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|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  
|                                  
|FORM 20-F                         
|                                  
|o                                 
|**OR**                            
|x                                 
|                                  
|**OR**                            
|o                                 
|                                  

Commission File Number:
001-31335


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|                                                                                   
|**(Exact name of Registrant as specified in its charter)**                         
|                                                                                   
|AU OPTRONICS CORP.                                                                 
|**(Translation
    of Registrants name into English)**                            
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|**Securities registered or to be registered pursuant to Section 12(b) of the Act.**

|**Title of each class**                      |  | **Name of each exchange on which registered**
|-------------------------------------------- |  | ---------------------------------------------
|                                             |  |                                              
|**Common Shares of par value NT$10.00 each** |  | **The New York Stock Exchange, Inc.***       

|* | Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc. of American Depositary Shares representing such Common Shares
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Securities registered or to
be registered pursuant to Section 12(g) of the Act: None

**Securities for which there
     is a reporting obligation pursuant to Section 15(d) of the Act: None**

|
|

Indicate the number of
outstanding shares of each of the issuers classes of capital or
common stock as of the close of the period covered by the annual report: 4,958,040,897
Common  Shares.

Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for  such shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yesx    Noo

Indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17x    Item 18o

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TABLE OF CONTENTS


|                                                       |  |                                                                       |  |   
|------------------------------------------------------ |  | --------------------------------------------------------------------- |  | --
|SPECIAL
     NOTE REGARDING FORWARD-LOOKING STATEMENTS |  | 1                                                                    
|                                                       |  |                                                                       |  |   
|PART I                                                
|ITEM 1.                                                |  | IDENTITY
        OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS         |  | 2 
|ITEM 2.                                                |  | OFFER
        STATISTICS AND EXPECTED TIMETABLE                       |  | 2 
|ITEM 3.                                                |  | KEY
        INFORMATION                                               |  | 2 
|3.A.                                                   |  | Selected
        Financial Data                                       |  | 2 
|3.B.                                                   |  | Capitalization
        and Indebtedness                               |  | 5 
|3.C.                                                   |  | Reason
        for the Offer and Use of Proceeds                      |  | 6 
|3.D.                                                   |  | Risk
        Factors                                                  |  | 6 
|ITEM 4.                                                |  | INFORMATION
        ON THE COMPANY                                    |  | 22
|4.A.                                                   |  | History
        and Development of the Company                        |  | 22
|4.B.                                                   |  | Business
        Overview                                             |  | 23
|4.C.                                                   |  | Organizational
        Structure                                      |  | 30
|4.D.                                                   |  | Property,
        Plants and Equipment                                |  | 31
|ITEM 5.                                                |  | OPERATING
        AND FINANCIAL REVIEW AND PROSPECTS                  |  | 34
|5.A.                                                   |  | Operating
        Results                                             |  | 34
|5.B.                                                   |  | Liquidity
        and Capital Resources                               |  | 45
|5.C.                                                   |  | Research
        and Development                                      |  | 48
|5.D.                                                   |  | Trend
        Information                                             |  | 48
|5.E.                                                   |  | Off-Balance
        Sheet Arrangements                                |  | 48
|5.F.                                                   |  | Tabular
        Disclosure of Contractual Obligations                 |  | 48
|ITEM 6.                                                |  | DIRECTORS,
        SENIOR MANAGEMENT AND EMPLOYEES                    |  | 53
|6.A.                                                   |  | Directors
        and Senior Management                               |  | 53
|6.B.                                                   |  | Compensation
        of Directors, Supervisors and Executive Officers |  | 56
|6.C.                                                   |  | Board
        Practices                                               |  | 57
|6.D.                                                   |  | Employees                                                             |  | 57
|6.E.                                                   |  | Share
        Ownership                                               |  | 58
|ITEM 7.                                                |  | MAJOR
        SHAREHOLDERS AND RELATED PARTY TRANSACTIONS             |  | 58
|7.A.                                                   |  | Major
        Shareholders                                            |  | 58
|7.B.                                                   |  | Related
        Party Transactions                                    |  | 59
|7.C.                                                   |  | Interests
        of Experts and Counsel                              |  | 61
|ITEM 8.                                                |  | FINANCIAL
        INFORMATION                                         |  | 61
|8.A.                                                   |  | Consolidated
        Statements and Other Financial Information       |  | 61
|8.A.7.                                                 |  | Litigation                                                            |  | 62
|8.A.8.                                                 |  | Dividends
        and Dividend Policy                                 |  | 63
|8.B.                                                   |  | Significant
        Changes                                           |  | 64
|ITEM 9.                                                |  | THE
        OFFER AND LISTING                                         |  | 64
|9.A.                                                   |  | Offering
        and Listing Details                                  |  | 64
|9.B.                                                   |  | Plan
        of Distribution                                          |  | 65
|9.C.                                                   |  | Markets                                                               |  | 65
|9.D.                                                   |  | Selling
        Shareholders                                          |  | 65
|9.E.                                                   |  | Dilution                                                              |  | 65
|9.F.                                                   |  | Expenses
        of the Issue                                         |  | 65
|ITEM 10.                                               |  | ADDITIONAL
        INFORMATION                                        |  | 65
|10.A.                                                  |  | Share
        Capital                                                 |  | 65
|10.B.                                                  |  | Articles
        of Incorporation                                     |  | 65
|10.C.                                                  |  | Material
        Contracts                                            |  | 71
|10.D.                                                  |  | Exchange
        Controls                                             |  | 71
|10.E.                                                  |  | Taxation                                                              |  | 72
|10.F.                                                  |  | Dividends
        and Paying Agents                                   |  | 76
|                                                      
|i                                                     

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|10.G.     |  | Statement
        by Experts                                                         |  | 76
|--------- |  | ------------------------------------------------------------------------------------ |  | --
|10.H.     |  | Documents
        on Display                                                         |  | 76
|10.I.     |  | Subsidiary
        Information                                                       |  | 76
|ITEM 11.  |  | QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 76
|ITEM 12.  |  | DESCRIPTION
        OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 78
|          |  |                                                                                      |  |   
|PART II  
|ITEM 13.  |  | DEFAULTS,
        DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 78
|ITEM 14.  |  | MATERIAL
        MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 78
|ITEM 15.  |  | CONTROLS
        AND PROCEDURES                                                      |  | 78
|ITEM 16A. |  | AUDIT
        COMMITTEE FINANCIAL EXPERT                                             |  | 79
|ITEM 16B. |  | CODE
        OF ETHICS                                                               |  | 79
|ITEM 16C. |  | PRINCIPAL
        ACCOUNTANT FEES AND SERVICES                                       |  | 79
|ITEM 16D. |  | EXEMPTIONS FROM THE
    LISTING STANDARDS FOR AUDIT COMMITTEES                       |  | 80
|ITEM 16E. |  | PURCHASES OF EQUITY
    SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS           |  | 80
|          |  |                                                                                      |  |   
|PART III 
|ITEM 17.  |  | FINANCIAL
        STATEMENTS                                                         |  | 80
|ITEM 18.  |  | FINANCIAL
        STATEMENTS                                                         |  | 80
|ITEM 19.  |  | EXHIBITS                                                                             |  | 80

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Table of Contents

**SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS**

This annual report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although these forward-looking statements, which may include statements regarding our future results of operations, financial condition, or business prospects, are based on our own information and information from
other sources we believe to be reliable, you should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report. The words anticipate, believe, expect,
intend, plan, estimate and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements. Our actual results of operations, financial condition or business
prospects may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons, including, among other things and not limited to, the cyclical nature of our industry, our dependence on introducing new
products on a timely basis, our dependence on growth in the demand for our products, our ability to compete effectively, our ability to expand successfully our capacity, our ability to acquire sufficient raw materials and key components, our
dependence on key personnel, general political and economic conditions, including those related to the TFT-LCD industry, possible disruptions in commercial activities caused by natural and human-induced disasters, including terrorist activity and
armed conflict, fluctuations in foreign currency exchange rates, and other factors. For a discussion of these risks and other factors, please see Item 3. Key InformationRisk Factors.

**CERTAIN CONVENTIONS**

We publish our financial
statements in New Taiwan dollars (NT dollars), the lawful currency
of the Republic of China (the ROC). This annual report contains translations
 of NT dollar amounts into United States dollars (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 in this annual report were made at a rate
 of NT$31.74 to US$1.00, the noon buying rate in The City of New York for cable
 transfers in NT dollars per U.S. dollar as certified for customs purposes by
 the Federal Reserve Bank of  New York on December 31, 2004. 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 1, 2005, the noon buying rate
 was NT$31.30to
 US$1.00. Any discrepancies in any table between totals and sums of the amounts
 listed are due to rounding.

All references in this annual report to Taiwan or the ROC are to the island of Taiwan and other areas under the effective control of the Republic of China, and all
references to the ROC government are references to the government of the Republic of China. All references to the our company, we, us and our in the annual report are references to AU
Optronics Corp. and its consolidated subsidiaries, unless the context suggests otherwise. All references herein to the PRC are to the Peoples Republic of China.

1


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Table of Contents

**PART I**

**ITEM 1. IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISERS**

Not applicable.

**ITEM 2. OFFER STATISTICS
AND EXPECTED TIMETABLE**

Not applicable.

**ITEM 3. KEY INFORMATION**

**3.A. Selected Financial
Data**

The selected statement of operations data for the years ended December 31, 2002, 2003 and 2004 and selected balance sheet data as of December 31, 2003 and 2004 set forth below have been derived
from our audited consolidated financial statements included herein. The selected balance sheet data as of December 31, 2000 and 2001 have been derived from our audited financial statements that have not been included herein. Our consolidated balance
sheets as of December 31, 2002, 2003 and 2004 and related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2004 have been audited by KPMG
Certified Public Accountants (KPMG), independent registered public accounting firm, whose report thereon is included herein. The selected financial and operating data set forth below should be read in conjunction with Item 5.
Operating and Financial Review and Prospects and the consolidated financial statements and the notes to those statements included herein.

Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the ROC (ROC GAAP). On September 1, 2001, we
completed a merger with Unipac Optoelectronics Corporation (Unipac), an affiliate of United Microelectronics Corporation (UMC). Under ROC GAAP, the merger of Unipac 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. As a result, unless otherwise indicated, our operational and financial data,
under ROC GAAP, presented herein for periods or dates prior to September 1, 2001 represent the combined operational and financial data of our company and Unipac. In contrast, under generally accepted accounting principles in the United States,
(U.S. GAAP), the merger of Unipac has been accounted for as the acquisition of Unipac by our company under the purchase method of accounting, whereby our cost of acquiring Unipac was measured by the market value of the shares we issued
to Unipac shareholders in connection with the merger plus related acquisition costs. Such acquisition cost has been allocated to the assets of Unipac we acquired and the liabilities of Unipac we assumed, based on their fair value as of September 1,
2001. Our financial data, under U.S. GAAP, presented herein for periods or as of dates prior to September 1, 2001, do not include the financial data of Unipac.

For information relating to the nature and effect of significant differences between ROC GAAP and U.S. GAAP as they relate to us, see note 22 to our consolidated financial statements.

The table below sets forth certain financial data under ROC GAAP for the periods and as of the dates indicated. As more fully discussed above in the second paragraph of this section, such data
have been prepared under the pooling-of-interests method of accounting under ROC GAAP, whereby the financial data of both our company and Unipac for the periods and as of the dates prior to September 1, 2001, the date of the completion of our merger
with Unipac, have been restated on a combined basis. The combined operational and financial data presented herein do not purport to be indicative of what our actual operational and financial results would have been if our merger with Unipac had
actually taken place on January 1, 2000 or 2001, respectively, for the purpose of presenting our statements of operations, statements of changes in stockholders equity and statements of cash flows data for the years ended December 31, 2000 and
2001, respectively.

2


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Table of Contents

|                                            |  | **Year Ended and As of
          December 31,**                                       | 
|------------------------------------------- |  | ------------------------------------------------------------------------------------- | 
|                                            |  |                                                                                       | 
|                                            |  | **2000**                                                                              | 
|                                            |  |                                                                                       | 
|                                            |  | **NT$**                                                                               | 
|                                            |  | **(in millions, except
          percentages and per common share and per ADS data)** | 
|**Statement of Operations Data:**           |  |                                                                                       | 
|**ROC GAAP**                                |  |                                                                                       | 
|Net sales                                   |  | 25,583.2                                                                              | 
|Cost of goods sold                          |  | 20,737.5                                                                              | 
|                                            |  |                                                                                       | 
|Gross profit (loss)                         |  | 4,845.7                                                                               | 
|Operating expenses                          |  | 3,724.2                                                                               | 
|                                            |  |                                                                                       | 
|Operating income (loss)                     |  | 1,121.5                                                                               | 
|Non-operating income                        |  | 1,640.2                                                                               | 
|Non-operating expenses and losses           |  | 825.3                                                                                 | 
|                                            |  |                                                                                       | 
|Income (loss) before income tax             |  | 1,936.4                                                                               | 
|Income tax benefit (expense)                |  | 926.3                                                                                 | 
|                                            |  |                                                                                       | 
|Net income (loss)                           |  | 2,862.7                                                                               | 
|                                            |  |                                                                                       | 
|Weighted average shares outstandingBasic   |  | 2,928.4                                                                               | 
|Weighted average shares outstandingDiluted |  | 2,928.4                                                                               | 
|Earnings (loss) per shareBasic             |  | 0.98                                                                                  | 
|Earnings (loss) per shareDiluted           |  | 0.98                                                                                  | 
|Earnings (loss) per ADS equivalentBasic    |  | 9.78                                                                                  | 
|Earnings (loss) per ADS equivalentDiluted  |  | 9.78                                                                                  | 

|                                    |  | **Year
                         Ended and As of December 31,**                                                                |  
|----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- | -
|                                    |  |                                                                                                                               |  
|                                    |  | **2000**                                                                                                                      |  
|                                    |  |                                                                                                                               |  
|                                    |  | **NT$**                                                                                                                       |  
|                                    |  | **(in millions,
                         except percentages and per common share and per ADS
                         data)** |  
|**Balance Sheet Data:**             |  |                                                                                                                               |  
|**ROC GAAP**                        |  |                                                                                                                               |  
|Current assets                      |  | 19,221.0                                                                                                                      |  
|Long-term investmentsequity method |  | 50.9                                                                                                                          |  
|Long-term investmentscost method   |  |                                                                                                                              |  
|Property, plant and equipment       |  | 60,695.4                                                                                                                      |  
|Intangible assets                   |  | 3,618.4                                                                                                                       |  
|Other assets                        |  | 3,821.2                                                                                                                       |  
|Total assets                        |  | 87,406.9                                                                                                                      |  
|Current liabilities                 |  | 14,707.5                                                                                                                      |  
|Long-term borrowings                |  | 29,818.4                                                                                                                      |  
|Other liabilities                   |  | 115.8                                                                                                                         |  
|Total liabilities                   |  | 44,641.7                                                                                                                      |  
|Capital stock                       |  | 23,849.5                                                                                                                      |  
|Total stockholders equity          |  | 42,765.2                                                                                                                      |  
|**Other Financial Data:**           |  |                                                                                                                               |  
|**ROC GAAP**                        |  |                                                                                                                               |  
|Gross margin(2)                     |  | 18.9                                                                                                                          | %
|Operating margin(3)                 |  | 4.4                                                                                                                           | %
|Net margin(4)                       |  | 11.2                                                                                                                          | %
|Capital expenditures                |  | 36,901.6                                                                                                                      |  
|Depreciation and amortization       |  | 5,741.3                                                                                                                       |  
|Cash dividend paid                  |  |                                                                                                                              |  
|3                                   | 

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Table of Contents

|                                     |  | **Year
                         Ended and As of December 31,**                                                                |  
|------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------- | -
|                                     |  |                                                                                                                               |  
|                                     |  | **2000**                                                                                                                      |  
|                                     |  |                                                                                                                               |  
|                                     |  | **NT$**                                                                                                                       |  
|                                     |  | **(in millions,
                         except percentages and per common share and per ADS
                         data)** |  
|                                     |  |                                                                                                                               |  
|Cash flows from operating activities |  | 2,796.5                                                                                                                       |  
|Cash flows from investing activities |  | (36,652.1                                                                                                                     | )
|Cash flows from financing activities |  | 27,471.8                                                                                                                      |  

The table below sets forth certain financial data under U.S. GAAP for the periods and as of the dates indicated. As more fully discussed above in the second paragraph of this section, such data
reflects the application of the purchase method of accounting under U.S. GAAP, whereby only the financial data of our company are presented for the periods and as of the dates prior to September 1, 2001, the date of the completion of our merger with
Unipac.

|                                              |  |                                                                                       |   | **Year Ended and As of December
          31,** |   |           | 
|--------------------------------------------- |  | ------------------------------------------------------------------------------------- | - | ----------------------------------------------- | - | --------- | 
|                                              |  |                                                                                       |  
|                                              |  | **2001**                                                                              |   | **2002**                                        |   | **2003**  | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|                                              |  | **NT$**                                                                               |   | **NT$**                                         |   | **NT$**   | 
|                                              |  | **(in millions, except percentages
          and per common share and per ADS data)** |  
|**Statement of Operations Data:**             |  |                                                                                       |   |                                                 |   |           | 
|**U.S. GAAP**                                 |  |                                                                                       |   |                                                 |   |           | 
|Net sales                                     |  | 28,513.4                                                                              |   | 75,689.2                                        |   | 104,860.6 | 
|Cost of goods sold                            |  | 31,491.1                                                                              |   | 66,197.1                                        |   | 84,940.9  | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|Gross profit (loss)                           |  | (2,977.7                                                                              | ) | 9,492.1                                         |   | 19,919.7  | 
|Operating expenses                            |  | 1,670.5                                                                               |   | 3,678.7                                         |   | 6,581.8   | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|Operating income (loss)                       |  | (4,648.2                                                                              | ) | 5,813.4                                         |   | 13,337.9  | 
|Non-operating income                          |  | 408.1                                                                                 |   | 705.4                                           |   | 404.0     | 
|Non-operating expenses and losses(1)          |  | 1,100.5                                                                               |   | 1,367.9                                         |   | 1,256.6   | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|Income (loss) before income tax               |  | (5,340.6                                                                              | ) | 5,150.9                                         |   | 12,485.3  | 
|Income tax benefits (expenses)                |  | (0.3                                                                                  | ) | (212.0                                          | ) | 3,230.1   | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|Net income (loss)                             |  | (5,340.9                                                                              | ) | 4,938.9                                         |   | 15,715.4  | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|Weighted average shares outstandingBasic     |  | 1,975.4                                                                               |   | 4,012.9                                         |   | 4,481.1   | 
|Weighted average shares outstandingDiluted . |  | 1,975.4                                                                               |   | 4,294.0                                         |   | 4,534.6   | 
|Earnings (loss) per shareBasic               |  | (2.70                                                                                 | ) | 1.23                                            |   | 3.51      | 
|Earnings (loss) per shareDiluted             |  | (2.70                                                                                 | ) | 1.19                                            |   | 3.47      | 
|Earnings (loss) per ADS equivalentBasic      |  | (27.04                                                                                | ) | 12.31                                           |   | 35.07     | 
|Earnings (loss) per ADS equivalentDiluted    |  | (27.04                                                                                | ) | 11.94                                           |   | 34.74     | 
|**Balance Sheet Data:**                       |  |                                                                                       |   |                                                 |   |           | 
|**U.S. GAAP**                                 |  |                                                                                       |   |                                                 |   |           | 
|Current assets                                |  | 30,955.9                                                                              |   | 48,967.9                                        |   | 51,111.2  | 
|Investments in equity-method investees        |  | 117.2                                                                                 |   | 26.8                                            |   | 533.2     | 
|Investments in cost-method investees          |  |                                                                                      |   | 46.6                                            |   | 185.3     | 
|Property, plant and equipment                 |  | 65,592.0                                                                              |   | 72,195.3                                        |   | 100,283.5 | 
|Goodwill                                      |  | 11,599.7                                                                              |   | 11,599.7                                        |   | 10,946.7  | 
|Other intangible assetsnet                   |  | 10,416.1                                                                              |   | 9,281.4                                         |   | 7,485.4   | 
|Other assets                                  |  | 1,333.3                                                                               |   | 1,413.7                                         |   | 3,360.4   | 
|Total assets                                  |  | 120,014.2                                                                             |   | 143,531.4                                       |   | 173,905.7 | 
|Current liabilities                           |  | 19,676.4                                                                              |   | 25,789.5                                        |   | 41,275.4  | 
|Long-term borrowings                          |  | 39,054.8                                                                              |   | 25,959.1                                        |   | 25,306.4  | 
|Other liabilities                             |  | 1,144.7                                                                               |   | 1,190.6                                         |   | 345.0     | 
|Total liabilities                             |  | 59,875.9                                                                              |   | 52,939.2                                        |   | 66,926.8  | 
|Total stockholders equity                    |  | 60,138.3                                                                              |   | 90,592.2                                        |   | 106,978.9 | 
|                                              |  |                                                                                       |   |                                                 |   |           | 
|4                                             | 

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Table of Contents

|                                     |  |                                                                                                                               |    | **Year Ended and As of
          December 31,** |   |           |  
|------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------- | -- | ----------------------------------------------- | - | --------- | -
|                                     |  |                                                                                                                               |   
|                                     |  | **2001**                                                                                                                      |    | **2002**                                        |   | **2003**  |  
|                                     |  |                                                                                                                               |    |                                                 |   |           |  
|                                     |  | **NT$**                                                                                                                       |    | **NT$**                                         |   | **NT$**   |  
|                                     |  | **(in millions,
                         except percentages and per common share and per ADS
                         data)** |   
|**Other Financial Data:**            |  |                                                                                                                               |    |                                                 |   |           |  
|**U.S. GAAP**                        |  |                                                                                                                               |    |                                                 |   |           |  
|Gross margin(2)                      |  | (10.4                                                                                                                         | )% | 12.5                                            | % | 19.0      | %
|Operating margin(3)                  |  | (16.3                                                                                                                         | )% | 7.7                                             | % | 12.7      | %
|Net margin(4)                        |  | (18.7                                                                                                                         | )% | 6.5                                             | % | 15.0      | %
|Capital expenditures                 |  | 8,311.5                                                                                                                       |    | 18,035.3                                        |   | 39,300.6  |  
|Depreciation and amortization        |  | 6,649.6                                                                                                                       |    | 14,614.0                                        |   | 17,369.8  |  
|Cash flows from operating activities |  | 503.1                                                                                                                         |    | 21,227.5                                        |   | 36,987.3  |  
|Cash flows from investing activities |  | (8,067.7                                                                                                                      | )  | (18,549.9                                       | ) | (40,339.4 | )
|Cash flows from financing activities |  | 12,986.3                                                                                                                      |    | 16,773.4                                        |   | (4,618.4  | )

|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|(1) | Includes the cumulative effect of an accounting change of NT$0.6 million, net of tax in 2001.
|   
|(2) | Gross margin is calculated by dividing gross profit by net sales.                            
|   
|(3) | Operating margin is calculated by dividing operating income (loss) by net sales.             
|   
|(4) | Net margin is calculated by dividing net income (loss) by net sales.                         
|   

**Exchange Rate**

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.

|                       |  | **NT dollars per U.S. dollar
          Noon Buying Rate** | 
|---------------------- |  | --------------------------------------------------------- | 
|                       |  |                                                           | 
|                       |  | **Average**                                               | 
|                       |  |                                                           | 
|                       |  | **(of month end rates for years)**                        | 
|2000                   |  | NT$31.26                                                  | 
|2001                   |  | 33.82                                                     | 
|2002                   |  | 34.54                                                     | 
|2003                   |  | 34.40                                                     | 
|2004                   |  | 33.27                                                     | 
|November               |  | 32.78                                                     | 
|December               |  | 32.17                                                     | 
|2005: (through May 31) |  | 31.43                                                     | 
|January                |  | 31.85                                                     | 
|February               |  | 31.50                                                     | 
|March                  |  | 31.11                                                     | 
|April                  |  | 31.48                                                     | 
|May                    |  | 31.27                                                     | 

**3.B. Capitalization and
Indebtedness**

Not applicable.

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**3.C. Reason for the Offer
and Use of Proceeds**

Not applicable.

**3.D. Risk Factors**

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

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

The thin film transistor
          liquid crystal display (TFT-LCD) industry in general is
          characterized by cyclical market conditions. The industry has been
          subject to significant and rapid downturns as a result of an imbalance
          between excess supply and a slowdown in demand, resulting in sharp
          declines in average selling prices. For example, commencing in the
          second half of 2000, intense competition in the TFT-LCD industry worldwide,
          due principally to the substantial addition of new fabs by 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 the average
          selling prices of our large-size panels, which we consider to be panels
          ten inches and above in diagonal length. 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 demand for TFT-LCD panels resulted in panel price recovery across 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 was followed by a slowdown in demand growth in the second half of 2002, which in turn resulted in excess supply 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. There was a recovery in the average selling prices of large-size panels in 2003, with average selling prices of our large-size panels increasing by 17.3% between the first quarter of 2003 and the fourth
quarter of 2003. Average selling prices of our large-size panels fluctuated throughout 2004, increasing by 12.1% between the fourth quarter of 2003 and the second quarter of 2004 and decreasing by 22.2% between the second quarter and the third
quarter of 2004 and further decreasing 17.1% between the third quarter and the fourth quarter of 2004. 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. For example, it is expected that as additional capacity provided by fifth- and sixth-generation fabs becomes available, the TFT-LCD industry may face excess capacity. We cannot assure you that any future downturns resulting
from 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.

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 that compensate for the anticipated fluctuation and long-term declines in the average selling prices of our existing products. 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 experienced a net loss in 2001.
                              Although we were profitable in 2002, 2003 and 2004,
                              if we are not profitable in 2005 or beyond, the
                              value of the ADSs and our shares may be negatively
          affected.**
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We experienced a net loss in 2001 due principally to a higher than expected decline in the average selling prices of our products and lower utilization rate at our facilities caused by an
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 expected declines in average selling prices and maintain a high capacity utilization rate, our gross margin will continue to decline, which could seriously harm our business
and

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reduce the value of our equity securities. Although we were profitable in 2002, 2003 and 2004, we cannot assure you that we will be profitable in 2005 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 in a timely manner. An inability to develop or introduce new products in a timely manner may hurt our
competitive position because customers may choose to source more advanced products from competitors.
- Our ability to develop or acquire and implement new manufacturing processes and product technologies. If we are unable to implement successfully new manufacturing processes and product
technologies in a timely manner, our competitors may seize new opportunities in new markets.
- Our ability to control our fixed and variable costs and operating expenses. Increased fixed and variable costs and operating expenses 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 a product or experience production problems with new products, our results of operations may
fluctuate.
- Our ability to obtain raw materials and components at acceptable prices and in a timely manner. A shortage in raw materials and components could result in increased raw materials and
components costs and put downward pressure on gross margins as well as cause delays to our production and delivery schedules, which may result in the loss of customers and
revenues.
- Lower than expected growth in demand for TFT-LCD panels resulting in oversupply in the market. When oversupply conditions occur, we may reduce the price of our panels to maintain high
capacity utilization rates or reduce the volume of our production.

| | **Our results of operations 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, including fluctuations in average selling prices, 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 and earthquakes, and industrial accidents, such as fires and power failures, as well as geo-political instability as a result of terrorism.

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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 results of operations 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 results of operations may be
                              adversely affected if we cannot introduce new products
                              on a timely basis or if our new products do not
          gain market acceptance.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Early product development by itself does not 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 thirteen years ago, this technology began to gain 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 products 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 needs of high-growth applications in computer products, consumer electronics, LCD television and other markets as demand increases.
Because these products, such as mobile phones, portable game consoles, digital cameras and LCD television, 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 strategy to expand our market share for these panels will be successful. If we fail to successfully market panels for these products,
our results of operations will be adversely affected.

| | Our net sales and results of operations
                              may suffer if there is a downturn in the demand
                              for, or a further decrease in the average selling
          prices of, panels for computer products.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A significant percentage of our net sales is derived from customers who use our TFT-LCD panels in computer products such as notebook computers and desktop monitors. Net sales of panels for
computer products represented 88.3%, 85.2% and 78.1% of our net sales in 2002, 2003 and 2004, respectively. Demand for our panels for computer products is affected by numerous factors, including the general demand of the end-use markets and price
attractiveness. For example, demand for desktop monitors is affected by the rate of substitution of TFT-LCD monitors for cathode ray tube (CRT) monitors. 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 CRT monitors. The rate of substitution of TFT-LCD monitors for CRT monitors may be affected by a general slowdown in the global economy or a change in the average
selling prices of such products which may also adversely affect the demand. In addition, since most brand companies sell their computer products bundled with TFT-LCD monitors, a change in the bundling policy of brand companies could also reduce the
demand for our products. Demand for notebook computer displays may be affected by various factors, including a slowdown in information technology spending by corporations as well as a decrease in consumer spending as a result of a general slowdown
in the global economy. Demand for notebook computers is also affected by price changes. A slowdown in the demand for notebook computers, such as the slowdown in the industry in 2001 and 2002, could adversely affect the number of panels sold and the
average selling prices for our notebook computer panels.

| | If the demand for LCD television
                              or consumer electronics products, or our market
                              share in such end-use markets, does not grow as
                              expected, our business prospects and results of
          operations may suffer.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although panels for use in LCD television and consumer electronics products accounted for a small percentage of our net sales in 2004, we believe that such end-use markets present opportunities
for growth. As end users may find LCD television attractive because of their thin size as compared to traditional CRT televisions, we believe that a substantial portion of our sales growth will be derived from end users purchasing LCD televisions as
additional televisions or to replace traditional CRT televisions. We have installed, and we expect to continue to install, production capacity in anticipation of increased demand for LCD television generated as a result of the growing market
acceptance of LCD television. As a result, if end users purchase LCD televisions at a slower rate than we expect, we may not be able to maintain high utilization rates of the capacity installed or allocated to manufacture

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panels for LCD television. In addition, we may face greater than expected downward pricing pressures for our panels used for LCD television and other applications as a result of excess supply of such panels due to excess
capacity or as a result of price competition by competitors seeking to stimulate demand in order to maintain or increase market share. We also manufacture panels for use in consumer electronics products. Demand for consumer electronics products that
use TFT-LCD panels may be adversely affected by numerous factors, including a slowdown in general economic conditions and a change in price. If there is a slowdown in the demand for LCD television or consumer electronics products that use TFT-LCD
panels, our business prospects and results of operations may suffer.

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

High capacity utilization rates allow us to allocate fixed costs over a greater number of panels produced. Increases or decreases in capacity utilization rates can significantly impact our
gross margins. Accordingly, our ability to maintain or improve 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 ramp-up
progress of our advanced production facilities and our ability to efficiently and effectively allocate production capacity among our product lines, as well as the demand for our products and our ability to offer products that meet our
customers requirements at competitive prices. Although we maintained high capacity utilization rates in 2003 and 2004 and, in particular, have been successful to date in the ramp-up of our fifth-generation fabs, our results of operations in
the past have been negatively affected by low capacity utilization. We cannot assure you that we will be able to maintain high capacity utilization rates through 2005 or beyond. If demand for our products does not meet our expectations, our capacity
utilization will decrease and our gross margins will 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,
                              or a significant decrease in orders from any of
                              these customers, would result in the loss of a
          significant portion of our net sales.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We dependent on a
          small number of customers for a substantial portion of our business.
          In 2002, 2003 and 2004, our five largest customers accounted for 39.3%,
          43.6% and 35.1%, respectively, of our net sales. In addition, certain
          customers individually accounted for more than 10% of our net sales
          in each of the last three years. BenQ Corporation (BenQ)
          and its subsidiaries accounted for 20.8%, 20.9% and 19.9% of our net
          sales in 2002, 2003 and 2004, respectively. As some of our major customers
          are brand companies which also provide original equipment manufacturing
          services for other brand companies, such as BenQ, our panels shipped
          to these 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 small number of customers for a significant
portion of our net sales and may continue to experience fluctuations in the distribution 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 could be seriously harmed. Similarly, a failure to manufacture sufficient
quantities of panels to meet the demands of these customers may cause us to lose customers or market share 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
                              and allocate capacity efficiently and in a timely
          manner.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our customers generally
          provide rolling forecasts four to six months in advance of, and do
          not place firm purchase orders until one month before, the 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 and adjust inventory levels of raw materials and components based in part on customers forecast,
and we may be unable to 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. The inability to adjust

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production costs or to allocate production capacity quickly to respond to the demand for our products may affect our ability to maximize results of operations, which may result in a negative impact on the value of your
investment in the ADSs or our shares.

| | Our future competitiveness and
                              growth prospects could be adversely affected if
                              we are unable to complete the construction and
                              installation of our 7.5-generation fab as scheduled
                              or encounter unforeseen disruptions in manufacturing
          at our 7.5-generation fab.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the third quarter
          of 2004, we commenced construction of our 7.5-generation fab that is
          designed to process substrates of 1,950 mm x 2,250 mm, which is the
          optimal size for the production of  panels larger than 40-inches. Based
          on our current schedule, we plan to begin installation of machinery
          and equipment in the second quarter of 2006 and begin commercial production
          in the fourth quarter of 2006. The successful completion of our 7.5-generation
          fab is dependent upon a number of factors, including: timely delivery
          of equipment and machinery and the hiring and training of new skilled
          personnel. Although we believe that we have the internal capabilities
          and know-how to construct,  install and operate a 7.5-generation fab,
          no assurances can be given that we will be successful in establishing
          our 7.5-generation fab. We cannot assure you that we will be able to
          obtain from third parties, if necessary, the technology,  intellectual
          property or know-how that may be required for a 7.5-generation fab
          on acceptable terms. In addition, delays in the delivery of equipment
          and machinery as a result of increased demand for such equipment and
          machinery or the delivery of  equipment and machinery that do not meet
          our specifications could delay the establishment of our 7.5-generation
          fab. In addition, the manufacturing processes for TFT-LCD panels are
          highly complex and potentially vulnerable to disruptions. In  particular,
          the manufacturing processes for 7.5-generation fabs are currently untested.
          If we are unable to complete our 7.5-generation fab as scheduled, or
          face unforeseen disruptions in the manufacturing processes, we may
          not be able to realize  the potential gains from the manufacturing
          of 7.5-generation fabs and may face disruptions in capturing the growth
          opportunities associated with the expected expansion of the market
          for LCD TV panels.

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

Historically, we
          have been able to finance our capital expenditures through cash flow
          from our operating activities and financing activities, including the
          issuance of equity securities,  long-term borrowings and the issuance
          of convertible and other debt securities. Our ability to expand our
          production facilities and establish next generation fabs will continue
          to largely depend on our ability to obtain sufficient cash flow from
           operations as well as external funding. We expect to make substantial
          capital expenditures in connection with the expansion of our production
          capacity, including investments in 2005 in connection with the ramp-up
          of our sixth-generation fab, the  construction of a third fifth-generation
          fab, a 7.5-generation fab and our second in-house color filter production
          facility. These capital expenditures will be made well in advance of
          any additional sales to be generated from these expenditures. We  may
          lose market share if we do not have the capital resources to complete
          our expansion plans or if our actual expenditures exceed planned expenditures
          for any number of reasons, including changes in:

- our growth plan;
- manufacturing process and product technologies;
- market conditions;
- prices of equipment; and
- interest rates and foreign exchange rates.

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

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| | 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 are highly competitive. We experience pressure on our prices and profit margins, due largely to additional and growing 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, sixth- or higher generation capacity. Our competitors
may be able to introduce products manufactured using such capacity in advance of our 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 performance features and quality;
- customer service, including product design support;
- ability to reduce production cost;
- ability to provide sufficient quantity of
products to fulfill customers needs;
- research and development;
- time-to-market; and
- access to capital.

Our ability to compete successfully in the TFT-LCD industry also depends on factors beyond 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 PRC,
                              our sales and results of operations 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 PRC. We believe that we have benefited from this outsourcing trend
          in large part due to our production locations in both Taiwan and the
          PRC, which has allowed us to coordinate better our production and services
          with our customers requirements, especially in the areas of delivery
          time and product design support. We cannot assure you 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
PRC, our sales and results of operations could be adversely affected.

| | 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 to the ramp-up of our sixth-generation fab, the construction of a third fifth-generation fab, a 7.5 -generation fab and our second in-house color filter production facility. This growth may strain 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.

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| | The loss of any key management
                              personnel or the undue distraction of any such
          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, we may
          not be able to find suitable replacements or 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 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 and Chief Executive Officer of
          BenQ. If Mr. Kuen-Yao (K.Y.) Lee is not able to devote enough time
to our company, our operations may be negatively affected.

| | If we are not able to attract and
                              retain skilled technical personnel, including research
                              and development and other personnel, our operations
          and expansion plans would be adversely affected.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our success depends on our ability to attract and retain skilled employees, particularly engineering and technical personnel in the research and development and manufacturing processing areas.
In 2004, we established a new flat panel display research and development center, the AUO Technology Center, in Hsinchu Science Park. The 684,000 square foot, nine-storey research center houses eight to 16 research labs, advanced training facilities
and is expected to accommodate over 1,000 research engineers. We are also planning the establishment of a professional on-the-job training facility for employees, the AUO Learning College. Without a sufficient number of skilled employees, our
operations and production quality would suffer. 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 numbers 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 may deteriorate.

| | Potential conflicts of interest
                              with BenQ may cause us to lose opportunities to
          expand and improve our operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

We face potential
          conflicts of interest with BenQ. BenQ is our largest shareholder, owning
          directly and indirectly 13.32% of our outstanding shares as of June
    1, 2005, and one of our largest customers. BenQ and its subsidiaries accounted
    for 20.8%, 20.9% and 19.9% of our net sales in 2002, 2003 and 2004, respectively.
    BenQs
          substantial interest in our company may lead to conflicts of interest
          affecting our sales decisions or allocations. In addition, as of June
          1, 2005, three of our nine directors and one of our three supervisors
          are representatives of BenQ, and Mr. Kuen-Yao (K.Y.) Lee, our Chairman
          and Chief Executive Officer, is also Chairman and Chief Executive Officer
          of BenQ. As a result, conflicts of interest between their duties to
BenQ and us may arise.

We cannot assure you that when conflicts of interest arise with respect to representatives of BenQ, the conflicts of interest will be resolved in our favor. These conflicts may result in lost
corporate opportunities, 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.

| | If we fail to maintain an effective system
            of internal controls, we may not be able to accurately report our
            financial results or prevent fraud
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The United States
    Securities and Exchange Commission (the SEC), as required by
    Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every
    public company to include a management report on such companys internal
    controls over financial reporting in its annual report, which contains managements
    assessment of the effectiveness of the companys internal controls over
    financial reporting. In addition, an independent registered public accounting
    firm must attest to and report on managements assessment of the effectiveness
    of the companys internal controls over financial reporting. These requirements
    will first apply to our annual report on Form 20-F for the fiscal year ending
    December 31, 2006. Our management may conclude that our internal controls
    over our financial reporting are not effective. Moreover, even if our management
    concludes that our internal controls over financial reporting are effective,
    our independent registered public accounting firm may still be unable to
    attest

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Risks Relating to Manufacturing

| | Our manufacturing processes are
                              highly complex, costly and potentially vulnerable
                              to disruptions that can significantly increase
                              our production 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 production 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 our third fifth-generation fab and
our 7.5 -generation fab, and the ramp-up of production capacity for our sixth-generation fab. We may also encounter these difficulties in connection with the establishment of our second in-house color filter production facilities as well as the
adoption of new manufacturing process technologies. We cannot assure you that we will be able to complete our third fifth-generation fab, our 7.5 -generation fab, our second in-house color filter production facilities, and the ramp-up of our
sixth-generation fab without material delays or difficulties, or that we will not encounter 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 substantial customers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Raw materials and
          component costs represent a substantial portion of our cost of goods
          sold. 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
          lamps (CCFL) and 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
          of one of our two major suppliers of glass substrates. In addition,
          there was a shortage in the supply of color filters and glass substrates
          beginning in the second half of 2003 which continued into 2004. In
          addition, based on announced plans for new TFT-LCD production capacity,
          there could also be a shortage in the supply of driver integrated circuits,
          polarizer and CCFL. Our operations would be adversely affected if we
          could not obtain raw materials and components in sufficient quantity
          and quality at acceptable prices. 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 approximately
    37.4% of our raw materials and components was sourced locally in Taiwan in
    2004, we depend on supplies of certain principal 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 components in a timely and cost-effective manner may cause
    us to delay our production and delivery schedules, which may result in the
    loss of our customers and revenues.

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| | 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 7.5 -generation 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 satisfy only partially 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 manufacture
                              successfully our products within the acceptable
                              range of quality, our results of operations will
          be adversely affected.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 production 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 yields 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 which could result in damages
    awarded 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. We incurred small fines in March 2001, December 2002 and October
    2003 for non-compliance with a waste storage-labeling requirement. In September
    2003 and June 2004, we also incurred small fines for failure to update our
air pollution emission 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 timely release of new products. In addition, we expect to utilize
    other display technologies, such as organic light-

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emitting diode (OLED) and low temperature poly-silicon (LTPS)
technologies to develop new products. Our ability to manufacture products by
utilizing more advanced manufacturing process technologies to increase production
efficiency will be critical to our sustained competitiveness. We plan to invest
a substantial amount of capital to ramp-up our sixth-generation fab, construct
a third fifth-generation fab and a 7.5 -generation fab and have committed significant
management resources to develop color filter production facilities. However,
we cannot assure you that we will be successful in completing the development
of the sixth-generation fab or other future technologies for our fabs, or that
we will be able to complete 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.

| | Other flat panel display technologies
                              or alternative display technologies could render
          our products uncompetitive.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

We currently manufacture
          products primarily using TFT-LCD technology, which is currently one
          of the most commonly used flat panel display technologies. We may face
          competition from flat panel display manufacturers utilizing alternative
          flat panel technologies, including plasma discharge panel (PDP) and OLED technologies. Currently, PDP technology is primarily used to produce panels larger than 30-inches for use in television,
as compared to the TFT-LCD technology primarily used to produce panels less than 40-inches for use in monitors, notebooks and LCD television. However, as the demand for LCD televisions with panel sizes as large as that of televisions using PDP
technology continues to grow, competition between these two technologies is likely in the large-size television market. Another commercially available flat panel technology is OLED. OLED technology is currently primarily used, and is beginning to
compete with TFT-LCD technology, in small- to medium-size applications, such as mobile phones and digital still cameras. Future development of OLED technology may also allow it to compete with TFT-LCD technology in larger applications such as
monitors, notebooks and LCD television and render our products uncompetitive. In addition, there are other alternative flat panel technologies currently in the research and development stage, such as field emission display (FED)
inorganic electroluminescent (IEL) and surface-conduction electron-emitter (SED)
display technologies. If the various alternative flat panel technologies currently
commercially available or in the research and development stage are developed
to have better price-to-performance ratios, such technologies may compete with
TFT-LCD technology and render our products uncompetitive.

We also face competition from alternative display technologies, particularly those utilizing projection technology, such as front digital mirror device projector, digital light processing
projector, LCD projector and liquid crystal on silicon projector technologies. These alternative forms of display technology may be competitive in terms of price to performance ratio. If alternative display technologies gain a larger market share in
the market for large-size television, our business prospects may be adversely affected.

| | 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 major licensing arrangements with Matsushita, Fujitsu Display Technologies
    Corporation (FDTC), Semiconductor Energy Laboratory Co., Ltd.
    (SEL) and Toppan Printing Co., Ltd. (Toppan) for
    product and manufacturing process technologies used to produce a substantial
    number of our TFT-LCD panels. These agreements are typically for terms of
    five to seven years. If we are unable to renew our technology licensing arrangements
    with Matsushita, FDTC, SEL or Toppan on mutually beneficial economic terms,
    we may lose the legal right 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 advanced manufacturing process and product technologies.

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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 these license agreements are not obtained or renewed on acceptable terms, our business and future results of
operations may 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 are currently involved in intellectual property disputes with several
          companies. See Item 8. Financial
InformationLitigation. We have no means of knowing what patent applications
have been filed in the United States or elsewhere and whether, if the applications
are granted, such patents would have a material adverse effect on our business.
If any third party were to make valid intellectual property infringement claims
against our customers or us, we may be required to:

- 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.

| | Our ability to compete will be
                              harmed if we are unable to adequately protect our
          intellectual property.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

We believe that the
    protection of our intellectual property rights is, and will continue to be,
    important to the success of our business. We rely primarily on a combination
    of patent, trademark, trade secret and copyright law and contractual restrictions
    to protect our intellectual property. These afford only limited protection.
    Despite our efforts to protect our proprietary rights, unauthorized parties
    may attempt to obtain, copy or use information that we regard as proprietary,
    such as product design and manufacturing process expertise. As of December
    31, 2004, we had 617 U.S. patent applications pending, 865 Taiwan patent
    applications pending and 1,167 patents pending in other jurisdictions. Our
    pending patent applications and any future applications may not result in
    issued patents or may not be sufficiently broad to protect our proprietary
    technologies. Moreover, policing any unauthorized use of our products is
    difficult and costly, and we cannot be certain that the measures we have
    implemented will prevent misappropriation or unauthorized use of our technologies,
    particularly in foreign jurisdictions where the laws may not protect our
    proprietary rights as fully as the laws of the United States. Others may
    independently develop substantially equivalent intellectual property or otherwise
    gain access to our trade secrets or intellectual property. Our failure to
effectively protect our intellectual property could harm our business.

Political, Geographical and Economic Risks

| | Due to the location of our operations
            in Taiwan and the PRC, 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 2004, approximately 40.6% of our net sales was

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derived from Taiwan-based customers. In addition, we have expanded our module assembly operations to the PRC since July 2002. Our module-assembly operations in the PRC, 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, water supply shortages, fire, typhoons, earthquakes or other natural disasters, could cause delays in production and shipments of our products. Any delays or disruptions could result in our customers seeking to source TFT-LCD panels from
other manufacturers. 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 a power outage in the future could seriously hurt our business.

Our manufacturing processes require a substantial amount of water. Although currently more than 75% of the water used in our production process is recycled, our production operations may be
seriously disrupted by water shortages. For instance, the Hsinchu area, where one of our principal manufacturing sites is located, experienced a drought in 2002. In response to the drought in 2002, the ROC authorities implemented water-rationing
measures and began sourcing water from alternative sources, and therefore we did not encounter any water shortage. However, we may encounter droughts in the Hsinchu, Taoyuan or Taichung areas in the future, where most of our current or future
manufacturing sites 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 shut down temporarily 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 in, and
                              are exploring the possibility of expanding our
                              businesses and operations to, or making additional
                              investments in, the PRC, which may expose us to
                              additional political, regulatory, economic and
          foreign investment risks.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have expanded
          our module assembly operations to the PRC. Our businesses and operations
          and our future expansion or investment plans in the PRC are subject,
          to a significant degree, to the political and economic condition, regulatory
          control and general legal developments in the PRC and other foreign
          investment risks. The PRC economy differs from the economies of most
          developed countries in many respects, including the structure, level
          of government involvement, level of development, foreign exchange control
          and allocation of resources. The PRC economy has been transitioning
          from a planned economy to a more market-oriented economy. For the past
          two decades, the PRC government has implemented economic reform measures
          emphasizing utilization of market forces in the development of the
          PRC economy. Although we believe these reforms will have a positive
          effect on our overall operations in the PRC, we cannot predict whether
          changes in the PRCs political, economic and social conditions,
          laws, regulations and policies will have any adverse effect on our
          current or future operations in the PRC. For example, the PRC government
          has indicated publicly that it may change its monetary policy to tighten
          the extension of credit and discourage investments, particularly in
certain industries such as real estate and construction. This change in policy
          may adversely affect our operations in the PRC. In addition, the interpretation
          of PRC laws and regulations involves uncertainties. We cannot assure
          you that changes in such laws and regulations, or in their interpretation
          and enforcement, will not have a material adverse effect on our businesses
and operations in the PRC.

| | Although we have been advised
            that we have all the relevant government approvals required in connection
            with our PRC operations, additional approvals from the PRC central
            government may be required.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We operate module
    assembly facilities in the Suzhou Industrial Park located in Suzhou, PRC,
    through our subsidiary, AU Optronics (Suzhou) Corp., Ltd. The Suzhou Industrial
    Park is a special economic zone established by the PRC central government
    with others and is under the regulation of the Suzhou Industrial Park Administrative
    Committee (SIPAC). Under PRC laws and regulations, foreign investment
    projects require the approval of the relevant governmental authorities in
    the province or special economic zone in which the project is located and,
    in some circumstances, the approval of the relevant authorities of the PRC
    central government. In connection with the initial establishment and subsequent
    capital increases of our PRC subsidiary, we received approvals from SIPAC,
    which were filed by SIPAC variously with the State Planning Commission, the
    National Development and Reform Commission and the Ministry of Commerce of
    the central government of the PRC. We have been advised by SIPAC

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that such
    approvals and filings complete the approval process, which is consistent
    with the approval processes generally applicable to companies under the regulation
    of SIPAC, and that all necessary PRC governmental approvals in connection
    with the initial establishment and subsequent capital increases of our PRC
subsidiary have been obtained.

The interpretation of PRC laws and regulations involves uncertainties, however, and there can be no assurance that all relevant authorities of the PRC central government will agree with
SIPACs position, and it has come to our attention that additional approval from the PRC central government may be required for the initial establishment and subsequent capital increases of our PRC subsidiary. If required, we intend to obtain
any such additional approval in consultation with SIPAC. In that event, we cannot assure you as to when the PRC central government will grant such approval, if at all. Because the PRC central government has significant discretion in dealing with our
situation, we cannot assure you that the PRC central government will not take action that is material and adverse to our PRC operations.

| | The current restrictions
            imposed by the ROC government on investments in certain related businesses
            may limit our ability to compete with other TFT-LCD manufacturers
            that are permitted to establish TFT-LCD production operations in
    the PRC.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Many of our customers and competitors have expanded their businesses and operations to the PRC. In order to take advantage of the lower production costs in China and to establish a presence in
the China market, we established module-assembly facilities in Suzhou, Jiangsu Province of the PRC. We commenced operations at such facilities in July 2002. Module-assembly involves connecting components to the cell panel. We may further explore the
possibility of investing in other businesses or operations in the PRC as and when we are legally permitted to do so. Currently, ROC laws and regulations permit investment in module-assembly operations in the PRC but do not permit investments in
array and cell operations. We do not know when or if such ROC laws and regulations governing investment in the PRC 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 PRC.

| | 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 approximately half of our net sales is 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 PRC asserts sovereignty over mainland
China and Taiwan, and does not recognize the legitimacy of the government of
the  ROC. The government of the PRC 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 internal affairs. In particular, the increasing influence
of the  Democratic Progressive Party, which has in the past formally advocated
Taiwans independence from the PRC, including the reelection of Mr. Chen
Shui-bian, a member of that party, as President of the ROC in March 2004, may
increase political tensions and instability between the PRC and the ROC. In addition,
on March 14, 2005, the National Peoples Congress of the PRC passed what
is widely referred to as the anti-secession law, a law authorizing
the PRC military to respond to efforts by Taiwan to seek formal independence.
An increase in tensions between the ROC and the PRC and the possibility of instability
and uncertaintycould
adversely affect the prices of our ADSs and our shares. It is unclear what effects
any of the events described above may have on relations with the PRC. Relations
between Taiwan and the PRC 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 the ROC, 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 NT dollar.
    NT dollars have depreciated against U.S. dollars

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from US$1.00
    = NT$27.52 on January 2, 1997 to US$1.00 = NT$31.30 on
    June 1, 2005, based on the noon buying rates published by the Federal Reserve
Bank of New  York.

