Chitung Liu - CFO Shih-Wei Sun - CEO Steven Pelayo - HSBC J.J. Park of JPMorgan

Randy Abrams - Credit Suisse Pranab Sharma - Daiwa Securities Emily Liu - Arete Research Aaron Husock - Lanexa Global

Welcome everyone to UMC 2010 Quarter Two Earnings Conference Call. All lines have been placed on mute to prevent any 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 being broadcast 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 Relation, Investor Events section. I would now like to introduce Mr. Chitung Liu, CFO of UMC. Mr. Liu you may begin your conference.

Thank you and welcome to UMC’s conference call for the second quarter of 2010. With me today is the CEO of UMC Dr. Shih-Wei Sun. 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 company’s control. For these risks please refer to UMC’s filing with the SEC in the US and the ROC security authorities For the second quarter of 2010, the capacity utilization rate was (full) with shipment growing to a record 1156 thousand eight-inch equivalent wafers. Revenue increased 11.3% quarter-over-quarter to NT$29.75 billion from NT$26.72 billion in Q1 2010, an increase of 31.5% year-over-year from NT$22.63 billion in quarter two ’09. Gross margin was 29.6%, operating margin was 18.3%, net income was NT$5.27 billion and earnings per ordinary shares were NT $0.42, earnings per ADS were US $0.065. Above is a short show summary for the results in quarter two 2010. 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 Chitung. Good morning, good afternoon and good evening. Thank you all for joining us today. As always we appreciate your interest in UMC. I will start with a brief summary of UMC’s 2010 second quarter operating results and share with you our general operating outlook. After that I will provide you with the guidance for the third quarter of 2010. We will then have our Q&A session to answer your questions. Okay let’s now get it started. For Q2 revenue exceeded expectations due to UMC’s accelerated ramp up of advanced process capacity and optimization of a product mix. Revenue contribution from 65 nanometer and below products grew more than 50% compared to the previous quarter, with 40 nanometer output reaching 3% of the revenue. As such UMC achieved a five year high in operating income and then annualized return on stockholder’s equity ROE of more than 10% this quarter. Demand is expected to maintain robust for advanced processes driven by new applications and the technology migration. Therefore we are optimistic about third quarter growth anticipating rise in revenues and profits and to maintain our healthy outlook for mid to long term demand. UMC’s successful efforts to customize advanced technology development and optimize product mix have led to an expanded customer base and increased the sales and the greater profit capability. To continue boosting competitiveness and pursuing steady growth, UMC plans its captive expenditures based on careful assessments of mid to long term demand and the capacity expansion risks according to our customer driven perspective so as to capture the robust growth momentum in adjustable foundry markets. UMC plans to raise this year’s capital expenditures to $1.8 billion to satisfy customer demand for advanced technology and the capacity. This CapEx that the company has invested is being used to expand advanced capacity. Currently, advanced process equipment and procurement and installation offers are proceeding smoothly. Singapore’s Fab 12i has been accelerating its 65 and the 55 nanometer capacity expansion to better serve all our foundry customers this year. Fab 12A’s phase III cleanroom already completed in July ahead of schedule and beginning equipment installation is expected to start production by year’s end and increase 40 nanometer production output at an accelerated pace next year. This expansion will gradually build up economy of scale and ushering a new wave of growth, producing a win-win situation with customers and boosting shareholder’s return on equity Now let me provide you with guidance for the third quarter of 2010. We expect wafer shipments to go in the low to mid single digit percentage range. Wafer ASP will increase approaching mid single digit percentage. Capacity utilization will remain full with gross margin in the low 30% range, gross momentum welcomed from all three segment led by the consumer sector. Revenue contribution from 65 nanometer and below will reach approximately 30%. The CapEx budget for 2010 increases to $1.8 billion. That concludes my comments. We are now ready for questions. Operator please open the lines up next.

