OPERATIONAL HIGHLIGHTS

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2 OPERATIONAL HIGHLIGHTS 1. A description of the business 1.1 Scope of business VIS scope of business is to provide foundry service in wafer manufacturing. Main focuses are LCD/ LED/ PMIC/ BCD/ UHV processes. We also support specialty Logic process manufacturing, and concentrating on specialty IC manufacturing & service, while co-operating with various design houses and Intellectual Property providers to develop and harden the required IPs to expedite the deployment of new products, all for the purpose of establishing VIS as the preferred partner in specialty IC foundry & service. 1.2 Overview of the industry According to Gartner, the revenues of the semiconductor industry of 2010 was projected to reach US$300 billion, which showed substantial growth of 31.5% from US$228 billion in. However, the growth in the second half of the year was lower than the seasonality in the past. As such, the growth of the semiconductor industry in 2011 may be 4.6% to reach US$ 314 billion. The analysis of the semiconductor industry in 2010 showed that the momentum of growth came from the first half of the year. Although the credit crisis in Europe seemed to be over in the second half of the year, most people still worried about the slow recover of the global economy and tended to be conservative in spending. Many computers and related plants have downwardly adjusted their projections of revenues for Q1 of the year, which is the proof of the lack of dynamic growth as in the first half of the year. The IC manufacturing sector of Taiwan continued to experience the dynamic of recovery from the financial crisis since Q2 of 2010 with high production value. This is particularly the case on DRAM, which showed a significant recovery in production quantity from the rapid freezing of quantity the end of. Production value enjoyed even higher growth. As such, the production value of the IC manufacturing sector of Taiwan amounted to NT$884.1 billion, which had a substantial growth of 53.3% from the same period of. The growth actually reached record high. This result also showed an increase of 15.3% from the peak value of NT$766.7 billion before The quarterly growth in 2010 was 6.3%, 15.1%, 5.1%, and -13.8%, respectively. In general, the performance in Q1 of 2010 was better than the same period of preceding years, which had a growth of 6.3% from Q4 of in a situation where the production capacity of the foundries was tight and the supply and demand of DRAM was promising. The performance of the industry in Q continued the trend of Q1 with substantial growth of 15.1%. Production capacity of the foundries in Q3 of the year was tight, which pushed the production value upward. The supply and demand of DRAM turned unfavorable. The plummet of DRAM ASP products decreased the production value. As such, the production value of the IC manufacturing sector of Taiwan in Q just showed growth of 5.1% from Q2 of the same year. The continued decline of DRAM ASP products in Q4 of the year resulted in a substantial decline of the DRAM production value, which decreased the growth of the IC manufacturing sector of Taiwan by 13.8% in Q4 of the year. Billions of Dollars Q10 Forecast 4Q10 Forecast Projected Production Value of IC Manufacturing in Taiwan 12,000 Billions of Dollars 10,000 8, % 24.2% 6,000 4,701 3,785 4,000 3,025 2, % IC Manufacturing in Taiwan Growth Rate (%) 100% 80% 8,841 9,627 60% 32.7% 6,239 5, % 7,667 7, % 6,542 5,766 40% 20% 8.9% 0% -5.9% -3.9% -11.2% -11.9% -20% -40% Source: Gartner (2010/Dec) (e) -60% Source: ITRI, IEK (2011/Jan) 32 / 33

3 The rating of the IC manufacturers of Taiwan by revenue in 2010 is shown in the table below. The champion and the first runner-up were TSMC and UMC, respectively. VIS was ranked in 10th place. Those on the list of the top 10 are engaged principally in memory chips manufacturing, including the third largest to the sixth largest DRAM manufacturers- Powership, Nanya Technology, Rexchip, and Inotera; and companies with an edge in niche DRAM, Flash, and ROM, including Winbond and Macronix, which was ranked the 7th and 8th place, respectively. In general, the top 10 IC manufacturers of Taiwan in 2010 performed better than in. In this period, these companies underwent capacity adjustment in order to meet the development needs. For example, ProMOS has sold a 12 foundry to Macronix while Powerchip has sold its P4 and P5 lots prepared Dillions of Dollars Wafer Foundry Market Forecast Pure-Play Foundry IDM Foundry Pure-Play Foundry Growth $40 $25 $10 45% 24% 21% % % % 21% 20% 17% 12% 10% 2% 2% 1% 0% -3% -10% -10% % F 11F 12F 13F 14F -$5 Year -30% Source: IC Insight (2010/3) for the construction of 12 foundries to TSMC. From these transactions, we can see that the DRAM manufacturers