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CURRENCY TRANSLATIONS AND EXCHANGE RATE

      We publish our financial statements in NT dollars, the lawful currency of the Republic of China. This annual report contains translations of NT dollar amounts into U.S. dollars at specific rates solely for the convenience of the reader. For convenience only and unless otherwise noted, all translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollars herein were made at a rate of NT$34.70 to US$1.00, the noon buying rate in effect as of December 31, 2002. No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. On June 16, 2003, the noon buying rate was NT$34.60 to US$1.00.

      Fluctuations in the exchange rate between NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of our shares on the Taiwan Stock Exchange and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the U.S. dollar conversion by the depositary of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale of, our shares represented by ADSs.

      The following table sets forth, for the periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged based on the noon buying rate for cable transfers in NT dollars as certified for customs purposes by the Federal Reserve Bank of New York.

CAPITALIZATION AND INDEBTEDNESS

     Not applicable.

REASON FOR THE OFFER AND USE OF PROCEEDS

     Not applicable.

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RISK FACTORS

Risks Relating to Our Financial Condition, Our Business and the Industry

The industry in which we operate is cyclical. As a result, price fluctuations in response to supply and demand imbalances could harm our operating results.

      The TFT-LCD industry in general has been characterized by cyclical market conditions. The industry has been subject to significant and rapid downturns, which have been reflected in the past by the excess of supply growth over demand growth, causing sharp declines in prices. Commencing in the second half of 2000, intense competition in the TF T-LCD industry worldwide, due principally to the substantial addition of new fabs by most major manufacturers in Taiwan, Korea and Japan, including our company, resulted in declines in the average selling prices of many of our products. As a result, we experienced substantial downward pricing pressure on our large-size panels. The average selling prices of our large-size panels decreased by 40.1% between 2000 and 2001. From the first half of 2002, expectation for strong demands for TFT-LCD panels resulted in panel price recovery in the TFT-LCD industry. The average selling prices of our large-size panels increased by 21.5% between the fourth quarter of 2001 and the first quarter of 2002 and further increased by 13.9% between the first quarter and the second quarter of 2002. However, the significant increase in the average selling prices of large-size panels in the first half of 2002 led to a slowdown in demand growth in the second half of 2002, which in turn resulted in an oversupply in the market and caused sharp declines in prices in that period. As a result, the average selling prices of our large-size panels decreased by 13.0% between the second quarter and the third quarter of 2002 and further decreased by 21.7% between the third quarter and the fourth quarter of 2002. Capacity expansion currently being undertaken or anticipated in the TFT-LCD industry could lead to a future period or periods of general excess capacity in the industry. We cannot assure you that any future downturns resulting from such excess capacity or other factors affecting the industry will not be severe or that any such downturn would not seriously harm our business, financial condition and results of operations.

      TFT-LCD prices worldwide generally fluctuate in response to imbalances in supply and demand. Accordingly, our ability to maintain or increase our revenues will be highly dependent upon our ability to maintain market share, increase unit sales of existing products, and introduce and sell new products, which compensate for the anticipated fluctuation and long-term declines in the average selling prices of our existing products. During periods of oversupply, we may price our panels below cost and incur a loss to maintain our market share. As a result, our gross margins and profits will be negatively affected unless we are able to introduce new products with higher margins or reduce our cost per panel to offset declines in average selling prices. We cannot assure you that we will be able to maintain or expand market share, increase unit sales, and introduce and sell new products, to the extent necessary to compensate for market oversupply.

We had a net loss for 2001. Although we were profitable in 2002, if we are not profitable in 2003 and beyond, the value of your investment may be negatively affected.

      We experienced a net loss in 2001 due principally to a decline in the average selling prices of our products caused by the oversupply of TFT-LCD panels in the market. The decline in average selling prices resulted in a decrease in our gross margins. We expect that average selling prices for many of our existing products will continue to decline over the long term. If we are not able to reduce our costs of manufacturing these panels to offset such declines in average selling prices, our gross margin will continue to decline, which could seriously harm our business and reduce the value of your investment. No assurances can be given that we will be profitable in 2003 or beyond.

      Our future net sales, gross profit and operating income may vary significantly due to a combination of factors, including, but not limited to:

• Our ability to develop and introduce new products to meet customers’ needs. Our inability to develop or introduce new products may hurt our competitive position because our customers may choose t o source more advanced products from our competitors.
  
  
• Our ability to develop or acquire and implement new manufacturing process and product technologies. If we are unable to successfully implement new manufacturing process and product technologies in a timely manner, our competitors may seize new opportunities in new markets.
  

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• Our ability to control our fixed and variable costs. Increased fixed or variable costs may reduce our profitability and adversely affect our results of operations.
  
  
• Changes in our product mix or those of our customers. When our customers or we discontinue or add a product that we are unable to produce, our operating results usually fluctuate.
  
  
• Lower than expected demand growth for TFT-LCD panels resulting in oversupply in the market. When oversupply occurs, we may reduce the volume of our production or the price of our panels to maintain the level of our capacity utilization.

  Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our future performance.

      Our results of operations have varied significantly in the past and may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. Our business and operations may be negatively affected by:

• the cyclical nature of both the TFT-LCD industry and the markets served by our customers;
  
  
• the speed at which we expand our production capacity;
  
  
• access to raw materials and components, equipment, electricity, water and other required utilities on a timely and economical basis;
  
  
• technological changes;
  
  
• the loss of a key customer or the postponement of orders from a key customer;
  
  
• changes in end users’ spending patterns;
  
  
• the rescheduling and cancellation of large orders;
  
  
• our customers’ adjustments in their inventory; and
  
  
• natural disasters, such as typhoons, fires and earthquakes, and industrial accidents.

      Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter comparisons to predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations. In addition, our operating results may be below the expectations of public market analysts and investors in some future periods, which may result in a decline in the price of the ADSs or Shares.

Our financial condition may be adversely affected if we cannot introduce new prod ucts on a timely basis or if our new products do not gain market acceptance.

      Early product development by itself cannot guarantee the success of a new product. Success also depends on other factors such as product acceptance by the market. For example, although TFT-LCD technology was initially introduced commercially about ten years ago, this technology began to receive wide market acceptance only in the last few years, especially in the consumer electronics sector. New products are developed in anticipation of future demand. Our delay in the development of commercially successful products with anticipated technological advancement may adversely affect our business. We cannot assure you that the launch of any new product will be successful, or that we will be able to produce sufficient quantities of these products to meet market demand.

