VIS 2006 Annual Report ���

FINANCIAL POSITION, OPERATINGRESULTS AND RISK MANAGEMENT

�. Analysis of Financial Position

�. Analysis of Operating Results

VIS 2006 Annual Report ���

�. Cash Flow

�. Major Capital Expenditure

�. Long Term InvestmentNone of 2006 investments and the current year investments exceeded 5% of the Company's paid-in Capital.

�. Risk Management6.1 Interest Rates Fluctuation, Foreign Exchange Rate Volatility and Inflation Interest rate: VIS' exposure to interest rate fluctuation relates primarily to long-term liabilities for capital expenditures. Due to small scale of liabilities, no

major impact is expected from interest rate fluctuation.

VIS 2006 Annual Report ���

Foreign exchange: Most of VIS' revenues are denominated in US dollar. VIS mainly utilizes spot and forward foreign exchange trading to adjust its foreign

exchange position as per the foreign exchange market conditions for the purpose of reducing the impact of exchange rate fluctuation on the company. In

addition, VIS' materials and equipments payments are made in US Dollars, Japanese Yens and Euros, among which a substantial portion is in US Dollars.

Henceforth, VIS enjoys a certain degree of natural hedge as a result of set-off between account payables and account receivables.

Inflation: Inflation in Taiwan was 0.6% in 2006. VIS did not regard the inflation rate would have significant impact on its operation and profits. We consider

the impact will remain insignificant in future if the inflation rate is similar to those in the past.

6.2 High risk, high leveraged investment, lending, endorsement and guarantee for other parties and financial derivatives transactionsVIS focuses on its foundry manufacturing operations and IC wafer production. Accordingly, the company does not engage in high risk/high leveraged

investments. In order to control and monitor certain types of transactions, VIS has established internal control policies and procedures conforming to the

relevant laws and regulations promulgated by the authorities concerned. These policies and procedures include (Policies and Procedures for Financial

Derivative Transactions), (Procedures for Lending Funds to Other Parties) and (Procedures for Endorsement and Guarantee). Until now, the company and

affiliates have neither lent funds to others, nor provided endorsement or guarantee for others. Financial derivatives transactions that VIS enters into are

strictly for hedging purpose and not for trading and speculative purposes.

6.3 R&D Plan and ProgressIn 2006, VIS capital expenditure is about NT$1.25 billion, while in 2007 capital expenditure is planned for about NT$2.45 billion. Other than equipment and

facility maintaining expense, capital expenditure covers the product and process R&D to provide complete IC manufacturing service for customers and to

enhance our competitiveness in global market. VIS will continue to build on the existing foundation and strengthen the specialty process technologies.

VIS will continue to develop BCD process technology supporting various voltage and applications to provide higher performance devices and to attract

more specialty process customers. In high voltage process, VIS will continue to provide active support for the cost control in shrink process and voltage

requirement in various applications. VIS will continue to raise the R&D budget in 2007, estimated higher than 3.4% of total sales. (Please refer to(Technology

and R&D Status))

6.4 Changes in Domestic and International Policies and RegulationsManagement team closely monitors political and regulatory developments that could have a material impact on business and operations. Political and

regulatory developments did not have any material adverse effect on VIS during 2006.

6.5 Changes in TechnologyVIS adopts proper measures to minimize impacts caused by changes in technology and therefore eschews market risks and maintains the company's long-

term financial stabilities ( Please refer to(Overview of Industry)).

6.6 Changes in Company's ImageVIS is dedicated to maintaining the highest integrity and ethics in managing its operations and to the promotion of the company's overall competitiveness as

well as sustainable development. VIS will not tolerate any conduct that compromises the company's integrity or core values.

VIS has deployed detailed measures to monitor the industry environment, company operation and management systems for preventing any emergent

condition that might jeopardize the company's reputation and reducing management uncertainty to the lowest level. VIS is committed to maintaining the

company's operations and protecting the interests of shareholders, customers and employees.