tended to dispose their fixed assets to optimize their financial position for coping with unforeseeable change in the future. In addition, the production capacity of the 12 foundries in the industry is still running short. At the same time, business opportunity for memory products beyond standard DRAM mushroomed. As such, enterprises in the industry should pay close attention to the development of the trend. Unit: 100M NTD The top 10 IC manufacturers of Taiwan by revenue Ranking 2010 Ranking Company Name Revenue 2010 Revenue Growth Rate 1 1 TSMC 2,957 4, % 2 2 UMC 886 1, % 5 3 Powerchip % 3 4 Nanya % 6 5 Rexchip % 4 6 Inotera Memories % 8 7 Winbond % 7 8 MXIC % 10 9 ProMOS % 9 10 VIS % Source: ITRI IEK (2011/Jan) According to a forecast of IC Insight from the global perspective in the foundry industry, VIS is expected to be ranked the 5th place in TSMC will still be the champion, which will account for 49% of the market share. It will be followed by UMC, GlobalFoundry, and SMIC. Growth Rate Rank Company (Headquarters) 08/07 % 09/08 % 10/09 % 1 TSMC (Taiwan) 10,556 8% 51% 8,989-15% 48% 13,120 46% 49% 2 UMC Group (Taiwan) 3,070-10% 15% 2,815-8% 15% 3,940 40% 15% 3 GlobalFoundries (U.S.) 0 N/A N/A 1,101 N/A 6% 3, % 14% (Continued)

4 Rank Company (Headquarters) 08/07 % 09/08 % 10/09 % 4 SMIC (China) 1,353-13% 7% 1,070-21% 6% 1,540 44% 6% 5 Vanguard (Taiwan) 511 5% 2% % 2% % 2% 6 TowerJazz (Israel) 252 9% 1% % 2% % 2% 7 Dounbu HiTek (S. Korea) % 2% % 2% % 2% 8 Hua Hong Renesas (China) 350 4% 2% % 2% % 1% 9 Grace (China) 335 8% 2% 310-7% 2% % 1% 10 X-Fab (Europe) % 2% % 1% % 1% 11 SSMC (Singapore) 340-3% 2% % 2% % 1% 12 He Jian (China) 345 5% 2% % 2% % 1% 13 WIN (Taiwan) % <1% % <1% % <1% 14 Altis (Europe) 0 N/A N/A 0 N/A N/A 210 N/A <1% 15 Silterra (Malaysia) 175-3% <1% 170-3% <1% % <1% 16 ASMC (China) % <1% 94-30% <1% % <1% 17 Mosel-Vitelic (Taiwan) 98-7% <1% 51-48% <1% 90 76% <1% - Chartered (U.S.) 1,743 20% 8% 1,540-12% 8% 0-100% 0% - Jazz (U.S.) 190 4% <1% 0 N/A 0% 0 N/A 0% - Others % <1% % <1% % 1% - 20,595 2% 100% 18,635-10% 100% 26,695 43% 100% (Concluded) Source:IC Insight,(2010/8) Taiwan IC Industry Equipment / Instruments Capital / Human Resources CAD CAE Service Support Materials Design Mask Wafers Manufacturing Chemicals Packaging Testing Lead frame Substrate Shipping Customs Science Park.. 34 / 35

5 Product Trend and Competitiveness a. Product Development Trend VIS provides IC foundry services with the best quality. In Logic foundry process, in addition to the existing logic, Mixed-Signal services, VIS is also capable of customized processing technologies such as High Voltage, Ultra High Voltage, BCD(Bipolar- CMOS-DMOS), SOI(Silicon on Insulator), Embedded Non-Volatile Memory. Our High Voltage technology covers a wide range of processes including 10V~800V to meet various product requirements and support more applications in customers' businesses. 1. Computer: An estimation of Gartner, a research institution, indicated that the global PC market in 2010 shipped 376 million units of system, and the shipment volume of NB would surpass that of Desktop for the first time, at 200 million units. The gap between the shipment volumes of the two products would widen. In 2014 where the shipment volume of NB would be 400 million units. The introduction of the stylus Netbook at the beginning of seemed to be displaced by the tablet PC and e-reader in 2010 after being launched into the market, given the advantages of these products in portability and entertainment features. The Table PC, which is led by ipad, has attracted much of the attention in the market. The shipment volume in 2010 was 17 million units, and is expected to grow to 130 million units in (m units) 2010E 2011E 2012E Desktop NB & netbook Tablet PC include tablet (units m) (y-y %) PC exclude tablet (units m) (y-y %) Source: BNP (2011/ 1) 2. Consumer Consumer Electronics According to the statistics compiled by ITRI IEK, the production value of TFT LCD plants in 2010 was projected at US$82,793.2 million (see the table below), which showed an upward projection by 27.6% if compared with the production value of US$60,893.6 million in. The shipment of panel screen has been promising in the whole year. In general, the business in the first half of the year was not slow in slow season but not high enough in the high season in the second half of the year. This seasonality pattern of 2010 just turned the previous notions of high season and low season in forecasting upside down. From the shipment volume of the global TFT LCD plants in the whole year of 2010, we could see that the shipment of TV screen has surpassed that of monitor screen for the first time, which made this product the top item of the world by shipment volume. 