      We plan to continue to expand our operations to meet the growing needs of high-growth applications in consumer electronics, LCD televisions and other markets as demand develops. Because these products, such as mobile phones, personal digital assistants, digital cameras and LCD televisions, are expected to be marketed to a diversified group of end-users with demands for different specifications, functions and prices, we have developed different marketing strategies to promote our panels for these products. We cannot assure you that our expansion

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strategy for these panels will be successful. If we fail to successfully market panels for these products, our results of operations would be adversely affected.

A downturn in the demand for notebook computers or a further decrease in the average selling prices of our products used in notebook computers may severely affect our results of operations.

      A significant percentage of our net sales is derived from customers who use our TFT-LCD panels in their notebook computers. In 2000, 2001 and 2002, 78.6%, 45.2% and 29.6%, respectively, of our net sales were attributable to panels for notebook computers. Any significant decrease in the demand for notebook computers may therefore reduce the demand for our panels and would have an adverse effect on our results of operations. The demand for notebook computers may be affected by various reasons, including the slowdown in information technology spending by corporations due to the general slowdown in the global economy. The notebook computer industry grew at a lower than expected rate in 2001 and 2002. This lower than expected growth contributed to the downward pressure on the average selling prices of panels for notebook computers. Any further decrease in the average selling prices of our products used in notebook computers may reduce our net sales and materially and adversely affect our results of operations.

Our net sales and operating results may suffer if the rate of substitution by end-users purchasing TFT-LCD monitors to replace cathode ray tube monitors is lower than expected or if brand companies change their bundling policy.

      In addition to the general demand for notebook and desktop computers, demand for our products is affected by a number of factors, including the rate of substitution by end-users and the bundling policy of brand companies. We believe that a significant percentage of our net sales is, and will continue to be, derived from end-users purchasing TFT-LCD monitors to replace their existing cathode ray tube monitors. The rate of substitution of TFT-LCD monitors for cathode ray tube monitors may be affected by the slowdown in information technology spending by corporations due to the general slowdown in the global economy. In addition, some brand companies sell their computer products bundled with TFT-LCD monitors, which also increases the demand of our TFT-LCD panels. As a result, if the rate of substitution of TFT-LCD panels for cathode ray tube monitors is lower than expected or if brand companies change their bundling policy, such factors may have an adverse effect on our net revenues and results of operations.

If end-users do not purchase LCD televisions to replace traditional cathode ray tube television, or if the volume of their purchases is less than our expectations, our net sales may not grow at the rate we expect and our operating results may suffer.

      We commenced commercial production of display panels for LCD televisions in the fourth quarter of 2002. As end-users may find LCD televisions attractive to them due to the compact size of LCD televisions as compared to traditional cathode ray tube televisions, we believe that a substantial portion of our sales growth will be derived from end-users who purchase LCD televisions to replace their traditional cathode ray tube televisions, or end-users who purchase LCD televisions as second televisions. We have installed, and we expect to continue to install, capacity in anticipation of increased LCD television demand generated by this trend toward the market acceptance of LCD televisions. As a result, if end-users purchase LCD televisions at a lower rate than expected, we will not be able to maintain high utilization rate of the capacity installed or allocated to manufacture panels for LCD televisions. In addition, we may face downward pricing pressures on our TFT-LCD products due to the over-production of such products by utilizing excess capacity, which may have an adverse effect on our operating results.

If we are unable to maintain high capacity utilization rates, our profitability will be adversely affected.

      High capacity utilization allows us to allocate fixed costs over a greater number of panels produced. Increases or decreases in capacity utilization rates can have a significant effect on our gross margin. Accordingly, our ability to maintain or enhance our gross margins will continue to depend, in part, on maintaining high capacity utilization rates. In turn, our ability to maintain high capacity utilization will depend on the demand for our products and our ability to offer products that meet our customers’ requirements at competitive prices.

      Although we are currently maintaining a high utilization rate of our capacity, operating at near full capacity, our operating results in the past have been negatively affected by low capacity utilization. We cannot assure you that we

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will be able to maintain high capacity utilization rates. If demand for our products does not meet our expectations, our capacity utilization would decrease and our gross margins would suffer.

We depend on a small number of customers for a substantial portion of our net sales and a loss of any one of these customers would result in the loss of a significant portion of our net sales.

      We are dependent on a small group of customers for a substantial portion of our business. In 2000, 2001 and 2002, 68.7%, 62.1% and 54.0% of our net sales, respectively, was derived from sales to our top ten customers in those years. In addition, some customers individually accounted for more than 10% of our net sales for each of the last three years. In 2000, Acer Inc., IBM Corporation and Matsushita accounted for 14.5%, 10.3% and 10.2% of our net sales, respectively. In 2001, BenQ Corporation accounted for 17.8% of our net sales. In 2002, BenQ Corporation, together with its subsidiary BenQ (IT), accounted for 20.8% of our net sales. As some of our major customers are brand companies which also provide original equipment manufacturing services for other brand companies, such as BenQ Corporation, our panels shipped to those customers include both panels ordered for their own account as well as panels ordered by or on behalf of their brand company customers.

      In recent years, our largest customers have varied due to changes in our product mix. We expect that we will continue to depend on a relatively limited number of customers for a significant portion of our net sales and may continue to experience fluctuations in the percentage shares of our sales among our largest customers as we periodically adjust our product mix. Our ability to maintain close and satisfactory relationships with our customers is important to the ongoing success and profitability of our business. If any of our significant customers reduces, delays or cancels its orders, our business would be seriously harmed because each one of these customers accounts for a significant portion of our net sales. Similarly, our failure to manufacture sufficient quantities of panels to meet the demands of these customers may cause us to lose customers and our business may suffer as a result.

Our customers generally do not place purchase orders far in advance, which makes it difficult for us to predict our future revenues, adjust production costs and allocate capacity efficiently on a timely basis.