In addition, the banking and financial sectors in Taiwan have been seriously harmed by the general economic downturn in Asia and Taiwan in recent years, 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 to 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 ROC 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 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
Exchange Index experienced a 617-point drop, which  represented the single largest
decrease in the Taiwan Stock Exchange Index in its history. The Taiwan Stock
Exchange Index experienced a 17.1% increase in 2001, a 19.8% decrease in 2002
and a 32.3% increase in 2003. During the period from January 1,  2004 to December
31, 2004, the Taiwan Stock Exchange Index peaked at 7,034.10 on March 4, 2004,
and reached a low of 5,325.68 on July 20, 2004. Over the same period, daily closing
values of our shares ranged from NT$33.2 per share to NT$78.5 per  share. On
June 1, 2005, the Taiwan Stock Exchange Index closed at 5,971.62 ,
and the closing value of our shares was NT$50.9per share.

The Taiwan Stock Exchange is particularly volatile during times of political instability, including when relations between Taiwan and the PRC are strained. Several investment funds affiliated
with the ROC 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 an adverse effect on the market price and liquidity of our shares and ADSs.

| | If the NT dollar or other
            currencies in which our sales, raw materials and components and capital
            expenditures are denominated fluctuate significantly against the
            U.S. dollar or the 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 NT dollar and other currencies.
    Our sales, raw materials and components and capital expenditures are denominated
    in U.S. dollars, Japanese yen and NT dollars in varying amounts. For example,
    in 2004, approximately 96.8% of our net sales was denominated in U.S. dollars.
    During the same period, approximately 29.4%, 30.3% and 40.1% of our cost
    of goods sold (principally raw materials and component costs) was denominated
    in NT dollars, Japanese yen and U.S. dollars, respectively. In addition,
    in 2004, approximately 30.9%, 53.1% and 13.4% of our total capital expenditures
    (principally for the purchase of equipment) was denominated in NT 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 fully minimize the risk against exchange
rate fluctuations and the impact on our results of operations.

| | 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 2002, 2003 and 2004, sales to our overseas customers accounted for 47.3%,
    57.5% and 59.4%, respectively, of our net sales. In addition, the majority
    of our sales to customers in Taiwan is 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 those
    caused by adverse changes in foreign government regulations, political unrest,
    international economic downturns, terrorist attacks and continued military
    involvement in Iraq and Afghanistan.

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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.

| | A reoccurrence of Severe Acute Respiratory Syndrome (SARS), or an outbreak of avian flu or other contagious diseases, may have an adverse effect on the economies and financial markets of certain Asian
countries and may adversely affect our results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the first half of 2003, China, Hong Kong, Taiwan, Singapore, Vietnam and certain other countries experienced an outbreak of SARS, a highly contagious form of atypical pneumonia. To date, the SARS outbreak that occurred
in the first half of 2003 has had no significant impact on our production operations and those of our suppliers or customers. Additionally, the World Health Organization has warned that a potentially lethal strain of the avian flu could spread from
Southeast Asia to other areas, including Taiwan and other countries where our operations are located. We cannot assure you that future outbreaks of SARS, avian flu or other contagious diseases will not occur and that any future outbreaks, or the
measures taken by the ROC, PRC or other countries governments against such potential outbreaks, will not seriously interrupt our production operations or those of our suppliers and customers. The perception that an outbreak of SARS, avian flu
or other contagious disease may have an adverse effect on the economic conditions of certain countries in Asia.

Risks Related to our ADSs and our Trading Market

| | The market value of our 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 beyond our control and may be unrelated to, or disproportionate
    to changes in, our results of operations. 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.

| | Restrictions on the ability
            to deposit 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 ROC law. A significant number of withdrawals of shares underlying our ADSs would reduce the liquidity of our 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 ROC law, no person or entity, including you and us,
may deposit its shares in our ADS facility without specific approval of the ROC Securities and Futures Bureau, unless:

| | (1) | we pay stock dividends on our shares; 
| | --- | --------------------------------------
|
| | (2) | we make a free distribution of shares;

(3)
      ADS holders exercise preemptive
          rights in the event of capital increases for cash; or(4)
      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. With respect to
      (4) above, 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 ROC Securities
      and Futures Bureau, plus any ADSs issued pursuant to the events described
      in the subparagraph (1), (2) and (3) above. Issuance of additional ADSs
      under item (4) above will be permitted to the extent that previously ADSs
      have been cancelled. In addition, in
      the case of a deposit of our shares requested under item (4) above, the
      depositary will refuse to accept deposit of our shares if such deposit
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by us to the depositary from time to time, which restrictions may specify blackout periods during which deposits may not be made, minimum and maximum amounts and frequencies of deposits.

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

ADS holders voting rights as to the shares represented by such holders ADSs are governed by the deposit agreement. ADS holders will not be able to exercise voting rights on an
individual basis. If holders representing at least 51% of our 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 ADSs outstanding to vote in the same manner for any resolution,
including the election of directors and supervisors, 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.

| | ADS holders rights
            to participate in our rights offerings are limited, which could cause
    dilution to the holdings of ADS holders.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

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 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, ADS holders may be unable to participate in our rights offerings and may experience dilution with respect to their holdings.

| | Our issuance of stock bonuses
    to employees may have a dilutive effect on our ADSs.
| | --------------------------------------------------------------------------------------

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

| | Non-ROC holders of ADSs who
            withdraw our shares will be required to obtain a foreign investor
            investment identification and appoint a local custodian and agent
    and a tax guarantor in the ROC.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under current ROC
    law, if you are a non-ROC person and wish to withdraw and hold our shares
    from a depositary receipt facility, you will be required to obtain a foreign
    investor investment identification (Foreign Investor Investment I.D.) issued pursuant to the ROC Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals (Investment Regulations). You will also be required to appoint
an eligible agent in the ROC to open a securities trading account and a Taiwan Securities Central Depository Co., Ltd. book-entry account and a bank account, to pay ROC taxes, remit funds, exercise shareholders rights
and perform such other functions as you may designate upon such withdrawal. In
addition, you will be required to appoint a custodian bank to hold the securities
in safekeeping, make confirmation and settle trades and report all relevant information.
Without obtaining such Foreign Investor Investment I.D. under the Investment
Regulations and opening such accounts, the non-ROC withdrawing holder would be
unable to hold or subsequently sell our shares withdrawn from the depositary
receipt facility on the Taiwan Stock Exchange or otherwise. There can be no assurance
that such withdrawing holder will be able to obtain the Foreign Investor Investment
I.D. and open such accounts in a timely manner.

Non-ROC holders of
    ADSs withdrawing our shares represented by ADSs are also required under current
    ROC law and regulations to appoint an agent in the ROC for filing tax returns
    and making tax payments. Such agent must meet certain qualifications set
    by the ROC Ministry of Finance and, upon appointment, becomes a guarantor
    of such withdrawing holders ROC tax obligations. Generally, evidence
    of the appointment of such agent and the approval of such appointment by
    the ROC tax authorities may be required as conditions to such withdrawing
    holders

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repatriation of the profits. There can be no assurance that such withdrawing holder will be able to appoint and obtain approval
for such agent in a timely manner.

| | The protection of the interests
            of our public shareholders available under our articles of incorporation
            and the laws governing ROC corporations is different from that which
    applies to a U.S. corporation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our corporate affairs
    are governed by our articles of incorporation and by the laws governing ROC
    corporations. The rights and responsibilities of our shareholders and members
    of our board of directors under ROC law are different from those that apply
    to a U.S. corporation. Directors of ROC corporations are required to conduct
    business faithfully and act with the care of good administrators. However,
    the duty of care required of an ROC 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
ROC corporations do not. The ROC 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 major 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. As of June 1, 2005, we had an aggregate of
    4,958,040,897  shares issued and outstanding which were freely tradable,
    except for 12,000,000 shares of our treasury shares. 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 may not be able to enforce
    a judgment of a foreign court in the ROC.
| | ----------------------------------------------------------------------------

We are a company limited by shares and incorporated under the ROC 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 be difficult for holders of our shares or ADSs to enforce against us or them judgments obtained outside the ROC, 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 ROC, 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.

ITEM 4. INFORMATION ON THE COMPANY

4.A. History and Development
of the Company

We were incorporated
as Acer Display Technology, Inc., or Acer Display, under the laws of the ROC
as a company limited by shares in 1996. The shares of Acer Display were listed
on the Taiwan  Stock Exchange on September 8, 2000. On September 1, 2001, we
completed a merger with Unipac pursuant to a merger agreement dated April 9,
2001, as amended by a supplemental agreement dated May 15, 2001. We changed our
name to AU Optronics Corp. on May 22, 2001. Prior to the merger, Acer Display
was primarily involved in the design, development, production and marketing of
large-size TFT-LCD panels and Unipac was primarily involved in the design, production
and marketing of both small-size and large-size TFT-LCD panels.

Our principal executive
    offices are located at No. 1, Li-Hsin Road 2, Hsinchu Science Park, Hsinchu,
    Taiwan, ROC and our telephone number is 886-3-500-8899. Our agent for service
    of process in the United States is Puglisi & Associates, 850 Library
    Avenue, Suite 204, Newark, Delaware 19711, and our agents telephone
    number is 302-738-6680.

Our ADSs have been
    listed on the New York Stock Exchange since May 29, 2002.

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4.B. Business Overview

Introduction

We design, develop, manufacture, assemble and market flat panel displays and substantially all of our products are TFT-LCD panels. TFT-LCD is currently the most widely used flat panel display
technology. Our panels are used in computer products, such as notebook computers and desktop monitors, consumer electronics products, such as digital cameras, digital camcorder, car television, car navigation systems and portable DVD players, as
well as for LCD television.

We sell our panels primarily
to companies that design and assemble products based on their customers specifications,
commonly known as original equipment manufacturing service providers.  These
original equipment manufacturing service providers, most of whose production
operations are located in Taiwan and the PRC, use our panels in the products
that they manufacture on a contract basis for brand companies worldwide. Our
operations  in Taiwan and the PRC allow us to better coordinate our production
and services with our customers requirements, especially in the areas of
delivery time and design support. Some of our major original equipment manufacturing
service provider  customers include BenQ, Compal and Lite-On Technology. BenQ
is a shareholder of our company, and held directly and indirectly 13.32%
of our outstanding shares as of June 1, 2005. We also sell our products to some
brand companies on a direct shipment basis.

We currently manufacture TFT-LCD at production facilities commonly known as fabs. We were one of the first TFT-LCD manufacturers in Taiwan to commence commercial production at a
fifth-generation fab and we now operate two fifth-generation fabs. We were also the first TFT-LCD manufacturer in Taiwan to commence production at a sixth-generation fab. New generations of TFT-LCD fabs are equipped to process increasingly larger
sheets of glass, or substrates. For example, our sixth-generation fab is capable of processing substrates with dimensions of up to 1,500 x 1,850 millimeters, our fifth-generation fabs are capable of processing substrates with dimensions of up to
1,100 x 1,250 millimeters and 1,100 x 1,300 millimeters, respectively, and our fourth-generation fab is capable of processing substrates with dimensions of up to 680 x 880 millimeters.

We commenced commercial production of small- to medium-size panels in 1994 and large-size panels in 1999. We have significantly expanded our capacity since 1999. With production facilities
utilizing 3.5 -, fourth-, fifth- and sixth-generation technologies, we have the flexibility to produce a large number of panels of various sizes. We operate two fifth-generation fabs that commenced commercial production in March 2003 and February
2004, respectively and we are in the process of constructing a third fifth-generation fab. Our sixth-generation fab commenced commercial production in March 2005.Our
existing operations are located at three principal manufacturing sites in Taiwan and one module-assembly site in Suzhou, PRC.

Principal Products

We manufacture a wide range of TFT-LCD panels for the following principal product categories:

- Computer products, which typically utilize display panels ranging from 8.4 inches to larger than 20 inches, primarily for use in notebook computers
and desktop monitors.
- Consumer electronics products,
    which typically utilize display panels ranging from 1.5 inches to 10.2 inches
    or above for use in products such as digital cameras, digital camcorders,
    mobile phones, car television monitors,
    car navigation systems, portable television, multiple function machines,
    printer displays, portable game consoles
    and portable DVD players.
- LCD television,
    which typically utilizes display panels with panel size of 14 inches to 46
    inches. We commenced the production of display
    panels for LCD television in the fourth quarter of 2002.

We design, develop
    and manufacture our panels to address specific needs of the end-products
    in which they are used, such as thinness, light weight, resolution, color
    quality, brightness, low power consumption, touch panel features, fast response
    time and wide viewing angles. For example, it is important for notebook computer
    displays to be lightweight and thin, and to have low power consumption, while
    desktop monitors require high brightness and wider viewing angles.

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The following table sets forth our production volume by product category for the periods indicated:

|                                         |  | Year Ended December
    31,
|---------------------------------------- |  | ---------------------------
|                                         |  |                            
|                                         |  | 2002                       
|                                         |  |                            
|                                         |  | (panels in thousands)      
|Panels for Computer Products             |  |                            
|Panels for notebook computers            |  | 3,133.7                    
|Panels for desktop monitors              |  | 5,186.3                    
|                                         |  |                            
|Total panels for computer products       |  | 8,320.0                    
|                                         |  |                            
|Panels for Consumer Electronics Products |  | 9,092.1                    
|                                         |  |                            
|Panels for LCD Television                |  | 1.6                        
|                                         |  |                            
|Total                                    |  | 17,413.7                   
|                                         |  |                            

The following table sets forth our net sales by product category for the periods indicated:

|                                             |  | Year Ended December
    31,
|-------------------------------------------- |  | ---------------------------
|                                             |  |                            
|                                             |  | 2002                       
|                                             |  |                            
|                                             |  | NT$                        
|                                             |  | (in millions)              
|**Panels for Computer Products**             |  |                            
|Panels for notebook computers                |  | 22,386.5                   
|Panels for desktop monitors                  |  | 44,434.7                   
|                                             |  |                            
|Total panels for computer products           |  | 66,821.2                   
|                                             |  |                            
|**Panels for Consumer Electronics Products** |  | 6,731.5                    
|                                             |  |                            
|**Panels for LCD Television**                |  | 31.2                       
|                                             |  |                            
|Other(1)                                     |  | 2,105.3                    
|                                             |  |                            
|Total                                        |  | 75,689.2                   
|                                             |  |                            

|   
|---
|(1)
|   
|   

| | Computer Products
| | -----------------

Notebook Computers. In 2002, 2003 and 2004 sales of panels for notebook computers accounted for 29.6%, 21.0% and 19.2%, respectively, of our net sales.
The decline in notebook computer panels sales as a percentage of our total net sales resulted from the increase in sales of our other products, particularly desktop monitor panels, which grew at a faster rate than sales of notebook computer
panels.

The most commonly
    produced sizes for panels for notebook computers have changed in recent years,
    partly as a result of migration in TFT-LCD production technology. The most
    commonly produced panel sizes for notebook computers were from 12.1 inches
    to 14.1 inches in 2000 and 2001 and 14.1 and 15.4 inches in 2002, 2003 and
    2004. As fifth-generation production capacity increases, we expect that 15.4
    -inch panels will continue to be one of the most commonly produced sizes
    for notebook computers, with demand for 17-inch panels increasing as well.
    We typically seek to increase our production of notebook panels of a certain
    size, one to two quarters ahead of expected product migration towards that
panel size.

In 2004, unit sales
    of our panels for notebook computers was approximately 4.9 million, of which
    a substantial portion was accounted for by 14.1 inch to 15.4 inch panels.
    In 2004, our net sales accounted for by panels for notebook computers was
    approximately NT$32.3 billion.

Desktop Monitors.
    We commenced commercial production of desktop monitor panels in the first
    quarter of 2000. In 2002, 2003 and 2004 sales of panels for desktop monitors
    accounted for 58.7%, 64.2% and 58.9%,

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respectively, of our net sales. We expect that our sales of desktop monitor panels will continue to grow in 2005, primarily as a result of our capacity expansion and demand growth due to the
continued trend toward the bundling of TFT-LCD monitors with new computers and the substitution effect of purchasers replacing CRT monitors with TFT-LCD monitors.

The most commonly produced size of desktop monitors changes as the generation of TFT-LCD manufacturing technology evolves, with manufacturers moving production to panel sizes that make the most
efficient use of glass substrates processed by their fabs. 17-inch panels were most commonly produced for desktop monitors in 2004. In 2004, unit sales of our panels for desktop monitors was approximately 12.2 million, of which a significant portion
was accounted for by 17- and 19-inch panels. In 2004, our net sales accounted for by panels for desktop monitors was approximately NT$99.0 billion, of which a significant portion was accounted for by 17- and 19-inch panels. We expect 17-inch panels
will continue to be one of the most commonly produced desktop monitor sizes, with increasing demand for 19-inch panels in 2005.

| | Consumer Electronics Products
| | -----------------------------

Our panels for consumer electronics products, including digital cameras, camcorders, car television, car navigation systems, portable DVD players, multiple function machines, printer displays,
portable game consoles and portable televisions, consist of display panels ranging from 1.5 to 10.2 inches or above. Our sales of panels for consumer electronics products as a percentage of our total net sales has varied from 8.9% in 2002 to 11.4%
in 2003 to 12.5% in 2004. The markets for our panels for consumer electronics products are typically more stable and less cyclical than the markets for our computer products because of the high level of our involvement in the design process of our
customers and the customized nature of consumer electronics panels. Unit sales of our panels for consumer electronics products increased 57.1% to 33,697.7 thousand panels in 2004 from 21,454.3 thousand panels in 2003 primarily as a result of the
growing market acceptance of the use of TFT-LCD panels in consumer electronics products and increase demand for products such as portable DVD players and other handheld devices.

| | LCD Television
| | --------------

Our panels for LCD television consist of panels with a panel size of 14 inches or above. We commenced commercial production of panels for LCD television in the fourth quarter of 2002. Our
current portfolio of LCD television panels consists of 14- to 46-inch panels. Our sales of LCD television panels, as a percentage of our net sales, increased from 2.7% in 2003 to 8.7% in 2004. In 2004, the most commonly produced size of LCD
television panels were those below 20-inches. We believe that our sales of LCD television panels will continue to grow in 2005, primarily as a result of the commencement of production at our sixth-generation fab and expected demand growth for LCD
televisions, while we expect average selling prices of panels for LCD television to continue to decline. We also believe that beginning in 2005 there has been a trend towards greater customer demand for larger LCD television panels (above
30-inches). Units sales of our LCD television panels increased to 1,369.4 thousand panels in 2004 from 249.9 panels in 2003 primarily as a result of growing market demand and the replacement of CRT televisions with LCD televisions by consumers.

| | Customers, Sales and Marketing
| | ------------------------------

We sell our panels
    primarily to original equipment manufacturing service providers such as BenQ,
    Compal and Lite-On Technology. BenQ is a shareholder of our company, and
    held directly and indirectly 13.32% of our outstanding shares as of June
    1, 2005. We also own a 5.47% equity interest in BenQ as of December 31, 2004.
    These original equipment manufacturing service providers, most of whose production
    operations are located in Taiwan and the PRC, use our panels in the products
    they manufacture on a contract basis for brand companies. We also sell our
    panels to some brand companies on a direct shipment basis.

The following table
    sets forth the geographic breakdown of our net sales by the location of our
    customers placing orders for the periods indicated:

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|              |  | Year Ended December
    31,               | 
|------------- |  | ----------------------------------------- | 
|              |  |                                           | 
|              |  | 2002                                      | 
|              |  |                                           | 
|Region        |  | Net Sales                                 | 
|              |  |                                           | 
|              |  | (in NT$ millions,
    except percentages) | 
|              |  |                                           | 
|Taiwan        |  | 39,902                                    | 
|Japan         |  | 3,396                                     | 
|Asia(1)       |  | 28,057                                    | 
|Europe        |  | 1,693                                     | 
|United States |  | 1,479                                     | 
|Others        |  | 1,162                                     | 
|              |  |                                           | 
|Total         |  | 75,689                                    | 
|              |  |                                           | 
|              |  |                                           | 

|   
|---
|(1)

Our sales in Taiwan, as set forth in the table above, represent a significant portion of our net sales for the past three years. The majority of these sales were made to original equipment
  manufacturing service providers who use our panels in the products they manufacture on a contract basis for brand companies worldwide. As many of these service providers relocate an increasing portion of their production capacity from Taiwan
  elsewhere, or expand their operations elsewhere, typically to the PRC, due to cost and other considerations, orders placed in Taiwan by such customers have accounted for a decreasing portion of our net sales in recent years.

We sell our panels for notebook computers primarily to original equipment manufacturing service providers with production operations in Taiwan and the PRC that design and manufacture notebook
computers based on the specifications of their brand company customers. Our original equipment manufacturing service provider customers include Compal, Quanta Computer and Wistron Infocomm. We market our panels to, and negotiate prices with, both
our original equipment manufacturing service provider customers and their brand customers, as display panels often constitute a significant part of the end product.

We sell our panels for desktop monitors through sales channels similar to those for notebook computers. We supply desktop monitor panels primarily to original equipment manufacturing service
providers such as BenQ, Lite-On Technology and Proview.

We sell most of our panels for digital still cameras and camcorders to brand companies based in Japan. We sell our panels for car televisions primarily to component manufacturers for automotive
audio and video products based in the United States. We sell our panels for portable DVD players primarily to original equipment manufacturing service providers and component manufacturers, most of which are located in Taiwan, the PRC and other
Asian countries.

Although we are not dependent on any single customer, a significant portion of our net sales is attributable to a small number of our customers. In 2002, 2003 and 2004, our five largest
customers accounted for 39.3%, 43.6% and 35.1%, respectively, of our net sales. In addition, some customers individually accounted for more than 10% of our net sales for each of the last three years. BenQ and its subsidiaries accounted for 20.8%,
20.9% and 19.9% of our net sales in 2002, 2003 and 2004, respectively. Since BenQ also provides original equipment manufacturing services for its brand company customers, panels shipped to BenQ include both panels ordered for its own account as well
as panels ordered by or on behalf of its brand company customers.

We focus our sales
    activities on a number of large customers with whom we seek to build close
    relationships. We appoint a sales manager to serve as the main contact person
    with each of our major customers. Each product category has its own sales
    and marketing division, and is further subdivided into smaller teams dedicated
    to each of our major customers. Each dedicated customer team is headed by
    an account manager who is primarily responsible for our relationship with
that specific customer.

Our customers typically
    provide monthly non-binding rolling forecasts of their requirements for the
    coming four months, and typically place purchase orders one month before
    the expected shipment date. We generally provide a limited warranty to our
    customers, including the provision of replacement parts and after-sale service
    for our products. In connection with these warranty policies, based on our
    historical experience, we typically set aside an amount as a reserve to cover
    these warranty obligations. As of December 31, 2004, our reserve for warranties

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totaled NT$297.1 million (US$9.4 million). In addition, we are required under several of our sales contracts to
provide replacement parts for our products, at agreed prices, for a specified period of time.

We price our products in accordance with prevailing market conditions, giving consideration to the complexity of the product, the order size, the strength and history of our relationship with
the customer and our capacity utilization. Purchase prices and payment terms for sales to related parties are not significantly different from those for other suppliers. Our credit policy for sales to related parties and other customers typically
requires payment within 30 to 45 days. The average number of collection days extended for sales to our customers for the years ended December 31, 2002, 2003 and 2004, was 46 days, 47 days and 29 days, respectively. We have not experienced any
material problems relating to customer payments.

The TFT-LCD Manufacturing Process

The basic structure of a TFT-LCD panel may be thought of as two glass substrates sandwiching a layer of liquid crystal. The front glass substrate is fitted with a color filter, while the back
glass substrate has transistors fabricated on it. A light source called a backlight unit is located at the back of the panel.

The manufacturing process consists of hundreds of steps, but may be divided into three primary steps. The first step is the array process, which involves fabricating transistors on the back
substrate using film deposition, lithography and etching. The array process is similar to the semiconductor manufacturing process, except that transistors are fabricated on a glass substrate instead of a silicon wafer. The second step is the cell
process, which joins the back array substrate and the front color filter substrate. The space between the two substrates is filled with liquid crystal. The third step is the module-assembly process, which involves connecting additional components,
such as driver integrated circuits and backlight units, to the TFT-LCD panel. We established a color filter production facility at one of our fifth-generation fabs with technical assistance from Toppan, one of our color filter suppliers, in order to
meet a portion of our color filter requirements. We commenced commercial production of color filters at this facility in October 2003.

The array and cell processes are capital-intensive and require highly automated production equipment. TFT-LCD manufacturers typically design their own fabs and purchase production equipment
from various suppliers, most of which are based in Japan. Each TFT-LCD manufacturer combines various equipment according to its manufacturing process technologies to form a TFT-LCD fab. In addition to developing our own manufacturing process
technologies, we also license such technologies from other companies, such as Matsushita and FDTC. We have automated our array and cell processes, with the exception of some steps in the cell process, such as panel inspection, panel baking and
injection of liquid crystal. In contrast to the array and cell processes, the module-assembly process is highly labor-intensive, as it involves manual labor to assemble the pieces. We started to move a substantial portion of our module-assembly
process to Suzhou, PRC in July 2002, as part of our efforts to reduce labor costs and the majority of the module-assembly work is conducted in Suzhou.

Raw Materials and Components and Suppliers

Our manufacturing operations require adequate supplies of high-quality raw materials and components on a timely basis. We purchase our raw materials and components based on forecasts from our
customers, as well as our own assessments of our customers needs. We generally
prepare forecasts one to four months in advance, depending on the raw materials
and components, and update this forecast monthly. We source most of our raw materials
and components, including critical materials such as glass substrates, color
filters, CCFL, polarizer and driver integrated circuits, from a limited group
of suppliers. In order to reduce our raw materials and component costs and our
dependence on any one supplier, we generally purchase our raw materials and components
from multiple sources. We typically do not enter into contracts with our suppliers.
However, during periods of supply shortages, we typically enter into supply contracts
with suppliers to ensure a stable supply of necessary raw materials and components.

In 2001, we experienced
    a shortage of glass substrates due to the closure of the production facility
    of one of our two major suppliers of glass substrates. There was a shortage
    in the supply of color filters and glass substrates beginning in the second
    half of 2003 which continued into 2004. In addition, based on announced plans
    for new TFT-LCD production capacity, there could also be a shortage in the
    supply of driver integrated circuits. Our

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operations would be adversely affected if we could not obtain raw materials and components in sufficient quantity and quality. 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.

Set forth below are our major suppliers of key raw materials and components:

|Glass Substrates      |  | Liquid Crystals |  | Color Filters   |  | Polarizer   |  | Backlight Units |  | Driver Integrated
Circuits
|--------------------- |  | --------------- |  | --------------- |  | ----------- |  | --------------- |  | --------------------------
|                      |  |                 |  |                 |  |             |  |                 |  |                           
|Asahi Glass           |  | Merck           |  | Allied Material |  | Nitto Denko |  | Coretronic      |  | NEC                       
|                      |  |                 |  | Technology      |  |             |  |                 |  |                           
|                      |  |                 |  |                 |  |             |  |                 |  |                           
|Corning Taiwan        |  | Nichimen        |  | Cando           |  | Optimax     |  | Forhouse        |  | Novatek                   
|                      |  | Corp.           |  | Corporation(1)  |  |             |  |                 |  |                           
|                      |  |                 |  |                 |  |             |  |                 |  |                           
|Nippon Electric Glass |  | Plan-Net Corp.  |  | Dai Nippon      |  |             |  | Helix           |  | Panasonic                 
|                      |  |                 |  | Printing        |  |             |  |                 |  |                           
|                      |  |                 |  |                 |  |             |  |                 |  |                           
|NH Technoglass        |  |                 |  | Toppan Sintek   |  |             |  | Radiant         |  | Toshiba                   
|                      |  |                 |  |                 |  |             |  |                 |  |                           
|                      |  |                 |  |                

|   
|---
|(1)

We use a large amount of water and electricity in our manufacturing process. We obtain water from government-owned entities and recycle more than 70% of the water that we use in production. We
use electricity supplied by Taiwan Power Corporation. We maintain back-up generators that provide electricity in case of power interruptions, which we have experienced from time to time. In September 1999, a power outage caused by a large earthquake
resulted in a suspension of production at our fabs for five days. Except for this power outage, power interruptions in general have not materially affected our production processes.

Equipment and Suppliers

We depend on a number of equipment manufacturers that make and sell the equipment that we use in our manufacturing processes. Our manufacturing processes depend on the quality and technological
capacity of our equipment. We purchase equipment that is tailored to our specific requirements for our manufacturing processes. The principal types of equipment we use to manufacture TFT-LCD panels include chemical vapor deposition equipment,
steppers, developers and coaters.

We made significant purchases of equipment in 2004, and we expect to make significant purchases in 2005, to implement our capacity expansion and technology advancement plans. See Item 5.
Operating and Financial Review and ProspectsLiquidity and Capital Resources. We purchase equipment from a small number of qualified vendors to assure consistent quality and performance. We typically order equipment four to six months or
longer in advance of our planned installation.

Competition

The TFT-LCD industry
    is highly competitive. Most of our competitors operate fabs in Korea, Taiwan,
    Japan and the PRC. We believe there are no TFT-LCD fabs in the United States
    or Europe. Our principal competitors are:

- LG.Philips LCD and Samsung Electronics, in Korea;
- Chi Mei Optoelectronics, Chunghwa Picture Tubes,
      Hannstar Display, Quanta Display, Innolux Display and
      Toppoly Optoelectronics, in Taiwan;
- Hitachi, Tottori Sanyo, Sharp and Toshiba Matsushita
      Display Technology, in Japan; and
- SVA-NEC and BOE-OT, in the PRC.

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The principal elements of competition for customers in the TFT-LCD market include:

- price, based in large part on the ability to ramp-up lower cost, next generation production facilities before competitors;
- product features and quality;
- customer service, including product design support;
- ability to keep production costs low by maintaining high yield and operating at full capacity;
- ability to provide sufficient quantity of products to meet customer demand;
- quality of the research and development team;
- time-to-market; and
- access to capital.

Quality Control

We have implemented quality inspection and testing procedures at all of our fabs and module-assembly facilities. Our quality control procedures include statistical process controls, which
involves sampling measurements to monitor and control the production processes. We perform outgoing quality control based on sampling plans, ongoing reliability tests covering a wide range of application conditions, in-process quality control to
prevent potential quality deviations, and other programs designed for process measurement and improvement, reduction of manufacturing costs, maintenance of on-time delivery, increasing in-process production yields and improving field reliability of
our products. If a problem is detected, we take steps to contain the problem, conduct defect analyses to identify the cause of the problem and take appropriate corrective and preventive actions.

We visually inspect and test all completed panels to ensure that production standards are met. To ensure the effective and consistent application of our quality control procedures, we provide
quality control training to all of our production line employees according to a certification system depending on the particular levels of skills and knowledge required.

We also perform quality control procedures for raw materials and components used in our products. These procedures include testing samples for large batches, obtaining vendor testing reports
and testing to ensure compatibility with other raw materials and components, as well as vendor qualification and vendor ratings.

Our quality control programs
have received accredited International Organization of Standards ISO 9001 certifications,
as well as qualifications from our customers. In addition, most of our facilities
have been certified as meeting the International Organization of Standards ISO-14001
environmental protection standards, with certification for our recently completed
fifth-generation fab pending. The International Organization of Standards certification
process involves subjecting our manufacturing processes and quality management
systems to periodic reviews and observations. International Organization of Standards
certification is required by certain European countries in connection with sales
of industrial products in those countries. We believe that certification also
provides independent verification to our customers regarding the quality control
employed in our manufacturing and assembly processes.

Intellectual Property

We currently hold
    a total of 950 patents, including 616 in Taiwan and 177 in the United States.
    These include patents for TFT-LCD manufacturing processes and products. These
    patents will expire at various dates from 2007 through 2024. We also have
    a total of 865 pending patent applications in Taiwan, 614 in the United States
    and 1,167 in other jurisdictions, including the PRC, Japan and Korea. In
    addition, we have registered AU Optronics as a trademark and
    service mark in the ROC and PRC, and we are in the process of registering
    our logo as a trademark and service mark in the ROC and PRC.

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We require all of our employees to sign an employment agreement which prohibits the disclosure of any of our trade secrets, confidential information and proprietary technologies and we also
require technical personnel to assign to us any inventions they develop that are related to our business.

We have licenses to use certain technology and processes from certain companies. In 2002, 2003 and 2004, our running royalty expenses to the companies from which we license intellectual
property were NT$229.4 million, NT$405.4 million and NT$1,017.8 million, respectively, which accounted for 0.3%, 0.4% and 0.6%, respectively of our net sales. We expect that our royalty expenses relating to intellectual property licenses will
increase in the future due to increases in unit sales as well as our license agreement with SEL entered into as a part of a settlement and mutual release agreement with SEL on September 3, 2003.

We intend to continue to file patent applications, where appropriate, to protect our proprietary technologies. We may find it necessary to enforce our patents or other intellectual property
rights or defend ourselves against claimed infringement of the rights of others through litigation, which could result in substantial cost and diversion of our resources. We may suffer legal liabilities and damages if we are found to infringe
product or process technology rights held by others. We are currently involved in litigation regarding alleged patent infringement. See Item 8Financial InformationLitigation.

Insurance

We maintain insurance policies on our production facilities, buildings, machinery and inventories covering property damage and damage due to fire, earthquakes, floods, and other natural and
accidental perils. Our property insurance covers replacement costs for our assets. As of December 31, 2004, our insurance also included protection from covered losses, including property damage up to maximum coverage of NT$21.2 billion for all of
our inventories and NT$228.8 billion for our equipment and facilities. In addition, as of December 31, 2004, we had insurance coverage for business interruptions in the aggregate amount of NT$5.3 billion. See Item 3. Key InformationRisk
FactorsPolitical Geographical and Economic RisksDue to the location of our operations in Taiwan and the PRC, 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.

We also maintain insurance policies, including director and officer liability insurance, employee group health insurance, travel and life insurance, employer liability insurance, general
liability insurance, and policies that provide coverage for risks during the shipment of goods and equipment, as well as during equipment installation at our fabs.

Environmental Matters

Our manufacturing processes
involve the use of hazardous materials and generate a significant amount of waste
products, including wastewater, liquid waste products and hazardous gases, which
are strictly monitored by local environmental protection bureaus. To meet ROC
environmental standards, we employ various types of pollution control equipment
for the treatment of hazardous gases, liquid waste, solid waste and the treatment
of wastewater and chemicals in our fabs. We control exhaust gas and wastewater
on-site. The treatment of solid and liquid wastes is subcontracted to third parties
off-site in accordance with pollution control requirements.

We incurred small
    fines in March 2001, December 2002 and October 2003 for non-compliance with
    a waste storage-labeling requirement. In September 2003 and June 2004, we
    also incurred small fines for failure to update our air pollution emission
    permit. Following each of the infractions described above, we have taken
    the necessary steps to obtain the appropriate permit and believe that we
    are in compliance with the existing environmental laws and regulations in
    Taiwan.

4.C. Organizational Structure

The following chart
    sets forth our corporate structure and ownership interest in each of our
    principal operating subsidiaries and affiliates as of December 31, 2004.

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The following table
  sets forth summary information for our subsidiaries as of December 31, 2004. Subsidiary
        
        Main Activities
        
        Jurisdiction of
        Incorporation
        
        Total Paid-in
        Capital
        Percentage of
        Our Ownership
        InterestNT$
        (in millions)AU Optronics (L) Corp.
        
        Holding company
        
        Malaysia
        
        5,802.9
        100
        %AU Optronics Corporation
        
        Sales services
            in the United
        
        United States
        
        31.7
        100
        %(1)America
        
        StatesAU Optronics (Suzhou)
        
        Assembly of TFT-LCD
        
        PRC
        
        5,395.8
        100
        %(1)Corp.
        
        modules in the PRCAU Optronics Corporation
        
        Sales services in Japan
        
        Japan
        
        25.4
        100
        %(1)JapanKonly Venture Corp.
        
        Venture capital investment
        
        ROC
        
        900.0
        100
        %AU Optronics Europe
            B.V.
        
        Sales services in Europe
        
        Netherlands
        
        1.9
        100
        %(1)AU Optronics Korea
            Ltd.
        
        Sales services in South
        
        South Korea
        
        4.9
        100
        %(1)Korea
 (1)
      Indirectly, through our 100%
          ownership of AU Optronics (L) Corp. 4.D. Property, Plants and Equipment We have three principal
      manufacturing sites in Taiwan and one module-assembly site in Suzhou, PRC.
      With current production facilities utilizing 3.5 -generation, fourth-generation,
      fifth-generation and sixth-generation technologies, we have the flexibility
      to produce a large number of panels of various sizes.  31


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| | Principal Facilities
| | --------------------

The following table sets forth certain information relating to principal facilities as of March 31, 2005. The land in the Hsinchu Science Park on which our facilities are located is leased from
the ROC government.

|Location                                                        |  | Building
Size
(in square
meters) |  | Input Substrate Size (in
millimeters) / Installed
Capacity (substrates
processed per month) |  | Commencement of
Commercial
Production |  | Primary Use                                                                           |  |   | Owned or Leased                                            
|--------------------------------------------------------------- |  | -------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ------------------------------------------------------------------------------------- |  | - | -----------------------------------------------------------
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|No. 5, Li-Hsin Rd.                                              |  | 69,647                           |  | 610x720/45,000                                                                              |  | December 1999                         |  | Manufacturing                                                                         |  |  | Building is                                                
|6, Hsinchu                                                      |  |                                  |  |                                                                                             |  |                                       |  | of TFT-LCD                                                                            |  |   | owned                                                      
|Science Park,                                                   |  |                                  |  |                                                                                             |  |                                       |  | panels                                                                                |  |  | Land is
leased                                             
|Hsinchu,                                                        |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | (expires in                                                
|Taiwan, ROC                                                     |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | December                                                   
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | 2020)                                                      
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|No. 1, Li-Hsin Rd.                                              |  | 163,564                          |  | 610x720/30,000                                                                              |  | November 2000                         |  | Manufacturing                                                                         |  |  | Building is owned                                          
|2, Hsinchu
        Science Park,
         Hsinchu, Taiwan,
 ROC |  |                                  |  |                                                                                             |  |                                       |  | of TFT-LCD panels;
business operations; research and development;
sales and marketing |  |  | Land is leased (expires
                  in December 2020)
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|No. 23, Li-Hsin Rd.                                             |  | 105,127                          |  | 600x720/60,000                                                                              |  | July 1999                             |  | Manufacturing                                                                         |  |  | Building is                                                
|Hsinchu                                                         |  |                                  |  |                                                                                             |  |                                       |  | of TFT-LCD                                                                            |  |   | owned                                                      
|Science Park,                                                   |  |                                  |  |                                                                                             |  |                                       |  | panels                                                                                |  |  | Land is                                                    
|Hsinchu,                                                        |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | leased                                                     
|Taiwan, ROC                                                     |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | (expires in                                                
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | January                                                    
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   | 2017)                                                      
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|No. 1, Xinhe Rd.,                                               |  | 248,231                          |  | 680x880/60,000(1)                                                                           |  | February 2001                         |  | Manufacturing                                                                         |  |  | Building is                                                
|Aspire Park 325                                                 |  |                                  |  | 1,100x1,250/50,000(2)                                                                       |  | March 2003                            |  | of TFT-LCD                                                                            |  |   | owned                                                      
|Lungtan,                                                        |  |                                  |  | 1,100x1,300/70,000(3)                                                                       |  | February 2004                         |  | panels; module                                                                        |  |  | Land is owned (5)                                          
|Taoyuan                                                         |  |                                  |  |                                                                                             |  |                                       |  | and component                                                                         |  |   |                                                            
|Taiwan, ROC                                                     |  |                                  |  |                                                                                             |  |                                       |  | assembly; manufacturing of
color filters                                              |  |   |                                                            
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|                                                                |  |                                  |  |                                                                                             |  |                                       |  |                                                                                       |  |   |                                                            
|No. 1 JhongKe Rd.                                               |  | N/A                              |  | 1,500x1,850/60,000(4)                                                                       |  | March 2005                            |  | Manufacturing                                                                         |  |  | Building is                                                
|Central Taiwan                                                  |  |                                  |  |                                                                                             |  |                                       |  | of TFT-LCD                                                                            |  |   | owned                                                      
|Science Park                                                    |  |                                  |  |                                                                                             |  |                                       |  | panels; module                                                                        |  |  | Land is                                                    
|Taichung 407,                                                   |  |                                  |  |                                                                                             |  |                                       |  | and component                                                                         |  |   | leased                                                     
|Taiwan, ROC                                                     |  |                                  |  |                                                                                             |  |                                       |  | assembly;                                                                             |  |   | (expires in                                                
|                                                                |  |                                  |  |                                                                                             |  |                                       |  | manufacturing                                                                         |  |   | December                                                   
|                                                                |  |                                  |  |                                                                                             |  |                                       |  | of color filters                                                                      |  |   | 2022)                                                      

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|Location         |  | Building
    Size
    (in square
    meters) |  | Input Substrate Size (in
    millimeters) / Installed
    Capacity (substrates
    processed per month) |  | Commencement of
    Commercial
    Production |  | Primary Use |  |   | Owned or Leased  
|---------------- |  | -------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- |  | ----------- |  | - | -----------------
|                 |  |                                              |  |                                                                                                         |  |                                               |  |             |  |   |                  
|No. 398, Suhong  |  | 226,549                                      |  | N/A                                                                                                     |  | July 2002                                     |  | Module and  |  |  | Building is      
|Zhong Road       |  |                                              |  |                                                                                                         |  |                                               |  | component   |  |   | owned            
|Suzhou           |  |                                              |  |                                                                                                         |  |                                               |  | assembly    |  |  | Land is          
|Industrial Park, |  |                                              |  |                                                                                                         |  |                                               |  |             |  |   | leased           
|Suzhou, PRC      |  |                                              |  |                                                                                                         |  |                                               |  |             |  |   | (expires in 2051)

|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)
|   
|   

| | Expansion Projects
| | ------------------

Set forth below is a description of our principal expansion projects which we expect to finance with cash on hand, long-term debt and cash flow from operations.

Fifth-Generation Fabs.
We commenced commercial production at our second fifth-generation fab (1,100
x 1,300 millimeters) in February 2004. As of December 31, 2004, our second fifth-generation
fab had an estimated input capacity of approximately 70,000 substrates per month.
We plan to establish a third fifth-generation fab capable of processing substrates
with dimensions of 1,100 x 1,300 millimeters, which
we expect to commence commercial production in the fourth quarter of 2005.  We
also plan to establish a color filter production facility in order to meet a
portion of our color filter requirements at our two fifth-generation fabs as
well as our other existing fabs. Our third fifth-generation fab will be housed
in the same facility as our 7.5-generation fab. We expect to spend approximately
NT$10 billion to NT$11 billion to construct this facility and spend an additional
NT$30 billion to NT$35 billion for the installation of machinery and equipment
at our third fifth-generation fab. As of December 31, 2004, we had spent a total
of NT$5.0 billion for construction and the purchase of machinery and equipment
at our third fifth-generation fab.

Sixth-Generation Fab. To meet the growth in the large-size TFT-LCD market, we established a new fab in Taichung Science Park utilizing sixth-generation
manufacturing technology. Our sixth-generation fab is capable of processing substrates with dimensions of 1,500 x 1,850 millimeters. Our sixth-generation substrate size is designed to produce large-size panels with high efficiency and with
capabilities of cutting, for example, eight 32-inch panels, six 37-inch panels or four 40-inch panels in wide format. Our sixth-generation fab commenced commercial production in March 2005 and currently has an estimated input capacity of
approximately 5,000 substrates per month. We expect that the estimated input capacity for our sixth-generation fab to increase to 60,000 substrates per month by the end of 2005. We also plan to establish color filter production and module-assembly
facilities at our sixth-generation fab. As of December 31, 2004, we had incurred a total of NT$40.7 billion in connection with our new sixth-generation fab, together with the new color filter production and module-assembly facilities within such
fab. We expect to spend an additional amount of approximately NT$40.0 billion to NT$45.0 billion to complete our sixth-generation fab.

7.5-Generation Fab.We
intend to establish a 7.5-generation fab in order to target the HDTV market and
produce LCD TVs that are larger than 40-inches.  Our 7.5-generation fab is capable
of processing substrates with dimensions of 1,950 x 2,250 millimeters. Our 7.5-generation
substrate size is designed to produce large-size panels with high efficiency
and with capabilities of cutting, for example,  eight 42-inch panels, six 47-inch
panels or three 56-inch panels in wide format. We currently plan for equipment
move-in to be scheduled for the second quarter of 2006 and expect to commence
commercial production in the fourth quarter of 2006. We  expect to spend approximately
NT$35 billion to NT$38 billion for the installation of machinery and equipment
at our 7.5-generation

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fab. As of December 31, 2004, we had not purchased
any machinery or equipment for our 7.5 -generation fab.

ITEM 5. OPERATING AND FINANCIAL
REVIEW AND PROSPECTS

5.A. 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 as a result of imbalances between excess
supply and slowdowns in demand, resulting in sharp declines in average selling prices. For example,the significant increase in the average selling prices of
large-size panels in the first half of 2002 was followed by a slowdown in demand growth in the second half of 2002, which in turn resulted in excess supply 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. Average selling prices of our large-size
panels recovered in 2003 with prices increasing by 17.3% between the first quarter of 2003, and the fourth quarter of 2003. Average selling prices of our large size panels fluctuated throughout 2004, increasing by 12.1% between the fourth quarter of
2003 and the second quarter of 2004 and decreasing by 22.2% between the second quarter and the third quarter of 2004 and further decreasing 17.1% between the third quarter and the fourth quarter of 2004.

Our revenues depend substantially on the average selling prices of our panels and are affected by fluctuations in those prices. The average selling prices of our large-size panels increased by
15.6% between 2001 and 2002 and decreased by 3.1% between 2002 and 2003 and increased by 0.9% between 2003 and 2004. The change in the average selling prices of our panels and decreases in variable costs, depreciation and amortization expenses and
other fixed costs associated with the expansion of our production capacity on a per panel basis contributed to the increase in our gross margins from 16.0% in 2002 to 22.4% in 2003 and 23.6% in 2004. The strong demand for TFT-LCD panels in 2003
resulted in a recovery in average selling prices in 2003. Strong demand continued in the first half of 2004, keeping average selling prices high; however this was offset by an oversupply of and reduced demand for TFT-LCD panels in the second half of
2004, which resulted in average selling prices remaining relatively stable for the full year of 2004 compared to the full year of 2003. To meet demand, many TFT-LCD manufacturers, including our company, may expand their capacity. If such expansion
in capacity is not matched by a comparable increase in demand, it could lead to overcapacity and declines in the average selling prices of our panels in the future. In addition, we expect that, as is typical in the TFT-LCD industry, the average
selling prices for our existing product lines will gradually decline as the cost of manufacturing TFT-LCD panels declines and as the product becomes more commodity-like.

Production Capacity

We measure the capacity of a fab in terms of the number of substrates and the glass area of substrates that can be produced. As of December 31, 2004, we had an annual capacity to produce
approximately 311.7 million square meters of glass area of TFT-LCD panels.

Fab Construction and Ramp-Up Process

Once the design of a
new fab is completed, it typically takes six to eight quarters before the fab
commences commercial production, during which time we construct the building,
install the machinery and equipment and conduct trial production at the fab.
An additional two to three quarters are required for the fab to be in a position
to produce at the installed capacity and with high production yield, where production
yield is the number of good panels produced expressed as a percentage of the
total number of panels produced. This process is commonly referred to as ramp-up. At
the beginning of the ramp-up process, fixed costs, such as depreciation and amortization,
other overhead expenses, labor, general and administrative and other expenses,
are relatively high on a per panel basis, primarily as a result of the low output.
Variable costs, particularly raw materials and component costs, are also relatively
high on a per panel basis since production yield is typically low in the early
stages of the ramp-up of a fab, resulting in greater waste of raw materials and
components. In general, upon the completion of the

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ramp-up process, a fab is capable of producing at
its installed capacity, leading to lower fixed costs per panel as a result of
higher output, and lower raw materials and component costs per panel as a result
of higher production yield.

We typically construct our new fabs in phases in order to allocate our aggregate capital expenditure across a greater period of time. As a result, the installed capacity in the early phases of
production at a new fab is typically lower than the maximum capacity that can be installed at a fab.

Product Mix

Our product mix affects our sales and profitability, as the prices and costs of different size panels may vary significantly. The larger panel sizes command higher prices, but also have higher
manufacturing costs. In 2004, an increase in demand for consumer electronic products using larger TFT-LCD panels such as portable DVD players caused a shift in product mix to more medium sized panels being produced. The continued trend toward
notebook computers with larger screens and the continuing demand for TFT-LCD panels for desktop monitors as a result of the replacement of CRT monitors for TFT-LCD monitors led us to shift our product mix to include primarily 14.1 -inch and 15.4
-inch panels for notebook computers and 15-, 17- and 19-inch panels for desktop monitors. Moreover, a strong demand for LCD televisions contributed to increased production of LCD television panels. Our fifth-generation fabs have enabled us to
produce 15-, 17- and 19-inch or larger panels more efficiently. Our sixth-generation fab will also enable us to produce larger LCD television panels. We periodically review and adjust our product mix based on the demand for, and profitability of,
the different panel sizes that we manufacture.

Critical Accounting Policies

Preparation of our consolidated financial statements requires us to make estimates and judgments that affect the amounts of our assets, liabilities, revenues and expenses. We continually
evaluate these estimates, including those related to allowances for doubtful accounts, inventories, useful lives of properties, goodwill, income tax valuation allowances, pension plans and the fair value of financial instruments. We base our
estimates on historical experience and other assumptions, which we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We have identified below the accounting
policies that are critical to our consolidated financial statements.

| | Revenue Recognition
| | -------------------

Revenue is recognized
    when title to the products and risk of ownership are transferred to the customers,
    which occurs principally at the time of shipment. We continuously evaluate
    whether our  products meet our inspection standards and can reliably estimate
    sales returns expected to result from customer inspections. Allowance and
    related provisions for sales returns are estimated based on historical experience.
    Such provisions are  deducted from sales in the year the products are sold.
    There have been no changes in this policy for the last three years.

