Good morning, ladies and gentlemen, this is Amanda, I'll be the mediator for this conference call. I would like to welcome you to the UMC First Quarter 2006 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation there'll be a question-and-answer period. Please follow the instructions given at this time if you would like to ask a question. This conference call is also being broadcast live over the internet. A replay of the call will be available at www.umc.com under the Investor Relations Investor Events section until Tuesday, July 25, 2006. A telephone replay of the call will be available from 10 pm on April 26th until midnight on April 28, 2006, Eastern Standard Time. To access the replay, please call 888-286-8010 or 617-801-6888. If you are calling from outside the U.S., the access code will be 26259920. I would like to introduce Mr. Chitung Liu, Chief Financial Officer of UMC. Mr. Liu, you may begin.

Thank you Amanda, and good morning, ladies and gentlemen. This is Chitung. We appreciate your participation in our earnings call for the first quarter of 2006. The way we will handle this call is as follows. I will start by giving an overview of our financial highlights of the previous quarter. Mr. Jackson Hu, Chairman and CEO, will follow and fill you in with a broad overview of market conditions as we see them today. After that, he will provide guidance for the upcoming quarter, and then we will open for questions. Please note that this call's results are being broadcast from our website. I want to remind all listener of UMC's safe harbor policy. Certain statements made during the course of our discussion today may constitute forward-looking statements that are based on management's current expectations and beliefs. They're subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond the company's control. For these risks, please refer to UMC's filing with the Security Authority in the U.S. and the RRC. Okay, now, is our financial results for the first quarter of 2006. The first quarter was a seasonally slow quarter, but our results were largely in line with our expectations. Revenue decreased 11.2% quarter-over-quarter to NT$24.38 billion from NT$27.47 billion in Q4 2005, an increase of 20.2% year-over-year from $20.29 billion in Q1 2005. Gross margin was NT$3.26 billion over 13.3% of our revenue, compared to NT$4.97 billion or 18.1% of Q4 2005 revenue. Operating profit for the quarter was NT$885 million or 0.3% of revenue, compared to NT$928 million or 3.4% of Q4 2005 revenue. Lower wafer shipments, due to a seasonal order adjustment by several customers was the primary reason for the decrease in profit and gross and operating margins during the first quarter of 2006. Non-operating income was NT$14.09 billion. And net income was NT$12.29 billion in Q1 2006. Both were significantly higher than those of Q4 2005, which is mainly due to the investment disposal gains of Hsun Chieh Investment Corp. in January of 2006. Earnings per ordinary shares, EPS, for the quarter were NT$0.67. Earnings per ADS were US$0.103. This compares with 4Q 2005 earnings per ordinary shares of NT$0.16 and earnings per ADS of US$0.025. The percentage of revenue from 90-nanometer and 0.13-nanometer business decreased to 33% quarter-over-quarter from 38% in Q4 2005, mainly due to soft demands from some of our customers for communication chips. The percentage of revenue from 0.18 micron and below was 66% in Q1 '06. The blended ASP decreased by 2% during Q1 '06 due to lower demand for leading edge process technologies. And now I would like to turn the call over to our chairman and CEO, Dr. Jackson Hu, who will share his view on the broader market conditions. After that, we will have time for Q&A. Hu?