      Our customers generally provide rolling forecasts four to six months in advance of, and do not place firm purchase orders until one month before, expected shipment date. In addition, due to the cyclical nature of the TFT-LCD industry, our customers’ purchase orders have varied significantly from period to period. As a result, we do not typically operate with any significant backlog. The lack of significant backlog makes it difficult for us to forecast our revenues in future periods. Moreover, we incur expenses based in part on our expectations of future sales, and we may be unable to adjust production costs or allocate production capacity in a timely manner to compensate for shortfalls in sales. We expect that, in the future, our sales in any quarter will continue to be substantially dependent upon purchase orders received in that quarter. Our lack of flexibility to adjust production costs or to allocate production capacity quickly to respond to the demand for our products may affect our ability to maximize operating results, which may result in a negative impact on the value of your investment.

If capital resources required for our expansion plans are not available, we may be unable to successfully implement our business strategy.

      Historically, we have been able to finance our capital expenditures through the issuance of equity securities, long-term borrowings, and the issuance of convertible and other debt securities. Our ability to expand will continue to be largely dependent on our ability to obtain external funding. We expect to make substantial capital expenditures in connection with the expansion of our production capacity, including investments in 2003 and 2004 in the ramp up of two new fifth-generation fabs, our L8A fab with input substrate size of 1,100 x 1,250 millimeters, and L8B fab with input substrate size of 1,100 x 1,300 millimeters, the establishment of color filter production facilities housed at our L8B fab, the establishment of the new TFT-LCD flat panel research and development center, AU Technology Center, and the establishment of a sixth- or seventh-generation fab. These capital expenditures will be made well in advance of any additional sales to be generated from these expenditures. We may incur operating losses if we do not have the capital resources to complete our expansion plans or if our actual expenditures exceed our planned expenditures for a variety of reasons, including changes in:

• our growth plan;
  
  
• manufacturing process and product technologies;
  

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• market conditions;
  
  
• prices of equipment; and
  
  
• interest rates.
  

      We cannot assure you that any required additional financing will be available to us on satisfactory terms, if at all. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans, which could result in a loss of customers, restrain our ability to successfully implement our business strategy and limit the growth of our business.

We operate in a highly competitive environment and we may not be able to sustain our current market position if we fail to compete successfully.

      The markets for our products in Taiwan and abroad are highly competitive. We experience pressure on our prices and profit margins, due largely to additional industry capacity from competitors in Taiwan, Korea and Japan. The ability to manufacture on a large scale with greater cost efficiencies is a competitive advantage in our industry. Some of our competitors have greater access to capital and substantially greater production, research and development, intellectual property, marketing and other resources than we do. Some of our competitors have announced their plans to develop, and have already invested substantial resources in, fifth-generation capacity. They may be able to introduce products manufactured using such capacity in advance of our company’s schedule. In addition, some of our larger competitors have more extensive intellectual property portfolios than ours, which they may use to their advantage when negotiating cross-licensing agreements for technologies. As a result, these companies may be able to compete more aggressively over a longer period of time than we can.

     The principal elements of competition in the TFT-LCD industry include:

• price;
  
  
• product features and quality;
  
  
• customer service, including product design support;
  
  
• research and development; and
  
  
• time-to-market.

      Our ability to compete successfully in the TFT-LCD industry also depends on factors partially outside of our control, including industry and general economic conditions.

If brand companies do not continue to outsource the manufacturing of their products to original equipment manufacturing service providers with production operations in Taiwan or the People’s Republic of China , our sales could be adversely affected.

      In recent years, brand companies have increasingly outsourced the manufacturing of their products to original equipment manufacturing service providers in Taiwan, or such providers with part or all of their production operations in the People’s Republic of China. We believe that we have benefited from this outsourcing trend in large part due to our production locations in both Taiwan and the People’s Republic of China, which has allowed us to better coordinate our production and services with our customers’ requirements, especially in the areas of delivery time and product design support. There can be no assurance that this outsourcing trend will continue. If brand companies do not continue to outsource the manufacturing of their products to original equipment manufacturing service providers with their production operations in Taiwan or the People’s Republic of China, our sales and operating results will suffer.

If we are unable to manage our growth effectively, our business could be negatively affected.

      We have experienced, and expect to continue to experience, growth in the scope and complexity of our operations and in the number of our employees. For example, we are currently devoting significant resources in the ramp up of our new fifth-generation fab, our L8A fab, the construction of another new fifth-generation fab, our L8B

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fab and the establishment of AU Technology Center. This growth may be strained by our existing managerial, financial and other resources. In order to manage our growth, we must continue to implement additional operating and financial controls and hire and train additional personnel for these functions. We cannot assure you that we will be able to do so in the future, and our failure to do so could jeopardize our expansion plans and seriously harm our operations.

The loss of any key management personnel or the undue distraction of any of these personnel may disrupt our business.

      Our success depends largely upon the continued services of key senior management, including our Chairman, President and Chief Executive Officer. We do not carry key person life insurance on any of our senior management personnel. If we lose the services of key senior management personnel, it would be very difficult to find and integrate replacement personnel in a timely manner or at all, which would seriously harm our business.

      In addition, our continuing growth will, to a large extent, depend on the attention of key management personnel to our company’s daily affairs. For the foreseeable future, we expect that Mr. Kuen-Yao (K.Y.) Lee’s time will be divided between serving as Chairman and Chief Executive Officer of our company and Chairman, President and Chief Executive Officer of BenQ Corporation. If Mr. Lee is not able to devote enough time to our company, our operations and the value of or ADSs may be negatively affected.

We depend on our technical personnel, including research and development and other personnel, and the inability to attract and retain such personnel would jeopardize our operations and expansion plans.

      Our success depends on our ability to attract and retain skilled employees, particularly engineering and technical personnel in research and development and manufacturing processing areas. We are currently establishing a new TFT-LCD flat panel research and development center, AU Technology Center, in Hsinchu Science-Based Industrial Park. The research center plans to house eight to sixteen research labs and training facilities, which is targeted for completion by third quarter of 2004. Without sufficient number of skilled employees, our operations would suffer, resulting in the deterioration in production quality. Competition for qualified technical personnel and operators in Taiwan is intense and the replacement of skilled employees is difficult. We may encounter this problem in the future, as we require increased number of skilled employees for our expansion. If we are unable to attract and retain our technical personnel and other employees, this may adversely affect our business and our operating efficiency would deteriorate.

Potential conflicts of interest with BenQ Corporation and United Microelectronics Corporation may cause us to lose opportunities to expand and improve our operations.