665 million large-area TFT panels were shipped in 2010 (26% increase over ) where the shipments for TV, NB, monitor and Netbook are 221 million, 178 million, 99 million and 54 million respectively. In USD million 2010(e) 2011(f) 2012(f) 2013(f) Production Value 60,894 82,798 83,859 81,662 80,152 Source: ITRI IEK (2010/12) From the demand side of TV in the market, we could see that 32" will be the main item of shipment in this year, as this size is the first choice of most families for LCD TV with emerging market like China in particular. LCD TV of 32" screen will be the most preferred item of the consumers. This was followed by the shipment volume of the 40" and 42" sceen. The declining prices for the 40/42" TV screen and the extension of the product line by the manufacturers also helped to stimulated the shipment volume of the 40/42" screen.

6 The most attractive move in the consumer market in 2010 was the launch of 3D technology in the market. Although the shipment volume in the whole of 2010 was just 3 million pieces, most manufacturers showed their confidence in this product. They make effort to promote 3D products into the market in Most of the LCD TV carrying 3D technology was matched with Shutter Glass. Shutter Glass has no resolution fading problem. However, if the Frame Rate of the screen cannot be enhanced, the Crosstalk phenomenon will affect the viewing quality of the 3D screen. As such, 3D TV screen driven by high Frame Rate will be the arena for the manufacturers to flex their muscle. 3. Communication In 2010, the production volume of cell phone was 1.35 billion sets which amounted to NT$4,671.5 billion worldwide at the annual growth rate of 18.5% and 16.2%, respectively. There were two major factors for the growth. Fist of all, it was economic recovery and the growth in the newly emerged market, which inspired the consumers to upgrade their cell phones. The replacement cycle of cell phone was shorten from 18~24 months to 12~18 months. Secondly, the smart phone products by Apple, HTC, and Motorola have been highly receptive in the market of North America and Europe, which drove up the demand for smart phone. It was expected that this wave of demand will continue until 2011, and the projected production value of this year was NT$ 5,089.7 million (YoY=9.0%) and production volume would increased by 10.0% to 1,480 million sets for mobile phone. Contribution to 2011 Growth Mobile Phone Media Tablet In 2011, the growth of smart phones is expected to be fast and in a much larger 2011 Growth ($B) Source: Gartner(2010/12) volume to 29.30%, as contrasted with the growth of 26.2% in The total volume is projected at 430 million sets. Since smart phone constitutes a lucrative hare of profit for the players, makers, hardware manufacturers and brand owners tended to compete in this market. Yet, the development of featured phone is not as optimistic, as it is being displaced by smart phones. The segmentation of this type of cell phone began to vanish in the market. In the future, the speed of displacement by smart phone will accelerate. As for basic phone, the demand in the newly emerged market is still there and the growth is projected at 31.1% in West Europe,North America, and Asia (excluding Japan) together accounted for 75% of the market share of smart phone. It is expected that the main market of smart phone in 2011 will still cover the aforementioned regions. The growth of the market in Asia will be the fastest and most sizable in India, China, and Korea provided the dynamics. Currently, there are some 700 million cell phone users in India. Smart phone sales in India would grow by 18% or to 160 sets in 2011, which is higher than the market average. The proliferation rate of smart phone in India will skyrocket to 10%. The shipment volume of smart phone in China was 51 million sets in It is expected that the shipment volume in 2012 will exceed 100 million sets or at the market penetration rate of at least 25%. As such, the market of China and India together will be the main battlefield for cell phone in 2011 and 3 years ahead. In 2011, both tablet PC and storage devices are expected to gain two-digit growth, at 25.2% and 15.8%, respectively. The trend of replacement of old models for LCD TV will continue and this product is expected to grow by 6.4%. Hampered by the launch of tablet PC to the market, the Netbook PC market in 2011 is expected to decline by 14.8%. Storage LCD TV Automotive Comm. Infra./ Broadband Server PC Otherv % 25.2% 15.8% 6.4% 6.4% 2.5% -0.1% -14.8% 10.0% Growth Share b. Competitiveness In foundry process, VIS continues to transfer advance technologies, such as 0.5um/0.35um/0.25um/0.18um/0.16um for logic devices, from TSMC, VIS developed multiple specialty IC technologies in mass production to enhance customers' product competitiveness. Different from digital IC, analog, mixed-signal and high voltage technologies are the interfaces between the real world and the digital systems, and therefore, each product has its own device and IP requirements. VIS focuses on the development of special devices and IPs to help customers shorten time-to-market. Co-development new technologies with the customers will ensure the long term partnerships between VIS and our customers. 36 / 37