Thank you, Chitung, and thanks to everyone for joining us today. Before I jump into our guidance and Q&A, I would like to spend a few minutes updating you on the market conditions that we see for Q2 and the second half of the year. For Q2 as a whole, we believe that demand will be inline with the seasonal norms, computer sector demand will be relatively weak due to seasonal inventory adjustments. At the same time, we have seen pent-up demand start to accelerate, which is about one to two months earlier than typical seasonal trends. Our understanding is that the demand for entry level handsets in developing markets such as India, Africa, Indonesia, South America and the China will see very high gross this year. Therefore, hence that related components should be in strong demand. In particular, our production of 90-nanometer and 0.13-micron wafers for existing customers as well as for new customers that have been recently entered while in production will increase significantly. In addition, it is worthwhile to note that we will start volume production for graphics chip customer during the quarter. Therefore, our visibility looking beyond to the third quarter is very good. And we are expecting double-digit revenue growth and a large improvement in profitability starting from Q3. We are also seeing strong demand for 65-nanometer technology and we are progressing smoothly in the rollout of this process. UMC led all foundries with the delivery of its first 65-nanometer customer product back into June 2005. Today, two customers have started the small volume production for their 65-nanometer product. Furthermore, we are engaging with eight customers and we expect 11 product takeouts before the end of this summer. So looking forward to the second quarter here are our general expectations. First of all, wafer shipments will increase by 5 to 6 percent point. Wafer ASP in U.S. dollar will increase by 2 percent point. By the way, for both set of numbers, we are not including the possible variations or fluctuations of exchange rate. Capacity utilization rate will be approximately 80%. The gross profit margins will be in the high teen percentage points. The percentage of revenue from 0.18-micron and below technologies will be two-thirds of the revenue while 90-nanometer is expected to be in the mid-teens percentage. The communication segment is expected to be the strongest followed by consumer and then computer segment. And our 2006 CapEx budget remains unchanged at US$1 billion. We are encouraged by the strong market demand in the second half of 2006. UMC have competitive technology, world leading manufacturing efficiency, and plenty of 12-inch capacity. Therefore we shall be able to grasp this upcoming opportunity. And we believe UMC success at 65-nanometer will lead the company to continue to grow in the coming years. So this concludes our prepared remarks for today. And now we would be happy to take your question now. Operators, we are ready for questions.

Hi, good evening. A couple of quick questions for you. Could you talk about your 90-nanometer opportunities in the second half of 2006? And then also address your 65-nanometer ramp plans?

Okay. For everyone's information, we are engaging with eight high-volume customers for 90-nanometer. As a matter of fact, we have been working with them for more than a year. And more and more of them were into production phase. So we're expecting a second half close to Q4, we will have 8 customers into production. And for 65-nanometer, as I said, the production, more volume production has already started, and we have more customers engaged right now. And so, you know, that makes UMC a very competitive position as the customers become ready. So next year, we expect a good ramp of 65-nanometer as well.

And then, follow-up to that question, let's say these eight high volume are potential high volume customers, Hu, what you think they can do this year, and you grew maybe 20% or so, what would that represent as a percentage of total revs? Do you have a target for Q4 that you think you can achieve for 90-nanometers as a percentage of total revs by the end of the year?

Yeah, our goal is to combine both 90-nanometer and 0.13-micron. The revenue contribution would be close to 50%

How about just for 90-nanometer?

My current estimate is about half, half of that, or 25%.

Okay, great. And one last question. During the last conference call you expected depreciation to decline roughly 7% year-over-year in 2006, is that still valid?

Yeah, that's still valid. In fact, we also reported the depreciation in Q1. That's about 3% or 4% decrease from Q4 last year. So we're pretty much in line with our 7% forecast.

Okay, great. Thank you very much.

Your next question comes from the line of Robert Maire of Needham & Co. Please proceed, sir.

Yes. You had indicated that graphics chip activity seemed to be warming up. Is that primarily PC-related, video-game system related, maybe you could give us a little more color on that process technology and where you expect that to go?

Yeah, it's primarily in PC graphics, for now. And based on customers' feedback, we have very competitive process technology, and the customer have already validated. And it is ready to ramp.

Okay, and how do you expect to see that ramping? Is that a Q2 Q3 ramp, or when do you expect to see that ramp?

It will start in Q2, and it will continue into Q3-Q4. As a matter of fact, more products are being rolled out, so there will be more volume down the road.

And this is more than one customer, I would imagine?

That's correct.

Okay. And you also mentioned that entry-level mobile phones are picking up. Is that also a Q2-Q3 phenomenon and similarly multiple customers?

Yes, we start to see the pickup in June, and become very, very strong in Q2 and Q4 from multiple customers.

Okay, and you're making those statements based on what customers are forecasting their requirements will be?

That is correct. Normally we would not talk about the forecast beyond the next two quarter, but this time since the customers' forecast is so strong, we feel that we probably should let the analysts know.

Okay. And most of that will be running at what, would you say 90-nanometers primarily?

90-nanometer and 0.13-micron.

Okay. Thank you.

Your next question comes from the line of Mark Fitzgerald of Banc of America. Please proceed.