      As of December 31, 2002, BenQ Corporation owned 14.8% of our outstanding shares, and four of our directors and one of our supervisors are representatives of BenQ Corporation. See “Item 7. Major Shareholders and Related Party Transactions.” Since BenQ Corporation, together with its subsidiary BenQ (IT), are currently the largest customer for our products, its substantial interest in our company may lead to conflicts of interest in our sales decisions or allocations. In addition, because four of our directors are representatives of BenQ Corporation, and Mr. Kuen-Yao (K.Y.) Lee, our Chairman and Chief Executive Officer, is also Chairman, President and Chief Executive Officer of BenQ Corporation, conflicts of interest between their duties to BenQ Corporation and us may arise. See “— The loss of any key management personnel or the undue distraction of any of these personnel may disrupt our business.” In addition, as of December 31, 2002, United Microelectronics Corporation owned 11.4% of our outstanding shares. See “Item 7. Major Shareholders — Related Party Transactions.” Three of our directors and one of our supervisors are representatives of United Microelectronics Corporation. Since United Microelectronics Corporation also owns a 25.8% equity interest in Novatek Corporation, which is one of our suppliers of driver integrated circuit components, United Microelectronics Corporation’s substantial interest in our company may lead to conflicts of interest in our purchasing decisions or allocations. In addition, because three of our directors are representatives of United Microelectronics Corporation, conflicts of interest between their duties to United Microelectronics Corporation and us may arise.

      We cannot assure you that, when conflicts of interest arise with respect to representatives of either BenQ Corporation or United Microelectronics Corporation, our interested directors will act completely in our interest or that conflicts of interest will be resolved in our favor. These conflicts may result in lost corporate opportunities,

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including opportunities that are never brought to our attention, or actions that may prevent us from taking advantage of opportunities to expand and improve our operations.

The differences between Taiwan and U.S. accounting standards resulted in different amounts of our net income (loss) under those standards, which makes evaluating our financial performance difficult.

      Our consolidated financial statements are prepared and presented under ROC GAAP, which differ in many respects from US GAAP. For example, under ROC GAAP, the merger of Unipac into Acer Display has been accounted for under the pooling-of-interests method of accounting, whereby the historical financial statements of the previously separate companies for periods prior to the merger have been restated on a combined basis. In contrast, under US GAAP, the merger of Unipac into Acer Display has been accounted for as the acquisition of Unipac by Acer Display under the purchase method of accounting. Under purchase accounting, the cost of the acquired entity is measured based on the fair value of the securities issued and is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. As a result, our financial data under US GAAP include the results of operations of Unipac only from September 1, 2001, the date of acquisition. In addition, ROC GAAP does not require the recognition of the value of shares distributed as bonuses to employees when calculating net income. We generated a net loss of NT$5,340.9 million in 2001 and net income of NT$4,938.9 million (US$142.3 million) in 2002 under US GAAP, compared to a net loss of NT$6,710.2 million in 2001 and net income of NT$6,022.7 million (US$173.6 million) in 2002 under ROC GAAP.

Risks Relating to Manufacturing

Our manufacturing processes are highly complex, costly and potentially vulnerable to disruptions that can significantly increase our costs and delay product shipments to our customers.

      Our manufacturing processes are highly complex, require advanced and costly equipment and are periodically modified to improve manufacturing yields and production efficiency. We face the risk of production difficulties from time to time that could cause delivery delays and reduced yields. These production difficulties include capacity constraints, construction delays, difficulties in upgrading or expanding existing facilities, difficulties in changing our manufacturing technology and delays in the delivery or relocation of specialized equipment. We may encounter many of these difficulties in connection with the planned construction of, and a ramp up of production capacity for, our fifth-generation fabs or higher-generation fabs. We may also encounter these difficulties in connection with the establishment of our in-house color filter production facilities as well as the adoption of new manufacturing process technologies, such as technologies utilizing low temperature poly-silicon, or LTPS, technologies in our L3 fab. We cannot assure you that we will be able to complete our fifth-generation fabs without material delays or difficulties, or that we will not encounter these manufacturing difficulties in the future.

If we are unable to obtain raw materials and components in suitable quantity and quality from our suppliers, our production schedules would be delayed and we may lose customers.

      Raw material and component costs accounted for the majority of our cost of goods sold for each of 2000, 2001 and 2002. We must obtain sufficient quantities of high quality raw materials and components at acceptable prices and in a timely manner. We source most of our raw materials and components, including critical materials like color filters, driver integrated circuits, cold cathode fluorescent lamp, or CCFL, and backlight units, polarizer and glass substrates, from a limited group of suppliers, both foreign and domestic. In 2001, we experienced a shortage of glass substrates due to the closure of the production facility at one of our two major suppliers of glass substrates. In addition, based on announced plans for new TFT-LCD production capacity worldwide, there could be a shortage in the supply of color filters, glass substrates and CCFL in the second half of 2003 or beyond. Our operations would be adversely affected if we cannot obtain raw materials and components in sufficient quantity. We may also experience difficulties in sourcing adequate supplies for our operations if there is a ramp up of production capacity by TFT-LCD manufacturers, including our company, without a corresponding increase in the supply of raw materials and components.

      Although local suppliers of raw materials and components provided approximately 63.2% of our raw materials and components in 2002, we are dependent on supplies of many major raw materials and components from suppliers in Japan. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and components and other supplies of an acceptable quality in the future. Our inability to obtain high-quality raw materials and

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components in a timely and cost-effective manner would cause us to delay our production and delivery schedules, which may result in the loss of our customers and revenues.

If we are unable to obtain equipment from our suppliers, we may be forced to delay our expansion plans.

      We have purchased, and expect to purchase, a substantial portion of our equipment from foreign suppliers, especially for our planned fifth-generation fab, L8B fab. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by equipment vendors. For example, in the past, increased demand for equipment caused some equipment suppliers to only partially satisfy our equipment orders in the normal time frame. The unavailability of equipment, delays in the delivery of equipment, or the delivery of equipment that does not meet our specifications, could delay implementation of our expansion plans and impair our ability to meet customer orders. If we are unable to implement our expansion plans on schedule or in line with customer expectations, our business may suffer.

If we are unable to successfully manufacture our products within the acceptable range of quality, our results of operations will suffer.

      TFT-LCD manufacturing processes are complex and involve a number of precise steps. Defective production can result from a number of factors, including:

• the level of contaminants in the manufacturing environment;
  
  
• human error;
  
  
• equipment malfunction;
  
  
• use of substandard raw materials and components; and
  
  
• inadequate sample testing.