As of December 31,
    2002, 2003 and 2004, the allowance we set aside for sales discounts and returns
    was NT$92 million, NT$31 million and NT$619 million, respectively, representing
    0.1%, 0% and 0.4% of our revenue as of those dates. For the years ended December
    31, 2002, 2003, and 2004, we did not have to record any additional provisions
    subsequent to the year ended because actual returns and pricing discounts
were lower than the estimated amounts.

| | Analysis of Long-Lived Assets
| | -----------------------------

Under
    U.S. GAAP, as required by SFAS No.144, Accounting for the Impairment or Disposal
    of Long-Lived Assets, we review our long-lived assets and certain identifiable
    intangible assets, including purchased intangible assets for impairment,
    whenever we feel that events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable.Furthermore,
under ROC and U.S. GAAP, we review our assets held for sale for impairment, whenever
we feel that the fair value of these assets may be lower than the carrying amount.
Judgments about the fair value of assets held for sale are generally based upon
market assumptions about value of similar assets, and are supported by third
party appraisals.

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We measure recoverability
of our assets to be held and used by comparing the carrying amount of an asset
to the fair value of the asset. If we consider our assets to be impaired, the
impairment we would recognize is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. No impairment indicators
were noted during 2004. However, if future information indicates a potential
impairment and we determine that the estimated future undiscounted cash flows
are less than the carrying value of the assets, an impairment loss will be recognized
to the extent that the carrying amount exceeds estimated fair value. Furthermore,
we had assets held for sale in 2003 and 2004. As of December 31, 2003 and 2004,
we recorded a provision for impairment of assets held for sale of NT$75 million
and NT$136 million, respectively. The impairment of assets held for sale was
classified in non-operating expenses and losses in the statements of operations.

| | Provision for Accounts Receivable
| | ---------------------------------

We evaluate our outstanding
    accounts receivable balance on a monthly basis for collectibility purposes.
    Our evaluation includes an analysis of the number of days outstanding for
    each  outstanding accounts receivable account. When appropriate, we provide
    a provision that is based on the number of days for which the account has
    been outstanding. The provision provided on each aged account is based on
    our average historical loss  experience. There have been no changes in this
    policy for the last three years.

As of December 31,
    2002, 2003 and 2004, the allowance we established for doubtful accounts was
    NT$34 million, NT$60 million and NT$87 million, respectively, representing
    0%, 0% and 0% of our revenue as of those dates. For the years ended December
    31, 2002, 2003, and 2004, we have not made any significant changes to estimates
used to determine allowances for doubtful accounts.

| | Provision for Inventory Obsolescence
| | ------------------------------------

Provisions for inventory
    obsolescence and devaluation are recorded when we determine that the fair
    values of inventories are less than their cost basis, which may be affected
    by the number of  months inventory items remain unsold, or their prevailing
    market prices, whichever is lower. Additionally, our analysis of our provision
    for obsolete and devalued inventory is partially based upon forecasts of
    demand for our products and any change  to these forecasts. There have been
    no changes in this policy for the last three years.

As of December 31,
    2002, 2003 and 2004, the allowance we set aside for inventory obsolescence
    and devaluation was NT$394 million, NT$607 million and NT$1,031 million,
    respectively, which were classified in cost of goods sold in the statements
    of operations. For the years ended December 31, 2002, 2003 and 2004, we have
    not made any significant changes to estimates used to determine the provisions
    for excess and obsolete inventory.

Long-term equity
    investments in which we are not able to exercise significant influence over
    the investees operations and financial policies (generally those in
    which we own less than 20% of the investees voting shares) are accounted
    for using the lower of cost or market value if the investee is a listed company,
    otherwise such investments are accounted for using the cost method. If there
    is evidence indicating that a decline in the value of an investment is other
    than temporary, then the carrying amount of the investment is reduced to
    reflect its net realizable value. Net realizable value is determined based
    on market value, if listed, or the net equity value of the investment. The
    related loss is recognized in the accompanying consolidated statements of
    operations.

When we have significant
    influence over the operating, financial and dividend policies of investees
    and have the intention to hold the investment for a long term period (generally
    those in which we own between 20% and 50% of the investees voting shares)
    those investments are accounted for using the equity method. The difference
    between the acquisition cost and the carrying amount of net equity of the
    investee as of the acquisition date is allocated based upon the pro rata
    share of the excess of fair value over the carrying value of assets on the
    investees books. Such difference is reflected as a component of the
    investment balance and is adjusted to reflect changes in the basis of the
    related asset. Unallocated amounts are recorded as equity method goodwill,
    and are not subject to amortization, but rather are assessed for impairment
    as part of the carrying amount of the investment. For example, amounts allocated
    to property, plant and equipment are depreciated in a manner similar to the
    related assets through a charge to net investment gain recognized by equity
    method investments. The allocation of excess basis in equity

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method investments
        requires the use of judgments regarding, among other matters, the fair
      value and estimated useful lives of long lived assets. Changes in those judgments
        would affect the amount and timing of amounts charged to our statement
      of operations.

Certain investments
    in which we hold less than a 20% voting interest, but are nonetheless able
    to exercise significant influence over the operating, financial and dividend
    policies of investees through board representation or other means are also
    accounted for using the equity method. Significant judgment is required to
    assess whether we have significant influence. Factors that we consider in
    making such judgment include, among other matters, participation in policymaking
    processes, material intercompany transactions, interchange of managerial
    personnel, or technological dependency. A determination that we do not exercise
    significant influence over such investees would impact the carrying amount
    of the investment, gains or losses, and the amount of net investment gain
    recognized by equity method investments that is reflected in our consolidated
    financial statements.

In 2004, we purchased
    126,600,000 shares of BenQ representing a 5.47% equity interest in BenQ.
    As we and BenQ share a common chairman and chief executive officer, a second
    officer board member, and have other commercial relationships, we are deemed
    to have significant influence over BenQ. As such, we account for our investment
    in BenQ under the equity method of accounting. Net income for the year ended
    December 31, 2004 would have increased by NT$2,526,000, under ROC GAAP, if
    our investment in BenQ was accounted for using the cost method.

Under U.S. GAAP,
    we have performed the required goodwill impairment test during the year as
    required by Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill
    and Other Intangible Assets. No impairment was identified for any of the
    three years ended December 31, 2004. In assessing the recoverability of our
    goodwill, we have to make assumptions regarding estimated future cash flows
    and other factors to determine the fair value of the respective assets. We
    also evaluate the impairment by considering the market price of our common
    stock. If these estimates and the related assumptions change the fair value
    of these assets in the future, we may need to record impairment charges accordingly.
    We will make regular impairment tests on an annual basis in the future. If
    events occur or circumstances change between annual tests that would more
    likely than not affect the recoverability of the goodwill, such as a significant
    adverse change in the business climate, an unanticipated increase in competition,
    or a significant decline in our market capitalization in relation to net
    book value, we will perform additional interim tests and impairment loss
    will be recorded when required.

| | Income Taxes
| | ------------

Our effective tax rate differs from the statutory rate due to the impact of nondeductible items, tax exemptions, investment tax credits and net operating losses. Our effective tax rate was 0%
in 2002, (0.6)% for 2003 and 0.2% in 2004. Our future effective tax rates could be adversely affected by earnings being lower than anticipated, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or
interpretations of tax laws. In addition, we are subject to the continuous examination of our income tax returns by the ROC tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes.

As of December 31, 2004, the ending balance for our valuation allowances was NT$8,805.0 million under ROC GAAP. If our current estimate of future profit had been higher, we would have decreased
our valuation allowances accordingly. In contrast, if our current estimate of future profit had been lower, we would have increased our valuation allowances. However, due to the complexity of calculating our valuation allowances, we are unable to
provide with reasonable accuracy the amount of changes to our valuation allowances that would have resulted based upon specific percentage changes to one or more individual factors such as our expected future revenue or profits.

Under U.S. GAAP, cumulative
    losses in recent years are a significant piece of negative evidence which
    is difficult to overcome using projections of future taxable income for the
    purpose of determining the valuation allowance. We suffered losses in 2001
    and also had a net loss in the fourth quarter of 2002. As a result, we did
    not use the projection of future taxable income in determining our valuation
allowance for periods through December

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31, 2002. As we continue to generate
        profit from 2003 onwards, more positive evidence is available. We are using
        the available future taxable income projections in the near term in determining
    the size of our valuation allowance.

Results of Operations

The following table sets forth certain of our results of operations data as a percentage of our net sales for the periods indicated:

|                                |  | Year Ended December
    31, |  
|------------------------------- |  | --------------------------- | -
|                                |  |                             |  
|                                |  | 2002                        |  
|                                |  |                             |  
|                                |  | %                           |  
|                                |  |                             |  
|Net sales                       |  | 100.0                       |  
|Cost of goods sold              |  | 84.0                        |  
|                                |  |                             |  
|Gross profit                    |  | 16.0                        |  
|                                |  |                             |  
|Operating expenses              |  | 5.8                         |  
|Selling                         |  | 0.7                         |  
|General and administrative      |  | 2.1                         |  
|Research and development        |  | 3.0                         |  
|                                |  |                             |  
|Operating income                |  | 10.2                        |  
|                                |  |                             |  
|Net non-operating income (loss) |  | (2.2                        | )
|                                |  |                             |  
|Income before income tax        |  | 8.0                         |  
|Income tax benefit (expenses)   |  | (0.0                        | )
|                                |  |                             |  
|Net income                      |  | 8.0                         |  
|                                |  |                             |  
|                                |  |                             |  

For the Years Ended December 31, 2004 and 2003


| | Net Sales
| | ---------

Net sales increased 60.3% to NT$168,111.6 million (US$5,296.5 million) in 2004 from NT$104,860.6 million in 2003 due to a 60.5% increase in net sales of large-size panels and a 62.0% increase
in net sales of small- and medium-size panels. Net sales of large-size panels increased 60.5% to NT$148,130.6 million (US$4,667.0 million) in 2004 from NT$92,274.0 million in 2003. This increase was primarily due to an increase in unit sales.
Large-size panels sold increased 59.0% to 18,851.4 thousand panels in 2004 from 11,852.7 thousand panels in 2003. The average selling price per panel of our large-size panels remained relatively stable, increasing 0.9% to NT$7,858 (US$247.6) in 2004
from NT$7,785 in 2003, primarily as a result of an increase in average selling prices in the first half of 2004 caused by strong consumer demand which was partially offset by a decrease in average selling prices in the second half of 2004 resulting
from an oversupply of panels in the TFT-LCD industry.The increase in unit sales of large-size panels was due to our expanded production capacity and stimulated demand
as a result of decreasing average selling prices in the second half of 2004. The increased demand was primarily due to consumers continuing to replace their CRT monitors with TFT-LCD monitors, increased bundling of TFT-LCD monitors and PCs by brand
companies and increased demand for both notebook computers and LCD televisions.

Net sales of small- to medium-size panels increased 62.0% to NT$19,208.0 million (US$605.2 million) in 2004 from NT$11,855.8 million in 2003. The increase in net sales of small- to medium-size
panels was primarily due to an increase in unit sales. Unit sales of our small- to medium-size panels increased 55.3% to 33,289.5 thousand panels in 2004 from 21,431.2 thousand panels in 2003. The average selling price per panel of our small- to
medium-size panels increased 4.3% to NT$577 (US$18.2) in 2004 from NT$553 in 2003, primarily as a result of a shift in product mix to more medium-size panels being produced due to increasing demand for consumer electronic products using medium-sized
TFT-LCD panels such as portable DVD players. The increase in unit sales of small- to medium-size panels was primarily due to new products which use small- to medium-size panels being introduced in the market, resulting in new customers, and the
growing acceptance and use of TFT-LCD panels for consumer electronics products.

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| | Cost of Goods Sold
| | ------------------

Cost of goods sold
    increased 57.8% to NT$128,468.3 million (US$4,047.5 million) in 2004 from
    NT$81,398.9 million in 2003. This increase was primarily as a result of an
    increase in our requirements for raw materials and components and an increase
    in depreciation and amortization expenses. Raw materials and component costs
    increased 60.3% in 2004 as compared to 2003, primarily as a result of an
    increase in unit sales of our panels. While we expected the average market
    prices of raw materials and components to decline in 2004 compared to 2003,
    despite the fluctuation of market prices for glass substrates, color filters
    and driver integrated circuits throughout 2004, the average market prices
    of raw materials and components remained relatively stable in 2004 compared
    to 2003. Overhead expenses, including depreciation and amortization expenses,
    increased 56.4% in 2004 compared to 2003, primarily due to increased production
    costs and capacity at our fabs and increased depreciation expenses associated
    with our in-house color filter production facility and our second fifth-generation
    fab, both of which commenced commercial production in 2004. Direct labor
    costs increased 27.6% in 2004 compared to 2003, primarily as a result of
    an increased number of employees due to our increased production capacity,
    the ramp-up of our second fifth-generation fab, the construction of our sixth-generation
    fab and the expansion of our module-assembly facilities in Suzhou, PRC.

As a percentage of
    net sales, cost of goods sold decreased slightly to 76.4% in 2004 from 77.6%
    in 2003. This decrease was primarily as a result of a decrease in our cost
    of goods sold per panel for large-size panels and an increase in our net
    sales. The decrease in our cost of goods sold per panel for large-size panels
    was primarily as a result of lower fixed costs per panel for large-size panels.
    Fixed costs per panel (which include depreciation and amortization expenses,
    direct labor costs and utility and other overhead expenses) for large-size
    panels decreased due to improved production efficiency through yield rate
    improvement at our fifth-generation fabs, which was partially offset by a
lower utilization rate in the second half of 2004.

| | Gross Profit
| | ------------

Gross profit increased 69.0% to NT$39,643.3 million (US$1,249.0 million) in 2004 from NT$23,461.8 million in 2003. Gross margin, which is gross profit divided by net sales, was 23.6% in 2004 as
compared to 22.4% in 2003. The improvement in gross margin was primarily as a result of an increase in net sales.

Under U.S. GAAP, gross profit increased 64.9% to NT$32,855.6 million (US$1,035.1 million) in 2004 from NT$19,919.7 million in 2003. Gross margin, which is gross profit divided by net sales, was
19.5% in 2004 as compared to19.0% in 2003. The improvement in gross margin was primarily as a result of an increase in net sales, which resulted in lower per unit costs from lower absorption of fixed costs.

| | Operating Expenses
| | ------------------

Operating expenses
          increased 52.9% to NT$11,036.0 million (US$347.7 million) in 2004 from
          NT$7,217.0 million in 2003. As a percentage of net sales, operating
          expenses decreased to 6.6% in 2004  from 6.9% in 2003. The increase
          in operating expenses was primarily as a result of an increase in unit
          sales of our panels in 2004. Selling expenses increased 75.4% to NT$2,447.1
          million (US$77.1 million) in 2004 from NT$1,395.0 million in 2003,
           primarily due to increases in selling commissions, transportation
          costs and marketing expenses as a result of increased sales. Selling
          expenses as a percentage of net sales increased to 1.5% in 2004 from
          1.4% in 2003. General and administrative  expenses increased 46.9%
          to NT$3,577.3 million (US$112.7 million) in 2004 from NT$2,435.6 million
          in 2003, primarily as a result of the ramp-up costs at our fifth-generation
          fabs prior to commercial production at such facilities and the  establishment
          of our sixth-generation fab. General and administrative expenses as
          a percentage of net sales decreased slightly to 2.1% in 2004 from 2.3%
          in 2003. Research and development expenses increased 48.0% to NT$5,011.6
          million (US$157.9  million) in 2004 from NT$3,386.4 million in 2003,
          primarily due to the additional expenses associated with the installation
          of equipment at our new research and development facility, the AUO
          Technology Center, and royalties and license fees related to  the transfer
          of new technologies. Research and development expenses as a percentage
          of net sales decreased to 3.0% in 2004 from 3.2% in 2003.

Under U.S. GAAP, operating expenses increased 92.8% to NT$12,686.8 million (US$399.7 million) in 2004 from NT$6,581.8 million in 2003. As a percentage of net sales, operating expenses increased
to 7.5% in 2004 from

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6.3% in 2003. The increase in operating expenses
  was primarily due to expansion, increase of sales related expenses as a result
  of an increase in unit sales of our panels and an increase of employee compensation
  expense. Selling expenses increased 62.5% to NT$2,093.2 million (US$65.9 million)
  in 2004 from NT$1,288.3 million in 2003, primarily due to increases in selling
  commissions, transportation costs and marketing expenses as a result of increased
  sales and an increase in employee compensation costs. Selling expenses as a
  percentage of net sales was approximately the same in 2004 and in 2003. General
  and administrative expenses increased 121.5% to NT$6,232.8 million (US$196.4
  million) in 2004 from NT$2,813.9 million in 2003, primarily as a result of
  the ramp-up costs at our fifth-generation fabs prior to commercial production
  at such facilities and the establishment of our sixth-generation fab, and a
  result of an increase in compensation costs. General and administrative expenses
  as a percentage of net sales increased to 3.7% in 2004 from 2.7% in 2003. Research
  and development expenses increased 75.9% to NT$4,360.8 million (US$137.4 million)
  in 2004 from NT$2,479.6 million in 2003, primarily due to the additional expenses
  associated with the installation of equipment at our new research and development
  facility, the AUO Technology Center, and a result of an increase in compensation
  costs. Research and development expenses as a percentage of net sales increased
to 2.6% in 2004 from 2.4% in 2003.

| | Operating Income and Operating Margin
| | -------------------------------------

As a result of the
    foregoing, operating income increased 76.1% to NT$28,607.3 million (US$901.3
    million) in 2004 from NT$16,244.8 million in 2003, and operating margin increased
    to 17.0% in 2004 from 15.5% in 2003.

Under U.S. GAAP, as
    a result of the foregoing, operating income increased 51.2% to NT$20,168.8
    million (US$635.4 million) in 2004 from NT$13,337.9 million in 2003, and
    operating margin decreased to 12.0% in 2004 from 12.7% in 2003.

| | Net Non-Operating Expenses and Losses
| | -------------------------------------

We had net non-operating
    expenses and losses of NT$583.1 million (US$18.4 million) in 2004 compared
    to net non-operating expenses and losses of NT$671.5 million in 2003. We
    had lower net non-operating expenses and losses in 2004 as compared to 2003
    primarily as a result of investment gain on equity method investments and
    a decrease in net interest expense. We had a gain on equity method investments
    of NT$34.3 million (US$1.1 million) compared to a loss of NT$14.4 million
    in 2003. We had a net interest expense of NT$621.4 million (US$19.6 million)
    in 2004 compared to a net interest expense of NT$658.1 million in 2003, principally
    as a result of a reduction in the amount of average outstanding debt and
    lower interest rates.

Under U.S. GAAP, we
    had net non-operating expenses and losses of NT$1,592.9 million (US$50.1
    million) in 2004 compared to net non-operating expenses and losses of NT$852.6
    million in 2003. We had higher net non-operating expenses and losses in 2004
    as compared to 2003 primarily as a result of an impair loss on securities
    available-for-sale which was partially offset by an investment gain on equity
    method investments. We recognized other-than-temporary impairment losses
    on securities available-for-sale of NT$922.9 million (US$29.1 million) in
    2004 compared to none in 2003. We had a gain on equity method investments
    of NT$279.7 million (US$8.8 million) in 2004 compared to a loss of NT$177.8
    million in 2003.

| | Income Tax Expense
| | ------------------

We recorded an income
    tax expense of NT$61.3 million (US$1.9 million) in 2004 compared to an income
    tax benefit of NT$86.7 million in 2003. We recorded an income tax expense
    in 2004 primarily due to income tax being assessed against us as a result
    of an increase in net income. While we used a portion of our outstanding
    tax credits to offset the income tax amount owed, the amount of tax credits
    that may be applied in any year is limited to 50% of the income tax payable
    for that year. We recorded an income tax benefit in 2003 due primarily to
    the fact that we generated more investment tax credits, combined with the
    recognition of additional net deferred income tax assets generated in 2003
    due to our assessment that we would be able to realize certain of our deferred
    tax assets based on future profitability.

Under U.S. GAAP, we
    recorded an income tax expense of NT$463.4 million (US$14.6 million) in 2004
    compared to an income tax benefit of NT$3,230.1 million in 2003. We did not
    use the projection of future taxable income in determining the deferred tax
    asset valuation allowance for periods through December 31, 2002. However,

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as
        we continue to generate profits from 2003 onwards, more positive evidence
        is available. We are using the available future taxable income projections
        in determining the size of the valuation allowance. As a result, we released
        valuation allowance in 2003 and the income tax benefit increased in 2003.
        We recorded an income tax expense in 2004 primarily due to income tax being
        assessed against us as a result of an increase in net income.

| | Net Income
| | ----------

As a result of the
    foregoing, net income increased 78.6% to NT$27,962.9 million (US$881.0 million)
    in 2004 from NT$15,659.9 million in 2003.

Under U.S. GAAP,
    as a result of the foregoing, net income increased 15.3% to NT$18,112.5 million
    (US$570.7 million) in 2004 from NT$15,715.4 million in 2003

For the Years Ended December 31, 2003 and 2002

| | Net Sales
| | ---------

Net sales increased 38.5% to NT$104,860.6 million in 2003 from NT$75,689.2 million in 2002 due to a 38.0% increase in net sales of large-size panels and a 76.1% increase in net sales of small-
and medium-size panels. Net sales of large-size panels increased 38.0% to NT$92,274.0 million in 2003 from NT$66,852.5 million in 2002. The increase in net sales of large-size panels was primarily due to an increase in unit sales, offset by a
decrease in average selling prices. Large-size panels sold increased 42.4% to 11,852.7 thousand panels in 2003 from 8,321.6 thousand panels in 2002. The average selling price per panel of our large-size panels decreased 3.1% to NT$7,785 in 2003 from
NT$8,034 in 2002, primarily as a result of decreases in average selling prices resulting from an oversupply of panels in the TFT-LCD industry during the second half of 2002. The increase in unit sales of large-size panels was due to our expanded
production capacity and stimulated demand as a result of decreasing average selling prices. The increased demand was reflected in the increased rate of replacement of TFT-LCD for CRT monitors, increased bundling of TFT-LCD monitors and PCs by brand
companies and increased demand for notebook computers.

Net sales of small- to medium-size panels increased 76.1% to NT$11,855.8 million in 2003 from NT$6,731.4 million in 2002. The increase in net sales of small- to medium-size panels was primarily
due to an increase in unit sales, offset by a decrease in average selling prices. Unit sales of our small- to medium-size panels increased 135.7% to 21,431.2 thousand panels in 2003 from 9,092.1 thousand panels in 2002. The average selling price per
panel of our small- to medium-size panels decreased 25.3% to NT$553 in 2003 from NT$740 in 2002, primarily as a result of intense competition and shift in product mix. The increase in unit sales of small- to medium-size panels was due to increased
demand as a result of wider industry acceptance of the use of TFT-LCD panels for consumer electronics products.

| | Cost of Goods Sold
| | ------------------

Cost of goods sold increased 28.0% to NT$81,398.9 million in 2003 from NT$63,606.2 million in 2002. This increase was primarily as a result of an increase in our requirements for raw materials
and components and an increase in depreciation and amortization expenses. Raw materials and component costs increased 22.4% in 2003 as compared to 2002, primarily as a result of an increase in unit sales of our panels, partially offset by decreases
in average market prices of raw materials and components. Overhead expenses, including depreciation and amortization expenses, increased by 40.3% in 2003 compared to 2002, primarily due to increased production costs and the purchase of additional
equipment and machinery for our fabs. Direct labor costs increased by 29.5% in 2003 compared to 2002, primarily as a result of an increased number of employees due to our increased production capacity and the ramp-up of our fifth-generation fabs and
our module-assembly facilities in Suzhou, PRC.

As a percentage of net sales, cost of goods sold decreased to 77.6% in 2003 from 84.0% in 2002. This decrease was primarily as a result of a decrease in our cost of goods sold per panel for
large-size panels and an increase in our net sales. The decrease in our cost of goods sold per panel for large-size panels was primarily as a result of decreases in raw materials and component costs and lower fixed costs per panel for large-size
panels. The decrease in raw materials and component costs per panel for large-size panels was primarily due to decreases in the average market

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prices of raw materials and components and the
    introduction of new product designs with lower component costs. Fixed costs
    per panel (which include depreciation and amortization expenses, direct labor
    costs and utility and other overhead expenses) for large-size panels decreased
    due to improved production efficiency through yield rate improvement and
    advanced new generation technologies and economies of scale realized at our
    fabs.

| | Gross Profit
| | ------------

Gross profit increased
    94.2% to NT$23,461.8 million in 2003 from NT$12,083.0 million in 2002. Gross
    margin, which is net sales less cost of goods sold, was 22.4% in 2003 as
    compared to 16.0% in 2002. The improvement in gross margin was primarily
    as a result of an increase in net sales due to an increase in unit sales
    and a substantial reduction in cost of goods sold per panel for most of our
panels sold.

| | Operating Expenses
| | ------------------

Operating expenses increased 65.2% to NT$7,217.0 million in 2003 from NT$4,369.1 million in 2002. As a percentage of net sales, operating expenses increased to 6.9% in 2003 from 5.8% in 2002.
The increase in operating expenses was primarily as a result of an increase in unit sales of our panels in 2003. Selling expenses increased 168.3% to NT$1,395.0 million in 2003 from NT$520.0 million in 2002, primarily due to increases in selling
commissions, transportation costs and marketing expenses as a result of increased sales. Selling expenses as a percentage of net sales increased to 1.3% in 2003 from 0.7% in 2002. Administrative expenses increased 50.7% to NT$2,435.6 million in 2003
from NT$1,616.0 million in 2002, primarily as a result of the ramp-up costs at our fifth-generation fabs prior to commercial production at such facilities. General and administrative expenses as a percentage of net sales increased slightly to 2.3%
in 2003 from 2.1% in 2002. Research and development expenses increased 51.6% to NT$3,386.4 million in 2003 from NT$2,233.1 million in 2002, primarily due to the additional expenses for the development of advanced process and product technologies.
Research and development expenses as a percentage of net sales increased to 3.2% in 2003 from 3.0% in 2002.

| | Operating Income and Operating
          Margin
| | -----------------------------------------------

As a result of the foregoing, operating income increased 110.6% to NT$16,244.8 million in 2003 from NT$7,713.9 million in 2002, and operating margin increased to 15.5% in 2003 from 10.2% in
2002.

| | Net Non-Operating Expenses and
          Losses
| | -----------------------------------------------

We had net non-operating expenses and losses of NT$671.5 million in 2003 compared to net non-operating expenses and losses of NT$1,691.1 million in 2002. We had lower net non-operating expenses
and losses in 2003 as compared to 2002 primarily as a result of realized and unrealized gains in short-term investments and a decrease in net interest expense. We had a gain on market price recovery of short-term investments of NT$126.9 million in
2003, as compared to a short-term investment permanent impairment loss of NT$650.6 million in 2002, primarily as a result of an improvement in the market prices of our short-term investments due to the recovery of market conditions on the Taiwan
Stock Exchange. The short-term investment permanent impairment loss in 2002 was due primarily to the write-off of our short-term investment in PixTech in the amount of NT$523.7 million. We had a net interest expense of NT$658.1 million in 2003
compared to a net interest expense of NT$951.1 million in 2002, principally as a result of lower levels of debt and lower interest rates.

| | Income Tax Benefit
| | ------------------

We recorded an income tax benefit of NT$86.7 million in 2003 compared to an income tax expense of NT$0.1 million in 2002. We recorded an income tax benefit in 2003 due primarily to the fact
that we generated more investment tax credits, combined with the recognition of additional net deferred income tax assets generated in 2003 due to our assessment that we would be able to realize certain of our deferred tax assets based on future
profitability.

| | Net Income
| | ----------

As a result of the foregoing, net income increased 160.0% to NT$15,659.9 million in 2003 from NT$6,022.7 million in 2002.

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Inflation

We do not believe that inflation in Taiwan has
    had a material impact on our results of operations.

Taxation

The corporate income
    tax rate in Taiwan applicable to us is 25%. Prior to January 20, 2001, the
    corporate income tax rate in Taiwan applicable to us was 20% for our products
    produced in the Hsinchu Science Park and 25% for our products produced elsewhere
    in Taiwan. However, we did not generate any income in any year except 2000,
    2002, 2003 and 2004. In 2000, although we generated income before tax, we
    applied certain loss carryforwards that we accumulated from previous years
    to offset the tax liability to which we could otherwise have been subject.
    In 2003, we recorded an income tax benefit due primarily to the fact that
    we generated moreinvestment tax credits and recognized additional net deferred income tax assets. As a result, we did not incur any income tax expense during any of our fiscal years, except 2002 and 2004.

| | Recognition of Deferred Tax Assets
| | ----------------------------------

Our valuation allowance provided on deferred tax assets is calculated differently under ROC GAAP than under U.S. GAAP. This difference has a significant impact on us because we have a
significant amount of deferred tax assets as a result of the various tax credits available to us under ROC governmental tax incentive programs and net operating loss carryforwards. Please see note 22 to our consolidated financial statements included
elsewhere in this annual report for further discussion and quantification of these differences. The net deferred income tax assets we are able to recognize under ROC GAAP as of December 31, 2004 amounted to NT$2,970.4 million (US$93.6 million). This
recognition of net deferred tax assets under ROC GAAP resulted primarily from the projection of income before tax for future years. If we do not achieve the projection of income before tax for future years, the amount of the deferred tax assets
recognized may be significantly reduced.

| | Tax Exemptions
| | --------------

Based on our status as a company engaged in the TFT-LCD business in Taiwan, all income attributable to the use of equipment that we purchase, in part or in whole, with proceeds we raise through
share offerings, may be exempted from corporate income tax in Taiwan if our shareholders determine to allow us, instead of the shareholders themselves, to use these tax exemptions. In addition, income attributable to the use of equipment that we
purchase, in whole or in part, with retained earnings that we capitalize, may be exempted from corporate income tax in Taiwan. These exemptions typically apply for four or five consecutive years, commencing in a year to be designated by us within
two years following the commencement of commercial production using such equipment. We set forth below certain information with respect to our tax exemptions:

| | Share offerings in 1999 by Unipac for the purchase of equipment used at two of our 3.5-generation fabs, and share offering in 1999 by Acer Display for the purchase of equipment used at our fourth-generation fab.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |                                                                                                                                                                                                                    
|
| |                                                                                                                                                                                                                    
|
| |                                                                                                                                                                                                                    
|
| | Share offering in 1996 by Acer Display for the purchase of equipment used at our 3.5-generation fab.                                                                                                               
|
| |                                                                                                                                                                                                                    
|
| | Share offerings in 2001 for the purchase of equipment used at our fourth-generation fab.                                                                                                                           

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| |                                                                                                                                                             | The tax exemption period will commence in
        2005 and will expire in 2009.                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------
|
| | Capitalization of retained earnings
        in 2001 for the purchase of equipment used at our previous early generation
        fab and 3.5-generation fab.
|
| |                                                                                                                                                             | The tax exemption period is five years for
        our previous early generation fab and our 3.5-generation fab.
|
| |                                                                                                                                                             | We have not yet designated the year from which
        we will use this tax exemption.                          
|
| | Capitalization of retained earnings
        in 2003 for the purchase of equipment used at our fifth-generation fab.                                        
|
| |                                                                                                                                                             | The tax exemption period is five years.                                                                         
|

| |                                                                                                             | We have not yet designated the year from which we will use this tax exemption.
| | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------
|
| | Issuance of ADS in 2002 for the purchase of equipment used at our fifth-generation fab.                    
|
| |                                                                                                             | The tax exemption period is five years.                                       
|
| |                                                                                                             | We have not yet designated the year from which we will use this tax exemption.
|
| | Capitalisation of retained earnings in 2004 for the purchase of equipment used at our sixth-generation fab.
|
| |                                                                                                             | The tax exemption period is five years.                                       
|
| |                                                                                                             | We have not yet designated the year from which we will use this tax exemption.
|
| | Issuance of ADS in 2004 for the purchase of equipment used at our fifth-generation fab.                    
|
| |                                                                                                             | The tax exemption period is five years.                                       
|
| |                                                                                                             | We have not yet designated the year from which we will use this tax exemption.
|

If we make a qualified rights offering, our shareholders will be entitled, pursuant to a majority vote at a shareholders meeting held within two years after the rights offering, to elect
to receive a tax credit for individual shareholders of up to 10% (which percentage is decreased by 1% every two years from 2000) or for corporate shareholders of up to 20% of their subscription amount against taxes payable within five years after
expiration of the first three years of investment, during which period such shareholders are required to hold onto their investment in order to utilize the tax credit. For individual holders, except for the last year of that period, the tax credit
deductible shall not exceed 50% of the total income tax payable by such shareholder in a particular year. Even if the shareholders elect to receive the shareholders tax credit, it is unlikely that ADS holders would be able to benefit from such
tax credits. The ROC statute governing this tax credit does not expressly prohibit holders of ADSs from benefiting from such tax credit. However, in practice, even if an ADS holder may have other ROC sources of income against which to use the tax
credit, ADS holders would not be able to prove that they meet the holding requirement necessary to claim the tax credit.

| | Loss Carryforwards
| | ------------------

As of December 31, 2004, we have loss carryforwards of NT$2,393.7 million (US$75.4 million) available.

| | Tax Credits
| | -----------

We also benefit from
          certain tax credits under ROC law that may be applied toward reducing
          our tax liabilities. Prior to April 2002, we received tax credits at
          a rate of 10% of the purchase  price in connection with our purchase
          of imported equipment and at a rate of 20% of the purchase price in
          connection with our purchase of locally manufactured equipment. As
          a result of the ROC becoming a member of the World Trade Organization,
          the  ROC

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Ministry of Economic Affairs amended the tax credit
rules in April 2002 to adopt a tax credit at a rate of 13% to be applied to the
purchase of equipment, regardless of the location of production of the equipment.
This rate was subsequently reduced to 11% in July 2004. We also receive tax credits
at a rate of 10% for the purchase of production technology and at a rate of 13%
for the purchase of pollution control equipment. As of December 31, 2004, we
had accumulated NT$10,541.5 million (US$332.1 million) of these tax credits.
These tax credits are expected to expire four years after the end of the year
in which we received the equipment. As of December 31, 2004, NT$1,712.1 million
(US$53.9 million), NT$2,285.7 million (US$72.0 million), NT$1,952.1 million (US$61.5
million) and NT$4,591.6 million (US$144.7 million) of these tax credits are expected
to expire in 2005, 2006, 2007 and 2008, respectively.

We also benefit from
    other tax credits of up to 30% of certain research and development and employee
    training expenses. If the amount of these expenses that we incur in any year
    exceeds the average of such expenses for the proceeding two years, an additional
    50% of the excess amount may be included in the applicable tax credit for
    such year. As of December 31, 2004, we had accumulated NT$910.4 million (US$28.7
    million) of these tax credits.These tax credits are expected to expire four years
    after the year expenses are incurred. As of December 31, 2004, NT$65.4 million
    (US$2.1 million), NT$189.9 million (US$6.0 million), NT$252.6 million (US$8.0
    million) and NT$402.5 million (US$12.7 million) of these tax credits are
    expected to expire in 2005, 2006, 2007 and 2008, respectively.

| | Tax on Retained Earnings
| | ------------------------

In 1997, the ROC
          Income Tax Law was amended to integrate the corporate income tax and
          shareholder dividend tax. Under the amendment, after-tax earnings generated
          from January 1, 1998 and not distributed to shareholders as dividends
          in the following year will be subject to a 10% retained earnings tax.
          See Item 10. Additional InformationTaxationROC Tax ConsiderationsRetained Earnings Tax. As
          a result, if we do not distribute as dividends in any year all of our
          annual retained earnings generated in the preceding year, our applicable
corporate income tax rate may exceed 25% for such year.

5.B. Liquidity and Capital Resources

We need cash primarily for capacity expansion and working capital. Although we have historically been able to meet our working capital requirements through cash flow from operations, our
ability to expand our capacity has been largely dependent upon, and to a certain extent will continue to depend upon, our financing capability through the issuance of equity securities, long-term borrowings and the issuance of convertible and other
debt securities. If adequate funds are not available, whether on satisfactory terms or at all, we may be forced to curtail our expansion plans, including plans for newer generation fabs. Our ability to meet our working capital needs from cash flow
from operations will be affected by our business conditions which in turn may be affected by several factors. Many of these factors are outside of our control, such as economic downturns and declines in the average selling prices of our products
caused by oversupply in the market. The average selling prices of our existing product lines are reasonably likely to be subject to further downward pressure in the future. To the extent that we do not generate sufficient cash flow from our
operations to meet our cash requirements, we may need to rely on external borrowings and securities offerings. Other than as described below in Off-Balance Sheet Arrangements, we have not historically relied, and we do not plan to
rely in the foreseeable future, on off-balance sheet financing arrangements to finance our operations or expansion.

As of December 31, 2004, our primary source of liquidity was NT$17,797.7 million (US$560.7 million) of cash and cash equivalents and NT$1,586.5 million (US$50.0 million) of short-term
investments. As of December 31, 2004, we had total short-term credit lines of NT$17,015.1 million (US$536.1 million), of which we had borrowed NT$6,183.0 million (US$194.8 million) as of December 31, 2004. All of our short-term facilities are
revolving with a term of one year, which may be extended for terms of one year each with lender consent. We are subject to restrictions on the sale, lease, transfer or other disposal of our assets under some of our short-term loan facilities. Our
repayment obligations under our short-term loans are unsecured. We believe that our existing credit lines under our short-term loans, together with cash generated from our operations, are sufficient to finance our current working capital
needs.

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As of December 31, 2004,
we had outstanding long-term borrowings of NT$47,418.5 million (US$1,494.0 million).
The interest rates in respect of these long-term borrowings are variable, and
as of December 31, 2004 ranged between 1.8% and 5.0% per year.

In November 2001,
    we issued an aggregate principal amount of NT$10,000.0 million of convertible
    bonds due November 2008. The convertible bonds have been fully converted
    into our shares as of October 2003. The convertible bonds had a stated interest
    rate of 2.0% and an effective interest rate of 4.50% . The initial conversion
    price was NT$15.80 per share, subject to adjustment. The conversion price
    was adjusted to NT$14.9 per share based on the resolution of our board of
    directors meeting on June 16, 2003, to reflect the stock dividend distributed
    in 2003. As of December 31, 2002 and 2003, the total principal amount of
    convertible bonds which had been converted into our shares totaled NT$8,748.7
    million and NT$10,000 million, respectively, which amounted to NT$5,537.1
    million and NT$6,376.0 million, respectively, for our shares and a premium
    of NT$3,315.3 million and NT$3,795.0 million, respectively, recorded as capital
    surplus.

In November 2003, we entered into a NT$35.0 billion seven-year syndicated credit facility, for which International Commercial Bank of China acted as the agent bank, for the purpose of funding
  the construction and purchase of machinery and equipment at our fabs. The syndication agreement for this facility contains covenants that require us to maintain certain financial ratios. Our obligations under this credit facility are secured by
  certain of our equipment and machinery. As of December 31, 2004, NT$9.0 billion has been drawn down under this credit facility. We issued NT$6.0 billion secured corporate bonds under this credit facility in April 2004.

In June 2004, we entered into a NT$55 billion and US$150 million seven-year syndicated credit facility, for which the Bank of Taiwan acted as the agent bank, for the purpose of funding the
construction and purchase of machinery and equipment at our fabs. The syndication agreement for this facility contains covenants that require us to maintain certain financial ratios. Our obligations under this credit facility are secured by certain
of our equipment and machinery. As of December 31, 2004, NT$3 billion has been drawn down under this credit facility.

In June 2004, we issued an aggregate of 30,000,000 ADSs representing 300,000,000 shares of our common stock. The net proceeds from the offering were approximately NT$15,967.2 million. We used
the net proceeds for the construction of and purchase of equipment and machinery for our production facilities, including the ramping up of our fifth-generation fabs and the construction of our sixth-generation fab.

Our long-term loans and facilities contain various financial and other covenants that could trigger a requirement for early payment. Among other things, these covenants require the maintenance
of certain financial ratios, such as liquidity ratio, indebtedness ratio, interest coverage ratio and other technical requirements. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may
materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments and encumber or dispose of assets. A default under one debt instrument may also trigger cross-defaults under our other debt
instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on our liquidity, as well as our financial condition and operations.

The carrying amount of our
assets pledged as collateral to secure our obligations under our long-term borrowings
and bonds, including building, machinery and equipment, amounted to NT$89,345.0
million (US$2,814.9 million) as of December 31, 2004.

Net cash provided by
operating activities amounted to NT$20,821.7 million in 2002, NT$37,041.5 million
in 2003 and NT$49,393.6 million (US$1,556.2 million) in 2004. Our depreciation
and amortization was NT$12,989.9 million in 2002, NT$16,294.6 million in 2003
and NT$25,309.3 million (US$797.4 million) in 2004. Our notes and accounts payable
increased NT$1,322.0 million in 2002, NT$11,413.0 million in 2003 and NT$5,026.6
million (US$158.4 million) in 2004. Increases in depreciation and amortization
were primarily due to increased capital investment for the expansion of our production
capacity. Our depreciation and amortization and increases in our notes and accounts
payable were partially offset by increases in notes and accounts receivable of
NT$1,203.9 million in 2002, NT$6,898.7 million in 2003 and NT$5,203.5 million
(US$163.9 million) in 2004 and increases in inventories of NT$1,770.7 million
in 2003 and NT$6,517.3 million (US$205.3 million) in 2004.

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Net cash used for investing
activities was NT$18,125.0 million in 2002, NT$40,339.4 million in 2003 and NT$87,010.2
million (US$2,741.3 million) in 2004. Net cash used for investing activities
primarily reflected capital expenditures for property, plant and equipment of
NT$18,035.3 million in 2002, NT$39,300.6 million in 2003 and NT$81,868.7 million
(US$2,579.4 million) in 2004. These capital expenditures were primarily funded
with net cash provided by operating activities and financing activities, primarily
from long-term bank borrowings and the issuance of shares.

Net cash provided
    by financing activities was NT$16,754.3 million in 2002, reflecting primarily
    our share issuance totaling NT$19,170.3 million, partially offset by our
    repayment of long-term loans and bonds of NT$5,104.1 million. Net cash used
    by financing activities was NT$4,672.6 million in 2003, reflecting primarily
    our repayments of long-term loans and bonds of NT$10,792.1 million, partially
    offset by borrowings of NT$8,740.4 million under long-term loans. Net cash
    provided by financing activities was NT$37,615.2 million (US$1,185.1 million),
    in 2004, reflecting primarily our issuance of shares in connection with our
    ADS follow-on offering totaling NT$15,967.2 million (US$503.1 million) and
    long-term loans and bonds of NT$28,315.8 million (US$892.1million) partially offset by our repayment of long-term loans and bonds of NT$6,892.1 million (US$217.1 million) and a cash dividend distribution of NT$5,208.3 million (US$164.1 million).

We have made, and expect to continue to make, substantial capital expenditures in connection with the expansion of our production capacity. Substantially all of our investments in capital
expenditures are located in Taiwan and the PRC. The table below sets forth our principal capital expenditures, paid or committed, for the periods indicated.

|                            |  | 2002          |  | 2003     |  | 2004     | 
|--------------------------- |  | ------------- |  | -------- |  | -------- | 
|                            |  |               |  |          |  |          | 
|                            |  | NT$           |  | NT$      |  | NT$      | 
|                            |  | (in millions) |  |          | 
|Equipment purchases         |  | 16,715.1      |  | 40,424.1 |  | 80,814.5 | 
|Land and building purchases |  | 1,874.5       |  | 3,990.0  |  | 2,233.3  | 

We are sometimes required to prepay our purchases of land and equipment. Prepayments for purchases of land are the result of a standard processing procedure by the ROC government related to the
transfer of legal title. As of December 31, 2002, 2003 and 2004, our prepayments for purchases of land amounted to NT$30 million, NT$28 million and NT$0 million, respectively. Prepayments for purchases of equipment result from contractual agreements
involving down payments to suppliers when the equipment is ordered by us. As of December 31, 2002, 2003 and 2004, prepayments for purchases of equipment amounted to NT$10,055 million, NT$11,753 million and NT$38,037.4 million (US$1,198.4 million),
respectively.

For the year ended December 31, 2004, our capital expenditures amounted to NT$83,047.8 million (US$2,616.5 million), primarily for purchase of equipment to build our sixth-generation fab,
including the color filter production facilities to be located at our sixth-generation fab, and the expansion of our existing fabs and our module-assembly operations.

We estimate our capital
expenditures to be approximately NT$70.0 billion to NT$80.0 billion for 2005,
primarily for the purchase of equipment to complete our third fifth-generation
fab,  including a second color filter production facility, the ramp-up of our
sixth-generation fab and the establishment of our planned 7.5 -generation fab.
As of June 1, 2005, we have made commitments to purchase approximately NT$59.3
billion of  equipment and machinery. We may adjust the amount of our capital
expenditures upward or downward based on cash flow from operations, the progress
of our expansion plans, and market conditions.

We believe that our existing cash, cash equivalents, short-term investments, expected cash flow from operations and borrowings under our existing and future credit facilities will be sufficient
to meet our capital expenditure, working capital, cash obligations under our existing debt and lease arrangements and other requirements for at least the next 12 months. We frequently need to invest in new capacity to improve our economies of scale
and reduce our production costs, which may require us to raise additional capital. We cannot assure you that we will be able to raise additional capital should it become necessary on terms acceptable to us or at all. The sale of additional equity or
equity-linked securities may result in additional dilution to our shareholders.

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5.C. Research and Development

We incurred research
    and development costs of NT$2,233.1 million, NT$3,386.4 million and NT$5,011.5
    million (US$157.9 million) in 2002, 2003 and 2004, respectively, which represented
    3.0%, 3.2% and 3.0%, respectively, of our net sales.

Our research and
    development activities are principally directed toward advancing our technologies
    in key components, manufacturing processes and product development, with
    the objective of improving the features of our products to bring added value
    to our customers in addition to design products that meet their specific
    requirements. We have a product development team dedicated to each of our
    primary product categories, including notebook computers, desktop monitors,
    LCD TVs, consumer electronics and general industrial applications. Each of
    these teams focuses on development of our existing products for its respective
    markets. To support our fabs, we maintain a centralized research and development
    team that works to improve our manufacturing processes, as well as a team
    of technical support personnel that focuses on computer integrated manufacturing.
    We also have two research anddevelopment teams that are dedicated to the development of LTPS and OLED, respectively. In addition, we have two research and development teams to explore new design platforms for next-generation displays. Finally, we have
  one research and development team that focuses on manufacturing yield and key component vendors. Monetary incentives are provided to our employees if research projects result in successful patents. As of December 31, 2004, we employed approximately
  717 research and development engineers in our company.

We plan to continue to increase our spending on research and development with the goal of improving our TFT-LCD manufacturing process and developing new TFT-LCD products such as high-resolution
17-inch or larger panels for desktop monitors and 26-inch or above panels for television. We are also developing alternative technologies such as LTPS and OLED display. In particular, we are developing color active-matrix OLED technology for small-
to medium-size panels, which we expect to be utilized in products such as mobile phones and digital still cameras.

We completed the establishment of a dedicated flat panel research and development center, the AUO Technology Center, in the third quarter of 2004. The research activities at the AUO Technology
Center have initially been divided into several general areas, including advanced technology development in new liquid crystal materials, new system electronics, new backlight unit technologies, image and color processing, OLED, LTPS and plasma
display. In addition to new product development and module processing, the AUO Technology Center also focuses on improving our current TFT-LCD panel product and manufacturing process technologies. As of December 31, 2004, we had invested a total of
NT$879.0 million (US$27.7 million) in the AUO Technology Center.

5.D. Trend Information

For trend information, see Item 5. Operating and Financial Review and ProspectsOperating Results.

5.E. Off-Balance Sheet Arrangements

We have, from time to
time, entered into non-derivative financial instruments, including letters of
credit to finance or secure our purchase payment obligations. As of December
31, 2004, we had  off-balance sheet outstanding letters of credit of US$9.7 million
and JP¥3,144.1 million. In addition, we have entered into interest rate swap
transactions to hedge our interest rate exposure arising out of our long-term
borrowing facilities. As
of December 31, 2004, we had interest rate swaps contracts with a total notional
amount of NT$24.5 billion and with the maturity dates ranging from January 2008
to July 2009. We also entered into foreign currency forward contracts to economically
    hedge our existing assets and liabilities denominated in foreign currencies
    and identifiable foreign currency purchase commitments. As of December 31,
    2004, we had outstanding foreign currency forward contracts of US$518.5 million
    and NT$6,872 million with settlement dates ranged from January to March
2005.

5.F. Tabular Disclosure of Contractual
Obligations

The following tables set forth our contractual obligations and commitments with definitive payment terms which will require significant cash outlays in the future as of December 31,
2004.

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|                               |  |           |  | Payments due by Period |  |           | 
|------------------------------ |  | --------- |  | ---------------------- |  | --------- | 
|                               |  |           |  |                        |  |           | 
|                               |  | Total     |  | Less than 1
year       |  | 1-3 years | 
|                               |  |           |  |                        |  |           | 
|                               |  | NT$       |  | NT$                    |  | NT$       | 
|                               |  |           |  |                        |  |           | 
|                               |  |           |  | (in millions)          |  |           | 
|Contractual Obligations        |  |           |  |                        |  |           | 
|Long-term debt obligations(1)  |  | 53,418.5  |  | 7,084.4                |  | 23,464.2  | 
|Operating lease obligations(2) |  | 1,433.0   |  | 95.4                   |  | 190.7     | 
|Purchase obligations(3)        |  | 71,283.2  |  | 59,283.2               |  | 12,000.0  | 
|                               |  |           |  |                        |  |           | 
|Total                          |  | 126,134.7 |  | 66,463.0               |  | 35,654.9  | 
|                               |  |           |  |                        |  |           | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes principal payment obligations only, as our interest
obligations relating to the majority of our long-term debt are floating rate obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Represents our obligations to make lease payments to use the land on
which our fabs and module-assembly facilities are located.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | Include purchase orders for the machinery
            and equipment at our fabs. We have already begun to place orders related
            to the installation of machinery and equipment at our new sixth-generation
            and our third fifth-generation  fabs, together with the color filter production
            facilities housed at such fabs.  As of December 31, 2004, we had made commitments
            of approximately NT$31.3 billion (US$1.0 billion),  primarily relating
            to the sixth-generation fab and color filter production, and approximately
            NT$23.5 billion (US$0.7 billion), relating to the third fifth-generation
            fab, which commitments may be cancelled subject to the payment of certain
            penalties.
|   

In addition to the
      contractual obligations set forth above, we also have continuing obligations
      to make cash royalty payments under our technology license agreements,
  the amounts of which are determined based on net sales of our panels.

We have not entered
      into any financial guarantees or similar commitments to guarantee the payment
      obligations of non-affiliated third parties. In addition, we do not have
      any written options on non-financial assets. Our long-term loan and lease
      agreements include provisions that require early payment under certain
      conditions. The terms of our credit facilities for long-term borrowings
      also contain financial covenants, including current and debt-equity ratios
      and other technical requirements. Our debt under these facilities may be
      accelerated if there is a default, including defaults triggered by failure
      to comply with these financial covenants and other technical requirements.
      As of December 31, 2004, we were in compliance with all financial covenants
      and other technical requirements under our credit facilities.