Thank you. Should we expect expenses in the June quarter to snap back to kind of the level we had in December?

Probably not that high. It will be more closer to Q1 this year or Q3 of last year, somewhere in between.

Okay. And then when you look at expenses into the second half of the year, when you start getting double-digit growth, will expenses trend higher here? Will they undergrow revenues? Can you give us some guidance on expense in second half?

It should undergrow a revenue growth. And percentage of revenue wise will decline a little bit by an absolute trend. It should go out a little bit. Again, every year in Q4 we'll always have higher bonus expenses.

Okay. Thank you.

Your next question comes from the line of Bhavin Shah of JP Morgan. Please proceed.

Yes, thank you. Gross margin and high teens, nearly high teens, if I may ask?

Can you say that again, please?

Yes. Just a -- a little bit more clarity on gross margin guidance. You mentioned high teens, pretty close to 20%? Is that –

Well high teens means high teens, which is in between 17% to 19%.

Okay. That's very –

In my definition. I'm not sure.

No, that's very helpful. And do you -- just one more clarification question, sorry about that. But can you repeat the number of shares outstanding, if you have that information ready, at the end of the quarter and also – please?

We will provide that to you after the call by e-mail, which, again, will be in our quarterly report.

I think that's a weighted average, so I was just looking for the quarter end.

Okay. That's fine.

Okay. Thank you.

Your next question comes from the line of Michael McConnell of Pacific Crest Securities. Please proceed, sir.

Thank you. Curious on with the outlook for the second half of the year. One, today, what is the utilization rate at UMCI, and where do you expect to be by the end of the year with the type of visibility you have?

Currently it is below the average. And there's a possibility that it will be fully loaded near end of the year.

And what are you cycle times right now?

Our cycle times for all of the technology is about 1.43 days, per day per layer.

Okay. And then I guess with the cycle times at that level, I guess, how do we have so much confidence in the second half of the year, do you have more visibility than you normally do?

That was the message we're trying to convey.

Okay. And then maybe looking at the in-market guidance, obviously broad strokes by in-market, if you could kind of dig a little bit more into that. What specifically, what products are you seeing the strength with in communications and consumer? And then, on the other side, where you see the weakness in the PC market from a product standpoint?

Are you talking about the second half of the year?

No, just the second quarter.

Second quarter? Yeah. Second quarter, the PC is the weakest, and you probably have heard in Intel's forecast, and the consumer is the second. And I mentioned earlier, starting from June, that we see the pickup of cell phone demand.

I was just hoping to get more granularity in terms of PCs, is it more chipsets or graphics or in the communication side.

Okay. PC chipsets, optical storage products are the two that we saw.

Okay. And then in the communications based consumer where are you seeing the strength?

Well, it's basically handset.

Thank you very much.

Your next question comes from the line of Mehdi Hosseini from FBR. Please proceed.

Thank you. Thanks for taking my call. A couple of questions. If you could help me understand why 130-nanometer mix of revenues went down almost twice as fast as the overall revenues. And then regarding 65-nanometer capacity ramp, you're talking about having several customers. If you could elaborate on what kind of capacity these customers are requiring from you, going into 2007, and whether the capital intensity would increase or decline, going from 90-nanometer to 65. And what I mean by capital intensity, the required CapEx for every incremental 1K per month?

Okay. Can you repeat your first question?

The first question had to do with the 130-nanometer mix of revenues. It declined as significantly, twice as fast as of topline revenues.

Yeah. It’s basically due to the seasonal adjustment for the cell phone.

Okay.

And regarding capacity expansion for 65-nanometer –

Yes.

We probably would expect it to have a couple of percentage overall capacity near the end of this year. And for future expansion, it will be mainly for 65 because it can be backward used for 90-nanometer or even 0.13.

Sure, but as you talk to your customers, and I'm just looking for a qualitative answer, What kind of a capacity ramp are they projecting for next year because over the next several months you need to start planning for '07, and if the capital intensity would go up compared to 90-nanometer?

I think its fair. This year, I think the early competitors, early customers will focus in taping out the prototype.

Yes.

And become high-volume production ready. And starting from next year, 2007, they will ramp. And high-volume customers now are talking about volume crossover in mid of 2008.