      From time to time, we have experienced, and may in the future experience, lower than anticipated production yields as a result of the above factors, particularly in connection with the expansion of our capacity or change in our manufacturing processes. In addition, our yield on new products will be lower than average as we develop the necessary expertise and experience to produce those products. If we fail to maintain high production yield and high quality production standards, our reputation may suffer and our customers may cancel their orders or return our panels for rework, which will negatively affect our results of operations.

If we violate environmental regulations, we may be subject to fines or restrictions that could cause our operations to be delayed or interrupted and our business to suffer.

      Our operations can expose us to the risk of environmental claims that could result in damages or fines imposed against us. We must comply with regulations relating to storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes resulting from our manufacturing processes. In December, 2002 and March 2001, we incurred small fines for non-compliance with a waste storage-labeling requirement. In addition, at the end of 1999, we incurred a small fine when our L5 fab increased its waste volume by expanding production, resulting in a waste volume in excess of the volume permitted under its original permit.

      Future changes to existing environmental regulations or unknown contamination of our sites, including contamination by prior owners and operators of our sites, may give rise to additional compliance costs or potential exposure to liability for environmental claims that may seriously affect our business, financial condition and results of operations.

Risks Relating to Our Technologies and Intellectual Property

If we cannot successfully introduce, develop or acquire advanced technologies, our profitability may suffer.

      Technology and industry standards in the TFT-LCD industry evolve quickly, resulting in steep price declines in the advanced stages of a product’s life cycle. To remain competitive, we must continually develop or acquire advanced manufacturing process technologies and build next generation fabs to lower production costs and enable

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timely release of new products. In addition, we expect to utilize more advanced technologies, such as organic light-emitting diode, or OLED, LTPS and plasma display to develop advanced products. Our ability to manufacture products by utilizing more advanced manufacturing process technologies to increase production yields will be critical to our sustained competitiveness. We plan to invest a substantial amount of capital, and have committed significant management and research and development resources, to develop our fifth-generation production capacity and AU Technology Center, our new TFT-LCD flat panel research and development center. However, we cannot assure you that we will be successful in completing the development of this fifth-generation production capacity or AU Technology Center, or that we will be able to build them without material delays or at the expected costs. If we fail to do so, our results of operations and financial condition may be materially and adversely affected. We also cannot assure you that there will be no material delays in connection with our efforts to develop new technology and manufacture more technologically advanced products. If we fail to develop or make advancements in product technologies or manufacturing process technologies on a timely basis, we may become less competitive.

If we lose the support of our technology partners or the legal rights to use our licensed manufacturing process or product technologies, our business may suffer.

      Enhancing our manufacturing process and product technologies is critical to our ability to provide high quality products to our customers at competitive prices. We intend to continue to advance our manufacturing process and product technologies through internal research and development and licensing from other companies. We currently have licensing arrangements with IBM, Matsushita, Fujitsu and Fujitsu Display Technologies Corporation, or FDTC, for product and manufacturing process technologies used to produce a substantial amount of our TFT-LCD panels. These agreements are for terms of five to seven years. In March 2003, we also established a joint research and development program with FDTC to develop the product and manufacturing process technologies for TFT-LCD panels. If we are unable to renew our technology licensing or joint research and development arrangements with IBM, Matsushita, Fujitsu or FDTC on mutually beneficial economic terms, we may lose the legal protection to use certain of the processes and designs we employ to manufacture our products. Similarly, if we cannot license or otherwise acquire or develop new manufacturing process and product technologies that are critical to the development of our business or products, we may lose important customers because we are unable to continue providing our customers with products based on leading-edge manufacturing process and product technologies.

      We have entered into patent and intellectual property license agreements that require periodic royalty payments. In the future, we may need to obtain additional patent licenses or renew existing license agreements. We cannot assure you that these license agreements can be obtained or renewed on acceptable terms. If not, our business and future operating results could be materially and adversely affected.

Disputes over intellectual property rights could be costly and deprive us of the technology to stay competitive.

      As technology is an integral part of our manufacturing process and product, we have, in the past, received communications alleging that our products or processes infringe product or manufacturing process technology rights held by others, and expect to continue to receive such communications.

      We were involved in a patent infringement dispute with Sharp Corporation. Sharp claimed that five of its patents had been infringed upon by Unipac’s production of four TFT-LCD models. In November 2000, Sharp made a criminal complaint against certain officers of Unipac with the Public Prosecutor’s Office in the Hsinchu District Court, naming Mr. Ing-Dar Liu, the Chairman of Unipac and the former Vice Chairman of our company, as defendant. On January 23, 2003, the Public Prosecutor discharged the criminal complaint against Mr. Liu due to a change under the ROC Patent Law pursuant to which patent infringement is no longer a criminal offense. As of the date of this annual report, neither Sharp nor any third party has brought any civil or criminal action against either Unipac, Acer Display or our company in connection with the alleged patent infringement described above.

      We are currently involved in a patent infringement dispute with Semiconductor Energy Laboratory Co., Ltd. In June 2002, Semiconductor Energy filed a complaint in the Northern District of California alleging that we had infringed its patents in our production of TFT-LCD panels, seeking unspecified monetary damages, including punitive damages, and an injunction against the further production or sale of our TFT-LCD products. We intend to defend the case vigorously. The litigation is currently in the late stages of discovery.

      We have no means of knowing what patent applications have been filed in the United States or elsewhere until they are granted. If any third party were to make valid intellectual property infringement claims against our customers or us, we may be required to:

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• discontinue using disputed manufacturing process technologies;
  
  
• pay substantial monetary damages;
  
  
• seek to develop non-infringing technologies, which may not be feasible; or
  
  
• seek to acquire licenses to the infringed technology, which may not be available on commercially reasonable terms, if at all.

      If our products or manufacturing processes are found to infringe third-party rights, we may be subject to significant liabilities and be required to change our manufacturing processes or products. This could restrict us from making, using, selling or exporting some of our products, which could in turn materially and adversely affect our business and financial condition. In addition, any litigation, whether to enforce our patents or other intellectual property rights or to defend ourselves against claims that we have infringed the intellectual property rights of others, could materially and adversely affect our results of operations because of the management attention required and legal costs incurred.