VIS has implemented the principle of corporate governance into its day-to-day management since its finding. We have hold investor conferences regularly to

maintain a high-level of financial transparency. In order to become a perpetual enterprise and serve as a model corporate citizen, each VIS employee actively

participates in the operation of the safety, health, and environmental system, to reach the company's goals. VIS has received ISO 14001 and OHSAS 18001

certifications. To demonstrate its dedication to corporate social responsibility, VIS has also participated in a wide range of public activities that benefit the

community and society. No emergent event occurred from 2006 to the publishing date of this annual report.

VIS 2006 Annual Report ���

6.7 Risks from Merge, Acquisition and Plant ExpansionNo merge and acquisition event occurred from 2006 to the date of publishing this annual report.

6.8 Risks from Plant ExpansionNo plant expansion event occurred from 2006 to the date of publishing this annual report.

6.9 Risks from Concentration of Stock and SalesTo avoid overly concentrated risk and to protect raw materials supply for the manufacturing process at all time, VIS has maintained multiple suppliers for the

major materials to spread the risk. In each of 2005 and 2006, the top ten customers have made up 91% of company annual sales. The concentration of

sales is the industry nature of our business as focused specialty foundry.

6.10 Transfer of Shareholdings of Directors, Supervisors or Large ShareholdersThere is no major shareholding transfer of Directors, Supervisors, or large shareholders with 10% or more shareholding. However one of the major

shareholders National Development Fund of Executive Yuan has announced shareholding reduction plan for VIS in 2007. We will work and communicate

closely with Development Fund to ensure the shareholding reduction plan proceed with priority for the interest of majority of our investors.

6.11 Change of ManagementIn 2006, Company Board of Directors assigned Mr. Chung-Shih Hsu President of VIS and elected Mr. Chuan Lin Chairman of the Board.

6.12 Litigation or non-litigation proceedingsNo litigation or non-litigation proceedings occurred from 2006 to the publishing date of this annual report.

6.13 Other Material RisksMeasures responding to events that seriously impact on the company's operations

VIS regularly conducts drills and trainings for managing natural or man-made damage, such as typhoon, earthquake, fire, gas and chemicals leak, and

establish broad and detailed prevention measures as well as contingent plans. VIS is capable of maintaining the company's operations and protecting the

interests of shareholders, customers and employees. No emergency event occurred from 2006 to the publishing date of this annual report.

The Policy of the risk management

VIS improves the risk management consistently by taking the professional technology and the concept of the risk evaluation from national and international

sources, by executing the prevention of risk and loss control aggressively and by affecting the assurance of safety of engineer technology, the system of risk

management and by mandating the participation of education training program of all employees in order to achieve the final goal of zero risk and zero loss.

The organization chart of the risk management

To promote the risk management effectively VIS founds a top committee, which operates and reviews the operation of the risk management. Three

subcommittees are established based on the duties of every department.

Each department analyzes its own operations by utilizing the hazard categories and risk evaluation and then submits the recommendation of the improvement

along with the method of the risk control; target setting and standard of improvement for those unacceptable risks. After initial investigation by the

subcommittee, the proposal is resubmitted to the top committee. The proposal will be managed and the progress will be monitored periodically by the top

committee.

Duties for the responsible departments are:

Finance: Responsible for financial coordination and implementation, establish the hedge process to lower our financial risk;

Marketing & Sales: Responsible for sales strategies, product promotion, and trend monitoring to our lower marketing and sales risk;

Legal: Responsible for managing the legal risks with accordance of laws from government and authorities, handling contract and law suit dispute to lower our

legal risk;

Information & eCommerce: Responsible for Net planning, strategies, operations and quality control, to lower the risk of our Net business;

Internal Auditing: Responsible for regulating and educating of the internal control system to establish and enhance effective internal control.

�. Other important mattersNone