(Operator Instructions) Your first question comes from the line of Randy Abrams of Credit Suisse. Randy Abrams - Credit Suisse: I wonder if you could elaborate on the order trends you are seeing, if you are seeing any change in urgency of orders from customers and if any end markets are looking particularly weaker going into second half? Chi-Tung Liu: Since we are being fully loaded for quite an extended period of time in other words its being on allocation. So we have been working with customers very carefully on their long term and mid term and the near term demand situation. So as I mentioned in the afternoon conference call there are clearly some landscape shifts company by company or segment by segment but we are dealing with them in a win-win kind of a situation which customers saw. So Q3 we are completely loaded so looking to the past, and we also guided in the afternoon, second half is similar to the past year. Second half is stronger than the first half and for all segments also the three consumer computer or communications segments we are intentionally trying to optimize our mix. So there our results may not necessarily reflect directly to the industry situation. Randy Abrams - Credit Suisse: Okay and the 65 nanometer getting a strong ramp in these past few quarters, could you give your view on this note. I think at the back you said customers were skipping nodes and some of them was skipping 90, but is it your perspective 65 is a big node that customers stay on whereas now you are spending out 40, do you expect to see similar strength at 40 nanometer or how do you see the nodes playing out? Chi-Tung Liu: I think 65 nanometer is a strong node and as more flow in general somewhat slows down 65 is a strong one. We also mentioned on (ID) being skipped by the late comers so even the latecomers are directly some champion to 55 nanometer node. 40 is more expensive node depending on the applications, some leading customers, they have to migrate aggressively to 40 but not there everybody so we are always watching it carefully trying to strike a good balance among the two nodes. Randy Abrams - Credit Suisse: And last question I have there, you could give your view on the capital intensity as you are doing investments on 65 and 40 nanometer how capital intensive are you to add additional capacity now versus some of the prior if there's a percentage increase to add capacity now that you seeing relative to some of the older nodes like 90 and 130. Chi-Tung Liu: The leading edge is indeed very calculated and intensive. Also the capacity release takes more extended periods of time for, toward release and the qualification. For the 40 nanometer because they emerge in some laser, some silicon germanium is quite more expensive than the previous node maybe I don’t have the exact number at least 20% more than the 65 nanometer I think.

Your next question comes from the line of Pranab Sharma - Daiwa Securities. Pranab Sharma - Daiwa Securities: A couple of things from my side, could you give some color on your development on 40 nanometer and 28 nanometer how it will fan out, say 40 nanometer by fourth quarter, do you see a 28 nanometer next year, what is your expectation currently? Shih-Wei Sun: The 40 nanometer is in production, it is. Pranab Sharma - Daiwa Securities: Yeah 3% of revenue on the second quarter so how. Shih-Wei Sun: Yeah 3% of revenue on the second quarter. So now its continuous ongoing yearly improvement and optimization so that will be ongoing as we ramp up. For 28 nanometer we have two process option, one is high-K/metal gate. Within the high-K/metal gate we have a quite of few different versions, high performance, also (SOC) based that's the more low power based. Also we also have the for 28 nanometer. So for 28 high-k/metal gate we are able to do the part of production our risk kind of production towards the end of this year. So it's moving along pretty well. Pranab Sharma - Daiwa Securities: Okay and how many customers are already signed up for the 28 nanometer process? Shih-Wei Sun: It’s not a kind of, it’s a forward technology development, it’s a continuous spectrum of average from 40 nanometer. Also the 40 nanometers are working with us on 28 but again we mentioned in the previous few quarters still we have six firmly engaged customers on 28 nanometer Pranab Sharma - Daiwa Securities: Okay got it and could you give a color on your OpEx in third quarter and fourth quarter, how it will look like this year?

The trend is some of the expenses will still grow along with enlarged revenue but as a percentage of revenue it should continue to trend down slightly. So we expect to see to a smaller percentage of revenue of operating expenses in quarter three by the absolute number may still grow a little bit. Pranab Sharma - Daiwa Securities: Okay and what you are looking at the color on fourth quarter this time like talking to your customer and all are you getting any sense of slowing down in fourth quarter or you are still expecting fourth quarter (inaudible) looks okay to you?