      In addition, we have acquired patents and trademarks to protect some of our proprietary technologies and products. We cannot assure you that these measures will provide meaningful protection of our intellectual property rights. For example, our competitors may be able to develop similar or superior products, or we may not have sufficient financial and legal resources to protect and enforce our rights.

Political, Geographical and Economic Risks

The outbreak of Severe Acute Respiratory Syndrome, or SARS, in the People’s Republic of China, Hong Kong, Singapore, Taiwan and certain other countries may have an adverse effect on the economies and financial markets of certain Asian countries and may adversely affect our results of operations.

      Beginning in March 2003, Guangdong Province of China, Hong Kong, Singapore and certain other Asian countries encountered an outbreak of SARS, a highly contagious form of atypical pneumonia. Since April 2003, the outbreak of SARS has spread to certain other regions, including Taiwan. Although as of the date hereof the SARS outbreak seems to be under control, no assurances can be given that a recurrence of the outbreak would not occur. While the long-term impact of the SARS outbreak is unclear at this time, the outbreak of SARS may have an adverse effect on the economy conditions of certain countries in Asia. Each of the governments of Hong Kong, Singapore and Taiwan has revised downward its gross domestic product growth forecasts for 2003 due to SARS. As a result, the economic fallout of the SARS outbreak may result in a decrease in the demand for our TFT-LCD products, or a decrease in information technology spending. In addition, our production operations and that of our suppliers or customers may be seriously interrupted due to the SARS outbreak or the measures taken by the government of the Republic of China, Hong Kong, the People's Republic of China or other countries against SARS, which would have an adverse affect on our results of operations.

Due to the location of our operations in Taiwan and the People’s Republic of China, we and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.

      Most of our existing manufacturing operations, and the operations of many of our customers and suppliers, are located in Taiwan, which is vulnerable to natural disasters. In 2002, approximately 52.7% of our net sales was derived from Taiwan-based customers. In addition, we have expanded our module-assembly operations to the People’s Republic of China since July 2002. Our module-assembly operations in the People’s Republic of China, and the operations of many of our customers and suppliers in that area, may also be vulnerable to natural disasters. As a result of this geographic concentration, disruption of operations at our fabs or the facilities of our customers and suppliers for any reason, including work stoppages, power outages or water supply shortages, fire, typhoons,

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earthquakes or other natural disasters, could cause delays in production and shipments of our products. This could lead our customers to obtain products from other sources.

      For instance, our operations stopped completely for five days in September 1999, largely because of a power outage caused by a severe earthquake. After the stoppage, it took us several days to ramp up to full operations. Shortages or suspension of power supplies have occasionally occurred, and have disrupted our operations. The occurrence of power outage in the future could seriously hurt our business.

      Our manufacturing processes require a substantial amount of water. Although currently more than 70% of the water used in production process is recycled, our production operations may be seriously disrupted by water shortage. For instance, the Hsinchu area, where three out of our five fabs are located, experienced a drought in 2002. The Taiwan authorities have implemented water-rationing measures, including sourcing water from alternative sources, and therefore we did not encounter water shortage in that year. We may encounter a drought in both Hsinchu and Taoyuan area in the future, where most of our production operations are located. If another drought were to occur and we or the authorities were unable to source water from alternative sources in sufficient quantity, we may be required to temporarily shut down or substantially reduce the operations of these fabs, which would seriously affect our operations. In addition, even if we were able to source water from alternative sources, our reliance on supplemental water supplies would increase our operating costs. Furthermore, the disruption of operations at our customers’ facilities could lead to reduced demand for our products. The occurrence of any of these events in the future could adversely affect our business.

We have made investments, and are exploring the possibility of expanding our businesses and operations to, or making additional investments in, the People’s Republic of China, which may expose us to additional political, regulatory, economic and foreign investment risks.

      Many of our customers and competitors have expanded their businesses and operations to the People’s Republic of China. In order to remain cost competitive and to take advantage of the developing mainland China market, as permitted by Republic of China regulations governing investment in the People’s Republic of China by Republic of China companies, we established two module assembly facilities, our S1 and S2 fabs, in Suzhou, Jiangsu Province of the People’s Republic of China, and commenced mass production at such fabs since July 2002. Module assembly involves connecting components to the previously fabricated glass panel. We may further explore the possibility of investing in other businesses or operations in the People’s Republic of China as and when we are legally permitted to do so. Currently, the Republic of China laws and regulations permit investment in module-assembly operations in the People’s Republic of China but do not permit investments in array and cell operations. The array process is the first step of the manufacturing process and involves fabricating transistors on the back substrate, while the cell process is the second step and involves the filling of liquid crystal and joining the arrayed back substrate and the front substrate with a color filter. We do not know when or if such Republic of China laws and regulations governing investment in the People’s Republic of China will be amended , and we cannot assure you that any such amendments to those regulations will permit us to invest in operations involving array and cell processes in the People’s Republic of China. Our businesses and operations and our future expansion or investment plans in the People’s Republic of China are subject, to a significant degree, to the political and economic situation, regulatory control and general legal developments in the People’s Republic of China and other foreign investment risks. In addition, our businesses and operations in the People’s Republic of China and our future expansion or investment plans could be adversely affected if relations between the People’s Republic of China and the Republic of China deteriorate.

Disruptions in Taiwan’s political environment could seriously harm our business and the market price of our shares and ADSs.

      Most of our assets and operations are located in Taiwan and about half of our net sales are derived from customers in Taiwan. Accordingly, our business and financial condition may be affected by changes in local governmental policies, and political and social instability.

      Taiwan has a unique international political status. The government of the People’s Republic of China asserts sovereignty over mainland China and Taiwan, and does not recognize the legitimacy of the government of the Republic of China. The government of the People’s Republic of China has indicated that it may use military force to gain control over Taiwan if Taiwan declares independence or a foreign power interferes in Taiwan’s domestic affairs.

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      Relations between Taiwan and the People’s Republic of China and other factors affecting Taiwan’s political environment could affect our business.

If economic conditions in Taiwan deteriorate, our current business and future growth would be materially and adversely affected.