U.S. GAAP Reconciliation

The following table
      sets forth a comparison of our net income and shareholders equity
      in accordance with ROC GAAP and U.S. GAAP for the periods indicated.

|                                                                    |  | For the Year
              Ended December 31,      |  
|------------------------------------------------------------------- |  | -------------------------------------------------- | -
|                                                                    |  |                                                    |  
|                                                                    |  | 2002                                               |  
|                                                                    |  |                                                    |  
|                                                                    |  | NT$                                                |  
|                                                                    |  | (in millions,
              except per share data) |  
|Net income in accordance
            with                           |  |                                                    |  
|ROC
            GAAP                                                |  | 6,022.7                                            |  
|U.S.
            GAAP                                               |  | 4,938.9                                            |  
|Shareholders equity
            in accordance with                 |  |                                                    |  
|ROC
            GAAP                                                |  | 77,828.0                                           |  
|U.S.
            GAAP                                               |  | 90,592.2                                           |  
|Cash flows from operating
            activities in accordance with |  |                                                    |  
|ROC
            GAAP                                                |  | 20,821.7                                           |  
|U.S.
            GAAP                                               |  | 21,227.5                                           |  
|Cash flows from investing
            activities in accordance with |  |                                                    |  
|ROC
            GAAP                                                |  | (18,125.0                                          | )
|U.S.
            GAAP                                               |  | (18,549.9                                          | )
|Cash flows from financing
            activities in accordance with |  |                                                    |  

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|                  |  | For the Year Ended
          December 31,      | 
|----------------- |  | ---------------------------------------------- | 
|                  |  |                                                | 
|                  |  | 2002                                           | 
|                  |  |                                                | 
|                  |  | NT$                                            | 
|                  |  | (in millions, except
          per share data) | 
|                  |  |                                                | 
|ROC
        GAAP  |  | 16,754.3                                       | 
|U.S.
        GAAP |  | 16,773.4                                       | 

| | Business Combination
| | --------------------

We completed our merger with Unipac on September 1, 2001 through the issuance of 1,512,281,607 of our shares in exchange for all of the outstanding shares of Unipac. Under ROC GAAP, the merger
was accounted for using the pooling-of-interests method and, accordingly, all of our consolidated financial statements for prior periods included in this prospectus have been restated to include the results of operations, financial position and cash
flowsof Unipac. Further, according to the ROC
Company Law, the excess of Unipacs net assets over the par value of our
shares issued for completion of the merger has been appropriated from unappropriated
earnings and recorded as capital surplus. Under U.S. GAAP, the merger has been
accounted for as the acquisition of Unipac, using the purchase method of accounting.
Under purchase accounting, the aggregate purchase price of NT$39,636.9 million
was calculated based on the market value of our shares issued and this amount
was allocated to the assets acquired and liabilities assumed based on their respective
fair values. The market value of our shares was based on the average market price
of our shares over the five-day period before and after the terms of the acquisition
were agreed upon and announced. Our management is responsible for the determination
of the fair value of the assets acquired, including identifiable intangible assets,
and liabilities assumed of Unipac. In determining such fair values, management
considered a number of factors, including valuation reports by third parties.
Based on the results of these valuations and our best estimates of fair value,
we allocated the purchase price to the assets acquired and the liabilities assumed
in accordance with U.S. GAAP. The difference between the purchase price and the
fair value of the net assets that we acquired, including identifiable intangible
assets, has been recorded as goodwill. The financial results of Unipac prior
to the acquisition date of September 1, 2001 have been excluded from our U.S.
GAAP results of operations.

We recorded NT$8,730.4 million of acquired intangible assets as part of the purchase price for Unipac, of which NT$53.5 million was assigned to in-process research and development assets that
were then written off at the date of acquisition in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
Method. Those write-offs were included in research and development expenses in 2001. The remaining NT$8,676.9 million of acquired intangible assets have a weighted average useful life of approximately 88 months and no estimated residual value.
These intangible assets include large-size TFT-LCD product and manufacturing process technologies of NT$3,123.6 million and small- to medium-size TFT-LCD panel product and manufacturing process technologies of NT$5,553.3 million. The key technology
for small and medium-size TFT-LCD production includes the technologies independently developed by Unipac and 13 related patents. The key technology for large-size TFT-LCD production includes the technologies jointly developed by Unipac and
Matsushita, product technologies developed by Unipac and three related patents.

We also recorded NT$11,599.7
million in goodwill. In accordance with U.S. GAAP Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations,
goodwill arising from a purchase accounting business combination consummated
after June 30, 2001 is not amortized but is tested for impairment. Effective
January 1, 2002, for U.S. GAAP purposes, we adopted SFAS No. 142, Goodwill
and Other  Intangible Assets. As a result, we test goodwill for impairment
on at least an annual basis at the reporting unit level.

| | Beneficial Conversion Feature of Convertible Bonds
| | --------------------------------------------------

When we issued our convertible bonds in November 2001, ROC GAAP did not require us to recognize or account for any beneficial conversion feature embedded in the bonds. However, under U.S. GAAP,
the beneficial conversion feature should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to capital surplus. The amount of the beneficial conversion feature was calculated at the
commitment date as the difference between the conversion price and the fair value of our shares, multiplied by the

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number of shares into which the bonds are convertible.
As a result of our allocating a portion of the proceeds equal to the intrinsic
value of the beneficial conversion feature to capital surplus for U.S. GAAP purposes,
a discount on the bonds was recognized. The discount resulting from this allocation
will be recognized as interest expense over the life of the bonds.

The carrying amount
    of the convertible bonds was NT$1,206.0 million as of December 31, 2002 and
    NT$0 as of December 31, 2003 and 2004, and the related unamortized discount
    from the beneficial conversion feature was NT$80.9 million as of December
    31, 2002 and NT$0 as of December 31, 2003 and 2004. The effective interest
    rate of the bonds was approximately 6%.

| | Compensation Costs
| | ------------------

Our articles of incorporation
    require a cash remuneration payment of up to 1% of our annual distributable
    earnings to our directors and supervisors. Under ROC GAAP, these payments
    are charged directly to retainedearnings
    for the period during which our shareholders approve these payments. Under
    U.S. GAAP, these cash payments have been recorded as compensation expense
    in the period when the related services are rendered.

Certain of our employees are entitled to bonuses in accordance with our articles of incorporation, which specify a bonus amount ranging from 5% to 10% of our annual distributable earnings.
Employee bonuses may be paid in cash, shares, or a combination of both. Under ROC GAAP, these bonuses are appropriated from retained earnings in the period our shareholders approval is obtained. If these employee bonuses are settled through
the issuance of our shares, the amount charged against retained earnings is based on the par value of our shares issued.

Under U.S. GAAP, the employee bonus expense is charged to income in the year during which services are provided. Shares we issue as part of these bonuses are recorded at fair value. Since the
amount and form of the bonuses are not finally determinable until our shareholders meeting in the following year, the total amount of these bonuses is initially accrued based on the minimum cash value to be paid. Any difference between the
amount initially accrued and the fair value of these bonuses settled by the issuance of our shares is recognized in the year of approval by our shareholders.

| | Derivative Financial Instruments
| | --------------------------------

We sell our products to customers worldwide and source a significant portion of our raw materials and components from suppliers outside Taiwan. This exposes us to changes in foreign currency
exchange rates. We also have exposure to changes in interest rates that affect our cash flows on long-term borrowings. We use financial instruments, including derivatives such as foreign currency forward contracts and interest rate swaps, to reduce
our foreign currency and interest rate exposure.

For ROC GAAP purposes, we record our interest rate swaps as hedge transactions by recording the net receivable or payable each month related to these interest rate swap contracts, offsetting or
adding to our interest expense of the related debt. For foreign currency forward contracts, we record unrealized gains or losses measured using the change in the spot rate of the contracts in our consolidated statements of operations if the
contracts are used to hedge existing foreign currency denominated receivables and payables, or we defer recognition of unrealized gains or losses for those contracts hedging anticipated transactions that will be denominated in a foreign currency.
The discount or premium on a forward contract is amortized into earnings over the life of the contract.

For U.S. GAAP purposes, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, as of January 1, 2001. In accordance with the related
transition provisions of SFAS No. 133, we recorded an after-tax charge to earnings of NT$0.6 million, representing the cumulative effect of the adoption related to the foreign currency forward contracts for the year ended December 31, 2001. The
after-tax earnings charge to the statements of operations had no material effect on our U.S. GAAP earnings per share for the year ended December 31, 2001.

After our adoption of SFAS No. 133, as amended, none of our existing derivatives met the U.S. GAAP hedge accounting criteria. As a result, all derivative contracts are recognized as either
assets or liabilities and are measured at fair value at each balance sheet date. Changes in fair values of derivative instruments arising subsequent to the

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transition date amounted to a charge of NT$22.2 million
and NT$(249.6) million in 2003 and 2004, respectively, and are included in other
non-operating income for U.S. GAAP purposes. In addition, we reclassified NT$9.4
million and NT$2.8 million, net of tax, of the deferred losses from accumulated
other comprehensive income into earnings from the interest rate swap contracts
during 2003 and 2004, respectively. Changes in the fair value of these derivatives
in subsequent periods could result in increased volatility of our results of
operations under U.S. GAAP.

| | Income Taxes
| | ------------

Under ROC GAAP, a
    valuation allowance is provided on deferred tax assets when they are not
    certain to be realized based on the available projection of future taxable
    income. However, the criteria by which the need for a valuation allowance
    is determined is less stringent than under U.S. GAAP. Under U.S. GAAP, cumulative
    losses in recent years are significant piece of negative evidence, which
    is difficult to overcome using projections of future taxable income for the
    purpose of determining the valuation allowance. We suffered losses in 2001
    and also had a net loss in the fourth quarter of 2002. As a result, we did
    not use the projection of future taxable income indetermining
    our net deferred tax asset valuation allowance for the periods through December
    31, 2002. However, we started to generate profits in 2003, and expect to
    continue to generate profit going forward. Therefore, more positive evidence
    is available that the use of available future taxable income projections
    in determining the size of the valuation allowance is appropriate. As a result,
    we reversed a valuation allowance of NT$1,869.1 million in 2003.

Under a revised ROC tax rule effective on January 1, 1998, an additional 10% corporate income tax will be assessed on taxable income but only to the extent such taxable income is not
distributed before the end of the following year. As a result, from January 1, 1998 to January 20, 2001, our undistributed income is subject to a corporate tax rate of 28% and distributed income is taxed at 20%. Commencing from January 20, 2001, the
undistributed and distributed income is subject to a corporate tax rate of 32.5% and 25%, respectively. Under ROC GAAP, the 10% tax on undistributed earnings is recognized as an expense on the date that shareholders approve the amount of the
earnings distribution. Under U.S. GAAP, we measure our tax expense, including the tax effects of temporary differences, using the undistributed rate.

| | Depreciation of Property, Plant and Equipment
| | ---------------------------------------------

Under
          ROC GAAP, we depreciate buildings over estimated lives of 20 or 50
          years based on guidance from the ROC
Internal Revenue Code. Under U.S. GAAP, buildings are depreciated over an estimated
useful life of 20 years.

| | Marketable Securities and Equity-Method Investments
| | ---------------------------------------------------

Under ROC GAAP, marketable
    equity securities are carried at the lower of aggregate cost or market price.
    Under U.S. GAAP securities that have readily determinable fair values are
    to be  classified as either trading, available-for-sale or held-to-maturity
    securities. Equity securities that are bought and traded for short-term profits
    are classified as trading securities and reported at fair value, with unrealized
    gains and losses  included in earnings. Equity securities not classified
    as trading securities are classified as available-for-sale securities and
    reported at fair value, with unrealized gains and losses excluded from earnings
    and reported as a separate component of  other comprehensive income. Debt
    securities that we have the positive intent and ability to hold to maturity
    are classified as held-to-maturity securities and reported at amortized cost.
    We had no trading or held-to-maturity portfolios as of  December 31, 2004.
    At December 31, 2004, the unrealized loss of one of our available-for-sale
    securities, which has been in a continuous unrealized loss position for more
    than twelve months, amounted to NT$922.9 million. We have determined that
    the impairment is other than temporary, and as a result, the unrealized loss
    of NT$922.9 million has been written off to current operations.

In March 2003, we purchased a 20% ownership in FDTC, recording the investment at NT$436.3 million, and equity method goodwill of NT$240.2 million. The equity method goodwill will not be
amortized in accordance with SFAS No. 142, but will be tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. Under ROC GAAP, the income and goodwill of FDTC is recognized using the equity method
and recorded in the following year. The equity method goodwill will be amortized over five years using the straight-line method, and the amortization is recorded as investment loss. In August 2004, we sold half of our ownership in FDTC and beginning
in September 2004, we recognized income and goodwill of FDTC using the cost method. We sold our remaining 10% ownership in May 2005.

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We held a 21% ownership
in PixTech as of December 31, 2002. Under ROC GAAP, because we had no intention
to hold PixTechs stock for the long-term, the investment in PixTech was
recorded as a short-term investment and accounted for at the lower of aggregate
cost or fair value, with changes in fair value being reported in the consolidated
statements of operations. Under U.S. GAAP, the investment in PixTech was accounted
for under the equity method. In 2002, we wrote off the value of our investment
due to the other than temporary decline in investment value for both ROC GAAP
and U.S. GAAP. As a result, the December 31, 2002 U.S. GAAP adjustment related
to PixTech consists of the difference in the amount of the write off due to the
different carrying amounts of this investment under both ROC GAAP and U.S. GAAP.

As permitted under
    ROC GAAP, we recognize our equity in the income (loss) of Patentop in the
    following year on a one-year lag basis. Under U.S. GAAP, we recognize our
    equity in the income (loss) of Patentop in the current year with no lag.

Recent U.S. GAAP Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Cost. SFAS No. 151 amends the guidance contained in the Accounting Research Bulletin (ARB) No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This statement is effective for fiscal periods beginning after June 15, 2005. The
adoption of SFAS No. 151 is not expected to have a material impact on our results of operations or financial position.

In December 2004, the FASB issued SFAS No. 153, Exchanges for Nonmonetary Assets. This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153
is not expected to have a material impact on our results of operations or financial position.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share Based Payment. This statement establishes standards for the accounting of transactions in which an entity
exchanges its equity instruments for goods or services. This statement is effective for fiscal periods beginning after June 15, 2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition. We
are currently evaluating these transition methods. The adoption of SFAS 123R is not expected to have a material impact on our results of operations.

On April 14, 2005,
    the SEC adopted a new rule which amends the compliance date to allow registrants
    to elect to adopt the revised standard beginning of the first annual period
    that begins after June 15, 2005. We have elected to defer the required adoption
until the beginning of the first quarter of 2006.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES

6.A. Directors and Senior Management

Members of our board of directors are elected by our shareholders. Our board of directors is composed of nine directors. The chairman of the board of directors is elected by the directors. The
chairman of the board of directors presides at all meetings of the board of directors and also has the authority to act as our representative. The term of office for directors is three years.

We also have three supervisors. In accordance with the ROC Company Law, supervisors are elected by our shareholders and cannot concurrently serve as our directors, executive officers or other
staff members. The term of office for supervisors is three years. The supervisors duties and powers include, but are not limited to, investigation of our financial condition, inspection of corporate records, verification of statements by the
board of directors, giving reports at shareholders meetings, representation of us in negotiations with our directors and giving notification, when appropriate, to the board of directors to cease acting in contravention of applicable law or
regulations or our articles of incorporation or beyond our scope of business.

Pursuant to the ROC Company Law, a person may serve as our director or supervisor in his or her personal capacity or as the representative of another legal entity. A director or supervisor who
serves as the representative of

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a legal entity may be removed or replaced at any
    time at the discretion of that legal entity, and the replacement director
    or supervisor may serve the remainder of the term of office of the replaced
    director or supervisor. Of our nine current directors, three are representatives
    of BenQ and one is a representative of Darly 2 Venture Ltd. Of our three
    supervisors, one is a representative of BenQ and one is a representative
    of China Development Industrial Bank (CDIB).

The following table
    sets forth information regarding all of our directors and supervisors as
    of June 1, 2005. The business address of all of our directors and supervisors
    is the companys principal executive office.

|Name                    |  | Age |  | Position   |  | Term Expires |  | Years
      with Us |  | Principal Business ActivitiesPerformed Outside Our Company                                                
|----------------------- |  | --- |  | ---------- |  | ------------ |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Kuen-Yao (K.Y.) Lee     |  | 53  |  | Chairman   |  | 2007         |  | 9                   |  | Chairman and Chief                                                                                        
|                        |  |     |  |            |  |              |  |                     |  | Executive Officer of
        BenQ;                                                                        
|                        |  |     |  |            |  |              |  |                     |  | Director of Darfon                                                                                        
|                        |  |     |  |            |  |              |  |                     |  | Electronics Corp.                                                                                         
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Hsuan Bin (H.B.) Chen   |  | 54  |  | Director   |  | 2007         |  | 8                   |  | Chairman of WellypowerOptronics
Corporation                                                               
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Hsi-Hua Sheaffer Lee(1) |  | 50  |  | Director   |  | 2007         |  | 9                   |  | President and Chief Operating
Officer of BenQ; Chairman
ofDarfon Electronics Corp.                        
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Po-Yen Lu(1)            |  | 54  |  | Director   |  | 2007         |  | 8                   |  | Director of Cando Corporation                                                                             
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Hui Hsiung(1)           |  | 52  |  | Director   |  | 2007         |  | 9                   |  |                                                                                                           
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Chin-Bing Peng(2)       |  | 52  |  | Director   |  | 2007         |  | 1                   |  | President of iD SoftCapital Inc.                                                                          
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Cheng-Chu Fan           |  | 53  |  | Director   |  | 2007         |  | 1                   |  | Senior Advisor, WKTechnology
Fund                                                                         
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Vivien Huey-Juan Hsieh  |  | 52  |  | Director   |  | 2007         |  | 1                   |  | Advisor, China DevelopmentAsset
Management Corporation                                                    
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|T.J. Huang              |  | 59  |  | Director   |  | 2007         |  | 1                   |  | Chairman, Systex                                                                                          
|                        |  |     |  |            |  |              |  |                     |  | Corporation; President, Asia
Vest Partners TCW/YFT (Taiwan)
Ltd.                                          
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Chieh-Chien Chao        |  | 61  |  | Supervisor |  | 2007         |  | 1                   |  | Director, Professional Training
Center, MOEA                                                              
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Ko-Yung (Eric) Yu(1)    |  | 49  |  | Supervisor |  | 2007         |  | 9                   |  | Chief Financial Officer of BenQ;

Chairman of DaxonTechnology Inc.; Supervisor
of Darfon Electronics Corp.
|                        |  |     |  |            |  |              |  |                     |  |                                                                                                           
|Shin Chen(3)            |  | 57  |  | Supervisor |  | 2007         |  | *                   |  | Senior Executive Vice                                                                                     
|                        |  |     |  |            |  |              |  |                     |  | President, CDIB                                                                                           

|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Representing BenQ.                                                                                       
|   
|(2) | Representing Darly 2 Venture Ltd.                                                                        
|   
|(3) | Representing CDIB.                                                                                       
|    |                                                                                                          
|*   | Joined our company as supervisor
          after CDIB reappointed its representative on October 20, 2004.

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Kuen-Yao (K.Y.) Leehas
been the Chairman of our company since 1996 and a director of our company since
1996. Mr. Lee received his Bachelors degree in Electrical Engineering from
the National Taiwan University in Taiwan in 1974 and his Masters of Business
Administration from the International Institute for Management Development in
Switzerland in 1990.

Hsuan Bin (H.B.)
      Chenhas been a director of our company
      since 1998. In addition, Mr. Chen has been our President and Chief Operating
      Officer since 1997. Mr. Chen received his Bachelors degree in Communications
      Engineering from the National Chiao Tung University in Taiwan in 1975.
      Mr. Chen worked for Acer Technologies Sdn. Bhd. in Malaysia from 1992 to
      1997 before he joined Acer Display in 1997.

Hsi-Hua Sheaffer
      Leehas been a director of our company
      since 1996. Mr. Lee has also been the President of BenQ since September
      2003. He received a Bachelors degree in Electrical Engineering from
      the National Cheng Kung University in Taiwan in 1978.

Po-Yen Luhas been a director of our company since 2001. Mr. Lu has also been our Executive Vice President in charge of all our operating units since
  1997. He received a Bachelors degree in Chemical Engineering from the National Taiwan University in Taiwan in 1974 and a Ph.D. degree in Chemical Engineering from University of Illinois in Urbana-Champaign in 1982. Before he joined our company
  in 1997, Mr. Lu worked for Gould Labs from 1978 to 1980, Bell Labs as Technical Manager from 1982 to 1995, and Electronics Research & Service Organization, Industrial Technology Research Institute as a Deputy Director of Display Research and
  Development from 1995 to 1997.

Hui Hsiunghas been a director of our company since early 2002. Mr. Hsiung joined our company in 1996 as Director of the Research and Development
Department, and from 1997 to 1999 served in positions in the companys Marketing & Sales Division. Mr. Hsiung was a director of Acer Display from April 1999 to August 2001. Since June 2002, Mr. Hsiung has also served as our Executive Vice
President in charge of all our business units of our company since 1996. He received a Bachelors degree in Physics from the National Taiwan University in Taiwan in 1975 and a Ph.D. degree in Physics from the University of California, Berkeley
in 1985.

Chin-Bing Penghas been our director since April 2004. He is also the President of iD SoftCapital Inc. Mr. Peng received a Masters of Business
Administration degree from National Chengchi University in Taiwan in 1980.

Cheng-Chu Fanhas been a director of our company since April 2004. He is also the senior advisor to WK Technology Fund and Chairman of Gatax Technology
Co., Ltd. Mr. Fan was a president of Microsoft, Taiwan from 1992 to 2001 and the president of WK Technology Fund from 2001 to 2003. Mr. Fan received a Bachelors degree in electrical engineering from National Taiwan University in
1974.

Vivien Huey-Juan Hsiehhas been a director of our company since April 2004. Ms. Hsieh is also the advisor of China Development Asset Management Company.
Ms. Hsieh received a Ph.D. in Finance from the Graduate School of Business Administration, University of Houston, University Park, in Texas.

T.J. Huanghas been a director of our company since April 2004. He is also the Chairman of Systex Corporation since 1977, the Chairman of Sysware
Corporation since 1997 and the president of AsiaVest Partners, TCW/YFY (Taiwan) Ltd. since 1995. He was formerly Chief Financial Officer and Managing Director of YFY Paper Mfg. Co., Ltd. Mr. Huang received a Ph.D. in Computer Science from the
University of Wisconsin at Madison in 1973.

Chieh-Chien Chaohas been a supervisor of our company since April 2004. He is also the Director of Professional Training Center of MOEA. Mr. Chao was the
Chairman of Chiao Tung Bank from 1994 to 2000, the Chairman of The Farmers Bank of China from 2000 to 2003 and the Chairman of Small and Medium Business Credit Guarantee Fund from 2003 to 2004. Mr. Chao received a Ph.D. in economics from National
Taiwan University in 1974.

Ko-Yung (Eric)Yuhas been a supervisor of our company since 1996. Mr. Yu was
the Controller of Acer Peripherals, Inc. from 1996 to 1999. Thereafter, Mr. Yu was the Chief Financial Officer of Acer Communications and Multimedia Inc. from November 1999 to December 2001, and has served as a Vice President and the Chief Financial
Officer of BenQ since January 2002. He received a Bachelors degree in Accounting from Fu Jen Catholic

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University in Taiwan in 1980 and a Masters
    of Business Administration degree from the Strathclyde Graduate Business
    School in United Kingdom in 1995.

Shin Chenhas
    been a supervisor of our company since October 2004. He is also a Senior
    Executive Vice President at China Development Industrial Bank. Mr. Chen was
    Chief Executive Officer of Chinatrust Venture Capital Corp. from 2001 to
    2004 and Chief Executive Officer of Central Investment Holdings Company from
    1996 to 2000. Mr. Chen received a Ph.D. in Business Administration from Nova
    University in Fort Lauderdale, Florida in 1986 and a Masters of Business
    Administration from California State University at Long Beach in 1976.

Executive Officers

The following table sets forth information regarding
all of our executive officers as of June 1, 2005.

|Name                  |  | Age |  | Position                                                          |  | Years with Us
|--------------------- |  | --- |  | ----------------------------------------------------------------- |  | -------------
|                      |  |     |  |                                                                   |  |              
|Kuen-Yao (K.Y.) Lee   |  | 53  |  | Chairman and Chief Executive Officer                              |  | 9            
|Hsuan Bin (H.B.) Chen |  | 54  |  | President and Chief Operating Officer                             |  | 8            
|Po-Yen Lu             |  | 54  |  | Executive Vice President                                          |  | 8            
|Hui Hsiung            |  | 52  |  | Executive Vice President                                          |  | 9            
|Max Cheng             |  | 43  |  | Chief Financial Officer; Chief Accounting Officer;
and Controller |  | 7            
|                      |  |     |  |                                                                   |  |              

Kuen-Yao (K.Y.) Lee. See Directors and Supervisors.

Hsuan Bin (H.B.) Chen. See
Directors and Supervisors.

Po-Yen Lu. See Directors and Supervisors.

Hui Hsiung.
      See Directors and Supervisors.

Max Chenghas been our Chief Financial Officer, Chief Accounting Officer and Controller since 1998. He graduated from Fu Jen Catholic University in
Taiwan with a Bachelors degree in Business Administration in 1985 and from Northern Illinois University with a Masters degree in Accounting in 1990. Before he joined our company in 1998, Mr. Cheng served as the Controller of Acer
Technologies Sdn. Bhd. from 1995 to 1998.

6.B. Compensation of Directors,
Supervisors and Executive Officers

According to our articles of incorporation, we may distribute up to 1% of our annual distributable earnings in cash to our directors and supervisors as compensation after the payment of all
income taxes, the deduction of any past losses, and the allocation of 10% of our annual earnings as legal reserves. In the event that a director or supervisor serves as a representative of a legal entity, such compensation is paid to the legal
entity. See Item 10. Additional InformationArticles of IncorporationDividends and Distributions. We did not pay compensation to our directors and supervisors for their services rendered in 2001 due to our net loss in that
year. The aggregate compensation paid in 2004 to our directors and supervisors for their services was approximately NT$70.5 million (US$2.2 million). We pay our executive officers monthly salaries, in addition to employee bonuses. The aggregate
compensation paid in 2004 to our executive officers for their services was approximately NT$80.4 million (US$2.5 million).

We have a defined benefit pension plan covering our regular employees. Retirement benefits are based on length of service and average salaries or wages in the last six months before retirement.
We make monthly contributions, at 2.0% of salaries and wages, to a pension fund that is deposited in the name of, and administered by, the employees pension plan committee. Our accrued pension cost for the year ended December 31, 2004 was
NT$139.4 million (US$4.4 million). See note 12 of notes to consolidated financial statements.

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6.C. Board Practices

For a discussion
    of the term of office of the board of directors, see Directors
    and Senior Management. No benefits are payable to members of the board
    or the executive officers upon termination of their relationship with us.

Audit Committee

Our board of directors
    established an audit committee in August 2002. The audit committee has responsibility
    for, among other things, oversight of the services provided to us by any
    accounting firm. The audit committee is appointed by the board of directors
    and currently consists of Cheng-Chu Fan, Vivien Huey-Juan Hsieh and T.J.
    Huang. Each audit committee member is an independent director who is financially
    literate with accounting orrelated financial management expertise. The audit committee meets as often as it deems necessary to carry out its responsibilities.

6.D. Employees

Employees

The following table provides a breakdown of our employees by function as of December 31, 2002, 2003 and 2004.

|                              |  | As of December 31, | 
|----------------------------- |  | ------------------ | 
|                              |  |                    | 
|Function                      |  | 2002               | 
|                              |  |                    | 
|Production                    |  | 7,181              | 
|Technical(1)                  |  | 1,967              | 
|Sales and marketing           |  | 108                | 
|Management and administration |  | 863                | 
|                              |  |                    | 
|Total                         |  | 10,119             | 
|                              |  |                    | 

|    |                                                     
|--- | ----------------------------------------------------
|(1) | Includes research and development
        personnel.

The following table provides
  a breakdown of our employees by geographic location as of December 31, 2002,
  2003 and 2004.

|                                 |  | As
                         of December 31, | 
|-------------------------------- |  | ------------------------------------------- | 
|                                 |  |                                             | 
|Location                         |  | 2002                                        | 
|                                 |  |                                             | 
|Taiwan(1)                        |  | 7,635                                       | 
|Suzhou, Jiangsu Province, PRC(2) |  | 2,474                                       | 
|Others                           |  | 10                                          | 
|                                 |  |                                             | 
|Total                            |  | 10,119                                      | 
|                                 |  |                                             | 

|    |                                        
|--- | ---------------------------------------
|(1) | Employed by AU Optronics Corp.         
|    |                                        
|(2) | Employed by AU Optronics (Suzhou) Corp.

Employee salaries are reviewed and adjusted annually, while performance evaluations are conducted semi-annually. Salaries are adjusted based on inflation and individual performance. As an
incentive, discretionary cash bonuses may be paid based on the performance of individuals. In addition, ROC law generally requires that our employees in Taiwan be given preemptive rights to subscribe for between 10% and 15% of any of our share
offerings.

Our employees in Taiwan participate in our profit distributions under our articles of incorporation. Employees in Taiwan are entitled to receive bonus shares, cash or a combination of bonus
shares and cash, based on a percentage of our annual distributable earnings. The amount allocated in shares is, subject to the resolution of our

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shareholders meeting, determined by valuing
  the shares at their par value, or NT$10.00 per share, and paid to our employees
  in Taiwan based on individual performance and job seniority. We did not allocate
  any such amount for employees in Taiwan in 2002 for work performed in 2001
  due to our net loss in 2001. We paid NT$433.6 million in bonus shares to our
  employees in 2003 for work performed in 2002. We paid NT$887.9 million in bonus
  shares and NT$380.5 million (US$12.0 million) in cash bonuses to our employees
in 2004 with respect to 2003.

The Hsinchu Science
    Park Administration offers a variety of employee-related services, including
    medical examinations, health insurance, career planning advice and other
    services for our employees in Taiwan. In addition to the services provided
    by the Hsinchu Science Park Administration, we have established a welfare
    committee, a pension fund committee, and other employee committees and a
    variety of employee benefit programs.

We do not have an
    employee option plan as of December 31, 2004. We do not have any collective
    bargaining arrangement with our employees. We consider our relations with
    our employees to be good.

6.E. Share Ownership

The table below sets forth the share ownership, as of June 1, 2005, of the legal entities represented by our directors and supervisors and executive officers.

|                                                                            |  |                        |  |                           | 
|--------------------------------------------------------------------------- |  | ---------------------- |  | ------------------------- | 
|Name                                                                        |  | Number of
Shares Owned |  | Percentage ofShares Owned | 
|                                                                            |  |                        |  |                           | 
|Kuen-Yao (K.Y.) Lee, Chairman and Chief Executive Officer                   |  | 7,070,376              |  | *                         | 
|Hsuan Bin (H.B.) Chen, Director, President and Chief Operating Officer      |  | 4,681,623              |  | *                         | 
|Hsi-Hua Sheaffer Lee, Director(1)                                           |  | 657,370,440            |  | 13.26%                    | 
|Po-Yen Lu, Director and Executive Vice President(1)                         |  | 657,370,440            |  | 13.26%                    | 
|Hui Hsiung, Director and Executive Vice President(1)                        |  | 657,370,440            |  | 13.26%                    | 
|Chin-Bing Peng, Director(2)                                                 |  | 1,399,036              |  | *                         | 
|Cheng-Chu Fan, Director                                                     |  |                       |  |                          | 
|Vivien Huey-Juan Hsieh, Director                                            |  |                       |  |                          | 
|T.J. Huang, Director                                                        |  |                       |  |                          | 
|Chieh-Chien Chao, Supervisor                                                |  |                       |  |                          | 
|Ko-Yung (Eric) Yu, Supervisor(1)                                            |  | 657,370,440            |  | 13.26%                    | 
|Shin Chen, Supervisor(3)                                                    |  | 40,868,112             |  | *                         | 
|Max Cheng, Chief Financial Officer, Chief Accounting Officer and Controller |  |                        |  | *                         | 

|    | 
|--- | 
|(1) | 
|(2) | 
|(3) | 
|*   | 

None of our directors, supervisors or executive officers has voting rights different from those of other shareholders.

ITEM 7. MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS

7.A. Major Shareholders

BenQ is our major shareholder.
As of June 1, 2005, BenQ beneficially owned 13.32% of our outstanding shares.
Three of our directors and one of our supervisors are representatives of  BenQ.

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UMC was one of our
    major shareholders, holding 11.31% and 9.74% of our outstanding shares as
    of December 31, 2002 and December 31, 2003, respectively. As of April 15,
    2005, UMC owns 1.44% of our outstanding shares. Prior to our shareholders meeting
    on April 29, 2004, three of our directors and one of our supervisors were
    representatives of UMC. UMC is no longer represented on our current board
    of directors and supervisors.

There have been no
    changes in our major shareholders or significant changes in the amount of
    shares BenQ holds since June 1, 2005.

The following table
    sets forth information known to us with respect to the beneficial ownership
    of our shares as of June 1, 2005, the most recent practicable date, by (1)
    each shareholder known by us to beneficially own more than 5% of our shares
and (2) all directors and supervisors as a group.

|Name of Beneficial
          Owner          |  | Number of Shares
Beneficially Owned |  | Percentage of
                    Shares
Beneficially Owned |  | Percentage of Shares
Beneficially Owned
(Fully Diluted) | 
|------------------------------------------- |  | ----------------------------------- |  | ----------------------------------------------------------- |  | ------------------------------------------------------- | 
|                                            |  |                                     |  |                                                             |  |                                                         | 
|BenQ(1)                                     |  |                                     |  |                                                             |  |                                                         | 
|157, Shan-Ying Road,                        |  |                                     |  |                                                             |  |                                                         | 
|Gueishan, Taoyuan 333,                      |  |                                     |  |                                                             |  |                                                         | 
|Taiwan, ROC                                 |  | 660,449,476                         |  | 13.32%                                                      |  | 13.32%                                                  | 
|All directors and supervisors as a group(2) |  | 711,389,587                         |  | 14.35%                                                      |  | 14.35%                                                  | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Formerly Acer Communications and Multimedia Inc.                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | Calculated as the sum of: (a) with respect to directors and supervisors who are serving in their personal capacity, the number of shares held by such director or supervisor and (b) with respect to directors and supervisors
who are serving in the capacity as legal representatives, the number of shares owned by such
institutional or corporate shareholder for which such director or supervisor is a legal
representative.
|   

None of our major shareholders has voting rights different from those of our other shareholders. To the best of our knowledge, we are not directly or indirectly controlled by another
corporation, any foreign government, or any other natural or legal person, severally or jointly.

We are not aware of any arrangement that may at a subsequent date result in a change of control of our company.

As of December 31, 2004, approximately 4,958.0 million of our shares were outstanding. We believe that, of such shares, approximately 934.4 million shares in the form of ADSs were held by
approximately 40,584 holders in the United States as of April 18, 2005.

7.B. Related Party Transactions

We have not extended any loans or credit to any of our directors, supervisors or executive officers, and we have not provided guarantees for borrowings by any of these persons. We have not
entered into any fee-paying contract with any of these persons for such person to provide services not within such persons capacity as a director, supervisor or executive officer of the company.

We have, from time to time, purchased raw materials and components and sold our panels to our affiliated companies. We believe that these transactions with related parties have been conducted
on arms-length terms, or on terms more favorable to us than arms-length terms. Given the nature of our business, it is not practical for us to review many of these related party transactions on a day-to-day basis. However, at the meeting
of our board of directors on April 11, 2002, we adopted an amended related party transactions policy which requires, among other things:

- pre-approval by a majority vote of disinterested directors of each sale to, or purchase of raw materials and components from, a related party that is in the ordinary course of our business,
which transaction involves a transaction amount in excess of 5% of our net sales or raw materials and component purchases, as the case may be, for the previous three months on an
unconsolidated basis, provided that any series of similar transactions with the same related party that collectively exceeds 40% of our net sales or raw materials and

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> component purchases, as the case may be, for the
>     previous three months on an unconsolidated basis shall also
>   require pre-approval;

- periodic review by our board of directors of
      other related party transactions in the ordinary course of business;
- pre-approval by a majority vote of disinterested
      directors of related party transactions not in the ordinary course
      of business and not otherwise specified in our related party transaction
      policy; and
- recusal of any interested director from consideration
      of matters involving the company he or she represents or
  with respect to which the director might have a conflict of interest.

BenQ and Related Companies

| | BenQ
| | ----

BenQ is our major shareholder,
owning directly and indirectly a 13.32% equity interest in our company as of
June 1, 2005. In addition, three of our nine directors and one of our three supervisors
are legal representatives of BenQ. In 2004, we purchased 5.47% of BenQs
outstanding shares in order to establish a long-term strategic relationship with
BenQ.

We sell panels for desktop monitors and LCD television to BenQ. We generated net sales to BenQ in the amount of NT$5,823.4 million in 2002, and NT$1,534.7 million in 2003 and NT$2,310.9 million
(US$72.8 million) in 2004, and our receivables from these sales were NT$558.7 million as of December 31, 2003 and NT$475.8 million (US$15.0 million) as of December 31, 2004.

We also purchase printed circuit boards from BenQ. We also purchased TFT-LCD monitors, projectors, mobile phones and notebook computers from BenQ for use in our business. Our purchases from
BenQ amounted to NT$1,177.0 million in 2002, NT$218.4 million in 2003. We did not make any purchases from BenQ in 2004.

| | BenQ (IT) Co., Ltd. Suzhou (BQS)
| | ----------------------------------

BQS, an affiliate of our company, was 100% indirectly owned by BenQ as of March 31, 2005. We sell desktop monitor display panels to BQS. We generated net sales to BQS in the amount of
NT$9,922.9 million in 2002, NT$18,781.4 million in 2003 and NT$30,030.2 (US$946.1 million) in 2004, and our receivables from these sales was NT$3,083.7 million as of December 31, 2002, NT$3,598.5 million as of December 31, 2003 and NT$4,007.5
million (US$126.3 million) as of December 31, 2004.

| | BenQ Mexicana S.A. De C.V. (BQX)
| | ----------------------------------

BQX, an affiliate of our company, was 84.5% owned by BenQ as of March 31, 2005. We sell panels for desktop monitors to BQX. We generated net sales to BQX in the amount of NT$721.6 million in
2002, NT$1,569.5 million in 2003 and NT$850.7 million (US$26.8 million) in 2004, and our receivables from these sales was NT$157.9 million as of December 31, 2002 and NT$178.2 million as of December 31, 2003 and NT$85.1 million (US$2.7 million) as
of December 31, 2004.

| | Acer Inc.
| | ---------

Acer Inc. is our affiliate, owning a 9.52% equity interest in BenQ as of March 31, 2005. We sell notebook computer display panels to Acer Inc. We generated net sales to Acer Inc. in the amount
of NT$853.7 million in 2002, NT$3,894.7 million in 2003 and NT$6,733.6 million (US$212.1 million) in 2004. Our receivables from these sales were NT$219.0 million as of December 31, 2002, NT$801.0 million as of December 31, 2003 and NT$521.8 million
(US$16.4 million) as of December 31, 2004.

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| | Wistron Corp.
| | -------------

Wistron Corp., an
    affiliate of our company, was 33.51% owned by Acer Inc. as of March 31, 2005.
    We sell notebook computer display panels to Wistron. We generated net sales
    to Wistron in the amount of NT$1,017.7 million in 2002, NT$736.3 million
    in 2003 and NT$931.7 million (US$29.4 million) in 2004.

| | Wistron Infocomm (Philippines)
            Corp.
| | ------------------------------------------------

Wistron Infocomm (Philippines)
    Corp., an affiliate of our company, was 100.0% owned by Wistron Corp. as
    of March 31, 2005. We sell notebook computer display panels to Wistron Infocomm
    (Philippines) Corp. We generated net sales to Wistron Infocomm (Philippines)
    Corp. in the amount of NT$2,104.3 million in 2002, NT$641.7 million in 2003
    and NT$906.9 million (US$28.6 million) in 2004, and our receivables from
    these sales were NT$35.6 million, NT$177.8 million and NT$53.8 million (US$1.7
million) as of December 31, 2002, 2003 and 2004, respectively.

| | Min Tour Inc.
| | -------------

Min Tour Inc., an affiliate of our company, was 100.0% indirectly owned by Acer Inc. as of September 30, 2003. In 2000, we entered into lease agreements with Min Tour for land, buildings,
dormitories and equipment. We paid Min Tour related rent and administration fees in the amount of NT$62.7 million in 2001, NT$67.2 million in 2002 and NT$89.3 million in 2003. In September 2003, Min Tour was acquired by Acer Building Maintenance
Management Corp., a wholly owned subsidiary of Acer Inc., and the obligations of Min Tour Inc. under these agreements were assumed by Acer Building Maintenance Management Corp. after the acquisition. We paid Acer Building Maintenance Management
Corp. related rent and administration fees in the amount of NT$89.5 million in 2004. As security for our obligations under the lease agreement, we made refundable deposits, the outstanding balance of which amounted to NT$867.0 million as of December
31, 2004.

| | Cando Corporation
| | -----------------

We owned 21.47% of Cando Corporation as of March 31, 2005. We purchased color filters from Cando Corporation in the amount of NT$1,494.4 million in 2003 and NT$2,551.1 million (US$80.4 million)
in 2004.

Other Related Company

| | Fujitsu Display Technologies Corporation (FDTC)
| | -------------------------------------------------

FDTC was 10% owned by our company as of March 31, 2005. We purchased a 20% ownership interest in FDTC in March 2003 and sold a 10% ownership interest in August 2004. We sold our remaining 10%
ownership in FDTC in May 2005. We purchased liquid crystals, backlight units, driver integrated circuits and polarizers from FDTC in the amount of NT$310.7 million in 2003 and NT$316.1 million (US$10.0 million) in 2004. We sold display panels for
notebook and desktop computers to FDTC in the amount of NT$769.5 million in 2003 and NT$2,538.8 million (US$80.0 million) in 2004.

We entered into a Joint Research and Development and Cost Sharing Agreement with FDTC in March 2003 for joint research and development of TFT-LCD technologies. This agreement was terminated in
July 2004. We paid NT$244.6 million and NT$182.3 million (US$5.7 million) as cost shared for research and development project under this agreement in 2003 and 2004, respectively.

7.C. Interests of Experts and
Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

8.A. Consolidated Statements
and Other Financial Information

8.A.1. See Item 17 for our audited consolidated financial statements.

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8.A.2. See Item 17 for
our audited consolidated financial statements, which cover the last three financial
years.

8.A.3. See page F-2
    for the audit report of our accountants, entitled Report of Independent
    Registered Public Accounting Firm.

8.A.4. Not applicable.

8.A.5. Not applicable.

8.A.6. See note 21
    to our consolidated financial statements included in Item 17 of this annual
    report for the amount of our export sales.

8.A.7. Litigation

On September 17, 2003, Sharp Corporation filed a suit in the United States District Court of Northern District of California against us and six other co-defendants, including BenQ, alleging
infringement of certain of Sharp Corporations patents in the United States relating to the manufacturing of TFT-LCD panels. The suit is seeking, among other things, (1) a judgment that the defendants, including us, have directly infringed,
contributorily infringed and/or actively induced the infringement of Sharp Corporations patents; (2) a preliminary and permanent injunction on the infringement of the patents through manufacture, use, import, offer for sale and/or sale of the
infringing products and systems; (3) compensatory damages for the infringed patents, which in any event should not be less than the amount of reasonable royalty had such technology been licensed from Sharp Corporation, together with prejudgment
interest, costs and disbursements as determined by the court; and (4) punitive damages of up to three times the amount found or assessed for infringement of patents due to the willful and deliberate nature of the infringement. A trial date has been
set for July 25, 2005. As of the date of this report it is not possible to predict the outcome or likely outcome of the litigation, or the total costs of resolving the litigation.

On April 13, 2004, Commissariat A LEnergie Atomique, a French government agency, filed a lawsuit against us, our U.S. subsidiary and sixteen other defendants in the United States Federal
District Court for the District of Delaware. The suit alleges infringement of certain patents. The parties are currently in discovery. At this stage of the proceedings it is not possible to predict the outcome or likely outcome of the litigation, or
the final costs of resolving the suit.

On January 19, 2005,
Guardian Industries Corp. filed a suit in the United States District Court for
the District of Delaware against us and thirteen other co-defendants, including
BenQ,  alleging infringement of certain of Guardian Industries Corp.s patents
in the United States relating to the manufacturing of TFT-LCD panels. The suit
is seeking, among other things, (1) a judgment that the defendants, including
us, have  directly infringed, contributorily infringed and/or actively induced
the infringement of Guardian Industries Corp.s patents; (2) a permanent
injunction on further infringement of the patents; (3) compensatory damages for
the infringed patents,  which in any event should not be less than the amount
of reasonable royalty had such technology been licensed from Guardian Industries
Corp., together with prejudgment interest as determined by the court; (4) punitive
damages of up to three times  the amount found or assessed for infringement of
patents due to the willful infringement; and (5) Guardian Industries Corp.s
reasonable attorneys
fees, expenses and costs incurred in the action. On June 1, 2005, we entered
into a licence agreement with Guardian Industries Corp. for its patents relating
to retardation film technology.

On February 24, 2005, Thomson Licensing S.A. and Thomson Licensing Inc. filed an action with the United States International Trade Commission against us and BenQ, alleging infringement of
certain U.S. patents through the importation and sale in the U.S. of certain color TV receivers, color display monitors and components thereof ("accused products").
The action seeks, among other things, (1) the commencement of an investigation
by the International Trade Commission to remedy the unlawful importation in the
U.S., the sale for importation into the U.S. and/or the sale within the U.S.
after importation by BenQ of the accused products; (2) the issuance of a permanent
exclusion order excluding from entry into the U.S. all accused products manufactured
by or for BenQ, that infringe one or more of the patents; and (3) a cease and
desist order directing BenQ to immediately cease the importation into the U.S.,
sale for importation in the U.S. and sale in the U.S. after importation of the
accused products and to immediately cease the demonstration, sale, use and movement
or shipment of U.S. inventory of the

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accused products.
    On March 9, 2005, Thomson Licensing S.A. also filed a suit in the United
    States District Court for the Northern District of California against us
    and BenQ, alleging infringement of the same patents that are the subject
    of the action filed with the International Trade Commission. The lawsuit
    filed in California has been automatically stayed pending the outcome of
    the action filed with the International Trade Commission. As of the date
    of this report it is not possible to predict the outcome or likely outcome
of the litigation, or the total costs of resolving the litigation.

8.A.8. Dividends and Dividend
Policy

The following table sets forth as a percentage the stock dividends per share paid during 2001 on the shares outstanding on the relevant record date for each of Acer Display and Unipac. Other
than in 2001, neither company had previously paid any stock dividends. In addition, neither company had previously paid any cash dividends.

|Dividend Paid in 2001              |  | Stock
Dividend Per
Share(1) |  | Dividend Payment Date |  | Total Number of
Shares Issued as
Stock Dividend(2) |  | Aggregate Stock Dividend Amount |  | Outstanding
Shares as of
August 31, 2001(4) | 
|---------------------------------- |  | --------------------------- |  | --------------------- |  | -------------------------------------------------- |  | ------------------------------- |  | ------------------------------------------- | 
|                                   |  |                             |  |                       |  |                                                    |  |                                 |  |                                             | 
|                                   |  |                             |  |                       |  |                                                    |  | NT$(3)                          |  | US$                                         | 
|                                   |  |                             |  |                       |  | (in thousands)                                     |  |                                 |  | (in thousands)                              | 
|Acer Display Technology, Inc       |  | 1.60                        |  | September 3, 2001     |  | 208,300                                            |  | 2,083,000                       |  | 59,514                                      | 
|                                   |  |                             |  |                       |  |                                                    |  |                                 |  |                                             | 
|Unipac Optoelectronics Corporation |  | 1.42                        |  | July 9, 2001          |  | 227,120                                            |  | 2,271,200                       |  | 64,891                                      | 
|                                   |  |                             |  |                       |  |                                                    |  |                                 |  |                                             | 

|    |                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Stock dividends are declared in NT dollars per share. A shareholder receives as a stock dividend the number of shares equal to the NT dollar amount per share of the dividend declared, multiplied by the number of shares
owned by the shareholder, and divided by the par value of NT$10.00 per share. Fractional shares are not issued,
but are paid in cash.
|   
|(2) | Total number of shares issued as stock dividends includes shares issued from retained earnings and from capital reserves.                                                                                                                                                                                                                                       
|   
|(3) | The NT dollar amount of stock dividends paid is calculated based upon the par value of NT$10.00 per share.                                                                                                                                                                                                                                                      
|   
|(4) | The merger of Acer Display and Unipac was completed on September 1, 2001.                                                                                                                                                                                                                                                                                       

No cash or stock dividends were distributed for the year 2001 due to our net loss in that year. We distributed cash dividends of NT$0.5 per share on August 11, 2003 and stock dividends of
NT$0.5 per share for the year 2002 on July 31, 2003. We distributed a cash dividend of NT$1.2 per share on July 23, 2004 and a stock dividend of NT$0.5 per share on July 12, 2004 for the year 2003.

Our articles of incorporation provide that the cash portion of any dividend shall generally not be less than 10% of the annual dividend. However, the ratio for cash dividends may be adjusted in
accordance with actual earnings and operation conditions. The form, frequency and amount of future dividends will depend upon our earnings, cash flow, financial condition, reinvestment opportunities and other factors.

We are generally not permitted under the ROC Company Law to distribute dividends or to make any other distributions to shareholders for any fiscal year in which we have no earnings. Our
articles of incorporation provide that we shall allocate 10% of our annual earnings as a legal reserve in each fiscal year after:

- payment of all income taxes; and
- deduction of any past losses.

Earnings distributions are made in the following manner:

- 5% to 10% of the remainder is distributable as a bonus for employees;
- no more than 1% of the remainder is distributable as remuneration to
directors and supervisors; and
- all or a portion of the balance is distributable as dividend and bonus to our shareholders.

In addition to permitting
dividends to be paid out of accumulated earnings after deducting losses, we are
permitted under the ROC Company Law to make distributions to our shareholders
of additional shares by

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capitalizing reserves, including the legal reserve.
However, the capitalized portion payable out of our legal reserve is limited
to 50% of the total accumulated legal reserve, and only if and to the extent
the accumulated legal reserve exceeds 50% of our paid-in capital. See Item
10. Additional InformationArticles of IncorporationDividends and
Distributions. For information as to ROC taxes on dividends and distributions,
see Item 10. TaxationROC Tax ConsiderationsDividends.