We will provide the fourth quarter details next quarter but we did say in the afternoon second half should be stronger than the first half. Yeah second half is stronger than the first half similar to the patterns in the past few years Pranab Sharma - Daiwa Securities: Maybe you can help us in getting the linearity of the third quarter how it looked like, the third quarter on a monthly basis and then I will wait.

It's kind of flat Pranab Sharma - Daiwa Securities: Flattish, okay.

Your next question comes from the line of Emily Liu - Arete Research. Emily Liu - Arete Research: I have two questions. First of all how do you see your wafer cost to trend at second half of the quarter given the tightness in the 300 millimeter wafers, and the second question is can you give us more color on the incremental CapEx spend, the breakdown if possible

For the wafer stocking raw material I don’t have the exact numbers, I understand in the past few months or past quarter or two some specialty wafers, the wafer price did increase across the industry, it’s very clear. But again the real material is not a huge percentage of our overall total COGS so we are trying to manage it well. The second question is the incremental capital expenditure Emily Liu - Arete Research: Right

Most of the 40 nanometer and some of 55, 65 certainly we are adding some 20 nanometer R&D tools as well. The 40 is the majority of the incremental investment Emily Liu - Arete Research: Majority does it mean 80% of the incremental spending.

I don’t have ether exact breakdown over there.

Your next question comes from the line of Steven Pelayo – HSBC Steven Pelayo - HSBC: Great quarter and outlook nice to see you guys back to the 30% gross margins. First I want to clarify, you made a comment about you are kind of optimizing your mix so it may not reflect what the market is doing and your mix is actually very strong in consumer in Q2 and you are guiding it to be relatively strongly in 3Q as well. Is consumer a more optical mix for UMC? Is it a highest margin business for you, it just kind of surprised me, that comment. Shih-Wei Sun: The consumer includes lots from our definition of a consumer they include a lot of different applications. I don’t know exactly the applications but it’s a rich mix of different things. For us we mentioned in the afternoon, we are optimizing the mix and capacity and also broaden the customer base. So we are working with our long term partners to fine tune our addressable market, to optimize our mix and diversify the risk. And then at the end trying to reach our profitability as well. It doesn’t mean that the consumer has a higher margin. There's so many customer and different things. Steven Pelayo - HSBC: Now on your capacity plans, you obviously give some guidance for where the third quarter would be ending. But I am kind of curious if you look at it a little farther let's just say even a year from today. Where do you think Fab12A and 12I capacities will be running? Shih-Wei Sun: So a year from now it’s too far. We've seen all the visibility. We are adding this. We updated our $1.8 billion capacity. So for 12A we are quickly ramping up the Phase III capacity. So we are trying to for a new Fab additional 15K where reasonable. So that’s the first step. We are additional 15K 12-inch in Phase III. So we've reached a better economies of scale and so far as I mentioned earlier fair value is the main focus for our capacity ramp this year. So that capacity at this moment I think is pretty much getting poor now. I don’t know exactly the number. I think maybe around 45K per 12-inch now. Steven Pelayo - HSBC: Okay and when do you think the additional 15K and Phase III will be on board in active capacity? Shih-Wei Sun: It’ll take some time. We have mentioned earlier. The (clearing) has just been completed in July. We are actively and aggressively putting equipment. So that will continue to year, this year next year. But the earliest production revenue would be realized maybe towards the end of this year from Phase III of the 12A. Steven Pelayo - HSBC: Okay. Fair enough and then with this higher CapEx I think you guys made some comments about your depreciation for next year in the afternoon. If you could repeat those and then also maybe talk a little bit more in the term the depreciation in your cost of goods sold in Q3 and Q4, how is that going to start to rise as we then go into 2011 it goes higher? Shih-Wei Sun: Depreciation expenses in 2010 we do expect to be about 8% to 10% lower than the previous year and we expect to see small trend down in quarter three and Q4. And Q4 is likely to be the trough of the recent depreciation curve. So I think from 2011 because of the high CapEx in 2010 we expect the whole year 2011 to have higher depreciation expenses compared to that of 2010. Now we don’t have the final CapEx for 2011 yet but overall we don’t expect the increase to be more than 10%. Steven Pelayo - HSBC: And then my last question, I will get back in the queue but your non-operating income line usually has a nice benefit in the third quarter each year from your investment portfolio and dividend income. Can you give us some guidance on what you think that might be in the third quarter? Shih-Wei Sun: Yeah we mentioned in the afternoon session that it should be more than $1.20 billion in the third quarter.