      In recent years, the currencies of many East Asian countries, including Taiwan, have experienced considerable volatility and depreciation. The Central Bank of China, which is the central bank of Taiwan, has from time to time intervened in the foreign exchange market to minimize the fluctuation of the U.S. dollar/NT dollar exchange rate and to prevent significant decline in the value of the New Taiwan dollar. New Taiwan dollars have depreciated against U.S. dollars from US$1.00 = NT$27.52 on January 2, 1997 to US$1.00 = NT$34.59 on June 20, 2003, based on the noon buying rates published by the Federal Reserve Bank of New York.

      In addition, the banking and financial sectors in Taiwan has been seriously harmed by the general economic downturn in Asia and Taiwan, which has caused a depressed property market, and an increase in the number of companies filing for corporate reorganization and bankruptcy protection. As a result, financial institutions are more cautious in providing credit for businesses in Taiwan. We cannot assure you that we will continue to have access to credit at commercially reasonable rates of interest or at all.

The market value of our ADSs may fluctuate due to the volatility of the Republic of China securities market.

     The trading price of our ADSs may be affected by the trading price of our shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange is smaller and more volatile than the securities markets in the United States. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and volumes of trading of securities. In the past decade, the Taiwan Stock Exchange Capitalization Weighted Stock Index peaked at 12,495.34 in February 1990 and subsequently fell to a low of 2,560.47 in October 1990. On March 13, 2000, the Taiwan Stock

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Exchange Capitalization Weighted Stock Index experienced a 617-point drop, which represented the single largest decrease in the Taiwan Stock Exchange Capitalization Weighted Stock Index in its history. The Taiwan Stock Exchange Capitalization Weighted Stock Index experienced a 17.1% increase in 2001 and a 19.8% decrease in 2002. During the period from January 1, 2002 to December 31, 2002, the Taiwan Stock Exchange Capitalization Weighted Stock Index peaked at 6,462.30 on April 22, 2002, and reached a low of 3,850.04 on October 11, 2002. Over the same period, daily closing values of our shares ranged from NT$61.5 per share to NT$16.0 per share. On June 27, 2003, the Taiwan Stock Exchange Capitalization Weighted Stock Index closed at 4,877.90, and the closing value of our shares was NT$23.70 per share.

      The Taiwan Stock Exchange is particularly volatile during times of political instability including when relations between Taiwan and the People’s Republic of China are strained. Several investment funds affiliated with the Taiwan government have also from time to time purchased securities from the Taiwan Stock Exchange to support the trading level of the Taiwan Stock Exchange. Moreover, the Taiwan Stock Exchange has experienced problems including market manipulation, insider trading and settlement defaults. The recurrence of these or similar problems could have adverse effect on the market price and liquidity of our shares and ADSs.

If New Taiwan dollars or other currencies in which our sales, raw materials and components and capital expenditures are denominated fluctuate significantly against U.S. dollars or Japanese yen, our profitability may be seriously affected.

      We have significant foreign currency exposure, and are affected by fluctuations in exchange rates among the U.S. dollar, the Japanese yen, the New Taiwan dollar and other currencies. Our sales, raw materials and components and capital expenditures are denominated in U.S. dollars, Japanese yen and New Taiwan dollars in varying amounts. For example, in 2002, approximately 88.1% of our net sales was denominated in U.S. dollars. During the same period, approximately 66.9%, 24.5% and 8.6% of our cost of goods sold, mainly raw material and component costs, were denominated in New Taiwan dollars, Japanese yen and U.S. dollars, respectively. In addition, in 2002, approximately 16.9%, 58.7% and 21.9% of our total capital expenditures, mainly for the purchase of equipment, were denominated in New Taiwan dollars, Japanese yen and U.S. dollars, respectively. From time to time, we enter into forward foreign currency contracts to hedge our foreign currency exposure, but we cannot assure you that we will be fully protected against exchange rate fluctuations.

Disruptions in the international trading environment may seriously decrease our international sales.

      A substantial portion of our net sales is derived from sales to customers located outside of Taiwan. In 2000, 2001 and 2002, sales to our overseas customers accounted for 29.0%, 23.7% and 47.3%, respectively, of our net sales. In addition, the majority of our sales to customers in Taiwan are made to original equipment manufacturing service provider customers that use our display panels in the products that they manufacture on a contract basis for brand companies worldwide. We expect sales to customers outside of Taiwan to continue to represent a significant portion of our net sales. As a result, our business will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns. These disruptions in the international trading environment may affect the demand for our products and change the terms upon which we sell our products overseas, which could seriously decrease our international sales.

Risks Related to Our ADSs and Our Trading Market

The market value of the ADSs may fluctuate due to the volatility of the securities markets.

      The securities markets in the United States and other countries have experienced significant price and volume fluctuations. Volatility in the price of our ADSs may be caused by factors outside of our control and may be unrelated to, or disproportionate to changes in, our operating results. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against that company. Litigation of this kind could result in substantial costs and a diversion of our management’s attention and resources.

The liquidity and value of our ADSs may be affected by the withdrawal of our shares from our ADS facility.

      Although ADS holders are entitled to withdraw the shares underlying the ADSs from the depositary, Republic of China law requires that the shares be held in an account in the Republic of China or sold for the benefit of the

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holder on the Taiwan Stock Exchange. In connection with any withdrawal of shares from our ADS facility, the ADSs evidencing these shares will be cancelled. Unless additional ADSs are issued, the effect of withdrawals will be to reduce the number of outstanding ADSs and, if a significant number of withdrawals are affected, to reduce the liquidity of the ADSs. We cannot assure you that the depositary will be able to arrange for a sale of deposited shares in a timely manner or at a specified price, particularly during periods of illiquidity or volatility with respect to our shares.

Restrictions on the ability to deposit our shares into our ADS facility may adversely affect the liquidity and price of our ADSs.

      The ability to deposit shares into our ADS facility is restricted by Republic of China law. A significant number of withdrawals of shares underlying our ADSs would reduce the liquidity of the ADSs by reducing the number of ADSs outstanding. As a result, the prevailing market price of our ADSs may differ from the prevailing market price of our shares on the Taiwan Stock Exchange. Under current Republic of China law, no person or entity, including you and us, may deposit our shares in our ADS facility without specific approval of the Securities and Futures Commission of the Republic of China, unless:

• we pay stock dividends on our shares;
  
  
• we make free distribution of shares;
  
  
• the ADS holders exercise preemptive rights in the event of capital increases for cash. The depositary will not offer the ADS holders these rights unless both the distribution of the rights and the underlying shares to all our ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act; or
  
  
• the investors purchase our shares, directly or through the depositary, on the Taiwan Stock Exchange, and deliver our shares to the custodian for deposit into our ADS facility, or our existing shareholders deliver our shares to the custodian for deposit into our ADS facility. The depositary may issue ADSs against the deposit of those shares only if the total number of ADSs outstanding following the deposit will not exceed the number of ADSs previously approved by the Securities and Futures Commission of the Republic of China, plus any ADSs issued pursuant to the events described in the first three bulleted points above.