The holders of ADSs will be entitled to receive dividends to the same extent as the holders of our shares, subject to the terms of the deposit agreement.

Any cash dividends will be paid to the depositary in NT dollars and, after deduction of any applicable ROC taxes and fees and expenses of the depositary and custodian, except as otherwise
provided in the deposit agreement, will be converted by the depositary into U.S. dollars and paid to the holders of ADSs. Whenever the depositary receives any free distribution of shares, including stock dividends, on any ADSs that the holders of
ADSs hold, the depositary may, and will if we so instruct, deliver to the holders of ADSs additional ADSs which represent the number of shares received in the free distribution, after deduction of applicable taxes and the fees and expenses of the
depositary and the custodian. If additional ADSs are not so delivered, each ADS that the holders of ADSs hold shall represent its proportionate interest in the additional shares distributed.

8.B. Significant Changes

We have not experienced any significant changes since the date of the annual financial statements.

ITEM 9. THE OFFER AND LISTING

9.A. Offering and Listing Details

Our shares have been listed on the Taiwan Stock Exchange since September 8, 2000 under the number 2409. The ADSs have been listed on the New York Stock Exchange under the symbol
AUO since May 23, 2002. The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the shares and the high and low closing
prices and the average daily volume of trading activity on the New York Stock Exchange for the shares represented by ADSs.

|                                 |  | Taiwan Stock Exchange   |      | New York Stock Exchange(1)   |    
|-------------------------------- |  | ----------------------- | ---- | ---------------------------- | ---
|                                 |  |                         |      |                              |    
|                                 |  | Closing Price per Share |      | Average Daily
Trading
Volume |    
|High                             |  | Low                     | High |                              | Low
|                                 |  |                         |      |                              |    
|                                 |  | (NT$)                   |      | (NT$)                        |    
|2000:                            |  | 57.26                   |      | 15.84                        |    
|Third Quarter (from September 8) |  | 57.26                   |      | 40.20                        |    
|Fourth Quarter                   |  | 38.58                   |      | 15.84                        |    
|2001                             |  | 35.62                   |      | 11.38                        |    
|2002                             |  | 58.57                   |      | 15.24                        |    
|2003                             |  | 49.90                   |      | 16.86                        |    
|First Quarter                    |  | 23.90                   |      | 18.29                        |    
|Second Quarter                   |  | 24.48                   |      | 16.86                        |    
|Third Quarter                    |  | 48.20                   |      | 24.38                        |    
|Fourth Quarter                   |  | 49.90                   |      | 38.60                        |    
|2004                             |  | 78.50                   |      | 41.40                        |    
|First Quarter                    |  | 63.50                   |      | 41.40                        |    
|Second Quarter                   |  | 78.50                   |      | 48.90                        |    
|Third Quarter                    |  | 50.50                   |      | 37.50                        |    
|Fourth Quarter                   |  | 46.20                   |      | 33.20                        |    
|December                         |  | 46.20                   |      | 41.00                        |    
|2005 (through May
31):           |  | 53.90                   |      | 41.50                        |    
|First Quarter                    |  | 49.90                   |      | 41.50                        |    
|January                          |  | 45.60                   |      | 41.50                        |    
|February                         |  | 49.90                   |      | 47.70                        |    
|March                            |  | 49.75                   |      | 42.00                        |    

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|                                        |  | Taiwan Stock Exchange             |      | New York Stock
          Exchange(1)     |    
|--------------------------------------- |  | --------------------------------- | ---- | ---------------------------------------- | ---
|                                        |  |                                   |      |                                          |    
|                                        |  | Closing Price per
          Share |      | Average Daily
      Trading
      Volume |    
|High                                    |  | Low                               | High |                                          | Low
|                                        |  |                                   |      |                                          |    
|                                        |  | (NT$)                             |      | (NT$)                                    |    
|                                        |  |                                   |      |                                          |    
|Second
        Quarter (through May 31) |  | 53.90                             |      | 45.45                                    |    
|April                                   |  | 50.70                             |      | 45.45                                    |    
|May                                     |  | 53.90                             |      | 49.60                                    |    

|                                                                       | 
|---------------------------------------------------------------------- | 
|                                                                       | 
|(1) Each ADS represents the right
        to receive 10 common shares.

9.B. Plan of Distribution

Not applicable.

9.C. Markets

The principal trading markets for our shares are the Taiwan Stock Exchange and the New York Stock Exchange, on which our shares trade in the form of ADSs.

9.D. Selling Shareholders

Not applicable.

9.E. Dilution

Not applicable.

9.F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

10.A. Share Capital

Not applicable.

10.B. Articles of Incorporation

The following statements summarize the material elements of our capital structure and the more important rights and privileges of our shareholders conferred by ROC law and our Articles of
Incorporation.

Objects and Purpose

The scope of our business as set forth in Article 2 of our articles of incorporation includes the research, development, production, manufacture and sale of the following products: plasma
display and related systems, liquid crystal display and related systems, OLED and related systems, amorphous silicon photo sensor device parts and components, thin film photo diode sensor device parts and components, thin film transistor photo
sensor device parts and components, touch imaging sensors, full color active-matrix flat panel displays, field emission displays, single crystal liquid crystal displays, original equipment manufacturing for amorphous silicon thin film transistor
process and flat panel display modules, original design manufacturing and original equipment manufacturing business for flat panel display modules and the simultaneous operation of a trade business relating to our business.

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Directors

Our board of directors
    is elected by our shareholders and is responsible for the management of our
    business. Our articles of incorporation provide that our board of directors
    is to have between seven to nine members. Currently, our board of directors
    is composed of nine directors. The chairman of our board is elected by the
    directors. The chairman presides at all meetings of our board of directors,
    and also has the authority to represent our company. The term of office for
    our directors is three years.

As required under
    our articles of incorporation, we currently have three supervisors. In accordance
    with the ROC Company Law, supervisors are elected by our shareholders and
    cannot concurrently serve as our directors, executive officers or other staff
    members. The term of office for supervisors is three years. The supervisors duties
    and powers include, but are not limited to, investigation of our financial
    condition, inspection of corporate records, verification of statements by
    the board of directors, giving reports at shareholders meetings, representation
    of us in negotiations with our directors and giving notification, when appropriate,
    to the board of directors to cease acting in contravention of applicable
    law or regulations or our articles of incorporation or beyond our scope of
    business.

The election of our directors and supervisors by our shareholders may be conducted by means of cumulative voting or other voting mechanics, if any, adopted in our articles of incorporation.
  Pursuant to the ROC Company Law, the election of our directors and supervisors is currently conducted by means of cumulative voting, as our articles of incorporation do not provide for another voting mechanism. The most recent election for all of
  the directors and supervisors was held on April 29, 2004.

Pursuant to the ROC Company Law, a person may serve as a director or supervisor in his or her personal capacity or as the representative of another legal entity. A legal entity that owns our
shares may be elected as a director or supervisor, in which case a natural person must be designated to act as the legal entitys representative. A legal entity that is our shareholder may designate its representative to be elected as our
director or supervisor on its behalf. In the event several representatives are designated by the same legal entity, any or all of them may be elected. A natural person who serves as the representative of a legal entity as a director or supervisor
may be removed or replaced at any time at the discretion of such legal entity, and the replacement director or supervisor may serve the remainder of the term of office of the replaced director or supervisor. Currently, four of our directors and two
of our supervisors are representatives of other legal entities, as shown in Item 6.Directors, Senior Management and EmployeesDirectors and Senior ManagementExecutive Officers.

As of June 1, 2005, our
authorized share capital was NT$58 billion, divided into 5.8 billion shares,
of which 100 million shares are reserved for the issuance of shares for employee
stock  options, and 4,958,040,897 shares were issued. In November 2001, we issued
NT$10,000 million principal amount of convertible bonds, which became eligible
in February 2002 for conversion into approximately 637,600,750 shares. As of
December 31,  2004, holders of our convertible bonds had exercised conversion
rights to receive 637,600,750 of our shares, including our shares and entitlement
certificates.

On April 29, 2004, our shareholders approved the issuance of 305,803,656 shares of common stock for purposes of distributing stock dividends and employee bonuses. The stock issuance was
authorized by and registered with the government authorities. On June 23, 2004, we issued 300 million shares of our common stock in the form of 30 million ADSs . Each ADS represents the right to receive 10 shares of common stock. The public offer
price per ADS was US$16.00.

All shares presently issued, including those underlying our ADSs, are fully paid and in registered form, and existing shareholders are not obligated to contribute additional capital.

New Shares and Preemptive Rights

The issuance of new shares requires the prior approval of our board of directors. If our issuance of any new shares will result in any change in our authorized share capital, we are required
under ROC law to amend our articles of incorporation, which requires approval of our shareholders in a shareholders meeting. We must also

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obtain the approval of, or submit a registration to,
the ROC Securities and Futures Bureau and the Hsinchu Science Park Administration
Bureau, as applicable. Generally, when a company issues capital stock for cash,
10% to 15% of the issue must be offered to its employees. In addition, if a public
company intends to offer new shares for cash, at least 10% of the issue must
also be offered to the public. This percentage can be increased by a resolution
passed at a shareholders meeting, which will reduce the number of new shares
in which existing shareholders may have preemptive rights. Unless the percentage
of the shares offered to the public is increased by a resolution, existing shareholders
of the company have a preemptive right to acquire the remaining 75% to 80% of
the issue in proportion to their existing shareholdings.

Register of Shareholders and Record Date

Our share registrar,
    SinoPac Securities Corporation, maintains the register of our shareholders
    at its office in Taipei, Taiwan, and enters transfers of our shares in the
    register upon presentation of, among other documents, the certificates in
    respect of our shares transferred. The ROC Company Law permits us, by giving
    advance public notice, to set a record date and close the register of shareholders
    for a specified period in order to determine the shareholders or pledgees
    that are entitled to certain rights pertaining to our shares. Under the ROC
    Company Law,our register of shareholders
    should be closed for a period of sixty days before each ordinary meeting
    of shareholders, thirty days before each extraordinary meeting of shareholders
    and five days before each record date.

Transfer of Shares

Under the ROC Company Law, shares are transferred by endorsement and delivery of the related share certificates. In addition, transferees must have their names and addresses registered on our
register in order to assert shareholders rights against us. Notwithstanding the foregoing, shareholders are required to file their specimen seals with our share registrar. The settlement of trading of our shares on the Taiwan Stock Exchange
will be carried out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.

Shareholders Meetings

We are required to hold an annual ordinary shareholders meeting once every calendar year, generally within six months after the end of each fiscal year. Our directors may convene an
extraordinary shareholders meeting whenever they think fit, and they must do so if requested in writing by shareholders holding not less than 3% of our paid-in share capital who have held their shares for more than a year. In addition, any of
our supervisors may convene a shareholders meeting under certain circumstances. For a public company in Taiwan, such as our company, at least 15 days advance written notice must be given of every extraordinary shareholders meeting
and at least 30 days advance written notice must be given of every annual ordinary shareholders meeting. Unless otherwise required by law or by our articles of incorporation, voting for an ordinary resolution requires an affirmative vote
of a simple majority of those present and voting. A distribution of cash dividends would be an example of an act requiring an ordinary resolution. A special resolution may be adopted in a meeting of shareholders convened with a quorum of holders of
at least two-thirds of our total outstanding shares at which the holders of at least a majority of our shares represented at the meeting vote in favor thereof. A special resolution is necessary for various matters under ROC law,
including:

- any amendment to our articles of incorporation;
- our dissolution or amalgamation;
- a merger or spin-off;
- transfers of the whole or a substantial part of our business or properties;
- the acquisition of the entire business of another company which would have a significant impact on our operations;
- the distribution of any stock dividend; or
- the removal of directors or supervisors.

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However, in the case
of a public company such as our company, a special resolution may be adopted
by holders of at least two-thirds of the shares represented at a meeting of shareholders
at which holders of at least a majority of the total outstanding shares are present.

Voting Rights

According to applicable
    laws, except for treasury shares, a holder of our shares has one vote for
    each share held at shareholders meetings. There is cumulative voting
    for the election of directors and supervisors. In all other matters, shareholders
    must cast all their votes the same way on any resolution.

Our shareholders
    may be represented at an ordinary or extraordinary shareholders meeting
    by proxy if a valid proxy form is delivered to us five days before the commencement
    of the ordinary or extraordinary shareholders meeting. Voting rights
    attached to our shares that are exercised by our shareholders proxy
    are subject to ROC proxy regulations. Any shareholder who has a personal
    interest in a matter to be discussed at our shareholders meeting,the outcome of which may impair our interests, is not permitted to vote or exercise voting rights nor vote or exercise voting rights on behalf of another shareholder on such matter.

Except for trust enterprises or share transfer agents approved by the ROC Securities and Futures Bureau, where one person is appointed as proxy by two or more shareholders who together hold
more than 3% of our shares, the votes of those shareholders in excess of 3% of our total issued shares will not be counted. Voting rights attached to our shares that are exercised by our shareholders proxy shall be subject to ROC proxy
regulations.

You will not be able to exercise voting rights on the shares underlying your ADSs on an individual basis.

Dividends and Distributions

We may distribute dividends in any year in which we have accumulated earnings. Before distributing a dividend to shareholders following the end of a fiscal year, we must recover any past
losses, pay all outstanding taxes, and set aside in a legal reserve 10% of our annual earnings for that fiscal year until our legal reserve equals our paid-in capital.

At the shareholders annual ordinary meeting, our board of directors submits to the shareholders for approval proposals for the distribution of a dividend or the making of any other
distribution to shareholders from our accumulated earnings or reserves for the preceding fiscal year. Dividends may be distributed either in cash, in the form of shares or a combination of cash and shares. Our articles of incorporation provide that
the cash portion of any dividend shall generally not be less than 10% of the annual dividend. However, the ratio for cash dividends may be adjusted in accordance with actual earnings and operating conditions. Dividends are paid proportionately to
shareholders as listed on the register of shareholders on the relevant record date.

Our articles of incorporation provide that we shall allocate 10% of our annual earnings as a legal reserve in each fiscal year after:

- payment of all income taxes; and
- deduction of any past losses.

Earnings distributions are made in the following manner:

- 5% to 10% of the remainder is distributable as a bonus for employees;
- no more than 1% of the remainder is distributable as remuneration to directors and supervisors; and
- all or a portion of the balance is distributable as a dividend and bonus to our shareholders.

In addition to permitting dividends to be paid out of accumulated earnings after deducting losses, we are permitted under the ROC Company Law to make distributions to our shareholders of
additional shares by capitalizing reserves, including the legal reserve. However, the capitalized portion payable out of our legal reserve is

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limited to 50% of the total accumulated legal reserve,
    and only if and to the extent the accumulated legal reserve exceeds 50% of
    our paid-in capital.

For information on
    the dividends paid by us in recent years, see Item 8. Financial InformationDividends
    and Dividend Policy. For information as to ROC taxes on dividends and
    distributions, see Item 10. Additional InformationTaxationROC
    Tax ConsiderationsDividends.

Acquisition of Shares by Our Company

With limited exceptions
    under the ROC Company Law, we are not permitted to acquire our shares.

In addition, pursuant
    to the Securities and Exchange Law, we may, by a board resolution adopted
    by majority consent at a meeting with two-thirds of our directors present,
    purchase our shares on the Taiwan Stock Exchange or by a tender offer, in
    accordance with the procedures prescribed by the ROC Securities and Futures
    Bureau, for the following purposes:

- to transfer shares to our employees;
- to facilitate conversion arising from bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by our company
into shares; and
- if necessary, to maintain our credit and our shareholders equity; provided that the shares so purchased shall be cancelled thereafter.

We are not allowed to purchase more than 10% of our aggregate issued and outstanding shares. In addition, we may not spend more than the aggregate amount of our retained earnings, the premium
from issuing stock and the realized portion of the capital reserve to purchase our shares.

We may not pledge or hypothecate any purchased shares. In addition, we may not exercise any shareholders rights attaching to such shares. In the event that we purchase our shares on the
Taiwan Stock Exchange or through a tender offer, our affiliates, directors, supervisors, officers and their respective spouses and minor children and/or nominees are prohibited from selling any of our shares during the period in which we purchase
our shares.

According to the ROC Company Law, as amended and effective from November 14, 2001, an entity in which our company directly or indirectly owns more than 50% of the voting shares or paid-in
capital, which is referred to as a controlled entity, may not purchase our shares. Also, if our company and a controlled entity jointly own, directly or indirectly, more than 50% of the voting shares or paid-in capital of another entity, which is
referred to as a third entity, the third entity may not purchase shares in either our company or a controlled entity. This restriction does not, however, affect any of our shares acquired by a controlled entity or a third entity prior to November
14, 2001.

On October 14, 2002, our board of directors approved a buyback program for market repurchases of up to 10 million shares during the period between October 15, 2002 and December 14, 2002 at the
target purchase price of between NT$15 and NT$20 per share, with a view to transferring these shares to our employees. We did not make any repurchases under this buyback program. On December 16, 2002, our board of directors approved another buyback
program for market repurchases of up to 20 million shares during the period between December 17, 2002 and February 16, 2003 at the target price of between NT$17.5 and NT$23.5 per share for the same purpose. We repurchased an aggregate of 12 million
shares at an average purchase price of NT$20.9 per share, or an aggregate purchase price of NT$250.8 million, under this buyback program.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and distributions to holders of preferred shares, if any, will be distributed pro
rata to our shareholders in accordance with the ROC Company Law.

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Rights to Bring Shareholder Suits

Under
    the ROC Company Law, a shareholder may bring suit against us in the following
    events:

- Within 30 days from the date on which a shareholders resolution
      is adopted, a shareholder may file a lawsuit
      to annul a shareholders resolution if the procedure for convening
      a shareholders meeting or the method
      of resolution violates any law or regulation or our articles of incorporation.
- If the substance of a resolution adopted at
      a shareholders meeting contradicts any applicable law or regulation
      or our articles of incorporation, a shareholder may bring a suit to determine
      the validity of such resolution.

Shareholders may bring suit against our directors
    and supervisors under the following circumstances:

- Shareholders who have continuously held 3% or
      more of the total number of issued and outstanding shares for
      a period of one year or longer may request in writing that a supervisor
      institute an action against a director
      on our behalf. In case the supervisor fails to institute an action within
      30 days after receiving suchrequest, the shareholders may institute an action
    on our behalf.  In the event that shareholders institute an action, a court
    may, upon motion of the defendant, order such shareholders to  furnish appropriate
    security.
- In the event that any director, supervisor, officer or shareholder who holds more than 10% of our issued
and outstanding shares and their respective spouse and minor children and/or nominees
sells shares within six months after the acquisition of such shares, or repurchases the shares within six months after the sale,
we may make a claim for recovery of any profits
realized from the sale and purchase. If our board of directors or our supervisors fail to make a claim for recovery, any shareholder may request that our board of directors or our
supervisors exercise the right of claim within 30 days. In the event our directors or our supervisors fail to exercise such right during such 30-day period, such requesting shareholder will have the right to make a claim for such recovery on our behalf. Our directors and supervisors will be jointly and
severally liable for damages suffered by us as a result of their failure to exercise the
right of claim.

Financial Statements

For a period of at least ten days before our annual shareholders meeting, we must make available our annual financial statements at our principal offices in Hsinchu, Taiwan and our share
register in Taipei, for inspection by our shareholders.

Transfer Restrictions

Our directors, supervisors, officers and shareholders holding more than 10% of our issued and outstanding shares and their respective spouse and minor children and/or nominees, which we refer
to as insiders, are required to report any changes in their shareholding to us on a monthly basis. No insider is permitted to sell shares on the Taiwan Stock Exchange for six months from the date on which the relevant person becomes an insider. In
addition, the number of shares that insiders can sell or transfer on the Taiwan Stock Exchange on a daily basis is limited by ROC law. Furthermore, insiders may sell or transfer our shares on the Taiwan Stock Exchange only after reporting to the ROC
Securities and Futures Bureau at least three days before the transfer, provided that such reporting is not required if the number of shares transferred does not exceed 10,000.

Other Rights of Shareholders

Under the ROC Company Law, dissenting shareholders are entitled to appraisal rights in the event of a spin-off, a merger or various other major corporate actions. Dissenting shareholders may
request us to redeem their shares at a fair price to be determined by mutual agreement. If no agreement can be reached, the valuation will be determined by court order. Dissenting shareholders may exercise their appraisal rights by notifying us
before the related shareholders meeting or by raising and registering their dissent at the shareholders meeting.

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Transfer Agent and Registrar

The transfer agent
    and registrar for our shares is SinoPac Securities Corporation, 3rd Floor,
    53, Po Ai Road, Taipei, Taiwan; telephone number: 886-2-2381 6288. The transfer
    agent and registrar for our ADS is Citibank, N.A., 388 Greenwich Street,
    14thFloor,
    New York, New York, 10013, USA; telephone number: 1-877-248-4237.

10.C. Material Contracts

License from Matsushita.Unipac
    entered into a five-year Technology Assistance and Patent License Agreement
    with Matsushita effective as of October 30, 1998, which provides for the
    non-transferable and non-exclusive license and technical support to manufacture
    TFT-LCD panels between 13.3 inches and 19.0 inches at our previous second-generation
    fab and our 3.5 -generation fab. The agreement provides for a fixed license
    fee, and, subject to a maximum payment requirement, ongoing royalty payments
    at a percentage of the sales of the panels we manufacture using the licensed
    technology. Currently, we pay royalties for production of 13.3 -inch and
    14.1 -inch TFT-LCD panels manufactured at one of our 3.5 -generation fabs.
    This agreement expired on October 31, 2003, and we are entitled to a grace
    period of three years during which we can continue using the license while
    proceeding with negotiation efforts for license renewal.

License from FDTC.We have a license agreement with FDTC, effective as of March 31, 2003, which provides for the non-transferable and non-exclusive
  license and technical support to manufacture all of our TFT-LCD panels at each of our facilities. The agreement provides for an initial license fee and fixed royalty payments to be paid for each of the first four consecutive 12-month periods
  following the effective date of the agreement.

Licenses from SEL.We entered into a license agreement with SEL effective as of September 1, 2003 in connection with our settlement and mutual release
relating to a suit brought by SEL. The license agreement provides for the non-transferable and non-exclusive license to manufacture all of our amorphous silicon TFT-LCD panels and modules at each of our facilities using intellectual property owned
by SEL. The agreement provides for a fixed license fee and ongoing royalty payments at a percentage of the sales of the panels we manufacture using the licensed technology.

10.D. Exchange Controls

We have extracted from publicly available documents the information presented in this section. Please note that citizens of the PRC and entities organized in the PRC are subject to special
ROC laws, rules and regulations, which are not discussed in this section.

The ROCs Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle foreign exchange transactions by
the Central Bank of China. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency
needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

Aside from trade-related foreign exchange transactions, Taiwan companies and residents may remit to and from Taiwan foreign currencies of up to US$50 million and US$5 million, respectively,
each calendar year. A requirement is also imposed on all private enterprises to report all medium- and long-term foreign debt with the Central Bank of China.

In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to US$100,000 per remittance if required
documentation is provided to ROC authorities. This limit applies only to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.

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10.E. Taxation

ROC Tax Considerations

The following summarizes
    the principal ROC tax consequences of owning and disposing of ADSs and shares
    if you are not a resident of Taiwan. You will be considered a non-resident
    of Taiwan for the purposes of this section if:

- you are an individual and you are not physically
      present in Taiwan for 183 days or more during any calendar
      year; or
- you are an entity and you are organized under
      the laws of a jurisdiction other than Taiwan and have no fixed
      place of business or other permanent establishment in Taiwan.

You should consult
    your own tax advisors concerning the tax consequences of owning ADSs or shares
    in Taiwan and any other relevant taxing jurisdiction to which you are subject.

Dividends

Dividends, whether
    in cash or shares, declared by us out of retained earnings and paid out to
    a holder that is not a Taiwan resident in respect of shares represented by
    ADSs or shares are subject to ROC withholding tax. The current rate of withholding
    for non-residents is 20% of the amount of the distribution, in the case of
    cash dividends, or of the par value of the shares distributed, in the case
    of stock dividends. As discussed below in RetainedEarnings
    Tax, our after-tax earnings will be subject to an undistributed retained
    earnings tax. To the extent dividends are paid out of retained earnings that
    have been subject to the retained earnings tax, the amount of such tax will
    be used by us to offset the withholding tax liability on such dividend. Consequently,
    the effective rate of withholding on dividends paid out of retained earnings
    previously subject to the retained earnings tax will be less than 20%. There
    is no withholding tax with respect to stock dividends declared out of our
    capital reserves.

| | Capital Gains
| | -------------

Gains realized on ROC securities transactions in Taiwan are currently exempt from ROC income tax. In addition, transfers of ADSs by non-resident holders are not regarded as sales of ROC
securities and, as a result, any gains on such transactions are currently not subject to ROC income tax.

| | Securities Transaction Tax
| | --------------------------

The ROC government imposes a securities transaction tax that will apply to sales of shares, but not to sales ofADSs. The transaction tax is payable by the seller for the sale of shares and is equal to 0.3% of the sales proceeds.

| | Estate and Gift Tax
| | -------------------

ROC estate tax is payable on any property within the ROC of a deceased individual, and ROC gift tax is payable on any property within the ROC donated by any individual. Estate tax is currently
payable at rates ranging from 2% of the first NT$600,000 to 50% of amounts over NT$100,000,000. Gift tax is payable at rates ranging from 4% of the first NT$600,000 to 50% of amounts over NT$45,000,000. Under ROC estate and gift tax laws, shares
issued by ROC companies are deemed located in the ROC regardless of the location of the holder. It is unclear whether or not ADSs will be deemed assets located in the ROC for the purpose of ROC gift and estate taxes.

| | Preemptive Rights
| | -----------------

Distributions of statutory preemptive rights for shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced
by securities by a nonresident are exempted from income tax, but may be subject to a ROC securities transaction tax, discussed above. Proceeds derived from sales of statutory preemptive rights that are not evidenced by securities are subject to
income tax at the rate of:

- 25% of the gains realized for non-Taiwan entities; and

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- 35% of the gains realized for non-Taiwan individuals.

We have the sole discretion to determine whether
    statutory preemptive rights are evidenced by securities or not.

| | Retained Earnings Tax
| | ---------------------

Under the ROC Income
    Tax Laws, we are subject to a 10% retained earnings tax on our after-tax
    earnings generated after January 1, 1998 that are not distributed in the
    following year. Any retained earnings tax so paid will further reduce the
    retained earnings available for future distribution. When we declare dividends
    out of those retained earnings, a maximum amount of up to 10% of the declared
    dividends will be credited against the 20% withholding tax imposed on the
    non-resident holders of our ADS or shares.

| | Tax Treaty
| | ----------

Taiwan does not have
    an income tax treaty with the United States. Taiwan has tax treaties for
    the avoidance of double taxation with Indonesia, Singapore, South Africa,
    Australia, Netherlands, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland,
    Gambia, United Kingdom, Senegal and Sweden, which may limit the rate of ROC
    withholding tax on dividends paid with respect to shares. It is unclear whether,
    if you hold ADSs, you will be considered to hold shares for the purposes
    of these treaties. Accordingly, if you may otherwise be entitled to the benefits
    of an income tax treaty, you should consult your tax advisors concerning
your eligibility for the benefits with respect to ADSs.

United States Federal Income Tax Considerations for United States Holders

The following is a discussion of the material United States federal income tax consequences of the ownership and disposition of our ADSs or shares. The discussion set forth below applies only
to beneficial owners of our ADSs or shares that are U.S. Holders (as defined below), hold the ADSs or shares as capital assets and are non-residents of Taiwan as defined under ROC Tax Considerations. You are a U.S. Holder if,
for United States federal income tax purposes, you are:

- a citizen or resident of the United States;
- a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or
- an estate or trust the income of which is subject to United States federal income taxation regardless of its source.

This summary is based on the Internal Revenue Code of 1986, as amended, the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury
regulations, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, it is based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any
related agreement will be performed in accordance with its terms. This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the
effects of any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences). In addition, it does not describe the United States federal income tax consequences applicable to U.S.
Holders subject to special treatment under the United States federal income tax laws, such as:

- dealers and traders in securities or foreign currencies;
- certain financial institutions;
- insurance companies;
- tax-exempt organizations;

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- partnerships or other entities classified as
      partnerships for U.S. federal income tax purposes;
- persons liable for alternative minimum tax;
- persons holding ADSs or shares as part of a
      hedge, straddle, conversion transaction, or other integrated transaction;
- persons owning, or treated as owning, 10% or
      more of our voting stock;
- U.S. Holders whose functional currency for U.S.
      federal income tax purposes is not the U.S. dollar; or
- persons who acquired ADSs or shares pursuant
      to the exercise of any employee stock option or otherwise as
      compensation.

If a partnership
    holds our ADSs or shares, the tax treatment of a partner will depend upon
    the status of the partner and the activities of the partnership. If you are
    a partner of a partnership holding our ADSs or shares, you are urged to consult
    your tax advisor.

You are urged to
    consult your tax advisor concerning the particular United States federal
    income tax consequences to you of the ownership and disposition of ADSs or
    shares, as well as the consequences to you arising under the laws of any
    other taxing jurisdiction.

For United States federal
  income tax purposes, a U.S. Holder who is the beneficial owner of an ADS will
  generally be treated as the owner of the shares underlying its ADS. However,
  the United  States Treasury has expressed concerns that parties involved in transactions
  in which depositary shares are pre-released may be taking actions that are inconsistent
  with the claiming of foreign tax credits by the holders of ADSs. Such actions
  would  also be inconsistent with the claiming of the reduced rate of tax, described
  below, applicable to dividends received by certain non-corporate holders. Accordingly,
  the analysis of the creditability of ROC taxes and the availability of the reduced
   tax rate for dividends received by certain non-corporate holders, each described
  below, could be affected by future actions that may be taken by parties to whom
  the ADSs are released. Deposits or withdrawals of shares actually or constructively
  by  U.S. Holders for ADSs will not be subject to United States federal income
  tax.

We believe, and this discussion assumes, that we were not considered a passive foreign investment company for 2004 as discussed below.

| | Taxation of Dividends
| | ---------------------

Distributions you receive on your ADSs or shares, other than certain pro rata distributions of common shares, including amounts withheld in respect of ROC withholding taxes, will generally be
treated as dividend income to you to the extent the distributions are made from our current or accumulated earnings and profits (as determined under United States federal income tax principles). The amount of a dividend will include any amounts
withheld by us or our paying agent in respect of ROC taxes. The amount will be treated as foreign source dividend income to you and will not be eligible for the dividends received deduction generally allowed to U.S. corporations under the
Code.

Dividends paid in New
Taiwan dollars will be included in your income in a U.S. dollar amount calculated
by reference to the exchange rate in effect on the date of your (or, in the case
of ADSs,  the depositarys) receipt of the dividend, regardless of whether
the payment is in fact converted into U.S. dollars. If the dividend is converted
into U.S. dollars on the date of receipt, you generally should not be required
to recognize  foreign currency gain or loss in respect of the dividend income.
You may have foreign currency gain or loss if you do not convert the amount of
such dividend into U.S. dollars on the date of its receipt.

Subject to limitations that may vary depending upon your circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, you may be entitled to a credit
against your United States federal income taxes for the amount of any ROC taxes that are withheld from dividend distributions made to you. In determining the amounts withheld in respect of ROC taxes, any reduction of the amount withheld on account
of a ROC credit in respect of the 10% retained earnings tax imposed on us is not considered a withholding tax and will

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not be treated as distributed to you or creditable
by you against your United States federal income tax. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific classes
of income. The rules governing the foreign tax credit are complex. We therefore
urge you to consult your tax advisors regarding the availability of the foreign
tax credit under your particular circumstances. Instead of claiming a credit,
you may, at your election, deduct such otherwise creditable ROC taxes in computing
your taxable income, subject to generally applicable limitations under U.S. law.

Subject to applicable
    limitations that may vary depending upon a holders individual circumstances,
    dividends paid to non-corporate U.S. Holders of our ADSs in taxable years
    beginning before January 1, 2009 will be taxable at a maximum tax rate of
    15%, provided that the ADSs are considered, under current law, readily
    tradable on an established securities market in the United States. We
    believe that our ADSs, which are listed on the New York Stock Exchange, will
    currently be readily tradable on an established securities market in the
    United States. However, there can be no assurance that our ADSs will continue
    to be readily tradable on an established securities market. Non-corporate
    U.S. Holders of our ADSs should consult their own tax advisers to determine
    whether they are subject to any special rules that limit their ability to
    be taxed at this favorable rate.

It is possible that
    pro rata distributions of shares to all shareholders may be made in a manner
    that is not subject to United States federal income tax, but is subject to
    ROC withholding tax as discussed above under ROC Tax ConsiderationsDividends.
    Such distribution will not give rise to U.S. federal income tax against which
    the ROC withholding tax imposed on these distributions may be credited. Any
    ROC tax of this nature will be creditable against your United States federal
    income tax liability as a foreign tax credit, subject to applicable limitations
    andrestrictions. The basis of any new ADSs
    or shares you receive as a result of a pro rata distribution of shares by
    us will be determined by allocating your basis in the old ADSs or shares
    between the old ADSs or shares and the new ADSs or shares received, based
    on their relative fair market values on the date of distribution.

| | Taxation of Capital Gains
| | -------------------------

For U.S. federal income tax purposes, when you sell or otherwise dispose of your ADSs or shares, you will recognize capital gain or loss in an amount equal to the difference between the U.S.
dollar value of the amount realized for the ADSs or shares and your adjusted tax basis in the ADSs or shares, determined in U.S. dollars. Any such gain or loss will be long-term gain or loss if you held the ADSs or shares for more than one year. For
foreign tax credit limitation purposes, such gain or loss will, subject to exceptions, be treated as United States source. Your ability to deduct capital losses is subject to limitations.

| | Passive Foreign Investment Company Rules
| | ----------------------------------------

We believe that we were not a passive foreign investment company (PFIC)
          for United States federal income tax purposes for 2004. However, since
          PFIC status depends upon the composition of our income and assets and
          the market value of our assets (including, among others, goodwill)
          from time to time, there can be no assurance that we will not be considered
          a PFIC for any taxable year. If we were treated as a PFIC for any taxable
          year during which you held our ADSs or shares, certain adverse consequences
could apply to you.

If we are treated as a PFIC for any taxable year, gain recognized by you on a sale or other disposition of ADSs or shares would be allocated ratably over your holding period for the ADSs or
shares. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in
effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of ADSs or shares in excess of 125 percent of the average of the
annual distributions on ADSs or shares received by you during the preceding three years or your holding period, whichever if shorter, would be subject to taxation as described above. Certain elections may be available (including a mark to market
election) to United States persons that may mitigate the adverse consequences resulting from PFIC status.

In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividend rate discussed above with respect to dividends paid to
non-corporate holders would not apply.

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| | Information Reporting and
            Backup Withholding
| | --------------------------------------------------------

Payment of dividends
    and sales proceeds that are made within the United States or through certain
    U.S.-related financial intermediaries generally are subject to information
    reporting and to backup withholding unless (i) you are a corporation or other
    exempt recipient or (ii) in the case of backup withholding, you provide a
    correct taxpayer identification number and certify that you are not subject
    to backup withholding.

The amount of any
    backup withholding from a payment to you will be allowed as a credit against
    your United States federal income tax liability and may entitle you to a
    refund, provided that the required information is furnished to the Internal
    Revenue Service.

10.F. Dividends and Paying Agents

Not
    applicable.

10.G. Statement by Experts

Not
    applicable.

10.H. Documents on Display

It is possible to read and copy documents referred to in this annual report that have been filed with the SEC at the SECs public reference rooms in Washington, D.C., New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the reference rooms.

10.I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Market Risks

Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of
market risks, including changes in interest rates and foreign currency exchange rates, in the ordinary course of business.

We use financial instruments, including variable rate debt and swap and foreign currency forward contracts, to finance our operations and to manage risks associated with our interest rate and
foreign currency exposures, through a controlled program of risk management in accordance with established policies. We have used, and intend to continue to use, derivative financial instruments only for hedging purposes. These policies are reviewed
and approved by our board of directors. Our treasury operations are subject to the review of our internal audit department, which review is submitted for our supervisors review on a quarterly basis.

As of December 31, 2004, we had U.S. dollar- and Japanese yen-denominated savings accounts of US$24.7 million and ¥3,638.2 million, respectively. We also had certificates of deposit
denominated in U.S. dollars and Japanese yen in the amount of US$72.0 million and ¥12,210.5 million, respectively. Since export sales are primarily conducted in U.S. dollars, we had U.S. dollar-denominated accounts receivable of US$649.8 million
as of December 31, 2004, which represents 96.4% of the total accounts receivable balance at that date. We also had Japanese yen-denominated accounts receivable of ¥1,047.0 million attributable to our Japanese operations as of December 31, 2004,
which represents 1.5% of the total accounts receivable balance at that date. In addition, we had U.S. dollar- and Japanese yen-denominated accounts payable of US$525.5 million and ¥22,621.9 million, respectively, relating to our overseas
vendors.

Our primary market risk exposures relate to interest rate movements on borrowings and exchange rate movements on foreign currency-denominated accounts receivable and capital expenditures
relating to equipment used in our manufacturing processes and purchased primarily from Japan. The fair value of forward exchange

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contracts and interest rate swaps has been determined
by obtaining from our bankers the estimated amount that would be received/(paid)
to terminate the contracts.

| | Interest Rate Risk
| | ------------------

Our exposure to market
    risk for changes in interest rates relates primarily to our long-term debt
    obligations. We incur debt obligations primarily to support general corporate
    purposes, including capital expenditures and working capital needs. We use
    interest rate swaps to modify our exposure to interest rate movements and
    reduce borrowing costs. Interest rate swaps limit the risks of fluctuating
    interest rates by allowing us to convert a portion of the interest on our
    borrowings from a variable rate to a fixed rate.

As of December 31,
    2004, we had 38 outstanding interest rate swap agreements with eight major
    international financial institutions, having a total notional principal amount
    of NT$24,500 million.

The table below provides
    information about our derivative financial instruments and other financial
    instruments that are sensitive to changes in interest rates, including interest
    rate swaps, debt obligations and certain assets. For debt obligations, the
    table sets forth principal cash flows and related weighted average interest
    rates by expected maturity date. For interest rate swaps, the table presents
    notional amounts and weighted average interest rates by contractual maturity
    date. Notional amounts are used to calculate the contractual payments to
    be exchanged under acontract. Weighted
    average variable rates are based on implied forward rates in the production
    yield curve at the reporting date. The information is presented in the currencies
    in which the instruments are denominated. We do not have any capital lease
    obligations.

|                          |  | Expected
          Maturity Date |   | Fair Value at
December
          31,
2004 |  
|------------------------- |  | -------------------------------- | - | ----------------------------------------- | -
|2005                      |  | 2006                             |   | 2007                                      |  
|                          |  |                                  |   |                                           |  
|                          |  |                                  |   |                                           |  
|Assets                    |  |                                  |   |                                           |  
|Certificates of  Deposit: |  |                                  |   |                                           |  
|Fixed rate (US$)          |  | 72,000                           |   |                                          |  
|Average interest rate     |  | 0.935                            | % |                                          |  
|Fixed rate (NT$)          |  | 5,500,197                        |   |                                          |  
|Average interest rate     |  | 0.677                            | % |                                          |  
|Fixed rate (JP¥)          |  | 12,210,534                       |   |                                          |  
|Average interest rate     |  | 0.022                            | % |                                          |  
|Fixed rate (CNY)          |  | 106,000                          |   |                                          |  
|Average interest rate     |  | 1.696                            | % |                                          |  
|Liabilities Bonds:        |  |                                  |   |                                           |  
|Secured (NT$)(1)          |  |                                 |   |                                          |  
|Fixed rate                |  |                                 |   |                                          |  
|Secured Long-term Loans:  |  |                                  |   |                                           |  
|Variable rate (NT$)       |  | 5,896,110                        |   | 6,887,044                                 |  
|Average interest rate     |  | 2.16                             | % | 2.46                                      | %
|Interest Rate Swaps(2):   |  |                                  |   |                                           |  
|Variable to fixed (NT$)   |  |                                 |   |                                          |  
|Pay rate                  |  |                                 |   |                                          |  

| |     |                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------
| | (1) | NT$5,500 million are variable rate and NT$500 million are fixed rate.                               
| | (2) | 90-day Taipei Money Market Secondary middle rate settled quarterly (1.237% as of December 31, 2004).
| |     |                                                                                                     

| | Foreign Currency Risk
| | ---------------------

The primary foreign currencies to which we are exposed are the Japanese yen and the U.S. dollar. We enter into short-term forward exchange contracts to hedge the impact of foreign currency
fluctuations on certain underlying assets, liabilities, and firm commitments for the purchase of raw materials and components and capital expenditures

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denominated in U.S. dollars. The purpose of entering
    into these hedges is to minimize the impact of foreign currency fluctuations
    on the results of operations. Gains and losses on foreign currency contracts
    and foreign currency denominated liabilities are recorded in the period of
    the exchange rate changes, while gain and loss on foreign currency contracts
    that hedge foreign currency commitments are deferred until the commitments
    are realized. The contracts have maturity dates that do not exceed three
    months.

The table below sets forth our outstanding foreign
    currency forward contracts as of December 31, 2004:

|                                                |  | (in thousands)     | 
|----------------------------------------------- |  | ------------------ | 
|Contracts to sell US$/Buy
        NT$           |  |                    | 
|Aggregate
        contract amount               |  | US$505,000         | 
|Average
        contractual exchange rate       |  | NT$32.574 per US$  | 
|Contracts to sell NT$/Buy
        Japanese yen: |  |                    | 
|Aggregate
        contract amount               |  | NT$6,400,303       | 
|Average
        contractual exchange rate       |  | JPY3.219 per NT$   | 
|Contracts to sell US$/Buy
        Japanese yen: |  |                    | 
|Aggregate
        contract amount               |  | US$13,500          | 
|Average
        contractual exchange rate       |  | JPY103.008 per US$ | 

|Contracts to sell NT$/Buy US$:      |  |                  | 
|----------------------------------- |  | ---------------- | 
|Aggregate contract amount           |  | NT$472,000       | 
|Average contractual exchange rate   |  | US$0.032 per NT$ | 
|Fair value of all forward contracts |  | NT$368,275       | 

ITEM 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS
TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

ITEM 15. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, or the evaluation date. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded as of the evaluation date that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in this annual report we
file under the Securities Exchange Act of 1934, within the time periods specified in the SECs rules and forms. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their
nature can provide only reasonable assurance regarding managements control objectives.

There has been no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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ITEM 16A. AUDIT COMMITTEE FINANCIAL
EXPERT

Our board of directors
    has determined that Vivien Huey-Juan Hsieh is an audit committee financial
    expert, as that term is defined in Item 16A(b) of Form 20-F.

ITEM 16B. CODE OF ETHICS

Our employee handbook,
    which applies to all officers and employees, contains provisions covering
    conflicts of interest, corporate opportunities, confidentiality, fair dealing,
    protection and proper use of company assets and encouraging the reporting
    of any illegal or unethical behavior. Although, we have not adopted a written
    code of ethics specifically for our principal executive officer, principal
    financial officer, principal accounting officer or controller, or persons
    performing similar functions, the provisions in our employee handbook cover
    these individuals and there have not been any waivers of the provisions of
    the employee handbook for any officers or employees. Ethical oversight and
    actual or apparent conflicts of interest have historically been handled informally
    by senior management, the board of directors and supervisors. We will continue
    to address violations of the code of business conduct and ethics contained
    in our employee handbook and will continue to consider a separate code of
    ethics with the board of directors should the need arise.

ITEM 16C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES

Duration of the Mandate and Terms of Office of the Independent Auditors

KPMG Certified Public Accountants, our principal independent auditor, began serving as our auditor upon the formation of our company in 2001. The head auditors currently responsible for our
audit are Mei-Yu Tseng and Kuen-Huei Chen. Mr. Chen has been serving in his role since the incorporation of AU Optronics. Ms. Tseng has been serving in her role since the second quarter of 2004, when she took over for Shing Hai Wei who had until
then served as our head auditor since our incorporation.

Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors

Our audit committee is responsible for the oversight of our independent auditors work. The policy of our audit committee is to pre-approve all audit and non-audit services provided by
KPMG, including audit services, audit-related services, tax services and other services, as described below. The audit committee sets forth its pre-approval in detail, listing the particular services or categories of services which are pre-approved,
and setting forth a specific budget for such services. In urgent circumstances, the audit committees chairman may issue such a pre-approval. Additional services may be pre-approved on an individual basis. KPMG and our management then report to
the audit committee on a quarterly basis regarding the extent of services actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed.

Independent Auditor Fees

We paid the following fees for professional services to KPMG for the years ended December 31, 2003 and 2004.

|                                                        |  | Year ended December 31, | 
|------------------------------------------------------- |  | ----------------------- | 
|                                                        |  |                         | 
|Services                                                |  | 2003                    | 
|                                                        |  |                         | 
|                                                        |  | NT$                     | 
|                                                        |  | (in thousands)          | 
|Audit Fees                                              |  | 8,379                   | 
|Tax Fees(1)                                             |  | 1,160                   | 
|                                                        |  |                         | 
|Total                                                   |  | 9,539                   | 
|                                                        |  |                         | 
|                                                        |  |                         | 
|(1)   Fees related to tax and audit documentary review. |  |                         | 

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ITEM 16D. EXEMPTIONS FROM THE
LISTING STANDARDS FOR AUDIT COMMITTEES.

Not
    applicable.

ITEM 16E. PURCHASES OF EQUITY
SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Neither we nor any affiliated
    purchaser, as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased
    any of our equity securities during the period covered by this annual report.

PART III

ITEM 17. FINANCIAL STATEMENTS

The consolidated
    financial statements of the Company and the report thereon by its independent
    auditors listed below are attached hereto as follows:

| | (a) | Report of Independent Registered
        Public Accounting Firm dated April 26, 2005.                
| | --- | -----------------------------------------------------------------------------------------------------
| |     |                                                                                                      
| | (b) | Consolidated Balance Sheets of the Company
        and subsidiaries as of December 31, 2003 and 2004.
| |     |                                                                                                      

| | (c) | Consolidated Statements of Operations
                    of the Company and subsidiaries for the years ended December
          31, 2002, 2003 and 2004.                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                               
| | (d) | Consolidated Statements of Changes in
                    Stockholders Equity of the Company and subsidiaries
          for the years ended December 31, 2002, 2003 and 2004.
| |     |                                                                                                                                                                               
| | (e) | Consolidated Statements of Cash Flows
                    of the Company and subsidiaries for the years ended December
          31, 2002, 2003 and 2004.                     
| |     |                                                                                                                                                                               
| | (f) | Notes to Consolidated Financial Statements
          of the Company and subsidiaries.                                                                                         

ITEM 18. FINANCIAL STATEMENTS

The Company has elected to provide financial statements for fiscal year 2004 and the related information pursuant to Item 17 in lieu of Item 18.

ITEM 19. EXHIBITS

|1.1 | Articles of Incorporation (in Chinese, with English translation) (incorporated herein by reference to Exhibit 1.1 to the Companys annual report on Form 20-F as filed with the Commission on May 5, 2004).                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|2.1 | Deposit Agreement, dated May 29, 2002, among AU Optronics Corp., Citibank, N.A. as depositary, and Holders and Beneficial Owners of American depositary shares evidenced by American depositary receipts issued thereunder,
including the form of American depositary receipt (incorporated herein by reference to Exhibit 2.1 to the Companys annual report on Form 20-F as filed with the Commission on June 30, 2003).
|   
|4.1 | Technology Assistance and Patent License Agreement by and between Matsushita Electric Industrial Co., Ltd. And Unipac Optoelectronics Corporation, for ASTLCD, dated October 30, 1998 (incorporated herein by reference to
Exhibit 10.5 to the Companys Registration Statement on Form F-1 (Registration No. 333- 87418) as filed with the Commission on May 1, 2002).                                                   
|   
|4.2 | Patent and Technology License Agreement by and between FDTC and AU Optronics Corp., for TFT-LCD technologies, dated March 31, 2003 (incorporated herein by reference to Exhibit 4(g) to the Companys                                                                                                                                                                                                                     
|   

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|     | annual report on Form 20-F as filed with the
    Commission on June 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.3  | Stock Purchase Agreement by and among FDTC,
        Fujitsu and AU Optronics Corp., for purchase certain amount of stocks
        of FDTC, dated March 25, 2003 (incorporated herein by reference to Exhibit
        4(i) to the Companys annual report on Form 20-F as filed with the
        Commission on June 30, 2003).                                                                                                                                 
|    
|4.4  | Patent License Agreement by and between SEL
        and AU Optronics Corp., for amorphous silicon TFT technologies, effective
        on September 1, 2003. (Confidential treatment requested for certain portions
        of the agreement).                                                                                                                                                                                                                 
|    
|4.5  | Lease Agreement with Hsinchu Science Park
        Administration in relation to government-owned land located at Hsinchu
        Science Park, No. 76-6 Small Section, Hsinchu, Taiwan, Republic of China,
        with respect to part of the site of our previous L1 fab (incorporated
        herein by reference to Exhibit 4(j) to the Companys annual report
        on Form 20-F as filed with the Commission on June 30, 2003).                      
|    
|4.6  | Lease Agreement with Hsinchu Science Park
        Administration in relation to government-owned land located at Hsinchu
        Science Park, No. 77 Small Section, Hsinchu, Taiwan, Republic of China,
        with respect to part of the site of L1 fab (incorporated herein by reference
        to Exhibit 4(k) to the Companys annual report on Form 20-F as filed
        with the Commission on June 30, 2003).                                     
|    
|4.7  | Lease Agreement with Hsinchu Science Park
        Administration in relation to government-owned land located at Hsinchu
        Science Park, Nos. 255-46 Gin-Shan Section, Hsinchu, Taiwan, Republic
        of China, the site of                                                                                                                                                                                                                          
|    
|     | one of our 3.5-generation fab (incorporated herein by reference to Exhibit 4(l) to the Companys annual report on Form 20-F as filed with the Commission on June 30, 2003).                                                                                                                                                                                                                                                                                   
|    
|4.8  | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Nos. 114-4 Gin-Shan Section, Hsin-Chu, Taiwan, Republic of China, the site of one of our
3.5-generation fab (incorporated herein by reference to Exhibit 4(m) to the Companys annual report on Form 20-F as filed with the Commission on June 30, 2003).                                                                      
|    
|4.9  | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Nos. 472 etc, Gin-Shan Section, Hsinchu, Taiwan, Republic of China, the site of one of our
3.5-generation fab (incorporated herein by reference to Exhibit 4(n) to the Companys annual report on Form 20-F as filed with the Commission on June 30, 2003).                                                                    
|    
|4.10 | Lease Agreement by and between Acer Display Technology, Inc. and Min-Tour Inc. for No. 1 Xinhe Road Aspire Park, 325 Lungtan, Taoyuan, Taiwan, Republic of China, the site of our fourth-generation fab and module-assembly
plant (in Chinese, with English summary translation) (incorporated herein by reference to Exhibit 10.12 to the Companys Registration Statement on Form F-1 (Registration No. 333-87418) as filed with Commission on May 1, 2002).
|    
|4.11 | Lease Agreement by and between AU Optronics Corp. and UMC for No. 1, Gin-Shan Section 7 of Hsinchu Science Park, Hsinchu, Taiwan, Republic of China, the site of one of our fourth-generation fab module- assembly plant (in
Chinese, with English summary translation) (incorporated herein by reference to Exhibit 10.13 to the Companys Registration Statement on Form F-1 (Registration No. 333-87418) as filed with the Commission on May 1, 2002).     
|    
|4.12 | Lease Agreement by and between AU Optronics (Suzhou) Corp. and Chinese-Singapore Suzhou Industrial Park Development Co., Ltd. for No. 398, Suhong Zhong Road, Suzhou Industrial Park, Suzhou, The Peoples Republic of
China, the site of two of our module-assembly plants (incorporated herein by reference to Exhibit 4(q) to the Companys annual report on Form 20-F as filed with the Commission on June 30, 2003).                                     
|    
|8.1  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|31.1 | Certification of Kuen-Yao (K.Y.) Lee, Chairman and
Chief Executive Officer of AU Optronics Corp.,                                                                                                                                                                                                                                                                                                                                                             

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|     | pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 (included on the signature page hereto).                                                                                       
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|31.2 | Certification of Max Cheng, Chief Financial
        Officer of AU Optronics Corp., pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (included on the signature page hereto).
|    
|32.1 | Certification pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.                                                      
|    

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

AU OPTRONICS CORPBy:
    /s/ KUEN-YAO (K.Y.) LEEName:
    Kuen-Yao (K.Y.) LeeTitle:
    Chief Executive Officer


Date: June 3, 2005

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Certification

I, Kuen-Yao (K.Y.) Lee, the Chief Executive Officer of AU Optronics Corp., or the registrant, certify that:

1. I have reviewed this annual report on Form 20-F of AU Optronics Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;

4. The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the company and have:

> (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
>     company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
>   (b) Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
>     procedures, as of the end of the period covered by this report based on such evaluation; and
>   (c) Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially
>     affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and

5. The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the
audit committee of the companys board of directors (or persons performing the equivalent functions):

> (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
>     companys ability to record, process, summarize and report financial information; and
>   (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.