Your next question comes from the line of Aaron Husock of Lanexa Global. Aaron Husock - Lanexa Global: Moving just first, could you comment at all on your view of inventory levels at your customer base? Chi-Tung Liu: For the inventory level, through last year’s economic crisis, Q3 last year was at about (inaudible) that's been inching up. However its we think a very reasonable level. Also we observed recently this year 2010’s foundry revenue growth and also versus semiconductor company or chip company's revenue growth, actually the gap I think is narrowing, indicating a very healthy management of the inventories throughout the supply chain. So the continuity is getting better. So I think the inventory is definitely fine. In general from a macro kind of consideration certainly case by case they are variations. So we are monitoring the revenue to inventory ratio of our different customers. They look fine also. So I think the revenues should be fine. Everybody is very careful but the demand side may fluctuate or may have a seasonality from segment to segment and then company to company. Aaron Husock - Lanexa Global: And when you talk about your gross margin for Q3, low 30s is kind of a wide range, can you be a little bit more specific and maybe talk about what factors could make it look more like 30 to 31 and what factors could may be make in look more like 33 kind of what are the variables. Chi-Tung Liu: Because our guidance did not incorporate the impact from currency changes. So we actually think low 30 is a rather tight range given the volatility and the exchange rate against the US dollar. So on nanometers we cannot control the currency and yet we still believe low 30s is the most likely event for our gross profit in the third quarter.

Your next question comes from the line of J.J. Park of JPMorgan. J.J. Park of JPMorgan: I have a question, basically in your guidance you are looking at the low to middle single-digit growth in the third quarter. And just the other growth coming from the capacity growth I mean looking at the number you have around 3% of capacity growth in the third quarter, right, is there's any upside in terms of utilization rate? Shih-Wei Sun: You are correct. The shipment growth is mostly from the capacity increase in third quarter and also we guided the ASP increase approaching mid single-digit percentage as well. J.J. Park of JPMorgan: So you see that may be to cap at the 100% in the third quarter? Shih-Wei Sun: Yes. J.J. Park of JPMorgan: Also in terms of the order visibility I mean compared to three months ago are you seeing better order visibility in the third quarter? Shih-Wei Sun: Third quarter, we have pretty much the visibility which has been provided as our guideline. The third quarter should be totally visible but again in the last quarter there were some company ups and down and different applications have some ups and downs. Overall Q3 is, we have a pretty much good visibility in there which has been guided in our guidelines for the (inaudible). J.J. Park of JPMorgan: Among the three major applications which one has the highest order visibility into the third quarter? Shih-Wei Sun: We think in Q2 we have a pretty visibility for all three segments but again as we guided for the consumer segment it has better momentum from UMC perspective which is probably due to our, optimization of our mix.