Okay.

Hopefully that will give you a big picture.

Yes, sure. And then capital intensity from 90-nanometer to 65?

There's no particular equipment significantly more expensive for 65 than 90, although we will require more 193 - in terms of the production process. But overall, all of the infrastructure, the facility, and the clean room has been built. And incremental equipment wise, we do consider the capital efficiency is actually better for the remaining space in our post 12A and 12i Fabs.

So given some pricing leverage you have, should I expect an improvement in gross margin or would material cost would go up?

Yes. High-end continue to ramp. It is reasonable to assume that the gross margin will increase. And provided that the Fab can be fully loaded all the time.

Great. Thank you.

Your next question comes from the line of Timothy Arcuri of Citigroup. Please proceed, sir.

Hi, several things. I guess, judging from your bullish commentary into the back half of the year, it sounds like you've seen no change the last couple of weeks from the inventory build we're seeing happening at a number of your different customers. So I'm wondering, in the past, how has an inventory build in your customers been manifested in your forecast, i.e., do they just call you one day and they just change their forecast? Or is there some kind of leading indicator before they actually change the forecast? Thanks.

As you know, there's always a certain lead-time from production point of view. And so usually they will give us a notice two months earlier.

Okay. And so judging from your commentary, you've seen nothing of the sort from, you know, a broad range of your customers?

We didn't see anything alarming from the broad range of customers, maybe one or two specific customers, due to their specific condition.

Okay. So as you look out to the end of the year in terms of your capacity utilization, you know, if you look historically at inventory trends, and I’d say unit trends, it would suggest that the utilization is going to peak either in June or in September. But it sounds like that's not your view, is that right?

No, the utilization actually will continue to grow from this point onward to the end of the year. That's how we perceive it today.

Okay. Thanks a lot.

Your next question comes from the line of Brian Lahn (phonetic) of Daiwa Institute of Research. Please proceed.

Yeah. What percentage of revenue is in non-wafer business last quarter?

Normally its about 3 to 5%. I think last quarter should be no different. We don't have the exact numbers, but it should be within this range, 3-5%.

Okay. I think that one of your biggest customer has a very high inventory level last quarter. So when do they expect all the momentum from that customer to resume to normal level?

Well, it's very difficult to answer your question. And –

We don't know which customer you're referring to. Even we know, we are not allowed to talk about specific customers.

The best way is to check with that customer.

Okay. Thanks.

Your next question comes from the line of Shailesh Jaitly of Nomura Singapore. Please proceed.

Hi. Thanks for taking my question. Just looking at the utilizations broadly across all your Fabs, would it be fair to assume that most of your 8-inch capacity is operating at close to full utilizations?

That is a reasonable assumption. That's a high 90%.

High 90%. So it is mainly the culprit for, now, you having below industry average utilizations now is probably just the UMCI. So the moment you fix that, the things are going to get back to track?

Yeah for 12-inch right now, the loadings is still below average, and your statement is correct. Once the demand for both 12-inch Fabs increase, which will happen in the second half of the year and then the loading, overall loading will improve significantly.

Okay. You mentioned about these eight high-volume customers at 90-nanometer node. Of these, how many are already in the production phase? High volume production phase?

I would say three of them, and they will gradually increase to eight by Q4.

Okay. And could you also give some further color on the proportion of your revenue mix, which is going to be 65-nanometer by 4Q end?

In Q4, the percentage will still be small, probably approximately 1%.

Okay. So you're really counting on 65-nanometer to be in big volume production only in '07?

I mentioned earlier it will ramp in 2007. Yes, it will start to ramp. And high volume crossover will happen in 2008, mid of 2008.

Okay. Thank you.

Your next question comes from the line of Donald Lu of Goldman Sachs. Please proceed.

Hi. Just want to follow-up. At the investor meeting in the afternoon, you commented that the third quarter revenue growth would be a double-digit. Can you be more specific? Is that going to be high teens or low teens, mid teens?

Donald, please wait for one more quarter, we really cannot give out that number right now. All right? But it will be pretty good.

