UMC Reports 2005 Second Quarter Results: Wafer Shipment Growth Rebounds; Trend Expected to Continue

TAIPEI, China—(BUSINESS WIRE)—July 27, 2005— United Microelectronics Corporation (NYSE: UMC; TSE: 2303):

Second Quarter 2005 Overview(1):

-- Revenue declined 4.2% sequentially to NT$19.44 billion (US$615 million)

-- Net income decreased to NT$299 million (US$9 million)

-- Wafer shipments increased to 630 thousand 8-inch equivalent wafers

-- EPS was NT$0.02; EPADS was US$0.003

-- Revenue from 90nm technology increased to 9% from 7%

-- Increase in ASP and continued increases in wafer shipments anticipated for 3Q05

United Microelectronics Corporation (NYSE: UMC; TSE: 2303) ("UMC" or "the Company"), a leading global semiconductor foundry, today announced its unconsolidated operating results for the second quarter of 2005.

"The second quarter of 2005 was a difficult quarter, but we are quite confident that we have exited the trough of the downturn," said UMC CEO, Dr. Jackson Hu. "As a result of our effective response to the inventory correction that started in the fourth quarter of 2004, our shipment volume increased 11.7% sequentially to 630 thousand 8-inch equivalent wafers. Despite the mild setback of a 4.2% decline in revenue and a gross margin of 1.1% in 2Q05, we saw a number of positive developments in several different areas. Towards the end of the first quarter of 2005, we started to see an upturn in the consumer market, and more recently, the communication and computer segments seem to have regained momentum. This across-the-board jump in demand leads us to believe that we will soon be entering a new stage of growth."

Dr. Hu continued, "During the second quarter, we further strengthened our SoC solution programs so that our customers may more effectively address the new cost and time-to-market challenges encountered at nanometer technologies. For 90nm, where comprehensive integrated SoC solutions are particularly necessary to ensure early product success, we have incorporated the industry's latest design for manufacturing (DFM) solutions to supplement our world-class technology, manufacturing, design, and backend support. This complete SoC package will significantly bolster the competitiveness of UMC's customers in today's rapidly advancing semiconductor industry."

"We are also pleased with the early results of our decision to merge the operations of Singapore-based UMCi (now Fab 12i) into UMC. This consolidation will further enhance our ability to serve our global customers. With the demand for advanced process technologies on 300mm wafers gaining momentum, this transaction will greatly increase the synergy of UMC's overall fab operations and expansion plans. We will continue with our 300mm capacity expansion in Taiwan and Singapore, and advance our close partnerships with capital equipment vendors, Electronic Design Automation (EDA) tools and IP providers, packaging and test partners, and customers to further enhance our SoC foundry solutions. We believe that with our proven SoC Solution Foundry strategy, UMC is well-positioned to capitalize on the many new and exciting opportunities facing the semiconductor industry."

Summary of Operating Results
Operating Results
(Amount: NT$ million)       2Q05     1Q05     QoQ %    2Q04     YoY %
                                             change            change
Revenue                    19,443   20,286     (4.2)  29,177    (33.4)
Gross Profit                  212    3,057    (93.1)  10,058    (97.9)
Operating Expenses         (3,551)  (2,755)    28.9   (2,466)    44.0
Operating Income           (3,339)     302       NM    7,592       NM
Non-op. Income (Expenses)   3,638    1,217    198.9    5,111    (28.8)
Net Income                    299    1,519    (80.3)  12,702    (97.6)
EPS   (NT$ per share)        0.02     0.09              0.76
       (US$ per ADS)        0.003    0.014             0.120

Revenue decreased 4.2% quarter-over-quarter to NT$19.44 billion from NT$20.29 billion in 1Q05, and decreased 33.4% year-over-year from NT$29.18 billion in 2Q04. Gross profit for the quarter was NT$212 million, or 1.1% of revenue, compared to NT$3.06 billion, or 15.1% of revenue in 1Q05. The operating loss in 2Q05 was 3.34 billion compared to NT$302 million in operating income in 1Q05. The operating loss and decline in gross profit were mainly attributed to the increase in depreciation as well as operating expenses caused by the UMCi merger and high fixed costs associated with the lower capacity utilization rate in 2Q05. Net income in 2Q05 was NT$299 million, a sequential decrease of 80.3% from 1Q05 and a 97.6% decrease over 2Q04.

Earnings per ordinary share (EPS) for the quarter were NT$0.02. Earnings per ADS (EPADS) were US$0.003. This compares with 1Q05 earnings per ordinary share of NT$0.09 and earnings per ADS of US$0.014. One ADS represents five Taiwan-listed ordinary shares. The basic weighted average number of outstanding shares in 2Q05 was 16,557,109,154, compared to 16,602,337,157 shares in 1Q05 and 16,650,444,591 shares in 2Q04. The diluted weighted average number of outstanding shares was 16,650,017,427 in 2Q05, compared to 16,678,163,409 shares in 1Q05 and 16,996,418,755 shares in 2Q04. The decrease in basic and diluted weighted average outstanding shares in 2Q05 was due to the execution of the Company's 8th treasury share repurchase program.

Detailed Financials Section

Depreciation and amortization totaled NT$12.49 billion in 2Q05, compared to NT$10.71 billion in 1Q05. Depreciation within COGS increased 13.7% to NT$10.67 billion, mainly due to depreciation from Fab12i that was included on UMC's balance sheet starting on April 1 and the incremental depreciation from Fab 12A. Total operating expenses increased 28.9% to NT$3.55 billion from the NT$2.76 billion in 1Q05 since UMC started to recognize Fab 12i expenses and amortize goodwill from UMCi in the second quarter. The R&D expense was 11.2% of revenue in 2Q05.
COGS & Expenses
(Amount: NT$ million)       2Q05     1Q05     QoQ %    2Q04     YoY %
                                             change            change
Revenue                    19,443   20,286     -4.2   29,177    -33.4
COGS                      (19,231) (17,229)    11.6  (19,119)     0.6
  Depreciation            (10,674)  (9,385)    13.7   (8,553)    24.8
  Other Mfg. Costs         (8,557)  (7,844)     9.1  (10,566)   -19.0
Gross Profit                  212    3,057    -93.1   10,058    -97.9
Gross Margin (%)              1.1%    15.1%             34.5%
Total Operating Exp.       (3,551)  (2,755)    28.9   (2,466)    44.0
  G&A                                            (851)        (447)        90.4          (603)        41.1
    Sales  &  Marketing                    (530)        (521)          1.7          (482)        10.0
    R&D                                            (2,170)    (1,787)        21.4      (1,381)        57.1
Operating  Income                      (3,339)          302    -1205.6        7,592      -144.0
Operating  Margin  (%)                -17.2%          1.5%                          26.0%

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