UMC Reports Record 2004 Third Quarter Results: Record Revenue with 15% Sequential Increase in Operating Income

TAIPEI, Taiwan, ROC—(BUSINESS WIRE)—Oct. 27, 2004— United Microelectronics Corporation (NYSE: UMC; TSE: 2303):

Third Quarter 2004 Highlights(1) :

-- Revenue increased 18.5% sequentially to NT$34.58 billion (US$1,018 million)

-- Operating income increased 15.1% sequentially to NT$8.74 billion (US$257 million)

-- Net income of NT$10.91 billion (US$321 million)

-- Wafer shipments of 791 thousand 8-inch equivalent wafers; blended ASP up 5% compared to the previous quarter

-- EPS of NT$0.65; EPADS of US$0.096

United Microelectronics Corporation (NYSE: UMC; TSE: 2303) ("UMC" or "the Company"), a leading global semiconductor foundry, today announced its unconsolidated operating results for the third quarter of 2004.

"We are extremely pleased with our record-setting performance in the third quarter. The combination of 791 thousand 8-inch equivalent wafer shipments and a 5% increase in the blended average selling price drove UMC's revenue to increase 18.5% to a quarterly record and operating income to increase 15.1%. Strong demand and successful execution on capacity expansion were the key drivers behind our brilliant third-quarter performance," said Dr. Jackson Hu, CEO at UMC.

Dr. Hu continued, "Compared to the second quarter, the percentage of 90nm business in terms of total revenue doubled to 2% in the third quarter. We expect this number to increase to at least 5% in the fourth quarter. This is a tremendous ramp-up in leading-edge technology production and once again demonstrates that we have a sound strategy of 90nm production at 300mm fabs as well as excellent R&D and mass-production capabilities. Additionally, UMC is working on the technological jump from 90nm to 65nm with our first-tier customers and expects to begin production in early 2006. We are confident that our commitment to accelerate the development of advanced process technology will enable us to serve the world's first-tier foundry customers for years to come."

"The future of the foundry industry is bright, despite the recent slowdown in the semiconductor market. We have seen strong demand for advanced process technologies and sustained strength in outsourcing trends. We believe that these factors will be the primary drivers for a recovery for UMC within the next two quarters. We are therefore maintaining our CAPEX level as planned since we believe that continued development and innovations in R&D for advanced process technologies will help us capitalize on future and ongoing growth opportunities in the industry." (1) Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with ROC GAAP, which differ in some material respects from generally accepted accounting principles in the United States. They are unaudited, unconsolidated, and represent comparisons among the three-month period ending September 30, 2004, the three-month period ending June 30, 2004, and the equivalent three-month period that ended September 30, 2003. For all 3Q04 results, New Taiwan Dollar (NT$) amounts have been converted into U.S. dollars at the exchange rate of NT$33.96 to one U.S. dollar.

Summary of Operating Results
Operating Results
(Amount: NT$ million)            3Q04     2Q04    QoQ %  3Q03   YoY %
                                                 change        change
Revenue                          34,580   29,177   18.5 21,539   60.5
Gross Profit                     11,663   10,058   16.0  5,054  130.8
Operating Expenses               (2,926)  (2,466)  18.7 (2,465)  18.7
Operating Income                  8,737    7,592   15.1  2,589  237.5
Non-op. Income (Expenses)         2,177    5,111  (57.4) 2,015    8.0
Net Income                       10,914   12,702  (14.1) 4,203  159.7
EPS   (NT$ per share)              0.65     0.76         0.25
       (US$ per ADS)              0.096    0.112         0.037

Revenue increased 18.5% quarter-over-quarter to NT$34.58 billion, from NT$29.18 billion in 2Q04, and increased 60.5% year-over-year from NT$21.54 billion in 3Q03. Gross profit for the quarter was NT$11.66 billion, or 33.7% of revenue, compared to NT$10.06 billion, or 34.5% of 2Q04 revenue. The decline in gross margin was due to the higher costs that were associated with sourcing wafers from UMCi. Excluding revenues that were generated at UMCi, the pro forma gross margin was 35.2%, which is an improvement over the second quarter of 2004. Operating income increased 15.1% sequentially and 237.5% from 3Q03 to NT$8.74 billion. Net income in 3Q04 was NT$10.91 billion, a 159.7% increase over 3Q03, though a sequential decrease of 14.1% compared to the high figure from 2Q04. The second quarter included a number of investment disposals that resulted in gains that were included in non-operating income.

Earnings per ordinary share (EPS) for the quarter were NT$0.65. Earnings per ADS (EPADS) were US$0.096. This compares with 2Q04 earnings per ordinary share and ADS of NT$0.76 and US$0.112 respectively. One ADS represents five Taiwan listed ordinary shares. There were 16,939,523,025 basic weighted average outstanding shares in 3Q04. This compares to 16,650,444,591 shares in 2Q04 and 16,609,738,923 shares in 3Q03. Diluted weighted average outstanding shares were 17,247,264,436 shares in 3Q04, compared with 16,996,418,755 shares in 2Q04 and 16,909,720,380 shares in 3Q03. These share increases in 3Q03 were primarily due to new share issuance for the SiSMC acquisition.

Detailed Financials Section

Depreciation and amortization were NT$10.43 billion in 3Q04, compared with NT$9.27 billion in 2Q04. Depreciation within COGS increased 8.3% to NT$9.27 billion, mainly due to depreciation related to Fab 8S since July 1st. The sequential increase of other manufacturing costs within COGS to NT$13.65 billion was due to increased wafer shipments and the higher costs at UMCi. Total operating expenses increased 18.7% to NT$2.93 billion. R&D expense, which was 4.9% of revenue, increased 21.7% QoQ to NT$1.68 billion. This was primarily due to increased developmental costs for 90nm and below process technologies at Fab 12A.
COGS & Expenses
(Amount: NT$ million)          3Q04     2Q04    QoQ %    3Q03   YoY %
                                                change         change
Revenue                        34,580   29,177    18.5  21,539   60.5
COGS                          (22,917) (19,119)   19.9 (16,485)  39.0
  Depreciation                 (9,266)  (8,553)    8.3  (8,171)  13.4
  Other Mfg. Costs            (13,651) (10,566)   29.2  (8,314)  64.2
Gross Profit                   11,663   10,058    16.0   5,054  130.8
Gross Margin (%)                           33.7%        34.5%                      23.5%
Total  Operating  Exp.                      (2,926)    (2,466)      18.7    (2,465)    18.7
    G&A                                                        (667)        (603)      10.6        (562)    18.7
    Sales  and  Marketing                        (579)        (482)      20.1        (373)    55.2
    R&D                                                    (1,680)    (1,381)      21.7    (1,530)      9.8
Operating  Income                                8,737        7,592        15.1      2,589    237.5
Operating  Margin  (%)                          25.3%        26.0%                      12.0%

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