7 1.3 Technology and R&D Status VIS as a specialty IC foundry leading company, research and development capability has always been one of our core competences. To enhance market competitiveness, we keep close watch of technology advancement around the world. By inhouse and joint developments including world-class IDM company, VIS developed the key technologies and process capabilities. We also work closely with business partners to develop technology for better efficiency to meet customers demand and to enhance our service quality. To provide the best technologies and services in the specialty IC foundry business, VIS offers various process for High Voltage (HV), analog and mixed-mode signal, BCD (Bipolar-CMOS-DMOS), Ultra-High-Voltage and Discrete products. In 2010, VIS was the key player in the high voltage wafer process, which provides significant volume production of LCD screen driver IC. For large size source driver IC, the process of 0.2~0.15 microns was in mass production with the 1.8V supply voltage for logic to meet the demand of 3D-TV. In the area of gate driver IC, VIS has completed the new process of 0.8 micron and launched mass production stage very quickly. These achievements helped us maintaining the leading position. In the market of small and medium panel applications, VIS developed the super small size SRAM onto the 0.16 micron high voltage process, transferred from TSMC, and successfully advanced into mass production. In power management and analog process technologies, to satisfy customers need from the traditional power supply, motor driver, and audio amplifier, to the fast growing LED backlight, integrated power management unit of panel screen and LED lighting. VIS BCD platform technologies for 0.5 and 0.25 micron have moved to mass production successfully. The 0.4 and 0.25 micron customized processes, jointly developed with the customers, have also advanced to mass production. Besides, the 0.5 micron 800V UHV process has been successfully developed in VIS customers have successfully applied this process to AC-DC adaptor IC and LED lighting IC through the pilot project now in the mass production. Furthermore, VIS has also demonstrated its success in developing the embedded memory technology through joint development projects with third party IP partners. The 0.4 micron and 0.35 micron Multiple Time Programmable Memory(MTP) IPs have already passed the qualification. VIS will continue to develop different memory IPs with different capacities to satisfy the diverse needs of our customers. The prospect Looking forward to 2011, VIS will continue to reduce the cost through components shrinking and masks reduction for the benefit of its customers in the area of LCD driver IC high voltage process. In responding to the rapid growth of tablet PCs and upgrade of display speed, a new generation of the high voltage process is currently under development, which will be launched to the mass production this year. In the development of power management and power IC process, VIS has made tremendous efforts in research and development for the second generation BCD and UHV processes, which are intended to reduce the resistance of the components and to expand the applicability of voltage range and the ability to handle large current. In addition, VIS will also work closely with its customers for the development of the next generation customized process to satisfy the needs of customers in function improvement and cost reduction. In the research and development of IP, in addition to the completion of PDK and standard cell library supports, the embedded flash memory at 0.25 microns and below will be the focus of development in this year to satisfy the needs of new generation of LCD panel and power management ICs. VIS will maintain its high momentum in R&D activities, with an estimation of over 5% in R&D expenditure versus the revenue of VIS R&D Expense in latest two years: Year R&D Expenditure (NT$ thousand) Percentage of Revenue 693,502 5% ,472 4% 1.4 Long- and short-term business development plan (1) Short-term business development plan VIS endeavors for innovation and new technology development, and had accumulated years of expertise in high voltage processes. In the near term, our product development plan will remain to focus on high voltage process for driver IC, and BCD technology to fulfill customer needs and provide better customer services.