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50 United Microelectronics Corporation Annual Report 2004 Mergers and Acquisitions or the Issue of New Shares to Acquire Another Company’s Shares On February 26, 2004, UMC and SiS Microelectronics Corp. (SiSMC) announced that in the respective meetings of the Boards of Directors of both companies, a plan to merge the companies was approved and a merger agreement signed. The agreement resulted in one surviving company, UMC. SiSMC, originally a part of Silicon Integrated Systems Corp. (SiS), is a foundry company that operates one 200mm wafer fab. SiSMC was spun-off from SiS, an IC design and product company, to form a dedicated wafer foundry company at the end of 2003 after the approval of its Board of Directors and shareholders at their respective meetings. Improved economic conditions are the major driving force behind this merger. By the end of 2003, capacity utilization reached 100%, making it impossible for UMC to meet all of the requirements of its global customer base. In view of the long-lead time it takes to build a new fab, well in excess of one year, and costs that would likely exceed one billion US dollars, UMC concluded that a merger with SiSMC was the most effective method to quickly meet customer demand, relieve production bottlenecks, and maximize growth in response to dynamic industry conditions. The merger allows UMC to accelerate capacity expansion and achieve improved economies of scale, as well as avoid the massive capital outlay that construction of a new fab would require. With this merger, UMC obtains a 200mm wafer fab that has a capacity of 24,000 wafers per month, thus increasing the ability and flexibility to acquire future orders. At the same time, UMC recognizes revenues and profits from the operations of SiSMC’s fab, thereby achieving greater financial transparency. SiSMC also sees a strong rationale in this merger with UMC. Since spinning off from SiS to become an independent foundry company, it has had to deal with the intense competitive forces that characterize the IC manufacturing industry. This merger is the most effective way for it to widen its customer base and gain access to UMC’s advanced production technologies. The Company greatly strengthens its competitiveness and profitability through this merger. SiS, a pure fabless company, can also more sharply focus its energies on IC design, as it becomes a major customer of one of the world’s leading foundries, UMC. UMC issued 357 million new shares to accommodate the acquisition that was valued at NTD 10.7 billion. The shares exchange ratio was 1:2.24 for UMC to SiSMC. The value of the merger was set based on many factors, including the profitability, net asset values, current operating conditions, technology capabilities and future growth prospects of the two companies. After the merger, UMC can quickly integrate the acquired production resources to lower operational costs, increase operational scale, and raise profitability. All of these factors helped UMC to raise its international competitiveness in an industry characterized by fast development and the growing trend towards concentration of capital and technology. The merger results in a strong long-term positive contribution to the equity of shareholders of UMC, SiSMC and SiS.
Corporate Overview 51 Mergers and Acquisitions (cont.) The Information of the Acquired Company Company name Address Chairman Major business scope Major product line SiS Microelectronics Corp. 4F, 16 Creation 1 st Rd., Hsinchu Science Park, Hsinchu, Taiwan 300, R.O.C. John Hsuan IC Manufacturing Wafers Financial information as of June 30, 2004 (Expressed in thousand NTD unless otherwise stated) Total assets 13,345,478 Total liabilities 4,930,330 Capital 8,000,000 Total stockholders’ equity 8,415,148 Operating revenues 2,255,507 Gross loss (815,941) Operating loss (930,623) Net loss (1,173,399) Latest Underwriter Opinions for the Acquisition Effected date 2004.8.4 Impacts to the Company’s business scope Impacts to the Company’s financial status Impacts to the shareholders’ equity The benefits from the merger After completion of the acquisition, SiSMC provides its capacity for not only its original customer – SiS, but also the customers of UMC. SiSMC widened its customer base from a single customer to around 10 customers (as of December, 2004). This shows that SiSMC can efficiently support UMC’s customer needs and also raise its revenue. SiSMC can contribute more revenue to UMC in the future when the economy strengthens. Started from the record date of July 1 st , 2004, UMC’s 4 th Quarter revenue was NTD 28.2 billion, which shows a 19% increase year over year. Although UMC’s total revenue was not able to increase significantly due to economic fluctuations, SiSMC (now Fab 8S) still contributed a significant portion of UMC’s customer base and total revenue. The acquisition of SiSMC can satisfy UMC’s original customer needs. UMC can also benefit from the integration of R&D, production, capacity, cost management and market shares. This integration will have positive impacts to sales, profitability and shareholders’ equity. UMC and SiSMC completed the registration of acquisition in August 2004. The Company then made efforts on the integration of sales, finance and production to increase the Company’s overall competitiveness. The benefits of the acquisition will gradually emerge.
Page 1 and 2: THE SoC SOLUTION FOUNDRY United Mic
Page 3 and 4: united microelectronics corporation
Page 5 and 6: Financial Review Unconsolidated 67
Page 7 and 8: Letter to Shareholders 5 packaging
Page 9 and 10: Letter to Shareholders 7 strategy,
Page 11 and 12: Era of the SoC 9 Remarkable progres
Page 13 and 14: Energy Efficiency SoCs can be used
Page 15 and 16: Automobile Security SoCs can be use
Page 17 and 18: Office Automation SoCs are found in
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