Okay. Yeah. I think at the meeting, Chitung told us to do some homework on the potential ASP improvement. If you hit your goal of reaching 50% revenue from 90-nanometer and 130-nanometer, and it did some exercise, it seems like the ASP potentially can improve around 14%. Is that something reasonable?

Yeah. We will look into your calculation after the call and get back to you.

All right. Thanks.

Your next question comes from the line of Bhavin Shah of JP Morgan. Please proceed.

Yeah. In the afternoon, you talked about the use of cash, dividends being one of them. Are you considering sort of vertical expansion looking at the types of businesses?

You mean getting into assembly and then task in other sector of the semiconductor business? What do you mean?

Yeah I guess something like that. Yeah, that's one of the possibilities.

No, we have no plan. We stay as a pure play foundry.

Okay. So then in that respect, do you expect dividend payout ratio to increase coming here?

The cash portion, yes. As a matter of fact, this year our cash portion is 80% of our dividend payout.

Okay, and how about the payout ratio?

The payout ratio, because we also include some, this year the earnings from the previous year, is actually over 100% compared to our EPA. Does that answer your question?

Yeah, I guess -- this year is sort of an abnormal year given last year's profitability but going forward, what sort of payout ratio are you looking at – ?

Going forward, the corporate tax stayed at no less than 20% off of dividends has to be paid in the form of cash. And we answer a similar question this afternoon that we are currently holding more than NT$95 billion cash on hand. We said we will try every possibility to restructure our capital structure including share buyback as well as cash dividend payouts. And again, recently, we have just bought back $1 billion shares, which is in the process of cancellation, and that will reduce our share outstanding by as much as 5.1%. And going forward, those cash will be a good source for either share buyback, further share buyback, or to rate the cash dividend portion, but if you talk about the numbers right now, in the corporate tax is minimum 20%.

Thank you.

Your next question is a follow-up question from Mark Fitzgerald of Banc of America. Please proceed.

Thank you. If you look over the last 12 months while the mixed moved toward 90-nanometer, and 130 ASPs didn't really move. Is that because ASPs in the leading edge was a problem, or was it the trailing edge that kept ASPs low here?

I think as many because of the percentage of 90-nanometer at advance node was too small. Yes. And of course, the mature nodes has price pressure.

And so as we, as the mix picks up here into the second half, is this ASP issue going to be put behind us? Do you expect a meaningful improvement?

Yeah, we should expect ASP to continue to improve.

Okay. Thank you.

Your final question comes from the line of Michael McConnell of Pacific Crest Securities.

Hi, Chitung, could you give us some guidance, please, on the net nonoperating income line for Q2, please?

For Q2, we don't have any major items planned at this stage. But quarter to date, we have sold about 4 million shares of Mediatech, which brings in about NT$1.5 billion in profit so far. It really depends on how we're going to divest our investments for the rest of the quarter, will determine the nonoperating parts. So far, we don't have the timetable for that.

Okay. That's helpful, thank you.

Your next question comes from the line of Kaoa Motawara (phonetic) of Orbis. Please, proceed.

Yes. Hi. My question is, you know, it seems that there's a reasonable number of shortage of lower and noding on below 130-nanometers because of HEV and things like that. And nobody's adding capacity over there. And you yourself mention that your ASIP Fabs are fully utilized. So do you see ASPs gradually increasing in that or at least not declining as much in the next couple of quarters?

Not declining, is definitely the right statement for now.

All right.

And I certainly hope that we would be in a position to raise the price if the demand exceeds the supply too much to buy a lot.

All right. Thank you.

There are no more questions at this time, I would like to now turn this call back over to management. Please, proceed.

Okay. That, I think, concludes our call today. Thank you everyone for joining us. If you have any questions, please do not hesitate to call us or e-mail. If you do not have our contact information, please visit the IR section on our website: www.umc.com. Back to you operator.

You're welcome, sir. That concludes our call. A link to the replay for this call will be available until the end of Tuesday, July 25th, 2006, on the Investor Relations section of UMC's website. A dial-in version of the replay can be heard at 888-286-8010, if you are in the U.S., or at 617-801-688 for international calls. The dial-in replay will be available until midnight on April 28th, 2006. The access code will be 26259920. If you have any additional questions, please feel free to contact UMC directly. Thank you, and have a good day.