(Operator Instructions) Your next question comes from the line of Pranab Sharma of Daiwa Securities. Pranab Sharma - Daiwa Securities: Just I would like to clarify like how much operating leverage you have going forward. Third quarter you have given already low 30s gross margin guidance and product mixes maximizing probably its going to about 5% ASP increase, utilization rate is 100%. Do you think that there is any other way, there's room to improve the gross margin if the economy remains strong? Chi-Tung Liu: We certainly would do that. There is no doubt, its ongoing efforts. One thing is that we are adding, advancing the capacity which is completely the brand new cleanroom 12-inch adding a lot over 40 and advancing the capacities. Also for the capacity mix that’s a big deal. We are trying very hard to reach our capacity mix, even at the 8-inch in the legacy technology domain. So there are lots of room, we can run continuously doing all kinds of the things to improve. Pranab Sharma - Daiwa Securities: Ideally speaking where you would like to look at your break up in utilization rate, probably which is at 70s now, where do you think that you would like to look at in a one year dollar line or whatever rate? Chi-Tung Liu: You are asking about the expected utilization rate. So that’s the hard question to answer. Shih-Wei Sun: Breakeven. Chi-Tung Liu: On the breakeven? Pranab Sharma - Daiwa Securities: Yeah breakeven utilization rate, because economy is very difficult to predict, right. Chi-Tung Liu: Breakeven utilization rate at operating level should be for sure below 70%. Gross margin level that should be in the mid-50 kind of percent. Pranab Sharma - Daiwa Securities: Got it. And my last question is your variety, like could you give some color on second quarter, how many percent of revenue came from the variety business. Chi-Tung Liu: It passed around 10 in percent I don’t know what its (inaudible). Shih-Wei Sun: 10%.

10%, okay thank you.

Your next question is from Steven Pelayo of HSBC. Steven Pelayo - HSBC: Just a couple of follow-ups here. Every quarter I kind of ask you guys about your diversification in customers, on customer concentration. So can you give us some color on that beyond the top three? I don't know what’s your top five percentages of revenues now maybe top 10, and any other thoughts on kind of more people becoming more significant for you beyond the top three? Chi-Tung Liu: The top customers, each of the top customers, they have a lot of different product lines. So we are even reaching optimizing the mixed amount that we've see ourselves. So the others are a few or smaller ones. So over the top if you just look at the pure numbers that doesn't change quarter-by-quarter that much. Steven Pelayo - HSBC: Well, I guess in the past you guys had said that you were looking to target more of the US Fab customers as a percentage to try to gain some market share there. Do you think you’ve been successful this cycle thus far? Chi-Tung Liu: US Fab list. Steven Pelayo - HSBC: I mean your shares are relatively strong with the Taiwan Fab list, so US is the next place to kind of go after? Chi-Tung Liu: I think we are engaging lots of existing customers on different segments and new customers as well. So overall speaking you are correct, we are trying very hard in those areas. Steven Pelayo - HSBC: And then on 40 nanometer I don’t know if you give guidance, looks like your guidance was 65 nanometer but was your expectation for 40 nanometer, 3Q and at year end as a percent of revenues? Chi-Tung Liu: The 40 nanometer today is capped by our available capacity. So we are limited by the existing and some increment or increase in 12A in terms of the existing cleanroom. So we are still, be able to add more 40 capacity. The larger amount of incremental change of the capacity will happen next year. Steven Pelayo - HSBC: Okay so it still sounds like you’d even exit this year maybe mid single-digit to 5% or less or so? Chi-Tung Liu: Something like that, yeah. Steven Pelayo - HSBC: And then I guess on the capital structure I think a year ago you guys had talked about paying down your loans but then I didn’t hear the comments made after that and you made some pretty aggressive comments about some dividend payout ratio. So if you could restate those dividend comments and talk about how you would likely fund those. I think you are going to free cash flow negative for the next couple of quarters with this CapEx. Could you just talk a little bit about how that all would flow through balance sheet and cash flow statement? Chi-Tung Liu: We recently paid all the remaining long term debt and in the meantime we also payout a little more than NT$6 billion in dividend. The payout ratio in 2010 is actually more than 150%. What I mentioned in today's afternoon session was we are in a position to stay a high payout ratio even going into 2011 and we intend to do so. And some of them were also asking about our policy to try the share buyback and demand is also the same. We are actually in the same position to do frequent share buyback if we feel necessary. In fact UMC probably is the most aggressive company in Taiwan to do share buyback. So how to fund cash flows, you are correct we probably will be a little bit cash flow negative this year but still we maintain almost a year of long-term debt structure. We are very willing to say we can easily cap into the debt market if we want to.

At this time there are no further questions. Mr. Liu do you have any closing remarks? Chi-Tung Liu: Yes and this will be my closing and thank you for your interest in UMC. Please feel free to contact us directly if you have additional questions and operator back to you.

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.