Date: June 3, 2005

By:
      /s/ KUEN-YAO (K.Y.) LEEName:
      Kuen-Yao (K.Y.) LeeTitle:
      Chief Executive Officer


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Certification

I, Max Cheng, the Chief Financial Officer of AU Optronics Corp., or the registrant, certify that:

1. I have reviewed this annual report on Form 20-F of AU Optronics Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;

4. The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the company and have:

> (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
>     company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
>   (b) Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
>     procedures, as of the end of the period covered by this report based on such evaluation; and
>   (c) Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially
>     affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and

5. The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the
audit committee of the companys board of directors (or persons performing the equivalent functions):

> (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
>     companys ability to record, process, summarize and report financial information; and
>   (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.

Date: June 3, 2005

By:
      /s/ MAX CHENGName:
      Max ChengTitle:
      Chief Financial Officer


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AU OPTRONICS CORP.

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2002,
  2003 and 2004

(With Report of Independent Registered Public Accounting Firm)



F-1

---

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
AU Optronics
Corp.:

We have audited the consolidated balance sheets of
AU Optronics Corp. and subsidiaries as of December 31, 2003 and 2004, and the
related consolidated statements of operations, stockholders equity and
cash flows for  each of the years in the three-year period ended December 31,
2004. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial  statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of AU Optronics Corp. and subsidiaries as of December 31, 2003 and
2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with accounting principles generally accepted in the Republic of China.

The consolidated financial statements as of and for the year ended December 31, 2004, have been translated into United States dollars solely for the convenience of the readers. We have audited the translation and, in our
opinion, the consolidated financial statements expressed in New Taiwan dollars have been translated into United States dollars on the basis set forth in note 2(v) to the consolidated financial statements.

Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and
effect of such differences is presented in note 22 to the consolidated financial statements.

KPMG Certified Public Accountants



Hsinchu, Taiwan (the Republic of China)April 26, 2005

F-2

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2003 and 2004(Expressed in thousands of New Taiwan dollars and US dollars)

|                                                   |  | 2003        |   |  | 2004        |  
|-------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                   |  |             |   |  |             |  
|                                                   |  | NT$         |   |  | NT$         |  
|Assets                                             |  |             |   |  |             |  
|Current assets:                                    |  |             |   |  |             |  
|Cash and cash equivalents (note 3)                 |  | 17,962,082  |   |  | 17,797,663  |  
|Short-term investments, net (notes 4 and 16)       |  | 2,286,504   |   |  | 1,586,504   |  
|Notes and accounts receivable, net (note 5)        |  | 11,438,339  |   |  | 15,297,617  |  
|Receivables from related parties (note 17)         |  | 5,522,640   |   |  | 5,420,358   |  
|Inventories, net (note 6)                          |  | 9,956,128   |   |  | 15,884,989  |  
|Other current financial assets (note 16)           |  | 285,142     |   |  | 603,270     |  
|Prepayments and other current assets               |  | 435,776     |   |  | 693,999     |  
|Net deferred tax assets (note 14)                  |  | 2,795,733   |   |  | 2,462,903   |  
|                                                   |  |             |   |  |             |  
|Total current assets                               |  | 50,682,344  |   |  | 59,747,303  |  
|                                                   |  |             |   |  |             |  
|Long-term investments(notes 7 and 16):             |  |             |   |  |             |  
|Equity method                                      |  | 701,432     |   |  | 5,577,403   |  
|Cost method                                        |  | 185,329     |   |  | 373,285     |  
|                                                   |  |             |   |  |             |  
|                                                   |  | 886,761     |   |  | 5,950,688   |  
|                                                   |  |             |   |  |             |  
|Property, plant and equipment(notes 8, 17 and 18): |  |             |   |  |             |  
|Land                                               |  | 159,996     |   |  | 159,996     |  
|Buildings                                          |  | 14,445,741  |   |  | 16,648,783  |  
|Machinery and equipment                            |  | 105,436,010 |   |  | 145,842,129 |  
|Leasehold improvements and other equipment         |  | 4,676,882   |   |  | 8,237,077   |  
|                                                   |  |             |   |  |             |  
|                                                   |  | 124,718,629 |   |  | 170,887,985 |  
|Less: accumulated depreciation and amortization    |  | (39,856,546 | ) |  | (62,243,912 | )
|Construction in progress                           |  | 3,909,682   |   |  | 13,061,619  |  
|Prepayment for purchases of land and equipment     |  | 11,780,752  |   |  | 38,037,431  |  
|                                                   |  |             |   |  |             |  
|Net property, plant and equipment                  |  | 100,552,517 |   |  | 159,743,123 |  
|                                                   |  |             |   |  |             |  
|Intangible assets                                  |  | 2,237,936   |   |  | 1,062,747   |  
|                                                   |  |             |   |  |             |  
|Other assets:                                      |  |             |   |  |             |  
|Idle assets, net (note 8)                          |  | 1,492,584   |   |  | 1,259,621   |  
|Refundable deposits (note 17)                      |  | 1,154,925   |   |  | 1,128,964   |  
|Deferred charges                                   |  | 1,034,574   |   |  | 1,265,318   |  
|Net deferred tax assets (note 14)                  |  | -           |   |  | 507,461     |  
|Restricted cash in bank                            |  | 29,200      |   |  | 29,200      |  
|                                                   |  |             |   |  |             |  
|Total other assets                                 |  | 3,711,283   |   |  | 4,190,564   |  
|                                                   |  |             |   |  |             |  
|Total assets                                       |  | 158,070,841 |   |  | 230,694,425 |  
|                                                   |  |             |   |  |             |  

See accompanying notes to consolidated financial statements.

F-3

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

December 31, 2003 and 2004(Expressed in thousands of New Taiwan dollars and US dollars except par value)

|                                                                                   |  | 2003        |   |  | 2004        |  
|---------------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                                   |  |             |   |  |             |  
|                                                                                   |  | NT$         |   |  | NT$         |  
|Liabilities and Stockholders Equity                                               |  |             |   |  |             |  
|Current liabilities:                                                               |  |             |   |  |             |  
|Short-term borrowings (note 9)                                                     |  | 300,795     |   |  | 6,183,004   |  
|Accounts payable                                                                   |  | 22,149,503  |   |  | 27,129,790  |  
|Payables to related parties (note 17)                                              |  | 1,019,031   |   |  | 750,582     |  
|Accrued expenses and other current liabilities                                     |  | 3,274,830   |   |  | 5,287,010   |  
|Equipment and construction in progress payable                                     |  | 6,153,328   |   |  | 7,165,981   |  
|Current installments of long-term
 liabilities (notes 10, 11, and 18)              |  | 6,892,110   |   |  | 7,084,416   |  
|                                                                                   |  |             |   |  |             |  
|Total current liabilities                                                          |  | 39,789,597  |   |  | 53,600,783  |  
|                                                                                   |  |             |   |  |             |  
|Long-term liabilities:                                                             |  |             |   |  |             |  
|Long-term
            borrowings excluding current installments  (notes 10 and 18) |  | 25,306,447  |   |  | 40,334,053  |  
|Bonds
            payable excluding current installments (notes 11 and 18)         |  | -           |   |  | 6,000,000   |  
|                                                                                   |  |             |   |  |             |  
|Total long-term liabilities                                                        |  | 25,306,447  |   |  | 46,334,053  |  
|                                                                                   |  |             |   |  |             |  
|Other liabilities(notes 12 and 14)                                                 |  | 320,270     |   |  | 193,994     |  
|                                                                                   |  |             |   |  |             |  
|Total liabilities                                                                  |  | 65,416,314  |   |  | 100,128,830 |  
|                                                                                   |  |             |   |  |             |  
|Commitments and contingent liabilities(note 19)                                    |  |             |   |  |             |  
|Stockholders equity(note 13):                                                     |  |             |   |  |             |  
|Capital stock:                                                                     |  |             |   |  |             |  
|Common stock, NT$10 par value                                                      |  | 43,522,372  |   |  | 49,580,409  |  
|                                                                                   |  |             |   |  |             |  
|Capital surplus                                                                    |  | 32,197,790  |   |  | 45,165,093  |  
|                                                                                   |  |             |   |  |             |  
|Retained earnings:                                                                 |  |             |   |  |             |  
|Legal reserve                                                                      |  | 602,267     |   |  | 2,168,260   |  
|Unappropriated retained earnings                                                   |  | 16,578,660  |   |  | 34,104,623  |  
|                                                                                   |  |             |   |  |             |  
|                                                                                   |  | 17,180,927  |   |  | 36,272,883  |  
|                                                                                   |  |             |   |  |             |  
|Cumulative translation adjustment                                                  |  | 4,419       |   |  | (201,809    | )
|                                                                                   |  |             |   |  |             |  
|Treasury stock                                                                     |  | (250,981    | ) |  | (250,981    | )
|                                                                                   |  |             |   |  |             |  
|Total stockholders equity                                                         |  | 92,654,527  |   |  | 130,565,595 |  
|                                                                                   |  |             |   |  |             |  
|Total Liabilities and Stockholders Equity                                         |  | 158,070,841 |   |  | 230,694,425 |  
|                                                                                   |  |             |   |  |             |  

See accompanying notes to consolidated financial statements.

F-4

---

AU OPTRONICS CORP.
AND SUBSIDIARIES

Consolidated Statements of Operations

Years
      ended December 31, 2002, 2003 and 2004

(Expressed in thousands of New
        Taiwan dollars and US dollars,
  except for per share data)

|                                                                                   |  | 2002       |  | 2003        |   | 2004       
|---------------------------------------------------------------------------------- |  | ---------- |  | ----------- | - | -----------
|                                                                                   |  |            |  |             |   |            
|                                                                                   |  | NT$        |  | NT$         |   | NT$        
|                                                                                   |  |            |  |             |   |            
|Net sales(note 17)                                                                 |  | 75,689,165 |  | 104,860,642 |   | 168,111,569
|Cost of goods sold(note 17)                                                        |  | 63,606,190 |  | 81,398,889  |   | 128,468,264
|                                                                                   |  |            |  |             |   |            
|Gross profit                                                                       |  | 12,082,975 |  | 23,461,753  |   | 39,643,305 
|                                                                                   |  |            |  |             |   |            
|Operating expenses(notes 17 and 19):                                               |  |            |  |             |   |            
|Selling                                                                            |  | 520,016    |  | 1,394,998   |   | 2,447,102  
|General and administrative                                                         |  | 1,615,959  |  | 2,435,619   |   | 3,577,327  
|Research and development                                                           |  | 2,233,119  |  | 3,386,352   |   | 5,011,547  
|                                                                                   |  |            |  |             |   |            
|                                                                                   |  | 4,369,094  |  | 7,216,969   |   | 11,035,976 
|                                                                                   |  |            |  |             |   |            
|Operating income                                                                   |  | 7,713,881  |  | 16,244,784  |   | 28,607,329 
|                                                                                   |  |            |  |             |   |            
|Non-operating income:                                                              |  |            |  |             |   |            
|Interest revenue                                                                   |  | 280,410    |  | 161,121     |   | 174,898    
|Investment
              gain recognized by equity method investment, net (note 7) |  | -          |  | -           |   | 34,268     
|Gain on market price recovery
 of short-term investments                           |  | -          |  | 126,883     |   | -          
|Other income (notes 17 and 19)                                                     |  | 261,409    |  | 242,840     |   | 291,809    
|                                                                                   |  |            |  |             |   |            
|                                                                                   |  | 541,819    |  | 530,844     |   | 500,975    
|                                                                                   |  |            |  |             |   |            
|Non-operating expenses and losses:                                                 |  |            |  |             |   |            
|Interest expense (notes 9 to 11 and 16)                                            |  | 1,231,514  |  | 819,240     |   | 796,279    
|Investment loss recognized by
 equity method investment, net (note 7)              |  | 10,475     |  | 14,449      |   | -          
|Short-term investment permanent
 impairment loss                                   |  | 650,626    |  | -           |   | -          
|Foreign currency exchange loss, net (note 16)                                      |  | 210,815    |  | -           |   | -          
|Other loss (note 17)                                                               |  | 129,510    |  | 368,680     |   | 287,827    
|                                                                                   |  |            |  |             |   |            
|                                                                                   |  | 2,232,940  |  | 1,202,369   |   | 1,084,106  
|                                                                                   |  |            |  |             |   |            
|Income before income tax                                                           |  | 6,022,760  |  | 15,573,259  |   | 28,024,198 
|Income tax expense (benefit)(note 14)                                              |  | 91         |  | (86,669     | ) | 61,346     
|                                                                                   |  |            |  |             |   |            
|Net income                                                                         |  | 6,022,669  |  | 15,659,928  |   | 27,962,852 
|                                                                                   |  |            |  |             |   |            
|Earnings per common share(note 15):                                                |  |            |  |             |   |            
|Basic earnings per common share                                                    |  | 1.65       |  | 3.65        |   | 5.82       
|                                                                                   |  |            |  |             |   |            
|Diluted earnings per common share                                                  |  | 1.55       |  | 3.61        |   |            
|                                                                                   |  |            |  |             |   |            
|Basic earnings per common share-                                                   |  |            |  |             |   |            
|retroactively adjusted                                                             |  | 1.46       |  | 3.41        |   |            
|                                                                                   |  |            |  |             |   |            
|Diluted earnings per common share-                                                 |  |            |  |             |   |            
|retroactively adjusted                                                             |  | 1.39       |  | 3.38        |   |            
|                                                                                   |  |            |  |             |   |            

See accompanying notes to consolidated financial statements.

F-5

---

AU OPTRONICS CORP. AND
SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

Years ended December 31,
        2002, 2003 and 2004
  (Expressed in
  thousands of New Taiwan dollars and shares)

|                                                               |  | Capital Stock |  |  |              |  |  | Retained Earnings                          |   |  |                 |   |  |               |   |  |                                               |  
|-------------------------------------------------------------- |  | ------------- |  |  | ------------ |  |  | ------------------------------------------ | - |  | --------------- | - |  | ------------- | - |  | --------------------------------------------- | -
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|                                                               |  | Common
shares |  |  | Common
stock |  |  | Certificates
exchangeable
for common
stock |   |  | Capital
surplus |   |  | Legal
reserve |   |  | Unappropriated
earnings
(accumulated
deficit) |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|Balance at January 1, 2002                                     |  | 2,970,581     |  |  | 29,705,816   |  |  | -                                          |   |  | 17,998,396      |   |  | 232,014       |   |  | (3,997,843                                    | )
|Issuance of common stock for cash                              |  | 500,000       |  |  | 5,000,000    |  |  | -                                          |   |  | 14,170,256      |   |  | -             |   |  | -                                             |  
|Transfer of legal reserve to unappropriated earnings           |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | (232,014      | ) |  | 232,014                                       |  
|Transfer of capital surplus to unappropriated earnings         |  | -             |  |  | -            |  |  | -                                          |   |  | (3,765,829      | ) |  | -             |   |  | 3,765,829                                     |  
|Net income for 2002                                            |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | 6,022,669                                     |  
|Purchase of treasury stock                                     |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | -                                             |  
|Cumulative translation adjustment                              |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | -                                             |  
|Convertible bonds converted to common stock                    |  | 553,613       |  |  | 5,536,129    |  |  | 1,012                                      |   |  | 3,315,293       |   |  | -             |   |  | -                                             |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|Balance at December 31, 2002                                   |  | 4,024,194     |  |  | 40,241,945   |  |  | 1,012                                      |   |  | 31,718,116      |   |  | -             |   |  | 6,022,669                                     |  
|Appropriation for legal reserve                                |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | 602,267       |   |  | (602,267                                      | )
|Cash dividends                                                 |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | (2,006,917                                    | )
|Issuance of shareholders stock dividends                       |  | 200,692       |  |  | 2,006,917    |  |  | -                                          |   |  | -               |   |  | -             |   |  | (2,006,917                                    | )
|Issuance of employee stock bonus                               |  | 43,363        |  |  | 433,632      |  |  | -                                          |   |  | -               |   |  | -             |   |  | (433,632                                      | )
|Directors and supervisors remuneration                       |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | (54,204                                       | )
|Net income for 2003                                            |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | 15,659,928                                    |  
|Purchase of treasury stock                                     |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | -                                             |  
|Cumulative translation adjustment                              |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | -                                             |  
|Convertible bonds converted to common stock                    |  | 83,988        |  |  | 839,878      |  |  | (1,012                                     | ) |  | 479,674         |   |  | -             |   |  | -                                             |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|Balance at December 31, 2003                                   |  | 4,352,237     |  |  | 43,522,372   |  |  | -                                          |   |  | 32,197,790      |   |  | 602,267       |   |  | 16,578,660                                    |  
|Issuance of common stock for cash                              |  | 300,000       |  |  | 3,000,000    |  |  | -                                          |   |  | 12,967,194      |   |  | -             |   |  | -                                             |  
|Appropriation for legal reserve                                |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | 1,565,993     |   |  | (1,565,993                                    | )
|Cash dividend                                                  |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | (5,208,285                                    | )
|Issuance of shareholders stock dividends                       |  | 217,012       |  |  | 2,170,119    |  |  | -                                          |   |  | -               |   |  | -             |   |  | (2,170,119                                    | )
|Cash employees profit sharing                                 |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | (380,535                                      | )
|Issuance of employee stock bonus                               |  | 88,792        |  |  | 887,918      |  |  | -                                          |   |  | -               |   |  | -             |   |  | (887,918                                      | )
|Directors and supervisors remuneration                       |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | (70,470                                       | )
|Effect of disproportionate participation in investees capital |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|increase                                                       |  | -             |  |  | -            |  |  | -                                          |   |  | 109             |   |  | -             |   |  | (153,569                                      | )
|Net income for 2004                                            |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | 27,962,852                                    |  
|Cumulative translation adjustment                              |  | -             |  |  | -            |  |  | -                                          |   |  | -               |   |  | -             |   |  | -                                             |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|Balance at December 31, 2004                                   |  | 4,958,041     |  |  | 49,580,409   |  |  | -                                          |   |  | 45,165,093      |   |  | 2,168,260     |   |  | 34,104,623                                    |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  
|                                                               |  |               |  |  |              |  |  |                                            |   |  |                 |   |  |               |   |  |                                               |  

F-6

---

AU OPTRONICS CORP.
AND SUBSIDIARIES

Consolidated Statements of Cash
      Flows

Years ended December 31, 2002,
      2003 and 2004
  (Expressed in thousands of New Taiwan dollars and US dollars)

|                                                                        |  | 2002        |   |  | 2003        |   |  | 2004        |  
|----------------------------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                                        |  |             |   |  |             |   |  |             |  
|                                                                        |  | NT$         |   |  | NT$         |   |  | NT$         |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash flows from operating activities:                                   |  |             |   |  |             |   |  |             |  
|Net income                                                              |  | 6,022,669   |   |  | 15,659,928  |   |  | 27,962,852  |  
|Adjustments to reconcile net income to net cash provided by             |  |             |   |  |             |   |  |             |  
|operating activities:                                                   |  |             |   |  |             |   |  |             |  
|Depreciation and amortization                                           |  | 11,498,954  |   |  | 14,780,225  |   |  | 23,653,128  |  
|Amortization of intangible assets and deferred charge                   |  | 1,490,968   |   |  | 1,514,404   |   |  | 1,656,148   |  
|Provision for early redemption of convertible bonds and                 |  |             |   |  |             |   |  |             |  
|amortization of discount for commercial paper                           |  | 114,548     |   |  | 31,799      |   |  | -           |  
|Unrealized exchange loss (gain), net                                    |  | 348,155     |   |  | (70,837     | ) |  | 4,046       |  
|Provision for inventory devaluation                                     |  | -           |   |  | 324,186     |   |  | 588,428     |  
|Loss (gain) from disposal property, plant and equipment                 |  | (3,293      | ) |  | 63,555      |   |  | 22,539      |  
|Provision for idle assets revaluation                                   |  | -           |   |  | 75,594      |   |  | 136,574     |  
|Investment loss (gain) under equity method                              |  | 661,101     |   |  | (14,224     | ) |  | (75,230     | )
|Increase
 in notes and accounts receivable (including related
 parties) |  | (1,171,490  | ) |  | (6,894,206  | ) |  | (4,541,413  | )
|Decrease (increase) in inventories                                      |  | 526,425     |   |  | (1,770,744  | ) |  | (6,517,288  | )
|Decrease (increase) in prepayments and other current                    |  |             |   |  |             |   |  |             |  
|assets                                                                  |  | (484,340    | ) |  | 662,702     |   |  | (299,920    | )
|Increase in deferred tax assets, net                                    |  | -           |   |  | (86,669     | ) |  | (294,415    | )
|Increase in notes and accounts payable (including related               |  |             |   |  |             |   |  |             |  
|parties)                                                                |  | 1,321,956   |   |  | 11,412,995  |   |  | 5,026,628   |  
|Increase in accrued expenses and other current liabilities              |  | 486,166     |   |  | 1,308,965   |   |  | 2,012,180   |  
|Increase in accrued pension liabilities and others                      |  | 9,898       |   |  | 43,799      |   |  | 59,323      |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Net cash provided by operating activities                               |  | 20,821,717  |   |  | 37,041,472  |   |  | 49,393,580  |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash flows from investing activities:                                   |  |             |   |  |             |   |  |             |  
|Decrease in short-term investments                                      |  | 1,144,082   |   |  | 974,003     |   |  | 708,756     |  
|Acquisition of property, plant and equipment                            |  | (18,035,305 | ) |  | (39,300,566 | ) |  | (81,868,673 | )
|Proceeds from disposal of property, plant and equipment                 |  | 78,719      |   |  | 10,954      |   |  | -           |  
|Increase in long-term investments                                       |  | (46,586     | ) |  | (817,013    | ) |  | (5,385,466  | )
|Proceeds from disposal of long-term investments                         |  | -           |   |  | -           |   |  | 230,736     |  
|Decrease in restricted cash in bank                                     |  | 97,342      |   |  | 23,000      |   |  | -           |  
|Increase in intangible assets and deferred charges                      |  | (1,239,156  | ) |  | (1,092,946  | ) |  | (721,488    | )
|Decrease (increase) in refundable deposits                              |  | (124,050    | ) |  | (136,798    | ) |  | 25,961      |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Net cash used in investing activities                                   |  | (18,124,954 | ) |  | (40,339,366 | ) |  | (87,010,174 | )
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash flows from financing activities:                                   |  |             |   |  |             |   |  |             |  
|Increase (decrease) in short-term borrowings                            |  | (1,815,517  | ) |  | (469,649    | ) |  | 5,882,209   |  
|Increase (decrease) in guarantee deposits                               |  | 21,585      |   |  | (21,980     | ) |  | 1,455       |  
|Payment of long-term borrowings and bonds payable                       |  | (5,104,110  | ) |  | (10,792,110 | ) |  | (6,892,110  | )
|Increase in long-term borrowings and bonds payable                      |  | 4,664,932   |   |  | 8,740,405   |   |  | 28,315,772  |  
|Purchase of treasury stock                                              |  | (182,849    | ) |  | (68,132     | ) |  | -           |  
|Issuance of common stock for cash                                       |  | 19,170,256  |   |  | -           |   |  | 15,967,194  |  
|Cash dividend                                                           |  | -           |   |  | (2,006,917  | ) |  | (5,208,285  | )
|Directors and supervisors remuneration and employees                 |  |             |   |  |             |   |  |             |  
|profit sharing                                                          |  | -           |   |  | (54,204     | ) |  | (451,005    | )
|                                                                        |  |             |   |  |             |   |  |             |  
|Net cash provided by (used in) financing activities                     |  | 16,754,297  |   |  | (4,672,587  | ) |  | 37,615,230  |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Effect of exchange rate change on cash                                  |  | 9,866       |   |  | (24,631     | ) |  | (163,055    | )
|                                                                        |  |             |   |  |             |   |  |             |  
|Net increase (decrease) in cash and cash equivalents                    |  | 19,460,926  |   |  | (7,995,112  | ) |  | (164,419    | )
|Cash and cash equivalents at beginning of year                          |  | 6,496,268   |   |  | 25,957,194  |   |  | 17,962,082  |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash and cash equivalents at end of year                                |  | 25,957,194  |   |  | 17,962,082  |   |  | 17,797,663  |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Supplemental disclosures of cash flow information:                      |  |             |   |  |             |   |  |             |  
|Cash paid for interest expense                                          |  | 1,253,983   |   |  | 823,773     |   |  | 771,423     |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash paid (received) for income taxes                                   |  | 19,343      |   |  | (15,581     | ) |  | 14,189      |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Additions to property, plant and equipment:                             |  |             |   |  |             |   |  |             |  
|Increase in property, plant and equipment                               |  | 18,589,628  |   |  | 44,414,072  |   |  | 83,047,775  |  
|Increase in equipment and construction in process payable               |  | (554,323    | ) |  | (5,113,506  | ) |  | (1,179,102  | )
|                                                                        |  |             |   |  |             |   |  |             |  
|Cash paid                                                               |  | 18,035,305  |   |  | 39,300,566  |   |  | 81,868,673  |  
|                                                                        |  |             |   |  |             |   |  |             |  
|Supplementary disclosure of non-cash investing and                      |  |             |   |  |             |   |  |             |  
|financing
 activities                                                   |  |             |   |  |             |   |  |             |  
|Convertible bonds applying for conversion                               |  | 8,852,434   |   |  | 1,318,540   |   |  | -           |  
|                                                                        |  |             |   |  |             |   |  |             |  

See accompanying notes to consolidated financial statements.

F-7

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of and for the years ended December 31, 2002, 2003 and 2004

|(1) | Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | AU Optronics Corp. (AUO) was founded in the Hsinchu Science Park of the Republic of China on August 12, 1996. AUOs main activities are the research, development, production and sale of thin film transistor
liquid crystal displays (TFT-LCDs), and other flat panel displays used in a wide variety of applications, including notebook personal computers, desktop monitors, televisions, personal digital assistants, car televisions, digital cameras
and camcorders, car navigation systems and mobile phones. AUOs common shares were publicly listed on the Taiwan Stock Exchange in September 2000 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange
in May 2003.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On May 10, 2001, the Companys stockholders approved a proposal to merge with Unipac Optoelectronics Corp. (Unipac). Unipac was subsequently dissolved. Unipac was principally engaged in the research,
development, design, manufacture and sale of TFT-LCD and LCD modules used in wide variety of applications, including notebook, personal computers, desktop monitor, digital cameras and camcorders, car televisions, car navigation systems, personal
digital assistants and internet appliances. On September 1, 2001, Unipac was merged with and into the Company in a transaction accounted for in accordance with the pooling-of-interests method of accounting.                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | AU Optronics (L) Corp. (AUL) is a wholly owned subsidiary of AUO and was incorporated in September 2000. AUL is a holding company investing in the wholly owned foreign subsidiaries including AU Optronics
Corporation America (AUA), AU Optronics (Suzhou) Corp. (AUS), AU Optronics Europe B.V. (AUE), AU Optronics Korea Ltd. (AUK) and AU Optronics Corporation Japan (AUJ). AUS is engaged in the assembly of TFT-LCD
module products in Mainland China. AUA, AUJ, AUE and AUK are mainly engaged in the sale of TFT-LCDs.                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Konly Venture Corp. (Konly), a wholly owned subsidiary of AUO, was incorporated in August 2002. Konly is an investment holding company for investments in other technology companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As of December 31, 2004, AUO and its consolidated subsidiaries have 19,907 employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | (a) | Accounting principles and consolidation policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The consolidated financial statements include the accounts of AUO and the aforementioned subsidiaries, hereinafter, referred to individually or collectively as the Company.                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The consolidated financial statements are prepared in accordance with the Guideline Governing the Preparation of Financial Report by Securities Issuers and accounting principles generally accepted in the Republic of China
(ROC GAAP). These consolidated financial statements are not intended to present the financial position and the related results of operations and cash flows of the Company based on accounting principles and practices generally accepted in
countries and jurisdictions other than the Republic of China.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | All significant inter-company balances and transactions are eliminated in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (b) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-8

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004



| |     | Revenue is recognized when title to the
        products and risk of ownership are transferred to the customers, which occurs principally at
    the time of shipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Allowance and related provisions for sales
      returns are estimated based on historical experience. Such provisions are deducted from sales in
    the year the products are sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (c) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. Economic conditions and events could cause actual results to differ significantly from such management
estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (d) | Foreign currency transactions and translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | AUOs functional currency is the New Taiwan dollar. The Company and its subsidiaries record transactions in their respective local currencies. The translation from the applicable foreign currency assets and liabilities
to the New Taiwan dollar is performed using exchange rates in effect at the balance sheet date except for stockholders equity, which is translated at historical exchange rates. Revenue and expense accounts are translated using average exchange
rates during the year. Gains and losses resulting from such translations are recorded as a cumulative translation adjustment, a separate component of stockholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Foreign currency transactions are recorded at the exchange rates prevailing at the transaction dates. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated using the
exchange rates prevailing on that date. The resulting exchange gains or losses from settlement of such transactions or translations of monetary assets and liabilities are reflected in the accompanying consolidated statements of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (e) | Cash equivalents and restricted cash in bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company considers all highly liquid investments, such as investments in government bonds with repurchase agreements, original with maturity of three months or less to be cash equivalents. Time deposits, which are
provided as collateral, are classified as current assets or non-current assets depending on the term of the obligation secured by such collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (f) | Short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Short-term investments, which consist primarily of marketable securities such as publicly listed stock, open-end mutual funds, are recorded at cost when acquired and are stated at the lower of aggregate cost or fair value
at the balance sheet date. The fair value of listed stocks is determined by the average closing prices during the last month prior to the balance sheet date. The fair value for open-end mutual funds is determined by their net asset value at the
balance sheet date. The amount by which the aggregate cost of the entire portfolio exceeds fair value is reported as a loss in the current year. In subsequent periods, recoveries of fair value are recognized as a gain to the extent that the fair
value does not exceed the original aggregate cost of the investment. Valuation losses are recorded as non-operating expenses in the accompanying consolidated statements of operations. Losses due to permanent impairment are charged to the statement
of operations at the time the impairment occurs. Stock dividends are not treated as income, but as an increase in shares held.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-9

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | (g) | Allowance for doubtful accounts and sales returns and discounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The allowance for doubtful accounts is based on the age, credit quality and results of the Companys evaluation of collectibility of the outstanding balance of notes and accounts receivable. An allowance for sales
returns and discount is based upon managements estimation of sales returns based upon actual experience and managements granting of sales discounts to certain customers subsequent to the initial sale of product.                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (h) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Inventories are stated at the lower of cost or fair value. Cost is determined using the weighted-average method. The fair value of raw material is determined on the basis of replacement cost. Fair values of finished goods
and work-in-process are determined on the basis of net realizable value. A provision for inventory obsolescence and devaluation is recorded when management determines that the fair values of inventories are less than its cost basis. The provision is
calculated based on, in part, the number of months inventory items remain unsold.                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (i) | Long-term investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Long-term equity investments in which the Company is not able to exercise significant influence over the investees operations and financial policies, generally those in which it owns less than 20% of the
investees voting shares are accounted for by the cost method if the investee is an unlisted company, otherwise, by the lower of cost or market value if the investee is a listed company. If there is evidence indicating that a decline in the
value of an investment is other than temporary, then the carrying amount of the investment is reduced to reflect its net realizable value. The related loss is recognized in the accompanying consolidated statements of operations.                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | When the Company has significant influence over the
operating, financial and dividend policies of investees or has the intention
to hold the investment for a long term period, generally those in which it owns between 20 and 50 percent of the investees voting shares, those investments
are accounted for using the equity method. The difference between the acquisition
cost and the carrying amount of net equity of the investee as of the acquisition
date is allocated based upon the prorate excess of fair value over the carrying
value of assets on the investees books. Allocated amount are amortized
based on the method used for the related asset. Any unallocated amount shall
be amortized over five years using the straight-line method. The amortization
is recorded as investment income (loss) in the accompanying consolidated statements
of operations.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | If an investee company issues new shares and the Company does not acquire new shares in a proportion to its original ownership percentage, the Companys equity in the investees net assets will be changed. The
change in the equity interest shall be used to adjust the capital surplus and long-term investments accounts. If the Companys capital surplus is not sufficient to offset the adjustment to long-term investment, then the difference shall be
debited to retained earnings. If investees are unable to forward their audited financial statements in timely fashion, the Company recognizes the income (loss) of the investees in the following year. This time lag is consistent from period to
period.                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Unrealized inter-company profits or losses resulting from transactions between the Company and an investee accounted for under the equity method are deferred. The profits or losses resulting from
depreciated or amortized assets are recognized over the estimated economic lives
of such assets. The profits or losses from other assets are recognized when realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-10

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |     | The differences resulting from translation
      of the financial statements of the foreign investees accounted for under the equity method into
      New Taiwan dollars, net of the related tax effect, are recorded as cumulative translation adjustments,
    a separate component of stockholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (j) | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Property, plant and equipment are stated at acquisition cost. Excluding land, depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method
less any salvage value. The range of the estimated useful lives are as follows: buildings  20 to 50 years, machinery and equipment  3 to 10 years, leasehold improvement  shorter of 5 years or the lease term, and other equipment
 3 to 5 years. Interest costs related to the construction of property, plant and equipment are capitalized and included in the cost of the related asset. Property, plant and equipment leased to other parties under operating lease are
classified as leased assets. Property, plant and equipment not in use are classified as idle asset and are stated at the lower of carrying amount and net realizable value.                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (k) | Impairment of long-lived assets and long-lived assets to be disposed of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (l) | Technology related fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The costs resulted from patent and license of the product and process technology for TFT-LCDs and other flat-panel displays are capitalized and amortized over the respective contract period of 3 to 15 years on a
straight-line basis. The amortization of the technology fixed license fees is included in research and development expenses in the consolidated statements of operations. On-going royalty fees associated with product production and sales related to
these licenses are included in costs of goods sold in the consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (m) | Deferred charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The cost of software systems, electrical facility installation charges, syndicated loan, bond issuances and land use right are accounted for as deferred charges. The costs of the software systems are amortized over the
estimated useful lives of three years on a straight-line basis, and electrical facility installation charges are amortized over the estimated useful lives of five years on a straight-line basis. The expenses associated with the syndicated loan are
amortized over the term of the debt on a straight-line basis. The expenses associated with issuing bonds payable and convertible bonds are amortized by using the straight-line method over the period from the issuance date to the maturity date (five
or seven years). When the bondholder exercise the conversion option or the Company early extinguishes of convertible bonds, the unamortized issuance expenses will be
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-11

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |     | write-off. The cost of land use right is amortized
    by using the straight-line method over twenty years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (n) | Convertible bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company issued convertible bonds, which provide for early redemption at the option of the Company or bondholders at a premium over par value. The excess of the stated redemption price over the par value is accrued as
provision for early redemption during the redemption period, using the effective interest method. When the redemption right expires, the balance of the provision for early redemption is amortized over the period from the expiration date to the
maturity date using the effective interest method.                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | If the bondholders exercise their conversion right, the unamortized issuing costs, forfeited unpaid interest, provision for early redemption and par value of the extinguished bonds are transferred to stockholders
equity. The excess of such amounts over the par value of the stock for conversion of the convertible bond is recorded as capital surplus in the accompanying consolidated balance sheets, and no gain or loss is recognized on bond
conversion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (o) | Employee retirement plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | AUO has established a noncontributory employee, defined benefit retirement plan (the Plan) covering full-time employees in the Republic of China. In accordance with the Plan, employees are eligible for retirement or are
required to retire after meeting certain age or service requirements. Payments of retirement benefits are based on years of service and the average salary for the six-month period before the employees retirement. Each employee earns two months
of salary for the first fifteen years of service, and one month of salary for each year of service thereafter. The maximum retirement benefit is 45 months of salary. The plan is funded by contributions made by AUO, plus earnings thereon. On a
monthly basis, AUO contributes two percent of wages and salaries to a pension fund maintained with the Central Trust of China. Retirement benefits are paid to eligible participants on a lump-sum basis upon retirement.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | AUO has adopted Republic of China Statement of Financial Accounting Standards (SFAS) No. 18, Accounting for Pensions, for the plan. SFAS No. 18 requires AUO to perform an actuarial calculation on its pension
obligation as of each fiscal year-end. Based on the actuarial calculation, AUO recognizes a minimum pension liability and net periodic pension costs covering the service lives of the Plan participants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (p) | Treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company has adopted Republic of China SFAS No. 30, Accounting for Treasury Stock for treasury stock repurchased by the Company. SFAS No. 30 requires that treasury stock be accounted for under the cost
method. The cost of treasury stock is shown as a deduction to stockholders equity, while any gain or loss from selling treasury stock is treated as an adjustment to capital surplus or retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (q) | Government grants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-12

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |     | Income from government grants for research
      and development is recognized as non-operating income in the accompanying consolidated statements
    of operations as qualifying expenditures are made and the grant income is realizable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (r) | Income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Income taxes are accounted for under the asset and liability method. Deferred income taxes are determined based on differences between the financial statement and tax basis of assets and liabilities using enacted tax rates
in effect during the years in which the differences are expected to reverse. The income tax effects resulting from taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects resulting from deductible
temporary differences, net operating loss carryforwards and income tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than not that the
deferred tax assets will not be realized, a valuation allowance is recognized accordingly.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Classification of the deferred income tax assets or liabilities as current or non-current is based on the classification of the related asset or liability. If the deferred income tax asset or liability is not directly
related to a specific asset or liability, then the classification is based on the expected realization date of such deferred income tax asset or liability.                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | According to the Republic of China Income Tax Law, AUOs undistributed income, if any, earned after December 31, 1997, is subject to an additional 10 percent retained earning tax. The surtax is charged to income tax
expense after the appropriation of earnings is approved by the stockholders in the following year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (s) | Investment tax credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Income tax expense is reduced by investment tax credits in the year in which the credit arises, subject to any valuation allowance thereon.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (t) | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |  | (i)  | Forward foreign currency exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |      | Forward foreign currency exchange contracts are entered to hedge currency fluctuations affecting foreign currency transactions. These forward exchange contract receivables and payables are recorded at the spot rate at the
date of inception. The discount or premium is amortized on a straight-line basis over the life of the contract. Realized and unrealized gains or losses on these contracts resulting from actual settlement or balance sheet date translation are charged
or credited to current operations.
| |  |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (ii) | Interest rate swaps                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |      | The Company enters into interest rate swap contracts to hedge changes in cash flows associated with existing variable rate of long-term debt. Under this interest rate swap contracts, the Company makes specified payments
based on fixed interest rate and notional principal amounts and receives amounts based on variable rate of interest and notional principal. The net amounts received or paid under the contracts are reported as adjustments to interest expense or
interest income on long-term debt.        

F-13

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | (u) | Earnings per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Earnings per share of common stock (EPS) is computed based on the weighted-average number of common shares and certificates exchangeable for common stock outstanding during the period. The Company issued
convertible bonds in November 2001 all of which were converted as of December 31, 2003. Therefore, diluted EPS for the years ended December 31, 2002 and 2003 is disclosed to reflect the diluted effect of the assumed conversion of the convertible
bonds as of the beginning of the period. EPS for prior periods has been retroactively adjusted to reflect the effects of stock issued from stock dividends and new common stock issued through unappropriated earnings and capital surplus.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (v) | Convenience translation into U.S. dollars                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The consolidated financial statements are stated in New Taiwan dollars. Translation of the 2004 New Taiwan dollar amounts into U.S. dollar amounts is included solely for the convenience of the readers, using the noon buying
rate of the Federal Reserve Bank in New York on December 31, 2004, of NT$31.74 to US$1. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be
converted into U.S. dollars at this rate or any other rate of exchange.                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|(3) | Cash and Cash Equivalents                                                             
|--- | --------------------------------------------------------------------------------------
|    |                                                                                       
|    | Cash and cash equivalents as of December 31, 2003 and 2004 consisted of the following:
|    |                                                                                       

| |                                         | December 31,  
| | --------------------------------------- | --------------
| |                                         |               
| |                                         | 2003          
| |                                         |               
| |                                         | NT$           
| |                                         | (in thousands)
| | Cash and bank deposits                  | 14,662,388    
| | Government bonds acquired under reverse |               
| | repurchase agreements                   | 3,299,694     
| |                                         |               
| |                                         | 17,962,082    
| |                                         |               

| | The Company purchases government bonds under
        agreements to resell substantially the same securities within 30 days of the repurchase agreements.
        These agreements represent short-term investments and are reflected as cash equivalents in the
        consolidated balance sheets. The Company may sell, loan or otherwise dispose of such securities
        to other parties in the normal course of operations provided that substantially the same securities
    are delivered to the counter parties as agreed.                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Reverse repurchase agreements averaged NT$3,485,202
        thousand and NT$3,602,679 thousand during the years ended December 31, 2003 and 2004, respectively.
        The maximum amount of such agreements outstanding at any month end was NT$4,472,289 thousand
        and NT$7,313,032 thousand during the years ended December 31, 2003 and 2004, respectively. The
        fair values of the securities held under these agreements as of December 31, 2003 and 2004 approximated
        their carrying amounts. None of the securities held under these agreements were repledged during
    the years ended December 31, 2003 and 2004.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



F-14

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004



|(4) | Short-term
          Investments                                                       
|--- | ---------------------------------------------------------------------------------------
|    |                                                                                        
|    | Short-term investments
    as of December 31, 2003 and 2004 consisted of the following:

|    |                                                                                                 |                        | December 31,  
|--- | ----------------------------------------------------------------------------------------------- | ---------------------- | --------------
|    |                                                                                                 |                        |               
|    |                                                                                                 |                        | 2003          
|    |                                                                                                 |                        |               
|    |                                                                                                 |                        | NT$           
|    |                                                                                                 |                        | (in thousands)
|    |                                                                                                 | Publicly listed stocks | 1,586,504     
|    |                                                                                                 | Mutual funds           | 700,000       
|    |                                                                                                 |                        |               
|    |                                                                                                 |                        | 2,286,504     
|    |                                                                                                 |                        |               
|    |                                                                                                 | Fair value             | 2,746,416     
|    |                                                                                                 |                        |               
|    |                                                                                                 |                        |               
|(5) | Notes and Accounts Receivable                                                                   |                        |               
|    |                                                                                                 |                        |               
|    | Notes and accounts receivable as
    of December 31, 2003 and 2004, consisted of the following: |                        |               

| |                                                                      | December 31,   |  
| | -------------------------------------------------------------------- | -------------- | -
| |                                                                      |                |  
| |                                                                      | 2003           |  
| |                                                                      |                |  
| |                                                                      | NT$            |  
| |                                                                      | (in thousands) |  
| | Notes receivable                                                     | 449,948        |  
| | Accounts receivable                                                  | 11,079,062     |  
| | Less: Allowance for doubtful accounts and sales returns and discount | (90,671        | )
| |                                                                      |                |  
| |                                                                      | 11,438,339     |  
| |                                                                      |                |  

|(6) | Inventories                                                                           
|--- | --------------------------------------------------------------------------------------
|    |                                                                                       
|    | Components of inventories as of December 31, 2003 and 2004 consisted of the following:
|    |                                                                                       

| |                                                            | December 31,   |  
| | ---------------------------------------------------------- | -------------- | -
| |                                                            |                |  
| |                                                            | 2003           |  
| |                                                            |                |  
| |                                                            | NT$            |  
| |                                                            | (in thousands) |  
| | Finished goods                                             | 2,627,540      |  
| | Work in process                                            | 4,488,753      |  
| | Raw materials and spare parts                              | 3,446,763      |  
| |                                                            |                |  
| |                                                            | 10,563,056     |  
| | Less: provision for inventory obsolescence and devaluation | (606,928       | )
| |                                                            |                |  
| |                                                            | 9,956,128      |  
| |                                                            |                |  
| | Insurance coverage on inventories                          | 10,652,200     |  
| |                                                            |                |  

F-15

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

|(7) | Long-term
          Investments                                                           
|--- | ------------------------------------------------------------------------------------------
|    |                                                                                           
|    | Long-term
        investments as of December 31, 2003 and 2004 consisted of the following:
|    |                                                                                           

| |                              | December 31,           
| | ---------------------------- | -----------------------
| |                              |                        
| |                              | 2003                   
| |                              |                        
| |                              | Percentage of ownership
| |                              |                        
| |                              |                        
| |                              | (in thousands)         
| | Equity method:               |                        
| | Patentop Ltd. (Patentop)     | 41.00                  
| | Raydium Semiconductor        |                        
| | Corporation (Raydium)        | 33.33                  
| | Cando Corporation (Cando)    | 12.31                  
| | Fujitsu Display Technologies |                        
| | Corporation (FDTC)           | 20.00                  
| | BenQ Inc. (BenQ)             | -                      
| |                              |                        
| |                              |                        
| |                              |                        
| | The lower of cost or market  |                        
| | value:                       |                        
| | Promate Electronic Co., Ltd. | 0.53                   
| |                              |                        
| |                              |                        
| | Cost method:                 |                        
| | Wellypower Optronic          |                        
| | Corporation Ltd.             | 1.41                   
| | Darly3 Venture Inc.          | 15.57                  
| | BVI Apower Optronics         | 13.90                  
| | Daxon Technology Inc.        | 0.31                   
| | StarBex International Inc.   | 7.50                   
| | FDTC                         | -                      
| |                              |                        
| |                              |                        
| |                              |                        
| |                              |                        
| |                              |                        

> Investments in affiliated companies accounted for under the equity method on December 31, 2004 consist of 41% of the common stock of Patentop, an intellectual property company, 32.79% of the common stock of Raydium, an IC
>     design company, 21.46% of Cando, a color filter manufacturing company and 5.47% of BenQ, a manufacturer and distributor of computer peripheral equipment and communication products.
>   In November 2003, the Company purchased its 12.31% ownership in Cando concurrently with the purchase by a related party of 15.66% of Cando at the same time. The Company and the Companys affiliates hold two boards of
>         director seats in Cando, and have significant influence over Candos day-to-day operations. As such, the Company began account for its investment in Cando under the equity method of accounting effective upon its initial investment in 2003. In
>     February and May 2004, the Company made additional investments in Cando resulting in a 21.46% ownership at December 31, 2004.
>   In March 2003, the Company purchased its 20% ownership in FDTC. Under the terms of the purchase agreement, the Company maintained a board of director seat, entered into a technology licensing agreement, and participated in,
>           certain joint research and development projects related to TFT-LCD technologies.  However, in August 2004, the Company sold half of its investment in FDTC and forfeited its right to appoint a member of the board of directors. The Company is no
>     longer able to

F-16

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

|    | exercise significant influence over FDTC. The
    Company recorded this investment under cost method since September 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In 2004, AUO purchased 126,600 thousand shares
      of BenQ via open market by its cash hand, represent 5.47% of BenQs total outstanding shares.
      The total investment amounted to NT$4,108,923 thousand. The difference between the acquisition
      cost and the net equity of the investee as of the acquisition date is amortized based on the nature
      of their source, except for those from permanent assets. If the source of it cannot be identified,
      such difference is amortized over five years using the straight-line method. As the Company and
      BenQ share a common chairman and chief executive officer, a second officer board member, and have
      other commercial relationships, the Company is deemed to have significant influence over BenQ.
    As such, the Company accounts for its investment in BenQ under the equity method of accounting.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As Patentop and FDTC are unable to forward
      their stand-alone audited financial statements in a timely fashion, the Company recognizes the
    income (loss) of these investees in the following year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The investment losses (gains) related to investment
      accounted for under the equity method were NT$10,475 thousand, NT$14,449 thousand and (NT$34,268)(US$1,080)
    thousand for the years ended December 31, 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(8) | Idle Assets, Interest Capitalization and Insurance Coverage on Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Idle assets as of December 31, 2003 and 2004 consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                                | December 31,   |  
| | ---------------------------------------------- | -------------- | -
| |                                                |                |  
| |                                                | 2003           |  
| |                                                |                |  
| |                                                | NT$            |  
| |                                                | (in thousands) |  
| | Cost:                                          |                |  
| | Land                                           | 478,214        |  
| | Buildings                                      | 544,421        |  
| | Machinery and other equipment                  | 1,072,672      |  
| |                                                |                |  
| |                                                | 2,095,307      |  
| | Less: accumulated depreciation                 | (527,886       | )
| |                                                |                |  
| |                                                | 1,567,421      |  
| | Less: allowance for devaluation on idle assets | (74,837        | )
| |                                                |                |  
| |                                                | 1,492,584      |  
| |                                                |                |  

| | Interest capitalized amounted to NT$211,458 thousand, NT$216,731 thousand and NT$516,436
thousand for the years ended December 31, 2002, 2003 and 2004, respectively.        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                              
| | The capitalization interest rates ranged from 2.99% to 5.04%, 2.27% to 5.23%, and 1.725% to 5.265%
in 2002, 2003 and 2004, respectively.                                     
| |                                                                                                                                                                              
| | Insurance coverage on property, plant and equipment
      amounted to NT$123,673,000 thousand and NT$228,821,240 thousand as of December 31, 2003 and 2004,
    respectively.
| |                                                                                                                                                                              
| | Certain property, plant and equipment were pledged
    as collateral against long-term borrowings (see note 19).                                                             