  The ADS holders will not have the same voting rights as our shareholders, which may affect the value of ADSs.

      The ADS holders’ voting rights as to the shares represented by such holders’ ADSs are governed by the deposit agreement. The ADS holders will not be able to exercise voting rights on an individual basis. If holders representing at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner regarding a resolution, including the election of directors and supervisors, the depositary will cause all shares represented by the ADSs to be voted in that manner. If, at the relevant record date, the depositary does not receive instructions representing at least 51% of the ADSs outstanding to vote in the same manner for any resolution, including the election of directors and supervisors, the ADS holders will be deemed to have instructed the depositary or its nominee to authorize all the shares represented by the ADS holders’ ADSs to be voted at the discretion of our Chairman or his designee, which may not be in the ADS holders’ interest.

The ADS holders’ right to participate in our rights offerings would be limited, which would cause dilution to the ADS holders’ holdings.

      We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer the ADS holders those rights unless both the distribution of the rights and the underlying securities to all our ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. Although we may be eligible to take advantage of certain exemptions under the Securities Act available to certain foreign issuers for rights offerings, we can give no assurances that we will be able to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement for any of these rights. Accordingly, the ADS holders may be unable to participate in our rights offerings and may experience dilution of the ADS holders’ holdings.

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Our issuance of stock bonuses to employees may likely have a dilutive effect on the ADSs.

      Similar to other Republic of China technology companies, from time to time we may issue bonuses in the form of shares, valued at par, under the Republic of China Company Law and our articles of incorporation. Because these shares are issued at par value, the issuance of these shares may have a dilutive effect on the ADSs.

Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

      Our corporate affairs are governed by our articles of incorporation and by the laws governing Republic of China corporations. The rights and responsibilities of our shareholders and members of our board of directors under Republic of China law are different from those that apply to a U.S. corporation. Directors of Republic of China corporations are required to conduct business faithfully and act with the care of good administrators. However, the duty of care as required of an Republic of China corporation’s directors may not be the same as the fiduciary duty of a director of a U.S. corporation. In addition, controlling shareholders of U.S. corporations owe fiduciary duties to minority shareholders, while controlling shareholders in Republic of China corporations do not. The Republic of China Company Law also requires that a shareholder continuously hold at least 3% of our issued and outstanding shares for at least a year in order to request that a supervisor institute an action against a director on the company's behalf. Therefore, our public shareholders may have more difficulty protecting their interests against actions of our management, members of our board of directors or controlling shareholders than they would as shareholders of a U.S. corporation.

Future sales of securities by us, our executive officers, directors, supervisors or existing shareholders may hurt the price of our ADSs.

      The market price of our ADSs could decline as a result of sales of ADSs or shares or the perception that these sales could occur. Without giving effect to the conversion into shares of any of our outstanding convertible bonds due 2008, as of March 31, 2003, we had an aggregate of 4,025,865,331 shares, including our shares and entitlement certificates, issued and outstanding, which were be freely tradable, except for 190,641,363 shares which were subject to lock-up limitations imposed by the Taiwan Stock Exchange. Beginning in February 2002, our outstanding convertible bonds became eligible for conversion into 632,911,392 of our shares, of which bondholders had exercised their conversion rights to receive 555,283,724 of our shares, including our common shares and entitlement certificates, as of March 31, 2003. If we, our executive officers, directors, supervisors or our shareholders, sell ADSs or shares, the market price for our shares or ADSs could decline. Future sales, or the perception of future sales, of ADSs or shares by us, our executive officers, directors, supervisors or existing shareholders could cause the market price of our ADSs to decline.

You should read the entire annual report carefully and should not consider any particular statement in this annual report or in published news reports or any published financial projections without carefully considering the risks and other information contained in this annual report.

      In late April 2002, we released financial projections in Taiwan as required to comply with applicable Republic of China regulatory requirements. Among other things, these financial projections stated that we expect our net sales, operating income and net income for 2002 under ROC GAAP to be NT$93.0 billion, NT$16.1 billion and NT$14.3 billion, respectively. As a result of the slower than expected recovery in the information technology industry, slowing customer demand and deteriorating prices environment, our net income for the nine months ended September 30, 2002 fell by 28% below previously released financial projection. The revised financial projections were released on October 23, 2002. These projections were prepared by us based on projected market demand and price trends for our products, our projected production capacity, projected costs of raw materials and components and other relevant factors in effect as of or prior to the date of these projections, many of which factors are beyond our control. These projections were intended to comply with applicable Republic of China regulatory requirements and not to provide any assurance of our actual operating results in any given period of time.

      The projections described above were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies, including the timing and cost of the completion of our capacity expansion, the volume and size of our customer orders, our market penetration, competition and economic and market conditions. These projections have been prepared by, and are the responsibility of, our management. These projections were not prepared with a view toward compliance with published guidelines of the United States

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Securities and Exchange Commission, the American Institute of Certified Public Accountants or generally accepted accounting principles and, accordingly, you should not rely on this information. No independent accountant has examined or compiled these projections for purposes of their inclusion in an annual report to be provided to investors in the United States. The independent accountants’ reports included in this annual report relate only to our historical financial information and that of Unipac and do not extend to the projections described above. Projections are forward-looking statements that are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. You should not regard the inclusion of the projections described above as a representation by us or any other person that these projections or the assumptions underlying the projections will be achieved. For these reasons, you should only consider these projections after carefully evaluating all of the information in this annual report, including the risks described in this section and throughout this annual report.

You may not be able to enforce a judgment of a foreign court against us.

      We are a company limited by shares and incorporated under the Republic of China Company Law. All of our directors, supervisors and executive officers, and some of the experts named herein, are residents of Taiwan. As a result, it may not be possible for holders of our shares or ADSs to effect service of process upon us or those persons within the United States, or to enforce against us or them judgments obtained both in and outside the United States courts, including those predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in the Republic of China, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.