Abrams - Credit Suisse: Okay, thanks a lot guys.

: There are currently no more questions in the queue. [Operator Instructions]. As there are no further questions we will now begin closing comments. Mr. Liu, please go ahead. Quidong Liu - Chief Financial Officer: Thank you very much. And that conclude our call today. Thanks for joining our conference call. If you have any further questions please do not hesitate to contact directly. And now back to you, operator.

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.