F-17

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

|(9)  | Short-term Borrowings                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                      
|     | Short-term borrowings are bank loans used for the purchase of raw materials and other routine business operations.                                   
|     |                                                                                                                                                      
|     | The interest rates on short-term borrowings outstanding as of December 31, 2003 and 2004 ranged from 1.52% to 5.23% and 1.40% to 2.90%, respectively.
|     |                                                                                                                                                      
|(10) | Long-term Borrowings                                                                                                                                 
|     |                                                                                                                                                      
|     | The components of long-term borrowings as of December 31, 2003 and 2004, are summarized below:                                                       
|     |                                                                                                                                                      

| |                |  |                        |  |                                         |  | December 31,  
| | -------------- |  | ---------------------- |  | --------------------------------------- |  | --------------
| |                |  |                        |  |                                         |  |               
| | Bank           |  | Purpose                |  | Term                                    |  | 2003          
| |                |  |                        |  |                                         |  |               
| |                |  |                        |  |                                         |  | NT$           
| |                |  |                        |  |                                         |  | (in thousands)
| | International  |  | Purchase of machinery, |  | From Dec. 23, 1999 through Dec. 23,     |  | 1,992,220     
| | Commercial     |  | equipment and building |  | 2005. Repayable in 9 semi-annual        |  |               
| | Bank of China  |  |                        |  | installments starting on Dec. 24, 2001  |  |               
| | International  |  | Purchase of machinery  |  | From Dec. 21, 2000 through Dec. 21.     |  | 8,800,000     
| | Commercial     |  | and equipment          |  | 2007. Repayable in 10 semi-annual       |  |               
| | Bank of China  |  |                        |  | installments starting on June 22, 2003  |  |               
| | Chinatrust     |  | Purchase of machinery, |  | From Sep. 21, 2000 through Sep. 21,     |  | 10,800,000    
| | Commercial     |  | equipment and building |  | 2007. Repayable in 10 semi-annual       |  |               
| | Bank           |  |                        |  | installments starting on Mar. 22, 2003  |  |               
| | Chinatrust     |  | Purchase of machinery, |  | From April 25, 2003 through April 25,   |  | 5,557,300     
| | Commercial     |  | equipment and building |  | 2010. Repayable in 9 semi-annual        |  |               
| | Bank           |  |                        |  | installments starting in April 2006     |  |               
| | International  |  | Purchase of machinery, |  | From May 11, 2004 through May 11,       |  | -             
| | Commercial     |  | equipment and building |  | 2011. Repayable in 9 semi-annual        |  |               
| | Bank of China  |  |                        |  | installments starting in May 2007       |  |               
| | Bank of Taiwan |  | Purchase of machinery, |  | From Dec. 18, 2004 through Dec. 18,     |  | -             
| |                |  | equipment and building |  | 2011. Repayable in 9 semi-annual        |  |               
| |                |  |                        |  | installments starting in Dec. 2007      |  |               
| | Citi Bank      |  | Purchase of machinery, |  | From April 10, 2003 through             |  | 2,977,736     
| |                |  | equipment and building |  | November 14, 2007. Repayable in 6       |  | (USD20,000    
| |                |  |                        |  | semi-annual installments starting on    |  | (RMB560,000)  
| |                |  |                        |  | May 14, 2005. Denominated in US         |  |               
| |                |  |                        |  | dollars and Renminbi                    |  |               
| |                |  |                        |  | From Oct. 12, 2004 through Nov. 14,     |  | -             
| |                |  |                        |  | 2007. Repayable on June 10, 2007        |  |               
| | Industrial and |  | Purchase of machinery, |  | From June 11, 2002 through June 10,     |  | 155,960       
| | Commercial     |  | equipment and building |  | 2007. Repayable on June 10, 2007.       |  | (RMB38,000)   
| | Bank of China  |  |                        |  | Denominated in US dollars and           |  |               
| |                |  |                        |  | Renminbi                                |  |               
| | Industrial and |  | Purchase of machinery, |  | From April 11, 2002 through April 10,   |  | 238,044       
| | Commercial     |  | equipment and building |  | 2007. Repayable on April 10, 2007.      |  | (RMB58,000)   
| | Bank of China  |  |                        |  | Denominated in US dollars and           |  |               
| |                |  |                        |  | Renminbi                                |  |               
| | Bank of China  |  | Purchase of machinery, |  | From June 10, 2002 through Mar. 19,     |  | 681,297       
| |                |  | equipment and building |  | 2007. Repayable in 5 semi-annual        |  | (RMB166,000)  
| |                |  |                        |  | installments starting on Mar. 20, 2005. |  |               
| |                |  |                        |  | Denominated in US dollars and           |  |               
| |                |  |                        |  | Renminbi                                |  |               
| | Industrial and |  | Purchase of machinery, |  | From Aug. 31, 2004 through Aug. 31,     |  | -             
| | commercial     |  | equipment and building |  | 2009. Repayable on Aug. 31, 2009        |  |               
| | Bank of China  |  |                        |  |                                         |  |               

F-18

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |                                                                              |  |                        |  |                                        |  | December 31,  
| | ---------------------------------------------------------------------------- |  | ---------------------- |  | -------------------------------------- |  | --------------
| |                                                                              |  |                        |  |                                        |  |               
| | Bank                                                                         |  | Purpose                |  | Term                                   |  | 2003          
| |                                                                              |  |                        |  |                                        |  |               
| |                                                                              |  |                        |  |                                        |  | NT$           
| |                                                                              |  |                        |  |                                        |  | (in thousands)
| | Standard                                                                     |  | Purchase of machinery, |  | From Mar. 20, 2004 through Dec. 31,    |  | -             
| | Chartered Bank                                                               |  | equipment and building |  | 2009. Repayable in 6 semi-annual       |  |               
| |                                                                              |  |                        |  | installments starting on June 30, 2007 |  |               
| |                                                                              |  |                        |  |                                        |  |               
| |                                                                              |  |                        |  |                                        |  | 31,202,557    
| | Less: current portion                                                        |  |                        |  | (5,896,110)                            |  | (7,084,416)   
| |                                                                              |  |                        |  |                                        |  |               
| |                                                                              |  |                        |  |                                        |  | 25,306,447    
| |                                                                              |  |                        |  |                                        |  |               
| | Unused available balance (include short-term borrowing and commercial paper) |  | 68,921,000             |  | 79,205,450                             |  | 2,495,446     
| |                                                                              |  |                        |  |                                        |  |               

| | The Company entered into syndication loan
        agreements with several financial institutions to obtain credit facilities, for building construction
        projects and the purchase of TFT-LCD production line related machinery and equipment. The commitment
        fee is charged per annum, payable quarterly, based on the committed-to-withdraw but unborrowed
        balance, if any. No commitment fees were paid for the years ended December 31, 2003 and 2004.
        During the loan period, the current ratio, debt-equity ratio, times interest earned, tangible
        assets ratio and other financial ratios of the Company must comply with certain restrictions
        as specified in the agreements. The Company has complied with the aforementioned debt covenants
    in 2003 and 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Interest rates on long-term borrowings outstanding
    as of December 31, 2003 and 2004 ranged from 1.70% to 5.02% and 1.77% to 5.02%, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The long-term borrowings are all secured.
        Certain property, plant and equipment were pledged as collateral against long-term borrowings
    (see note 19).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | As of December 31, 2004 long-term
        borrowings and bonds payable that will become due during the next five years and thereafter are
    as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|
|
|
|

| |            | NT$           
| | ---------- | --------------
| |            |               
| |            | (in thousands)
| | 2005       | 7,084,416     
| | 2006       | 9,353,687     
| | 2007       | 14,110,510    
| | 2008       | 8,452,056     
| | 2009       | 8,452,056     
| | Thereafter | 5,965,744     
| |            |               
| | Total      | 53,418,469    
| |            |               

|(11) | Bonds Payable                                                          
|---- | -----------------------------------------------------------------------
|     |                                                                        
|     | Bonds payable at December 31, 2003 and 2004 consisted of the following:
|     |                                                                        

F-19

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |                       | December 31,  
| | --------------------- | --------------
| |                       |               
| |                       | 2003          
| |                       |               
| |                       | NT$           
| |                       | (in thousands)
| | Secured bonds payable | 996,000       
| | Less: current portion | (996,000      
| |                       |               
| |                       | -             
| |                       |               
| | Interest payable      | 14,714        
| |                       |               

| |                                                                   
| | ------------------------------------------------------------------
| | The significant terms of secured
    bonds payable are as follows:

| |             |  | The first issuance(1999)                             |  | The second issuance(1999) |  | The third issuance(2004)
| | ----------- |  | ---------------------------------------------------- |  | ------------------------- |  | ------------------------
| |             |  |                                                      |  |                           |  |                         
| |             |  |                                                      |  |                           |  |                         
| | Par value   |  | NT$1,500,000 thousand                                |  | NT$1,500,000 thousand     |  | NT$6,000,000 thousand   
| | Issue date  |  | August 27, 1999                                      |  | November 8, 1999          |  | April 23, 2004          
| | Issue price |  | At par value                                         |  | At par value              |  | At par value            
| | Coupon rate |  | 6.05%                                                |  | 5.85%                     |  | As stated below         
| | Duration    |  | August 27, 1999~                                     |  | November 8, 1999~         |  | As stated below         
| |             |  | August 27, 2004                                      |  | November 8, 2004          |  |                         
| | Bank that   |  | International Commercial                             |  | International Commercial  |  | International Commercial
| | provided    |  | Bank of China and other                              |  | Bank of China and other   |  | Bank of China and other 
| | guarantee   |  | thirteen banks                                       |  | thirteen banks            |  | eleven banks            
| | Redemption  |  | Repayment every six monthsbeginning at thirty months |  | As stated below          
| |             |  | after issue date                                     |  |                           |  |                         

|     | The aforementioned secured bonds issued in
      2004 can be divided into five types, namely, I, II, III, IV and V, based upon their respective
      issuance structures. Bond I has a fixed coupon rate of 1.43%, and the remaining are floating-rate
      based. However, the Company has entered into separate interest rate swap contracts that have the
      effect of converting the floating rates into fixed rates. Whereas Bond I is of a three-year term,
      the rest has a term of five years. The Company is obligated to repay the principal amount of each
      tranche under Bond I full at maturity; the principal amount of tranche A~F under Bond II, tranche
      A, B, E, F under Bond III, and tranche A and B under Bond IV will be repaid in 3 installments in
      a proportion of 10/60, 25/60 and 25/60 at the end of year 3, 4 and 5, respectively, from its respective
      issuance date; tranche G and H under Bond II, tranche C and D under Bond III, tranche C and D under
      Bond IV, as well as tranche A~D under bond V will be repaid in 2 equal installments at the end
    of year 4 and 5 from its respective issuance date.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The aforementioned bonds are secured by bank
      guarantees through an arrangement of a syndicated bank guarantee facility. Based on financial covenants
      under the syndicate agreement for the bond guarantee, the Company is obligated to maintain its
    current ratio, debt ratio, interest coverage ratio, and net tangible net worth at a certain level.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The Company has complied with the aforementioned
    debt covenants in 2003 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | Certain bonds payable were pledged please see
    note 19.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(12) | Retirement Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The following table sets forth the benefit obligation and accrued pension liabilities balance related to the Companys retirement plan in the Republic of China as of December 31, 2003 and 2004:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-20

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |                                    | December 31,   |  
| | ---------------------------------- | -------------- | -
| |                                    |                |  
| |                                    | 2003           |  
| |                                    |                |  
| |                                    | NT$            |  
| |                                    | (in thousands) |  
| | Benefit obligation:                |                |  
| | Vested benefit obligation          | -              |  
| | Non-vested benefit obligation      | (140,943       | )
| |                                    |                |  
| | Accumulated benefit obligation     | (140,943       | )
| | Additions based on future salaries | (293,724       | )
| |                                    |                |  
| | Projected benefit obligation       | (434,667       | )
| | Fair value of plan assets          | 218,942        |  
| |                                    |                |  
| | Funded status                      | (215,725       | )
| | Unrecognized pension loss          | 69,805         |  
| | Unrecognized transitional asset    | 14,929         |  
| |                                    |                |  
| | Accrued pension liabilities        | (130,991       | )
| |                                    |                |  

| | The components of net periodic
    pension cost for 2002, 2003 and 2004 are summarized as follows:
| | --------------------------------------------------------------------------------------------------

| |                                | For the year ended December 31, |  
| | ------------------------------ | ------------------------------- | -
| |                                |                                 |  
| |                                | 2002                            |  
| |                                |                                 |  
| |                                | NT$                             |  
| |                                | (in thousands)                  |  
| | Service cost                   | 59,361                          |  
| | Interest cost                  | 7,839                           |  
| | Expected return on plan assets | (4,086                          | )
| | Amortization                   | (689                            | )
| |                                |                                 |  
| | Net pension cost               | 62,425                          |  
| |                                |                                 |  

| | AUA, AUS, AUJ, AUE and AUK have
        defined contribution retirement plans based on local government regulation. Cash contributions
        to these plans are expensed when service is rendered, and amounted to NT$204 thousand, NT$56,363
    thousand and NT$95,927 thousand for the years ended December 31, 2002, 2003 and 2004, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | Significant actuarial assumptions
    used in the above calculations are summarized as follows:
| | -----------------------------------------------------------------------------------------------

| |                                                  | December 31,
| | ------------------------------------------------ | ------------
| |                                                  |             
| |                                                  | 2002        
| |                                                  |             
| |                                                  |             
| | Discount rate                                    | 3.75        
| | Rate of increase in future compensation levels   | 5.00        
| | Expected long-term rate of return on plan assets | 3.75        

|(13) | Stockholders Equity
|---- | --------------------

| | (a) | Common stock and capital increase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Republic of China Company Law and ROC GAAP provide that capital is created from stock issuance and donated capital. Additionally, companies can transfer capital to common stock as a result of certain transactions
involving employee bonuses, donated capital and premium on issuance of common stock.                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | On May 29, 2002, the Company issued 500 million shares of its common stock in the form of 50 million American Deposition Shares (ADSs). Each ADS represents the right to receive 10 shares of common stock. The
public offering price per ADS was US$11.57. The stock issuances described above were authorized by and registered with the government authorities.                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Based on stockholder resolutions on May 29, 2003, the Company increased its authorized common stock to NT$58,000,000 thousand and of which reserved NT$1,000,000 thousand for issuance of certificates of employee stock
options. In addition, the Company increased its common stock by NT$2,440,549 thousand, par value NT$10 per share, through the transfer of retained earnings and employee bonuses of NT$2,006,917 thousand, and NT$433,632 thousand,
respectively.                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Based on stockholder resolutions on April 29, 2004, the Company increased its common stock by NT$3,058,037 thousand, par value NT$10 per share, through the transfer of retained earnings and employee bonuses of NT$2,170,119
thousand and NT$887,918 thousand, respectively. The stock issuances described above were authorized by and registered with the government authorities. Pursuant to stockholder resolutions, the Company issued 300 million shares of its common stock in
the form of 30 million ADS on June 23, 2004. Each ADS represents the right to receive 10 shares of common stock. The public offering price per ADS was US$16.00.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | As of December 31, 2003 and 2004, the Companys authorized common stock, par value NT$10 per share, amounted to NT$ 58,000,000, and the issued and outstanding common stock amounted to NT$43,522,372 thousand and
NT$49,580,409 thousand, respectively.                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-22

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | (b) | Capital surplus                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Pursuant to the Republic of China Company Law, the capital surplus has to be used to offset a deficit, and then the capital surplus resulting from the income derived from the issuance of new shares at a premium and from
endowments received by the Company can be used to increase common stock. Furthermore, pursuant to the Securities & Futures Exchange Commission (SFC) Law Enforcement Rules, the total sum of capital surplus capitalized per annual may
not exceed 10 percent of the paid-in capital. Additionally, the capital surplus realized from a capital increase or other source shall be capitalized only in the following fiscal year after being registered by the Company with the competent
authority for approval.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Based on a stockholders resolution on May 21, 2002, the Company offset the accumulated deficit as of December 31, 2001, with the capital surplus resulting from gain on disposal of assets of NT$99 thousand, and the
capital surplus resulting from the Unipac merger of NT$3,765,730 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Legal reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | According to the Republic of China Company Law, the Company must retain 10 percent of its annual income as a legal reserve until such retention equals the amount of authorized common stock. The retention is accounted for by
transfers to a legal reserve upon approval at the annual stockholders meeting. The legal reserve can only be used to offset an accumulated deficit and cannot be distributed as cash dividends.                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Based on a stockholders resolution on May 21, 2002, the Company offset the accumulated deficit as of December 31, 2001, with the legal reserve of NT$232,014 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (d) | Distribution of earnings and dividend policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | According to the Companys articles of incorporation, 10% of the Company income, after offsetting any accumulated deficit, shall be set aside as a legal reserve. After establishing the legal reserve, earnings may be
distributed in the following order in accordance with the Companys articles of incorporation:                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |  | (i)                                                                                                                                                                                                                                                                                                                                                                                                            | 5 to 10 percent as employee bonuses                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                
| |  | (ii)                                                                                                                                                                                                                                                                                                                                                                                                           | At most 1 percent as remuneration to directors and supervisors                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                
| |  | (iii)                                                                                                                                                                                                                                                                                                                                                                                                          | The remainder, after retaining a certain portion for business consideration, as common stockholders dividends.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                
| |  | The appropriation of the Companys
      net income may be distributed by way of cash dividend and/or stock dividend. Since the Company
      is in a capital-intensive industry, distribution of profits shall be made preferably by way of
      stock dividend. Distribution of profits may also be made by way of cash dividend, and the amount
    of that should exceed or equal 10% of total dividends.

F-23

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | According to SFC regulations, when there is a
      deduction item in stockholders equity during the year, an amount equal to the deduction item
      before appropriation must be included as a special reserve within retained earnings. The special
      reserve will be available for dividend distribution only after the related stockholders equity
    deduction item has been reversed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| | Employee bonuses and directors remuneration
    appropriated from the distributable retained earnings of 2003 were as follows:                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| | Employee bonuses  stock (at par value)                                                                                                                                                                                                                                                                                                                                                             
| | Employee bonuses  cash                                                                                                                                                                                                                                                                                                                                                                             
| | Directors and supervisors remuneration                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| | The shares issued from the above distribution were 2.04
    percent of outstanding shares as of December 31, 2003.                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                     
| | If the above distributions were recorded as expenses
    in 2003, the pro forma information on earnings per share in 2003 would be as follows:                                                                                                                                                                                                                                                      

| |                                                                                                                                                                             | NT$ 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
| |                                                                                                                                                                             |     
| | Basic earnings per common share after retroactive
            adjustment                                                                                                    | 3.12
| |                                                                                                                                                                             |     
| |                                                                                                                                                                             |     
| | Earnings distribution of fiscal year 2004 earnings has not been proposed
          by the board of directors and is still subject to approval at the stockholders meeting.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Based on a board of directors resolution on December 16, 2002, the Company repurchased its own shares on the Taiwan Stock Exchange for use as employee bonus shares in future periods. The Company repurchased treasury stock
amounting to 12,000 thousand shares of a total cost of NT$250,981 thousand, during the years ended December 31, 2002 and 2003. The Company did not repurchase treasury shares during the year ended December 31, 2004. None of the treasury stock had
been disposed of or transferred to employees as of December 31, 2004.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The SFC regulations imposed on treasury stock transactions are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |  | 1. | Total shares of treasury stock shall not exceed 10 percent of the Companys common stock issued.                                                                            
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                             
| |  | 2. | Total treasury stock purchases shall not exceed the sum of retained earnings and capital surplus derived from premiums on capital stock plus other realized capital surplus.
| |  |    |                                                                                                                                                                             
| |  | 3. | Treasury stock shall not be pledged, nor does it possess voting rights or receive dividends until it is disposed of or transferred to employees.                            
| |  |    |                                                                                                                                                                             



F-24

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

|(14) | Income Taxes
|---- | ------------
|     |             
|     | (a)         
|     |             
|     |             

| | Year of investment |  | Tax exemption products |  | Tax exemption chosen                        |  | Tax exemption period
| | ------------------ |  | ---------------------- |  | ------------------------------------------- |  | --------------------
| |                    |  |                        |  |                                             |  |                     
| |                    |  |                        |  |                                             |  |                     
| | 1993               |  | TFT-LCD                |  | Tax exemption of the Companys L1 facility  |  |                     
| |                    |  |                        |  | corporate income taxes for four years       |  | 2000~2003           
| | 1999               |  | TFT-LCD                |  | Tax exemption of the Companys L3A facility |  |                     
| |                    |  |                        |  | corporate income taxes for four years       |  | 2002~2005           
| | 1996               |  | TFT-LCD                |  | Tax exemption of the Companys L5 facility  |  |                     
| |                    |  |                        |  | corporate income taxes for five years       |  | 2003~2007           
| | 1999               |  | TFT-LCD                |  | Tax exemption of the Companys L3B facility |  |                     
| |                    |  |                        |  | corporate income taxes for four years       |  | 2005~2008           
| | 1999               |  | TFT-LCD                |  | Tax exemption of the Companys L6 facility  |  |                     
| |                    |  |                        |  | corporate income taxes for five years       |  | 2005~2009           

| |     |                                                                              
| | --- | -----------------------------------------------------------------------------
| | (b) | The components of income tax
    expense (benefit) are summarized as follows:

| |                             | For the year ended December 31, | 
| | --------------------------- | ------------------------------- | 
| |                             |                                 | 
| |                             | 2002                            | 
| |                             |                                 | 
| |                             | NT$                             | 
| |                             | (in thousands)                  | 
| | Current income tax expense  | 91                              | 
| | Deferred income tax benefit | -                               | 
| |                             |                                 | 
| |                             | 91                              | 
| |                             |                                 | 

F-25

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | The differences between income tax expense (benefit)
        based on the statutory income tax rate and the income tax expense (benefit) as reported in the
        accompanying consolidated statements of operations for 2002, 2003 and 2004 are summarized as
    follows:                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| | Expected income tax expense                                                                                                                                                                                                                                                                                                          
| | Tax exemption                                                                                                                                                                                                                                                                                                                        
| | Investment tax credits                                                                                                                                                                                                                                                                                                               
| | Increase (decrease) in valuation                                                                                                                                                                                                                                                                                                     
| | allowance                                                                                                                                                                                                                                                                                                                            
| | Tax on undistributed retained earnings                                                                                                                                                                                                                                                                                               
| | Write off of loss carryforwards                                                                                                                                                                                                                                                                                                      
| | Other                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                      
| | Income tax expense (benefit)                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                      
| | Pursuant to Republic of China Income Tax Law, certain portions
      of loss carryforwards prior to the Unipac merger are not eligible for use by the Company after
      the merger. As a result, deferred tax assets related to the loss carryforwards that were previously
    recognized by the Company were written off in 2002.

| |     |                                                                                          
| | --- | -----------------------------------------------------------------------------------------
| | (c) | The components of deferred income
    tax assets (liabilities) are summarized as follows:

| |                                   | December 31,  
| | --------------------------------- | --------------
| |                                   |               
| |                                   | 2003          
| |                                   |               
| |                                   | NT$           
| |                                   | (in thousands)
| | Current:                          |               
| | Inventories                       | 126,648       
| | Unrealized sales profit           | 333,251       
| | Unrealized loss and expenses      | 172,834       
| | Investment tax credits            | 2,577,171     
| |                                   |               
| |                                   | 3,209,904     
| | Valuation allowance               | (414,171      
| |                                   |               
| | Net deferred tax assets  current | 2,795,733     
| |                                   |               

F-26

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |                                                     | December 31,   |  
| | --------------------------------------------------- | -------------- | -
| |                                                     |                |  
| |                                                     | 2003           |  
| |                                                     |                |  
| |                                                     | NT$            |  
| |                                                     | (in thousands) |  
| | Non-current:                                        |                |  
| | Overseas investment loss under the equity method    | 68,726         |  
| | Investment tax credits                              | 7,807,721      |  
| | Net operating loss carryforwards                    | 598,437        |  
| | Other                                               | 51,437         |  
| |                                                     |                |  
| |                                                     | 8,526,321      |  
| | Valuation allowance                                 | (7,359,176     | )
| |                                                     |                |  
| | Net deferred tax assets                             | 1,167,145      |  
| |                                                     |                |  
| | Deferred tax liabilities-property, plant and        |                |  
| | equipment                                           | (1,354,199     | )
| |                                                     |                |  
| | Net deferred tax assets (liabilities)  non-current | (187,054       | )
| |                                                     |                |  
| |                                                     | 2,608,679      |  
| |                                                     |                |  
| | Total gross deferred tax assets                     | 11,736,225     |  
| | Total gross deferred tax liabilities                | (1,354,199     | )
| | Total valuation allowance                           | (7,773,347     | )
| |                                                     |                |  
| |                                                     | 2,608,679      |  
| |                                                     |                |  

| | (d) | According to the Statute for Upgrading Industries, the purchase of machinery for the automation of production and pollution control, expenditure for research and development and training of professional personnel entitles
the Company to tax credits. This credit may be applied over a period of five years. The amount of the credit that may be applied in any year except the final year is limited to 50% of the income tax payable for that year. There is no limitation on
the amount of investment tax credit that may be applied in the final year. As of December 31, 2004, the Companys remaining investment tax credits and their related expiration years were as follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |  |  |  | 
| |  |  |  | 
|
|

| | Year occurred    |  | Unused tax credits |  | Expiration year
| | ---------------- |  | ------------------ |  | ---------------
| |                  |  |                    |  |                
| |                  |  | NT$                |  | US$            
| | (in thousands)  
| | 2001             |  | 1,777,511          |  | 56,002         
| | 2002             |  | 2,475,615          |  | 77,997         
| | 2003             |  | 2,204,715          |  | 69,462         
| | 2004 (estimated) |  | 4,993,989          |  | 157,340        
| |                  |  |                    |  |                
| |                  |  | 11,451,830         |  | 360,801        
| |                  |  |                    |  |                

| | (e) | Loss carryforwards                                                                                                              
| | --- | --------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                 
| |     | As of December 31, 2004, the 2001 loss carryforwards of NT$2,393,749 thousand are available up to 2006 to reduce taxable income.
| |     |                                                                                                                                 

F-27

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of and for the years ended December 31, 2002, 2003 and 2004

| | (f) | The Companys 1997 and 1998 income tax returns have been assessed by the tax authorities for additional income tax payable of NT$30,122 thousand due to the reduction of certain tax credits, plus penalties of NT$7,510
thousand. The additional assessments were related to recognition of research and development subsidies. The Company disagreed with the assessments and subsequently filed tax appeals. The tax authorities have agreed to eliminate any penalties, but
have affirmed the reduction of tax credits of 1997. The assessment of tax credits of 1998 is still under review. The Company has accrued the additional income tax assessed in 2004.                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The 2000 income tax return has been assessed by the tax authorities for additional income tax of NT$9,604 thousand. The dispute is regarding the recognition of the advertising expenses. The Company disagreed with the
assessment and subsequently filed a tax appeal. As the Company believes that it has adequate documents for the expense it is expecting a favorable resolution of this appeal.                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | As of December 31, 2004, the tax authorities had assessed the income tax returns of the Company through 2000 and of Unipac through 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (g) | Information about the integrated income tax system                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Beginning in 1998, an integrated income tax system was implemented in the Republic of China. Under the new tax system, the income tax paid at the corporate level can be used to offset the Republic of China resident
stockholders individual income tax. The Company is required to establish an imputation credit account (ICA) to maintain a record of the corporate income taxes paid and imputation credit that can be allocated to each stockholder. The credit
available to the Republic of China resident stockholders is calculated by multiplying the dividend by the creditable ratio. The creditable ratio is calculated as the balance of the ICA divided by earnings retained by the Company since January 1,
1998.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Information related to the ICA is summarized below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                                   | December 31,                  
| | ------------------------------------------------- | ------------------------------
| |                                                   |                               
| |                                                   | 2003                          
| |                                                   |                               
| |                                                   | NT$                           
| |                                                   |                               
| | Unappropriated earnings:                          |                               
| | Earned after January 1, 1998                      | 16,578,660                    
| |                                                   |                               
| | ICA balance                                       | 1,515                         
| |                                                   |                               
| |                                                   |                               
| |                                                   | For the year ended December 31
| |                                                   | 2003                          
| |                                                   |                               
| | Creditable ratio for earnings distribution to the |                               
| | Republic of China resident stockholders           | 0.01                          
| |                                                   |                               

F-28

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

|(15) | Earnings Per Common Share                                               
|---- | ------------------------------------------------------------------------
|     |                                                                         
|     | Earning per common share in 2002, 2003 and 2004 are computed as follows:

| |                                          | For the year ended December 31,
| | ---------------------------------------- | -------------------------------
| |                                          |                                
| |                                          | 2002                           
| |                                          |                                
| |                                          | Pre-tax                        
| |                                          |                                
| | Basic earnings per share:                |                                
| | Net income                               | 6,022,760                      
| |                                          |                                
| | Weighted average number of shares        |                                
| | outstanding (thousand shares):           |                                
| | Shares of common stock at the            |                                
| | beginning of the year                    | 2,970,582                      
| | Issuance of common stock for             |                                
| | cash                                     | 291,667                        
| | Issuance of shareholders stock           |                                
| | dividends and employee stock             |                                
| | bonus                                    | -                              
| | Treasury stock                           | (377                           
| | Certificates exchangeable for            |                                
| | common shares                            | 377,927                        
| |                                          |                                
| | Weighted average number of shares        |                                
| | outstanding during the year              | 3,639,799                      
| |                                          |                                
| | Retroactive adjustment of                |                                
| | capitalization of retained earning       | 491,577                        
| |                                          |                                
| | Retroactively adjusted weighted          |                                
| | average outstanding shares               | 4,131,376                      
| |                                          |                                
| | Basic earnings per share (NT$)           | 1.65                           
| |                                          |                                
| | Basic earnings per share  retroactively |                                
| | adjusted (NT$)                           | 1.46                           
| |                                          |                                

F-29

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |                                                           | For the year ended December 31, |  
| | --------------------------------------------------------- | ------------------------------- | -
| |                                                           |                                 |  
| |                                                           | 2002                            |  
| |                                                           |                                 |  
| |                                                           | Pre-tax                         |  
| |                                                           |                                 |  
| | Diluted earnings per share                                | (in thousands)                  |  
| | Net income                                                | 6,022,760                       |  
| | Effects of potential common shares:                       |                                 |  
| | Adjustment for interest of convertible bonds payable      | 170,825                         |  
| |                                                           |                                 |  
| |                                                           | 6,193,585                       |  
| |                                                           |                                 |  
| | Shares of common stock at the beginning of the year       | 2,970,582                       |  
| | Potential number of common shares assumed upon            |                                 |  
| | conversion of convertible bonds                           | 254,983                         |  
| | Issuance of common stock for cash                         | 291,667                         |  
| | Treasury stock                                            | (377                            | )
| | Issuance of shareholders stock dividends and employee     |                                 |  
| | stock bonus                                               | -                               |  
| | Certificates exchangeable for common shares               | 377,927                         |  
| |                                                           |                                 |  
| | Weighted average number of shares outstanding during      |                                 |  
| | the year                                                  | 3,894,782                       |  
| |                                                           |                                 |  
| | Retroactive adjustment of capitalization of retained      |                                 |  
| | earning                                                   | 526,014                         |  
| |                                                           |                                 |  
| | Retroactively adjusted weighted average outstanding       |                                 |  
| | shares                                                    | 4,420,796                       |  
| |                                                           |                                 |  
| | Diluted earnings per share (NT$)                          | 1.55                            |  
| |                                                           |                                 |  
| | Diluted earnings per share  retroactively adjusted (NT$) | 1.40                            |  
| |                                                           |                                 |  

|(16) | Financial Instruments
|---- | ---------------------

| | (a) | Non-derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The Companys non-derivative financial assets include cash and cash equivalents, short-term investments, notes and accounts receivable, receivables from related parties, other financial assets, restricted cash in banks
and long-term investments. The Companys non-derivative financial liabilities consist of short-term borrowings, long-term borrowings, bonds payable, accounts payable, payables to related parties, and equipment and construction in progress
payables.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-30

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | As of December 31, 2003 and 2004,
      the carrying amounts of non-derivatives financial instruments that were
    not equal to their fair values were as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                    
| |                                                                                                                                                                    
| |                                                                                                                                                                    
| |                                                                                                                                                                    
| |                                                                                                                                                                    
| |                                                                                                                                                                    
| | Assets:                                                                                                                                                            
| | Short-term investments                                                                                                                                             
| | Long-term investments:                                                                                                                                             
| | Fair value (available)                                                                                                                                             
| | Fair value (not available)                                                                                                                                         
| | Liabilities:                                                                                                                                                       
| | Bonds payable                                                                                                                                                      

| |                            | December 31, 2004
| | -------------------------- | -----------------
| |                            |                  
| |                            | Fair value       
| |                            |                  
| |                            | NT$              
| |                            | (in thousands)   
| | Assets:                    |                  
| | Short-term investments     | 1,638,292        
| | Long-term investments:     |                  
| | Fair value (available)     | 4,493,857        
| | Fair value (not available) | -                
| | Liabilities:               |                  
| | Bond payable               | 5,784,437        

| | The following methods and
    assumptions are used to estimate the fair value for each class of non-derivative financial instruments:
| | -------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                      
| | 1.                                                                                                                                   
| |                                                                                                                                      
| | 2.                                                                                                                                   
| |                                                                                                                                      
| | 3.                                                                                                                                   
| |                                                                                                                                      
| | 4.                                                                                                                                   
| |                                                                                                                                      
| | 5.                                                                                                                                   
| |                                                                                                                                      

F-31

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| | (b) | Derivative financial instruments
| | --- | --------------------------------

| |  |    |                                                                                                                                                                                                                                                                                   
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1. | Interest rate swaps                                                                                                                                                                                                                                                               
| |  |    |                                                                                                                                                                                                                                                                                   
| |  |    | The Company has entered into interest rate swap transactions to hedge its exposure to changes in cash flows associated with rising interest rates on its floating rate long-term debt. As of December 31, 2003 and 2004,
interest rate swap contracts outstanding were as follows:

| | December 31, 2003 | 
| | ----------------- | 
| |                   | 
| | Inception         | 
| |                   | 
| |                   | 
| | (in thousands)    | 
| | 1999              | 
| | 2003              | 
| |                   | 
| |                   | 
| |                   | 
| |                   | 

| |                                                                                                                                                                                                                                                                                                            | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | December 31, 2004                                                                                                                                                                                                                                                                                          | 
| |                                                                                                                                                                                                                                                                                                            | 
| | Inception                                                                                                                                                                                                                                                                                                  | 
| |                                                                                                                                                                                                                                                                                                            | 
| |                                                                                                                                                                                                                                                                                                            | 
| | (in thousands)                                                                                                                                                                                                                                                                                             | 
| | 2003                                                                                                                                                                                                                                                                                                       | 
| |                                                                                                                                                                                                                                                                                                            | 
| | 2004                                                                                                                                                                                                                                                                                                       | 
| |                                                                                                                                                                                                                                                                                                            | 
| | 2004                                                                                                                                                                                                                                                                                                       | 
| |                                                                                                                                                                                                                                                                                                            | 
| |                                                                                                                                                                                                                                                                                                            | 
| |                                                                                                                                                                                                                                                                                                            | 
| |                                                                                                                                                                                                                                                                                                            | 
| |                                                                                                                                                                                                                                                                                                            | 
| | These agreements require the Company to make periodic
      fixed rate payments while receiving periodic variable rate payments indexed to the 90-day Taipei
      Money Market Secondary middle rate at 11:00 am Taipei Time determined on a simple average of rates
    appearing on Telerate page 6165.
| |                                                                                                                                                                                                                                                                                                            | 
| | The additional interest expense as a result of these interest
      rate swap contracts for the years ended December 31, 2002, 2003 and 2004 was NT$110,176 thousand,
    NT$128,987 thousand and NT$233,110 thousand, respectively.                                                                      

F-32

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs
of and for the years ended December 31, 2002, 2003 and 2004

| |  | 2. | Foreign currency forward contracts                                                                                                                                                                                                                                                    
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                       
| |  |    | The Company used foreign currency forward contracts to hedge existing assets and liabilities denominated in foreign currencies and identifiable foreign currency purchase commitments. The counter parties of the
Companys derivative contracts are reputable financial institutions.
| |  |    |                                                                                                                                                                                                                                                                                       
| |  |    | As of December 31, 2003 and 2004, the details of foreign currency forward contracts outstanding were as follows:                                                                                                                                                                      

| | December 31, 2003
| | -----------------
| |                  
| | Buy              
| |                  
| |                  
| | (in thousands)   
| | NTD              
| |                  
| | YEN              
| |                  
| | YEN              
| |                  
| |                  
| |                  
| |                  

| | December 31, 2004                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                   
| | Buy                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                   
| | (in thousands)                                                                                                                                                                                                                    
| | NTD                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                   
| | YEN                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                   
| | YEN                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                   
| | USD                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                   
| | The fair value of the derivative financial instruments is
    estimated based on quoted market prices from brokers or banks.                                                                                                      
| |                                                                                                                                                                                                                                   
| | As of December 31, 2002, 2003 and 2004, the unrealized gain
      based on the spot rates of the above foreign currency forward contracts were NT$101,956 thousand,
    NT$100,043 thousand and NT$381,145 thousand, respectively.

F-33

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | The realized gain resulting from foreign currency forward contracts were NT$66,683 thousand, NT$764,757 thousand and NT$588,502 thousand in 2002, 2003 and 2004, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                               
| |  | The details of the above foreign currency forward contracts balance included in other current financial assets as of December 31, 2003 and 2004 is as follows:                
| |  |                                                                                                                                                                               
| |  |                                                                                                                                                                               

| |  |                                                    |  | December 31,   |  
| |  | -------------------------------------------------- |  | -------------- | -
| |  |                                                    |  |                |  
| |  |                                                    |  | 2003           |  
| |  |                                                    |  |                |  
| |  |                                                    |  | NT$            |  
| |  |                                                    |  | (in thousands) |  
| |  | Foreign currency forward contracts receivable      |  | 22,177,525     |  
| |  | Foreign currency forward contracts payable         |  | (22,101,928    | )
| |  | Unamortized premium                                |  | 8,949          |  
| |  |                                                    |  |                |  
| |  | Foreign currency forward contracts receivable, net |  | 84,546         |  
| |  |                                                    |  |                |  

| | (c) | Credit and other risk relating to financial instruments
| | --- | -------------------------------------------------------
|
| |     | 1.                                                     
|
| |     |                                                        
|
| |     |                                                        
|
| |     |                                                        
|
| |     | 2.                                                     
|
| |     |                                                        
|

F-34

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

|     |                            | 3.                    | Market price risk relating to derivative instruments                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -------------------------- | --------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |                            |                       | Market price risk represents the accounting loss that would be recognized at the reporting date for the derivative financial instruments due to the changes in market interest rates or foreign exchange rates. As the
Companys derivative financial instruments are for hedging purposes, the gains or losses due to changes in interest rates or foreign exchange rates will be offset by the hedged items. As a result, market price risk is considered
low.
|    
|     |                            | 4.                    | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|     |                            |                       | Liquidity risk is the risk of being unable to settle the derivative contracts on schedule. The purpose of these instruments held by the Company is to manage and hedge changes in cash flows and risks associated with floating
interest rate debt and foreign currency rates. There is no significant liquidity risk for the related cash flows.                                                                                                               
|    
|     |                            |                       | The fair values of the financial instruments disclosed herein are not necessarily representative of the potential gain or loss that could be realized under current credit and market price risks. The Company does not believe
a significant loss on the above financial derivative contracts will occur.                                                                                                                                                      
|    
|(17) | Related-party Transactions
|    
|     | (a)                        | Name and relationship
|    

| |  | Name of related party                        |  | Relationship with the Company              
| |  | -------------------------------------------- |  | -------------------------------------------
| |  |                                              |  |                                            
| |  | BenQ Inc. (BenQ)                           |  | Shareholder and represented on the         
| |  |                                              |  | Companys board of directorsGthe          
| |  |                                              |  | Companys affiliate                        
| |  | Acer Inc. (Acer)                           |  | Shareholder and represented on BenQs      
| |  |                                              |  | board of directors                         
| |  | Aspire Service & Development Inc. (ASD)    |  | Subsidiary of Acer                         
| |  | Min Tour Inc. (MTI)                        |  | Subsidiary of Acer (dissolved in Sep. 2003 
| |  |                                              |  | after merging with ASD)                    
| |  | Wistron Corp. (Wistron)                    |  | Investee of Acer                           
| |  | Wistron Infocomm (Kunshan) Corp. (WKS)     |  | Subsidiary of Wistron                      
| |  | Wistron Infocomm (Philippines) Corp. (WPH) |  | Subsidiary of Wistron                      
| |  | United Microelectronics Corp. (UMC)        |  | Shareholder and represented on the         
| |  |                                              |  | Companys board of directors (note 1)      
| |  | Novatek Microelectronics Corp. (Novatek)   |  | Investee of UMC (note 1)                   
| |  | Applied Component Technology Corp. (ACT)   |  | Investee of UMC (note 1)                   
| |  | Faraday Technology Corp. (Faraday)         |  | Investee of UMC (note 1)                   
| |  | BenQ (IT) Co., Ltd. Suzhou (BQS)           |  | Subsidiary of BenQ                         
| |  | BenQ Mexican, S.A. De C. V. (BQX)          |  | Subsidiary of BenQ                         
| |  | Darfon Electronics Corp. (Darfon)            |  | Subsidiary of BenQ                         
| |  |                                              |  |                                            
| |  | BenQ Optronics (Suzhou) Co. Ltd. (BQOS)      |  | Subsidiary of BenQ                         
| |  | Cando Corporation (Cando)                  |  | The Companys affiliate, and the Company is

F-35

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | Name of related party                    |  | Relationship with the Company             
| |  | ---------------------------------------- |  | ------------------------------------------
| |  |                                          |  |                                           
| |  |                                          |  | represented on its board of directors     
| |  | Aopen Inc. (Aopen)                     |  | Investee of Wistron                       
| |  | Fujitsu Display Technologies Corporation |  | The Company is represented on its board of
| |  | (FDTC)                                 |  | directors (note 2)                        

| |  |         |                                                                                                                                                                                                                                                                                                                                         
| |  | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Note 1: | Since UMC has disposed half of its shares held in AUO on April 22, 2004, its membership or the board of directors has been dissolved automatically. Consequently, UMC and the investees of UMC are not regarded as AUOs related parties, and the amount of transactions between them and AUO are disclosed until the end of April 2004.
| |  |         |                                                                                                                                                                                                                                                                                                                                         
| |  | Note 2: | Due to disposition of FDTC shares in August 2004, the FDTC shares held by AUO have decreased to 10%, and AUO doses not have significant influence to FDTC. Consequently, FDTC is not regarded as AUOs related party, and the amount of transactions between FDTC and AUO are disclosed until the end of August 2004.                   
| |  |         |                                                                                                                                                                                                                                                                                                                                         

| | (b) | Significant transactions with related parties
| | --- | ---------------------------------------------
|
| |     | 1.                                           
|
| |     |                                              
|

| |  |  |         |  | For the year ended December 31, | 
| |  |  | ------- |  | ------------------------------- | 
| |  |  |         |  |                                 | 
| |  |  |         |  | 2002                            | 
| |  |  |         |  |                                 | 
| |  |  |         |  | NT$                             | 
| |  |  |         |  | (in thousands)                  | 
| |  |  | BQS     |  | 9,922,932                       | 
| |  |  | Acer    |  | 853,692                         | 
| |  |  | BenQ    |  | 5,823,413                       | 
| |  |  | FDTC    |  | -                               | 
| |  |  | Wistron |  | 1,017,734                       | 
| |  |  | WPH     |  | 2,104,295                       | 
| |  |  | BQX     |  | 721,631                         | 
| |  |  | WKS     |  | -                               | 
| |  |  | ACT     |  | 747,615                         | 
| |  |  | BQOS    |  | -                               | 
| |  |  | Aopen   |  | 301,573                         | 
| |  |  | Others  |  | 533                             | 
| |  |  |         |  |                                 | 
| |  |  |         |  | 21,493,418                      | 
| |  |  |         |  |                                 | 

F-36

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  |  | The credit policy for sales to related parties and other customers is both letter of credit on 30 to 45 days. The average collection days extended for sales to related parties for the years ended December 31, 2002, 2003 and 2004 are 51 days, 58 days and 44 days, respectively, and for other customers are 64 days, 43 days and 41 days, respectively. The product price and other terms for sales to related parties are similar to other unrelated customers.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |  | As of December 31, 2003 and 2004, receivables resulting from the above transactions were as follows:                                                                                                                                                                                                                                                                                                                                                                 

| |                                             |  | December 31,   |  
| | ------------------------------------------- |  | -------------- | -
| |                                             |  |                |  
| |                                             |  | 2003           |  
| |                                             |  |                |  
| |                                             |  | NT$            |  
| |                                             |  | (in thousands) |  
| | BQS                                         |  | 3,598,477      |  
| | Acer                                        |  | 801,002        |  
| | BenQ                                        |  | 558,650        |  
| | WKS                                         |  | -              |  
| | Wistron                                     |  | 7,070          |  
| | BQX                                         |  | 178,201        |  
| | WPH                                         |  | 177,842        |  
| | FDTC                                        |  | 182,423        |  
| | Others                                      |  | 40,724         |  
| | Less: allowance for doubtful accounts sales |  |                |  
| | discount and return                         |  | (36,169        | )
| |                                             |  |                |  
| |                                             |  | 5,508,220      |  
| |                                             |  |                |  

|2. | Purchases                                      
|-- | -----------------------------------------------
|  
|   | Purchases from related parties were as follows:
|  

| |                |  | For the year ended December 31, | 
| | -------------- |  | ------------------------------- | 
| |                |  |                                 | 
| |                |  | 2002                            | 
| |                |  |                                 | 
| |                |  | NT$                             | 
| |                |  | (in thousands)                  | 
| | Cando (note 1) |  | -                               | 
| | Novatek        |  | 2,370,324                       | 
| | FDTC           |  | -                               | 
| | Darfon         |  | -                               | 
| | BenQ           |  | 1,176,992                       | 
| | Faraday        |  | 144,707                         | 
| | Others         |  | 11,260                          | 
| |                |  |                                 | 
| |                |  | 3,703,283                       | 
| |                |  |                                 | 

F-37

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  |  | The purchase prices and payment terms with these related parties were not materially different from those with other unrelated vendors. The payment period was both 30 to 120 days in 2003 and 2004. The purchase price and other terms for purchase from related parties are similar to other unrelated customers
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |                                                                                                                                                                                                                                                                                                                   
| |  |  | Note 1:                                                                                                                                                                                                                                                                                                           

| |  | 3. | Acquisition of property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | Acquisition of property, plant, equipment and computer software from Acer, ACT, Novatek and Faraday, etc. for the years ended December 31, 2002, 2003 and 2004 amounted to NT$72,676 thousand, NT$24,731 thousand and NT$7,060
thousand, respectively. The acquisition price and other terms for acquisition from related parties are similar to other unrelated customers.                                                                                                                                            
|
| |  | 4. | Sales of equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |    | Sales of equipment to UMC, etc. for the years ended December 31, 2002, 2003 and 2004 amounted to NT$44,448 thousand NT$7,500 thousand and Nil, respectively. The related loss amounted to NT$157 thousand, NT$8,184 thousand
and Nil, respectively, which were included in non-operating loss. As of December 31, 2003 and 2004, the receivable resulting from the above transactions were collected completely. The sales price and other terms for sales to related parties are
similar to other unrelated customers.
|
| |  | 5. | Operating leases and refundable deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |    | The Company entered into lease agreements for land, building, dormitory and equipment with related parties. The related rent expenses and administration fees for the years ended December 31, 2002, 2003 and 2004, were as
follows:                                                                                                                                                                                                                                                                                   
|

| |             |  | For the year ended December 31, | 
| | ----------- |  | ------------------------------- | 
| |             |  |                                 | 
| |             |  | 2002                            | 
| |             |  |                                 | 
| |             |  | NT$                             | 
| |             |  | (in thousands)                  | 
| | ASD and MTI |  | 67,207                          | 
| | Others      |  | 41,837                          | 
| |             |  |                                 | 
| |             |  | 109,044                         | 
| |             |  |                                 | 

F-38

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  |  | As of December 31, 2003 and 2004, refundable deposits resulting from the above transactions were as follows:
| |  |  | ------------------------------------------------------------------------------------------------------------

| |             |  | December 31,   | 
| | ----------- |  | -------------- | 
| |             |  |                | 
| |             |  | 2003           | 
| |             |  |                | 
| |             |  | NT$            | 
| |             |  | (in thousands) | 
| | ASD and MTI |  | 867,000        | 
| | Others      |  | 2,693          | 
| |             |  |                | 
| |             |  | 869,693        | 
| |             |  |                | 

| |  |    | The Company leased part of its facility to Acer, ASD and BenQ, etc.. The rental income amounted to NT$30,067 thousand, NT$30,589 thousand and NT$21,819 thousand for the years ended December 31, 2002, 2003 and 2004,
respectively. As of December 31, 2003 and 2004, rental and other receivables, recorded as receivables, were NT$14,420 thousand and NT$2,358 thousand, respectively. The rental price and other reimburse price and other terms for related parties are
similar to other unrelated customers.                                                                                                                                                                                                                                                                                            
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | The Companys prepaid rent for the above lease agreements amounted to NT$6,565 thousand and NT$7,914 thousand as of December 31, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | 6. | Technology - related fee and research and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |    | The Company entered into a patent and technology agreement with FDTC in 2003. In accordance with the agreement, the Company is required to pay NT$437,655 thousand as an initial fee and a fixed royalty fee. The initial fee
was capitalized as an intangible asset and amortized over the period of the contract, whereas the fixed fee was recorded as a research and development expense. AUO also signed a collective research and development contract with FDTC. However, this
contract was cancelled in July 2004. In accordance with this contract, AUO paid a portion of certain R&D project expenses on joint TFT-LCD R&D projects. AUO paid NT$244,574 thousand and NT$182,302 thousand for on-going royalty, and R&D
project expenses for the years ended December 31, 2003 and 2004 respectively.
|
| |  | 7. | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |    | Amounts paid to UMC, Acer, BenQ, FDTC and Cando, etc. for reimbursement of miscellaneous expenditures such as electricity, telecommunications etc. paid on behalf of the Company amounted to NT$48,061 thousand, NT$160,247
thousand and NT$119,147 thousand for the years ended December 31, 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|

F-39

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  |  | As of December 31, 2003 and 2004, amounts due to related parties that resulted from the above purchases; acquisition of property, plant and equipment; lease agreements; and operating expenses were as follows:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                |  | December 31,   | 
| | -------------- |  | -------------- | 
| |                |  |                | 
| |                |  | 2003           | 
| |                |  |                | 
| |                |  | NT$            | 
| |                |  | (in thousands) | 
| | Cando (note 1) |  | 512,411        | 
| | Novatek        |  | 245,159        | 
| | FDTC           |  | 147,100        | 
| | Others         |  | 114,361        | 
| |                |  |                | 
| |                |  | 1,019,031      | 
| |                |  |                | 

|(18) | Pledged Assets                                    
|---- | --------------------------------------------------
|    
|     | Assets pledged as collateral are summarized below:

| |                    |  |                                  |  | December 31,   | 
| | ------------------ |  | -------------------------------- |  | -------------- | 
| |                    |  |                                  |  |                | 
| | Pledged assets     |  | Pledged to secure                |  | 2003           | 
| |                    |  |                                  |  |                | 
| |                    |  |                                  |  | NT$            | 
| | Restricted cash in |  | Oil purchase, customs duties and |  | (in thousands) | 
| | banks              |  | guarantees for foreign workers   |  | 29,200         | 
| | Building           |  | Long-term borrowings             |  | 2,627,755      | 
| | Machinery and      |  | Long-term borrowings,            |  |                | 
| | equipment          |  | commercial paper payable and     |  |                | 
| |                    |  | bonds payable                    |  | 34,775,618     | 
| |                    |  |                                  |  |                | 
| |                    |  |                                  |  | 37,432,573     | 
| |                    |  |                                  |  |                | 

|(19) | Commitments and Contingencies
|---- | -----------------------------
|    
|     | (a)                          
|    

| |          |  |  | December 31,   | 
| | -------- |  |  | -------------- | 
| |          |  |  |                | 
| | Currency |  |  | 2003           | 
| |          |  |  |                | 
| |          |  |  | (in thousands) | 
| | USD      |  |  | 32,529         | 
| | JPY      |  |  | 4,013,617      | 

| |  |                                                                                                                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The outstanding letters of credit facilitate the Companys purchase of machinery and equipment from foreign suppliers. The letters of credit are irrevocable and expire upon the Companys payment of the related obligations.

F-40

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (b) | Technical service agreements                                                                                                                                                                                                                                                                                                         
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | Since 1998, the Company has entered into technical cooperation agreements and patent authorization agreements with Matsushita Electric Industrial Co., Ltd., Semiconductor Energy Laboratory Co., Ltd. (SEL), Toppan Printing
Co., Ltd. (Toppan), FDTC and Hitachi. The Company paid running royalties based on each signed contract.
|

| |  | The details of the above capitalized technology fixed license and patents fees for product and process technology were as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------

| |                                |  | December 31,   |  
| | ------------------------------ |  | -------------- | -
| |                                |  |                |  
| |                                |  | 2002           |  
| |                                |  |                |  
| |                                |  | NT$            |  
| |                                |  | (in thousands) |  
| | Technology fixed license and   |  |                |  
| | patent fees                    |  | 6,195,253      |  
| | Less: accumulated amortization |  | (3,210,798     | )
| |                                |  |                |  
| |                                |  | 2,984,455      |  
| |                                |  |                |  

| |     | Amortization of capitalized technology fixed license and patent fees amounted to NT$1,198,674 thousand, NT$1,170,409 thousand and NT$1,175,190 thousand in 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (c) | Government grants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     | The Company entered into an agreement in December 2002 with the Ministry of Economic Affairs (MOEA) to obtain grants from the MOEA for the Full Color Active Matrix Organic Light Emitting Display Technology
research and develop project from December 1, 2002, to May 31, 2004. According to the agreement, the grants totaled NT$25,100 thousand. The Company has the legal ownership of the result of the project. For the years ended in December 31, 2002, 2003
and 2004, the grant from MOEA, recognized as non-operating income, amounted to NT$1,560 thousand and NT$12,780 thousand and NT$6,320 thousand, respectively. The Company had committed NT$30,120 thousand to guarantee the completion of the project as
of December 31, 2002 and 2003. The project was completed in September 2004, and the guarantee was extinguished in November 2004.
|
| | (d) | As of December 31, 2003 and 2004, outstanding commitments for purchase agreements for major machinery and equipment totaled NT$35,671,785 thousand and NT$72,319,749 thousand, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (e) | Operating lease agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | The Company entered into land lease agreements with the Science Park Administration Bureau and Min Tour Inc. for a period of 20 years. In accordance with the lease agreements, rental payments are subject to 5 percent
adjustment each year or as the government reappraises the land value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|

F-41

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | Future minimum lease payments as of December 31, 2004, under the existing non-cancelable agreements are:
| |  | --------------------------------------------------------------------------------------------------------

| |            |  |                        |  | 
| | ---------- |  | ---------------------- |  | 
| | Years      |  | Minimum lease payments | 
| |            |  |                        | 
| |            |  | NT$                    | 
| |            |  | (in thousands)         | 
| |            |  |                        | 
| | 2005       |  | 95,364                 |  | 
| | 2006       |  | 95,364                 |  | 
| | 2007       |  | 95,364                 |  | 
| | 2008       |  | 95,364                 |  | 
| | 2009       |  | 95,364                 |  | 
| | After 2010 |  | 956,173                |  | 

| |     | Rental expense for operating leases amounted to NT$231,548 thousand, NT$191,361 thousand and NT$218,716 thousand in 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (f) | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     | Beginning March 2002, Sharp launched a series of legal proceedings with regards to alleged patent infringement against the Companys customers in Tokyo District Court, requesting grant for a prohibition of
importation and preliminary injunction of sale on the alleged infringing TFT-LCD products. Later on, Sharp also filed a lawsuit requesting damages. The Companys customers had aggressively pleading the invalidity of the subject patents with the
assistance of the Company, as a products merchant to assist downstream customers to respond to such lawsuits.
|
| |     | On September 17, 2003, Sharp launched a civil complaint with regard to alleged patent infringement against the Company and its customers in the United States District Court of U.S.A. This litigation is still in the
preliminary discovery phase. As of December 31, 2004, the Company believes that the resolution of this litigation will not have a material effect on the Companys results of operations of financial position.                                                                                                                                            
|
| |     | In April 2004, Commissariat ALenergie Atomique (CEA) launched a common plea with regard to allege patent infringement against the Company in United States District Court-District of Delaware. This litigation is in
preliminary phase. As of December 31, 2004 the Company believes that the resolution of this litigation will not have material effect on the Companys results of operations or financial position.                                                                                                                                                         
|
| |     | To the Companys knowledge, there are no other asserted or unasserted claims or litigation that could have or that have in the recent past, had any significant impact on its business results, financial condition
ownership of assets and liabilities or results of operation.                                                                                                                                                                                                                                                                                                  
|

F-42

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

|(20) | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | Pursuant to board of directors resolutions on January 12,2005, the Company purchased the land in Lungtan from ASD amounted to NT$2,774,000 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | On January 19, 2005, Guardian Industries Corp.
    filed a suit in the United States District Court-District of Delaware against us and thirteen other co-defendants,
    including BenQ, alleging infringement of certain of Guardian Industries Corp.s patents in the United States
    relating to the manufacturing of TFT-LCD panels.
    The suit is primarily seeking compensatory damages for the infringed patents,
    which in any event should not be less than the amount of reasonable royalty had such
    technology been licensed from Guardian Industries Corp. together with interest, punitive damages and
    costs incurred in the action.
    As of April 26, 2005 the Company believes that the resolution of this litigation
    will not have material effect on the Companys results of operations or financial position.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | On February 24, 2005, Thomson Licensing S.A.
        and Thomson Licensing Inc. filed an action with the United States International
        Trade Commission against us and BenQ, alleging infringement of certain U.S.
        patents through the importation and sale in the U.S. of certain color
        TV receivers and color display monitors
        ("accused products"). As of April 26, 2005 the Company believes that
        the resolution of this litigation will not have material effect on the
        Companys results of operations or financial position.                                                                                                                                                                                                                                                                     

|     |                                |                                                                                                                                                                  
|---- | ------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(21) | Industrial Segment Information
|     |                                |                                                                                                                                                                  
|     | (a)                            | Industrial information                                                                                                                                           
|     |                                |                                                                                                                                                                  
|     |                                | The Company consists of a single reportable operating segment, namely, the research, development, production and sale of TFT-LCDs, and other flat panel displays.
|     |                                |                                                                                                                                                                  
|     | (b)                            | Geographic information                                                                                                                                           
|     |                                |                                                                                                                                                                  
|     |                                | Geographical breakdown of sales for the years ended December 31, 2002, 2003 and 2004 are summarized as follows:                                                  

| |                                            |  | For the year ended December 31, | 
| | ------------------------------------------ |  | ------------------------------- | 
| |                                            |  |                                 | 
| |                                            |  | 2002                            | 
| |                                            |  |                                 | 
| |                                            |  | NT$                             | 
| |                                            |  | (in thousands)                  | 
| | Taiwan                                     |  | 40,091,288                      | 
| | The Peoples Republic of China             |  | 18,341,517                      | 
| | Other (individually less than 10% of total |  |                                 | 
| | net sales)                                 |  | 17,256,360                      | 
| |                                            |  |                                 | 
| |                                            |  | 75,689,165                      | 
| |                                            |  |                                 | 
| |                                            |  |                                 | 
| |                                            | 

| |  |                                                                      
| |  | ---------------------------------------------------------------------
| |  | Sales are attributed to countries based upon the origin of the sales.

F-43

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | The long-lived assets relating to above geographic areas were as follows:
| |  | -------------------------------------------------------------------------

| |                                |  | For the year ended December 31, | 
| | ------------------------------ |  | ------------------------------- | 
| |                                |  |                                 | 
| |                                |  | 2002                            | 
| |                                |  |                                 | 
| |                                |  | NT$                             | 
| |                                |  | (in thousands)                  | 
| | Taiwan                         |  | 72,983,829                      | 
| | The Peoples Republic of China |  | 2,663,249                       | 
| | Other                          |  | 3,452                           | 
| |                                |  |                                 | 
| |                                |  | 75,650,530                      | 
| |                                |  |                                 | 

| | (c) | Major customer information                                                                                                                                         
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | For the years ended December 31, 2002, 2003 and 2004, sales to individual customers representing greater than 10 percent of consolidated net sales were as follows:
|

| |     |  | For the year ended December 31, | 
| | --- |  | ------------------------------- | 
| |     |  |                                 | 
| |     |  | 2002                            | 
| |     |  |                                 | 
| |     |  | Amount                          | 
| |     |  |                                 | 
| |     |  | NT$                             | 
| |     |  | (in thousands)                  | 
| | BQS |  | 9,922,932                       | 
| |     |  |                                 | 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(22) | Summary of Significant Differences Between Accounting Principles Followed by the Company and Accounting Principles Generally Accepted in the United States of America                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The accompanying consolidated
              financial statements have been prepared in conformity with accounting
              principles generally accepted in the Republic of China (ROC GAAP),
              which differ in certain material respects from accounting principles
              generally accepted in the United States of America (US GAAP). A
              discussion of the significant differences between US GAAP, and,
              ROC GAAP as they apply to the Company is as follows:



F-44

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (a) | Business combination                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | AUO completed its merger with Unipac on September 1, 2001, through the issuance of 1,512,281 thousand common shares in exchange for all of the outstanding shares of Unipac. Under ROC GAAP, the merger was accounted for using
the pooling-of-interests method and, accordingly, the assets and liabilities of Unipac were recorded based on the carrying value at the date of the merger. Further, according to the Republic of China Company Law, the excess of Unipacs net
assets over the par value of the Companys issued common stock for completion of the merger was appropriated from unappropriated earnings and recorded as capital surplus. Under US GAAP, the merger was accounted for as the acquisition of Unipac
by the Company using the purchase method of accounting. Under purchase accounting, the aggregate purchase price of NT$39,636,901 thousand was calculated based on the market value of the shares issued, and such amount was allocated to the assets
acquired and liabilities assumed based on their respective fair values. The market value of the shares was based on the average market price of the Companys common shares over the five-day period before and after the terms of the acquisition
were agreed upon and announced. The difference between the purchase price and the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed of Unipac was recorded as goodwill.
|
| |     | AUOs management is responsible for the determination of the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed of Unipac. In determining such fair values, management
considered a number of factors, including valuation reports by third parties. The following table summarizes the estimated fair value of the assets and liabilities of Unipac at the date of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|

| |                               | September 1, 2001 |            | 
| | ----------------------------- | ----------------- | ---------- | 
| |                               |                   |            | 
| |                               | NT$               |            | 
| |                               | (in thousands)    |            | 
| |                               |                   |            | 
| | Current assets                |                   | 10,566,296 | 
| | Long-term investments         |                   | 38,767     | 
| | Plant, property and equipment |                   | 30,568,067 | 
| | Intangible assets             |                   | 8,730,382  | 
| | Goodwill                      |                   | 11,599,692 | 
| | Other assets acquired         |                   | 443,961    | 
| |                               |                   |            | 
| | Total assets                  |                   | 61,947,165 | 
| |                               |                   |            | 
| | Current liabilities           |                   | 2,763,917  | 
| | Long-term debt                |                   | 18,615,702 | 
| | Other liabilities             |                   | 930,645    | 
| |                               |                   |            | 
| | Total liabilities assumed     |                   | 22,310,264 | 
| |                               |                   |            | 
| | Net assets acquired           |                   | 39,636,901 | 
| |                               |                   |            | 

F-45

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | Of the NT$8,730,382 thousand of acquired intangible assets, NT$53,450 thousand was assigned to in-process research and development assets that were written off at the date of acquisition in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. Those write-offs are included in research and development expenses. The remaining NT$8,676,932 thousand of acquired intangible assets has a weighted average useful life of approximately 88 months and no estimated residual value. Such intangible assets include large-size TFT-LCD panels product and process technology of NT$3,123,655 thousand and small and mid-size TFT-LCD panels product and process technology of NT$5,553,277 thousand. The key technology for small and mid-size TFT-LCD production includes the technologies independently developed by Unipac and 13 related
patents. The key technology for large-size TFT-LCD production includes the technologies jointly developed by Unipac and Matsushita Electric Industrial Co., Ltd., (Matsushita), product technologies developed by Unipac and the three related patents.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The fair value of Unipacs inventory (represented by estimated selling prices less the sum of costs of disposal and a reasonable profit allowance for the selling effort) was less than its carrying amount by approximately NT$387,901 thousand at September 1, 2001. As a result, the amount allocated to Unipacs inventory in connection with the purchase price allocation performed under US GAAP was NT$387,901 thousand less than the carrying value of Unipacs inventory under ROC GAAP. The majority of the affected inventory was sold prior to December 31, 2001, which resulted in lower cost of sales of NT$331,656 thousand under US GAAP as compared to ROC GAAP for the year ended December 31, 2001. The remainder of the affected inventory was sold in 2002, which resulted in lower cost of sales of NT$56,245 thousand under US GAAP as compared to ROC GAAP.                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The remaining purchase price of NT$11,599,692 thousand was allocated to goodwill. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, goodwill arising from purchase business combinations consummated after June 30, 2001, is not amortized but is tested for impairment. Amortization of goodwill is not deductible for tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | There were deferred tax assets of NT$652,960 thousand with a related valuation allowance for deferred tax assets of NT$652,960 thousand and deferred tax liabilities of NT$680,849 thousand, respectively, which were recorded as part of the purchase accounting at September 1, 2001. As the Company continues to generate profits after 2002, the valuation allowance was released. In accordance with SFAS No. 109, the release of a valuation allowance for deferred tax assets that were created from a purchase accounting transaction results in a credit to goodwill rather that a benefit recorded in the income statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Effective January 1, 2002, for US GAAP purposes, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 classifies intangible assets into three categories: 1) intangible assets with definite lives subject to amortization; 2) intangible assets with indefinite lives not subject to amortization; and 3) goodwill. For intangible assets with definite lives, tests for impairment must be performed if conditions exist that indicate that the carrying value may not be recoverable. The Company has no intangible assets with indefinite lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



F-46

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |     | The Company performs tests of impairment of goodwill annually or more frequently if events or circumstances indicate it might be impaired. Such tests include comparing the fair value of the reporting unit with its carrying
value, using different methodologies, including estimates of sales proceeds, appraisals, and market capitalization values. In 2003 and 2004, the Company tested goodwill for impairment. Based on these assessments, the Company concluded that goodwill
was not impaired.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | The Companys product and process technology intangible assets are amortized over their useful lives. The Company reviews such product and process technology assets with definite lives for impairment to ensure they are
appropriately valued if conditions exist that may indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic region, or a change in the assessment of future operations.                                            
|
| |     | During 2004, the Company recognized the other than temporary impairment of an investment in marketable securities that was originally recorded in connection with the merger with Unipac. The adjustments to net income
determined in accordance with US GAAP for the year ended December 31, 2004 present separately that portion of the impairment related to the increase in carrying amount from the application of purchase accounting and the amount related to
Unipacs original basis.           
|
| | (b) | Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (c) | Equity method investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|

F-47

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | In March 2003, the Company purchased 20% ownership in FDTC, recording the investment at NT$436,271 thousand, and equity method goodwill of NT$240,179 thousand. The equity method goodwill is not amortized in accordance with SFAS No. 142, but is tested for impairment if events or circumstances indicate it might be other than temporarily impaired under US GAAP. Under ROC GAAP, the equity method goodwill is amortized on a straight-line basis over five years. In August 2004, the Company disposed 10% ownership representing a 10 percent interest in FDTC and became unable to exercise the significant influence over FDTC. As a result starting September 2004, the investment in FDTC is accounted for by the cost method.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The Company held a 21% ownership interest in PixTech as of December 31, 2002. Under ROC GAAP, because the Company had no intention to hold PixTechs stock for the long term, the investment in PixTech was recorded as a short-term investment and accounted for at the lower of aggregate cost or fair value with changes in fair value being reported in the consolidated statements of operations. Under US GAAP, the investment in PixTech was accounted for under the equity method.                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | In 2002, the Company wrote off the value of its investment in PixTech due to the other than temporary decline in investment value for both ROC GAAP and US GAAP. As a result, the December 31, 2002 US GAAP adjustment related to PixTech consists of the difference in the amount of the write off due to the different carrying amounts of this investment under both ROC GAAP and US GAAP.                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | In November 2003, the Company purchased its 12.31% ownership in Cando and accounted for its investment under the equity method of accounting. The difference between the acquisition cost and the carrying amount of net equity of the investee as of the acquisition date is allocated based upon the prorate excess of fair value over the carrying value of assets on investees books. Any unknown difference is treated as equity method goodwill. Under ROC GAAP, the amount of NT$22,769 thousand is amortized over five years; under US GAAP, it is not amortized, but evaluated for any other than temporary impairment.                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | If an investee company issues new shares and the shareholders do not acquire new shares in proportion to their original ownership percentage, the investors equity in the investees net assets will be changed. In February and May 2004, the Company made additional investments in Cando. Under ROC GAAP, the change in the equity interest shall be used to adjust the capital surplus and the long-term investments accounts.                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | If a companys capital surplus is not sufficient to offset the adjustment to long-term investment, then the difference shall be debited to retained earnings. AUO debited NT$153,569 thousand to the retained earnings in 2004. Under US GAAP, the subsequent investments are treated as a step acquisition. The Company recorded equity method goodwill of NT$230,616 thousand.                                                                                                                                                                                                                                                                                                                                                            



F-48

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |     | In 2004, the Company purchased its 5.47% ownership
in BenQ accounted for its investment under the equity method of accounting. The
difference between the acquisition cost and the carrying amount of net equity
of the  investee as of the acquisition date is allocated based upon the prorate
excess of fair value over the carrying value of assets on investees
books. Any remaining excess is considered investee level goodwill. Under ROC
GAAP, the investee level goodwill is amortized over five years; under US GAAP,
it is not amortized, but evaluated for any other than temporary impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | As permitted under ROC GAAP, the Company recognizes its equity income (loss) of Patentop and FDTC in the following year on a one-year lag basis. Under US GAAP, the Company recognizes its equity in the income (loss) of
Patentop in the current year on a current year basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     | Under ROC GAAP, marketable securities are carried at the lower of aggregate cost or market. The fair value is determined by the average price for one month before the balance sheet date. Under US GAAP, marketable securities
that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. The fair value is determined as of the balance sheet date. Marketable securities that are bought and traded for
short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Marketable securities not classified as trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income. However, when the investment is deemed to be other than temporarily impaired, it is written down to
fair value at the end of the period of assessment through a charge to earnings.
|
| |     | The Company had no trading or held-to-maturity securities as of December 31, 2003 or 2004. At December 31, 2004, the unrealized loss of one of the Companys available-for-sale securities, which has been in a continuous
unrealized loss position for more than twelve months, amounted to NT$ 922,901 thousand. The Company has determined that the impairment is other than temporary, and as a result, the unrealized loss of NT$ 922,901 thousand has been written off to
current operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (e) | Provision for inventory obsolescence and devaluation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     | A provision for inventory obsolescence and devaluation is recorded when management determines that the market values of inventories are less than their cost basis. Under ROC GAAP, such provisions can be reversed in whole or
in part if management further determines that the market values of inventories are greater than their cost basis. Under ROC GAAP, the Company recorded a reversal of obsolescence and devaluation provisions of NT$33,945 thousand for the year ended
December 31, 2002. Under US GAAP, provisions for inventory obsolescence and devaluation become a permanent adjustment to the carrying amount of the specific inventory, and cannot be reversed once they are recorded.                                                                                                                                                                                                                                                                                                                                                                          
|

F-49

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (f) | Convertible bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | When convertible bonds are issued, ROC GAAP does not recognize or account for any beneficial conversion feature embedded in the bonds. Under US GAAP, beneficial conversion features should be recognized and measured by
allocating a portion of the proceeds equal to the intrinsic value of that feature to capital surplus. In connection with the Companys issuance of convertible bonds in November 2001, the amount of the beneficial conversion feature was
calculated at the commitment date as the difference between the conversion price and the fair value of the common stock, multiplied by the number of shares into which the security is convertible. As a result of allocating a portion of the proceeds
equal to the intrinsic value of the beneficial conversion feature to capital surplus, a discount on the bonds was recognized. The discount resulting from such allocation is recognized as interest expense over the life of the convertible debt. The
face amount of the convertible bonds was NT$10,000,000 thousand, and the discount recognized on the date of issuance resulting from the beneficial conversion feature was NT$886,076 thousand. The effective interest rate of the bonds was approximately
6.0%, and their carrying amount at December 31, 2002 under US GAAP was NT$1,205,996 thousand. The convertible bonds were fully converted in October 2003.
|
| | (g) | Shareholders stock dividends paid                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     | Under ROC GAAP, shareholders stock dividends paid are recorded at par value, with a charge to retained earnings. Under US GAAP, if the ratio of distribution is less than 25 % of the same class of shares outstanding, the
fair value of the shares issued should be charged to retained earnings. The effect of this dividend decreased retained earnings and increased capital surplus for the years ended December 31, 2003 and 2004, by NT$2,087,193 thousand and NT$13,671,747
thousand, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (h) | Pension benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | Prior to January 1, 1998, the pension expense recorded by the Company in connection with its defined pension plan was based on contributions made by the Company to the pension plan as required by the Republic of China Labor
Standards Law. Effective from January 1, 1998, the Company adopted ROC GAAP, SFAS No. 18, Accounting for Pensions, which is identical to US GAAP, SFAS No. 87 and 88 with the exception of the accounting upon adoption. Subsequent to
January 1, 1998, net pension expense was recognized on an actuarially determined basis. Under US GAAP, the accumulated pension obligation and the pension expense are determined on an actuarial basis from the date the pension plan was started in
1996. Therefore, the pension obligation and related expense will be different because the unrecognized prior service cost is different between ROC GAAP and US GAAP. There were no other material differences between ROC GAAP and US GAAP related to
pension accounting.                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (i) | Depreciation of property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | Under ROC GAAP, the Company depreciates buildings over their estimated lives of between 20 to 50 years based on guidance from the Republic of China Internal Revenue Code. Under US GAAP, buildings are depreciated over an
estimated useful life of 20 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|

F-50

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (j) | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | The Company operates internationally, giving rise to exposure to changes in foreign currency exchange rates. The Company also has exposure to changes in interest rates that affect its cash flows on long-term debt. The
Company uses financial instruments, including derivatives such as foreign currency forward contracts and interest rate swaps, to reduce this exposure. Under ROC GAAP, the Companys interest rate swaps are recorded at their unamortized premium,
and the Companys forward contracts are recorded at their spot value on the balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     | Under US GAAP, prior to the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, the Company recorded its interest rate swaps as hedge transactions by recording the
net receivable or payable each month related to these interest rate swap contracts, offsetting and adding to interest expense of the related debts. For foreign currency forward contracts prior to the adoption of SFAS No. 133, as amended, the Company
recorded unrealized gains or losses measured using the change in spot rate of the contract in the consolidated statements of operations if the contracts were used to hedge existing foreign currency denominated receivables and payables, or deferred
recognition of unrealized gains or losses for those contracts hedging anticipated transactions that would be denominated in a foreign currency. The discount or premium on a forward contract was amortized into earnings over the life of the
contract.
|
| |     | As a result of adopting SFAS No. 133, as amended, as of January 1, 2001, and in accordance with the transition provisions, the Company recorded an after tax charge of NT$551 thousand representing the cumulative effect of
the adoption related to the foreign currency forward contracts, and a cumulative after-tax adjustment to accumulated other comprehensive income of NT$30,937 thousand related to the interest rate swaps.The
transition adjustments recorded upon adoption SFAS No. 133 have been fully amortized as of December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     | After the adoption of SFAS No. 133, as amended, none of the Companys existing derivatives meet the US GAAP hedge accounting criteria. All derivative contracts are recognized as either assets or liabilities and are
measured at fair value at each balance sheet date. Changes in fair values of derivative instruments arising subsequent to the transition date are recognized in earnings for US GAAP purposes. In addition, the Company reclassified NT$9,377 thousand
and NT$2,812 thousand, net of tax, of the deferred losses from accumulated other comprehensive income into earnings from the interest rate swap contracts in 2003 and 2004, respectively. Changes in the fair value of these derivatives in subsequent
periods could result in increased volatility of results of operations under US GAAP.                                                                                                                                                                       
|
| | (k) | Compensated absences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     | Under ROC GAAP, the Company is not required to accrue for unused vacation at the end of each year. However, under US GAAP, unused vacation that can be carried over to periods subsequent to that in which they are earned are
accrued for at each balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|

F-51

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (l) | Research and development expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | For ROC GAAP, the amortization of the payment of the capitalized technology fixed license and patent fees for product and process technology is included in research and development expense. For US GAAP, this amortization
expense is included in cost of goods sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (m) | Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     | The Company entered into certain non-cancelable lease agreements with rental payments subject to escalation adjustments of 5% each year. Under ROC GAAP, fixed escalation of rental payment is recognized as they become
payable. Under US GAAP, fixed escalation of rental payments is recognized on a straight-line basis over the lease term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (n) | Income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     | Under ROC GAAP, a valuation allowance is provided on
deferred tax assets when they are not certain to be realized based on the available
projection of future taxable income. However, the criteria by which the need
for a  valuation allowance is determined is less stringent as compared to US
GAAP. Under US GAAP, cumulative losses in recent years are a significant piece
of negative evidence which is difficult to overcome using  projections of future
taxable income for  the purpose of determining the valuation allowance. The Company
suffered losses in 2001 and also had a net loss in the fourth quarter of 2002.
As a result, the Company did not use the projection of future taxable income
in determining its net  deferred tax asset valuation allowance for periods through
 December 31, 2002. However, as the Company continues to generate profits
from 2003 onwards, more positive evidence is available that the use of available
future taxable income projections in determining the size of the valuation allowance
is appropriate. As a result, the Company released valuation allowance of NT$1,869,051
thousand in 2003.
|
| |     | Under a revised ROC tax rule effective on January 1, 1998, an additional 10 percent corporate income tax will be assessed on taxable income but only to the extent such taxable income is not distributed before the end of the
following year. As a result, from January 1, 1998, to January 20, 2001, the undistributed income of the Company is subject to a corporate tax rate of 28% and distributed income is taxed at 20%. Commencing from January 20, 2001, the undistributed and
distributed income are subject to a corporate tax rate of 32.5% and 25%, respectively. Under ROC GAAP, the 10% tax on undistributed earnings is recognized as an expense at the date that stockholders resolve the amount of the earnings distribution.
Under US GAAP, the Company measures its tax expense, including the tax effects of temporary differences, using the tax rate applicable to undistributed earnings.                                                                                                                                                                                                                                          
|

F-52

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (o) | Earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | Under ROC GAAP, basic earnings (loss) per share (EPS) are calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the year. Diluted EPS is calculated by taking basic EPS into
consideration, plus additional common shares that would have been outstanding if the potential diluted shares had been issued. Net income would also be adjusted for the interest derived from any underlying diluted shares. The weighted-average
outstanding shares are restated for shareholders stock dividends issued, including transfers from retained earnings and capital surplus to common stock, and employee stock bonus issued.
|
| |     | Under US GAAP, the calculation of basic and diluted EPS is substantially the same as compared to the calculation under ROC GAAP, except for shares issued for employee bonus are not restated. The diluted effects of the
Companys convertible bonds issued in November 2001 were considered in the diluted EPS calculation for the years 2002 and 2003. As the Companys convertible bonds were fully converted in October 2003, there is no diluted effect on the
Companys EPS in 2004.                                                                                                                                                                             
|

F-53

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (p) | US GAAP reconciliations                     
| | --- | --------------------------------------------
|
| |     | 1. Reconciliation of consolidated net income
|

| |                                                                    |                                                              | For the year ended December 31,      |           
| | ------------------------------------------------------------------ | ------------------------------------------------------------ | ------------------------------------ | ----------
| |                                                                    |                                                              |                                      |           
| |                                                                    |                                                              | 2002                                 |           
| |                                                                    |                                                              |                                      |           
| |                                                                    |                                                              | NT$                                  |           
| |                                                                    |                                                              | (in thousands except per share data) |           
| | Net income, ROC GAAP                                               |                                                              | 6,022,669                            |           
| | US GAAP adjustments:                                               |                                                              |                                      |           
| | (a)                                                                | Recognition of purchase method of accounting                 |                                      |           
| |                                                                    | - Amortization of intangible assets                          |                                      | (1,049,496
| |                                                                    | - Amortization
              of premium on bonds payable     |                                      | 60,268    
| |                                                                    | - Inventory                                                  |                                      | 56,245    
| |                                                                    | - Depreciation                                               |                                      | (240,365  
| |                                                                    | - Deferred tax liabilities                                   |                                      | -         
| | (h)                                                                | Accrued pension liability                                    |                                      | -         
| | (b)                                                                | Compensation                                                 |                                      |           
| |                                                                    | - Remuneration
            to directors and supervisors      |                                      | (54,204   
| |                                                                    | -
Employee bonuses                                           |                                      |           
| |                                                                    | - Accrual                                                    |                                      | (433,632  
| |                                                                    | - Adjustment to fair
            value                       |                                      | -         
| | (c)                                                                | Investment gain (loss) on long-term investment-equity method |                                      | (79,731   
| | (d)                                                                | Investment gain (loss) in marketable securities              |                                      | 1,132,551 
| | (e)                                                                | Provision for inventory obsolescence and devaluation         |                                      | (33,945   
| | (f)                                                                | Accretion of interest expense resulting from                 |                                      |           
| |                                                                    | beneficial conversion feature of convertible bonds           |                                      | (106,454  
| | (i)                                                                | Depreciation on property, plant and equipment                |                                      | (173,510  
| | (j)                                                                | Derivative financial instruments recorded at                 |                                      |           
| |                                                                    | fair value                                                   |                                      | 78,024    
| | (k)                                                                | Compensated absences accrual                                 |                                      | (8,490    
| | (m)                                                                | Escalation adjustment
        of rent expense                |                                      | (19,096   
| |                                                                    | Tax effect of US
        GAAP adjustments                    |                                      | (211,952  
| | (n)                                                                | Valuation allowance for deferred tax assets                  |                                      | -         
| |                                                                    |                                                              |                                      |           
| | Net income, US GAAP                                                |                                                              | 4,938,882                            |           
| |                                                                    |                                                              |                                      |           
| | Basic earnings per share
under US GAAP (in dollars)                |                                                              | 1.23                                 |           
| |                                                                    |                                                              |                                      |           
| | Diluted earnings per share
under US GAAP (in dollars)              |                                                              | 1.19                                 |           
| |                                                                    |                                                              |                                      |           
| | Basic-Weighted-average number
of shares outstanding (in thousands) |                                                              | 4,012,878                            |           
| |                                                                    |                                                              |                                      |           
| | Diluted- Weighted-average
numb                                     |                                                              | 4,293,997                            |           
| |                                                                    |                                                              |                                      |           

F-54

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| |  | 2.   Reconciliation of consolidated stockholders equity |                                                         |              |               
| |  | -------------------------------------------------------- | ------------------------------------------------------- | ------------ | --------------
| |  |                                                          |                                                         |              |               
| |  |                                                          |                                                         | December 31, |               
| |  |                                                          |                                                         |              |               
| |  |                                                          |                                                         | 2003         |               
| |  |                                                          |                                                         |              |               
| |  |                                                          |                                                         | NT$          |               
| |  |                                                          |                                                         |              | (in thousands)
| |  |                                                          |                                                         |              |               
| |  | Total stockholders equity, ROC GAAP                     |                                                         | 92,654,527   |               
| |  | (a)                                                      | Recognition of purchase method of accounting            |              |               
| |  |                                                          | - Goodwill                                              |              | 10,946,732    
| |  |                                                          | - Intangible assets, net of amortization                |              | 5,247,478     
| |  |                                                          | - Other assets                                          |              | 275,161       
| |  |                                                          | - Other liabilities                                     |              | (45,109       
| |  | (b)                                                      | Accrued compensation                                    |              |               
| |  |                                                          | - Remuneration to directors and supervisors             |              | (70,470       
| |  |                                                          | - Employee bonuses                                      |              |               
| |  |                                                          | - Accrual                                               |              | (1,268,454    
| |  | (c)                                                      | Long-term investment-equity method                      |              | (167,167      
| |  | (c)                                                      | Decrease in cumulative translation adjustment           |              | 5,877         
| |  | (d)                                                      | Marketable securities                                   |              | (78,012       
| |  | (i)                                                      | Property, plant and equipment                           |              | (613,097      
| |  | (j)                                                      | Derivative financial instruments recorded at fair value |              | (63,366       
| |  | (k)                                                      | Compensated absences accrual                            |              | (134,711      
| |  | (m)                                                      | Escalation adjustment of rent expense                   |              | (113,938      
| |  | (n)                                                      | Deferred tax assets                                     |              | 403,428       
| |  |                                                          | Total stockholders equity, US GAAP                     |              | 106,978,879   
| |  |                                                          |                                                         |              |               

F-55

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

| | (q) | US GAAP Consolidated Financial Statements
| | --- | -----------------------------------------

Consolidated Balance Sheets
December 31, 2003 and 2004 (Expressed in thousands of New Taiwan dollars and US dollars)


|                                                |  | 2003        |   |  | 2004        |  
|----------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                |  |             |   |  |             |  
|                                                |  | NT$         |   |  | NT$         |  
|Assets                                          |  |             |   |  |             |  
|Current assets:                                 |  |             |   |  |             |  
|Cash and cash equivalents                       |  | 17,962,082  |   |  | 16,797,663  |  
|Securities available for sale                   |  | 2,728,410   |   |  | 2,676,206   |  
|Notes and accounts receivable, net              |  | 11,438,339  |   |  | 15,297,617  |  
|Receivables from related parties                |  | 5,522,640   |   |  | 5,420,358   |  
|Inventories                                     |  | 9,956,128   |   |  | 15,884,989  |  
|Prepayments and other current assets            |  | 722,399     |   |  | 1,302,384   |  
|Deferred tax assets                             |  | 2,781,174   |   |  | 875,307     |  
|                                                |  |             |   |  |             |  
|Total current assets                            |  | 51,111,172  |   |  | 58,254,524  |  
|                                                |  |             |   |  |             |  
|Long-term investments:                          |  |             |   |  |             |  
|Equity method                                   |  | 533,158     |   |  | 5,719,066   |  
|Available for sale                              |  | 185,329     |   |  | 412,704     |  
|                                                |  |             |   |  |             |  
|                                                |  | 718,487     |   |  | 6,131,770   |  
|                                                |  |             |   |  |             |  
|Property, plant and equipment:                  |  |             |   |  |             |  
|Land                                            |  | 159,996     |   |  | 159,996     |  
|Buildings                                       |  | 14,205,819  |   |  | 16,554,160  |  
|Machinery and equipment                         |  | 100,245,515 |   |  | 140,584,004 |  
|Other equipment                                 |  | 5,809,366   |   |  | 9,736,977   |  
|                                                |  |             |   |  |             |  
|                                                |  | 120,420,696 |   |  | 167,035,137 |  
|Less: accumulated depreciation and amortization |  | (35,827,671 | ) |  | (58,948,917 | )
|Construction in progress                        |  | 3,909,682   |   |  | 13,061,619  |  
|Prepayment for purchases of land and equipment  |  | 11,780,752  |   |  | 38,037,431  |  
|                                                |  |             |   |  |             |  
|Net property, plant and equipment               |  | 100,283,459 |   |  | 159,185,270 |  
|                                                |  |             |   |  |             |  
|Intangible assets                               |  |             |   |  |             |  
|Goodwill                                        |  | 10,946,732  |   |  | 10,946,732  |  
|Other intangible assets                         |  | 7,485,415   |   |  | 5,260,729   |  
|                                                |  |             |   |  |             |  
|                                                |  | 18,432,147  |   |  | 16,207,461  |  
|                                                |  |             |   |  |             |  
|Other assets                                    |  |             |   |  |             |  
|Refundable deposits                             |  | 1,154,925   |   |  | 1,128,964   |  
|Restricted cash in bank                         |  | 29,200      |   |  | 29,200      |  
|Deferred charges and other                      |  | 462,854     |   |  | 822,125     |  
|Assets held for sale                            |  | 1,482,489   |   |  | 1,259,621   |  
|Deferred tax assets                             |  | 230,933     |   |  | 2,095,056   |  
|                                                |  |             |   |  |             |  
|Total other assets                              |  | 3,360,401   |   |  | 5,334,966   |  
|                                                |  |             |   |  |             |  
|Total assets                                    |  | 173,905,666 |   |  | 245,113,991 |  
|                                                |  |             |   |  |             |  

F-56

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

Consolidated Balance Sheets (continued)
December 31, 2003 and 2004(Expressed in thousands of New Taiwan dollars and US dollars except share data)

|                                                                           |  | 2003        |   |  | 2004        |  
|-------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                           |  |             |   |  |             |  
|                                                                           |  | NT$         |   |  | NT$         |  
|Liabilities and Stockholders Equity                                       |  |             |   |  |             |  
|Current liabilities:                                                       |  |             |   |  |             |  
|Short-term borrowings                                                      |  | 300,795     |   |  | 6,183,004   |  
|Accounts payable                                                           |  | 22,149,503  |   |  | 27,129,790  |  
|Payables to related parties                                                |  | 1,019,031   |   |  | 750,582     |  
|Current installments of long-term borrowings                               |  | 6,904,474   |   |  | 7,084,416   |  
|Accrued expenses and other current liabilities                             |  | 4,748,232   |   |  | 7,131,108   |  
|Equipment and construction in progress payable                             |  | 6,153,328   |   |  | 7,165,981   |  
|                                                                           |  |             |   |  |             |  
|Total current liabilities                                                  |  | 41,275,363  |   |  | 55,444,881  |  
|                                                                           |  |             |   |  |             |  
|Long-term borrowings:                                                      |  |             |   |  |             |  
|Long-term borrowings, excluding current installments                       |  | 25,306,447  |   |  | 40,334,053  |  
|Bonds payable, excluding current installments                              |  | -           |   |  | 6,000,000   |  
|                                                                           |  |             |   |  |             |  
|Total long-term borrowings                                                 |  | 25,306,447  |   |  | 46,334,053  |  
|                                                                           |  |             |   |  |             |  
|Other liabilities:                                                         |  |             |   |  |             |  
|Accrued pension liabilities                                                |  | 163,967     |   |  | 220,002     |  
|Other                                                                      |  | 181,010     |   |  | 429,439     |  
|                                                                           |  |             |   |  |             |  
|Total other liabilities                                                    |  | 344,977     |   |  | 649,441     |  
|                                                                           |  |             |   |  |             |  
|Total liabilities                                                          |  | 66,926,787  |   |  | 102,428,375 |  
|                                                                           |  |             |   |  |             |  
|Commitments and contingent liabilities                                     |  |             |   |  |             |  
|Stockholders equity:                                                      |  |             |   |  |             |  
|Common stock, NT$10 par value; 5 billion shares authorized;                |  |             |   |  |             |  
|4,352,237 thousand and 4,958,041 thousand                                  |  |             |   |  |             |  
|shares issued
 and outstanding at December 31, 2003 and 2004, respectively |  | 43,522,372  |   |  | 49,580,409  |  
|                                                                           |  |             |   |  |             |  
|Additional paid-in capital                                                 |  | 55,306,778  |   |  | 87,539,711  |  
|                                                                           |  |             |   |  |             |  
|Retained earnings:                                                         |  |             |   |  |             |  
|Legal reserve                                                              |  | 602,267     |   |  | 2,168,260   |  
|Unappropriated retained earnings                                           |  | 8,303,657   |   |  | 3,800,061   |  
|                                                                           |  |             |   |  |             |  
|                                                                           |  | 8,905,924   |   |  | 5,968,321   |  
|                                                                           |  |             |   |  |             |  
|Accumulated other comprehensive loss, net                                  |  | (505,214    | ) |  | (151,844    | )
|                                                                           |  |             |   |  |             |  
|                                                                           |  |             |   |  |             |  
|Treasury stock at cost; 12,000 thousand shares in 2003 and 2004            |  | (250,981    | ) |  | (250,981    | )
|                                                                           |  |             |   |  |             |  
|Total stockholders equity                                                 |  | 106,978,879 |   |  | 142,685,616 |  
|                                                                           |  |             |   |  |             |  
|Total liabilities and stockholders equity                                 |  | 173,905,666 |   |  | 245,113,991 |  
|                                                                           |  |             |   |  |             |  

F-57

---

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

Consolidated Statements of OperationsYears ended December 31, 2002, 2003 and 2004(Expressed in thousands of New Taiwan dollars and US dollars,
except for per share data)

|                                                                          |  | 2002       |   |  | 2003        |   |  | 2004        |  
|------------------------------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ----------- | -
|                                                                          |  | NT$        |   |  | NT$         |   |  | NT$         |  
|Net sales:                                                                |  |            |   |  |             |   |  |             |  
|Related parties                                                           |  | 21,493,418 |   |  | 28,794,083  |   |  | 45,081,777  |  
|Third parties                                                             |  | 54,195,747 |   |  | 76,066,559  |   |  | 123,029,792 |  
|                                                                          |  |            |   |  |             |   |  |             |  
|                                                                          |  | 75,689,165 |   |  | 104,860,642 |   |  | 168,111,569 |  
|Cost of goods sold                                                        |  | 66,197,062 |   |  | 84,940,895  |   |  | 135,255,952 |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Gross profit                                                              |  | 9,492,103  |   |  | 19,919,747  |   |  | 32,855,617  |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Operating expenses:                                                       |  |            |   |  |             |   |  |             |  
|Selling                                                                   |  | 537,361    |   |  | 1,288,314   |   |  | 2,093,189   |  
|General and administrative                                                |  | 1,729,485  |   |  | 2,813,857   |   |  | 6,232,833   |  
|Research and development                                                  |  | 1,411,906  |   |  | 2,479,652   |   |  | 4,360,773   |  
|                                                                          |  |            |   |  |             |   |  |             |  
|                                                                          |  | 3,678,752  |   |  | 6,581,823   |   |  | 12,686,795  |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Total operating income                                                    |  | 5,813,351  |   |  | 13,337,924  |   |  | 20,168,822  |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Non-operating income:                                                     |  |            |   |  |             |   |  |             |  
|Interest income                                                           |  | 280,410    |   |  | 161,121     |   |  | 174,898     |  
|Investment gain recognized by
 equity method investment, net              |  | -          |   |  | -           |   |  | 279,700     |  
|Gain on sale of investments                                               |  | 56,997     |   |  | -           |   |  | 7,572       |  
|Foreign currency exchange gain, net                                       |  | -          |   |  | 61,785      |   |  | 85,132      |  
|Other income                                                              |  | 368,074    |   |  | 181,055     |   |  | 166,897     |  
|                                                                          |  |            |   |  |             |   |  |             |  
|                                                                          |  | 705,481    |   |  | 403,961     |   |  | 714,199     |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Non-operating expenses and losses:                                        |  |            |   |  |             |   |  |             |  
|Interest expense                                                          |  | 1,277,700  |   |  | 801,060     |   |  | 783,914     |  
|Investment loss recognized by
 equity method investment, net              |  | 90,206     |   |  | 177,825     |   |  | -           |  
|Impair loss on security available-for-sale                                |  | -          |   |  | -           |   |  | 922,901     |  
|Other and derivative loss                                                 |  | -          |   |  | 277,688     |   |  | 600,238     |  
|                                                                          |  |            |   |  |             |   |  |             |  
|                                                                          |  | 1,367,906  |   |  | 1,256,573   |   |  | 2,307,053   |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Income before income tax                                                  |  | 5,150,926  |   |  | 12,485,312  |   |  | 18,575,968  |  
|Income tax benefit (expense)                                              |  | (212,044   | ) |  | 3,230,114   |   |  | (463,420    | )
|                                                                          |  |            |   |  |             |   |  |             |  
|Net income                                                                |  | 4,938,882  |   |  | 15,715,426  |   |  | 18,112,548  |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Basic earnings per common share (in dollars)                              |  | 1.23       |   |  | 3.51        |   |  | 3.80        |  
|Dilution effect of convertible bonds (in dollars)                         |  | (0.04      | ) |  | (0.04       | ) |  | -           |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Diluted earnings per common share (in dollars)                            |  | 1.19       |   |  | 3.47        |   |  | 3.80        |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Basic-Weighted average common shares outstanding (in thousands)           |  | 4,012,878  |   |  | 4,481,133   |   |  | 4,765,464   |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Diluted-Weighted
        average common shares outstanding (in thousands) |  | 4,293,997  |   |  | 4,534,587   |   |  | 4,765,464   |  
|                                                                          |  |            |   |  |             |   |  |             |  
|Cash dividends declared per common share (in dollars)                     |  | -          |   |  | 0.50        |   |  | 1.20        |  
|                                                                          |  |            |   |  |             |   |  |             |  

F-58

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

Consolidated Statements of Comprehensive income
Years ended December 31, 2002, 2003 and 2004
(Expressed in thousands of New Taiwan dollars and US dollars)

|                                                                                         | 2002          |   | 2003       |   | 2004       |  
|---------------------------------------------------------------------------------------- | ------------- | - | ---------- | - | ---------- | -
|                                                                                         |               |   |            |   |            |  
|                                                                                         | NT$           |   | NT$        |   | NT$        |  
|                                                                                         |               |   |            |   |            |  
|Net income                                                                               | 4,938,882     |   | 15,715,426 |   | 18,112,548 |  
|                                                                                         |               |   |            |   |            |  
|Other comprehensive income (loss) before tax:                                            |               |   |            |   |            |  
|Unrealized holding gains (loss) on securities available-for-sale                         | (1,751,156    | ) | 577,780    |   | 578,620    |  
|Foreign currency cumulative translation adjustment                                       | 18,477        |   | (16,721    | ) | (291,708   | )
|Reclassification adjustments for securities sold                                         | (36,360       | ) | 43,644     |   | (3,625     | )
|Amortization of fair value adjustment
 of interest rate swap                             | 13,889        |   | 13,889     |   | 4,166      |  
|                                                                                         |               |   |            |   |            |  
|Other comprehensive income (loss) before income taxes and
cumulative effect of change in |               |   |            |   |            |  
|accounting principle                                                                     | (1,755,150    | ) | 618,592    |   | 287,453    |  
|Income tax expense (benefit)                                                             | 34,937        |   | (13,107    | ) | 65,917     |  
|                                                                                         |               |   |            |   |            |  
|Other comprehensive income, (loss)                                                       | (1,720,213    | ) | 605,485    |   | 353,370    |  
|                                                                                         |               |   |            |   |            |  
|Comprehensive income                                                                     | **3,218,669** |   | 16,320,911 |   | 18,465,918 |  
|                                                                                         |               |   |            |   |            |  

F-59

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AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

Consolidated Statements of Changes in Stockholders' EquityYears ended December 31, 2002, 2003 and
2004
(Expressed in thousands of New Taiwan dollars and shares)

|                                                                 |  |                               |  | Capital Stock |  | Retained earnings                             |   |                              |   |                |   |                                                           |  
|---------------------------------------------------------------- |  | ----------------------------- |  | ------------- |  | --------------------------------------------- | - | ---------------------------- | - | -------------- | - | --------------------------------------------------------- | -
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  
|                                                                 |  | Common  shares(in  thousands) |  | Common  stock |  | Certificates  exchangeable  for common  stock |   | Additional  paid-in  capital |   | Legal  reserve |   | Unapproap-  riated  earnings (accumulated  deficits), net |  
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  
|**Balance at January 1, 2002**                                   |  | 2,970,581                     |  | 29,705,816    |  | -                                             |   | 39,236,171                   |   | 232,014        |   | (9,645,200                                                | )
|Issuance of common stock for cash                                |  | 500,000                       |  | 5,000,000     |  | -                                             |   | 14,170,256                   |   | -              |   | -                                                         |  
|Convertible bonds converted to common stock                      |  | 553,613                       |  | 5,536,129     |  | 1,012                                         |   | 2,710,715                    |   | -              |   | -                                                         |  
|Transfer of legal reserve to unapporiated
          earnings     |  | -                             |  | -             |  | -                                             |   | -                            |   | (232,014       | ) | 232,014                                                   |  
|Transfer of capital surplus to unappropriated
          earnings |  | -                             |  | -             |  | -                                             |   | (3,765,829                   | ) | -              |   | 3,765,829                                                 |  
|Net income                                                       |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | 4,938,882                                                 |  
|Purchase of treasury stock                                       |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | -                                                         |  
|Other comprehensive income, net of tax                           |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | -                                                         |  
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  
|Balance at January 1, 2003                                       |  | 4,024,194                     |  | 40,241,945    |  | 1,012                                         |   | 52,351,313                   |   | -              |   | (708,475                                                  | )
|Appropriation for legal reserve                                  |  | -                             |  | -             |  | -                                             |   | -                            |   | 602,267        |   | (602,267                                                  | )
|Convertible bonds converted to common
 stock                     |  | 83,988                        |  | 839,878       |  | (1,012                                        | ) | 417,295                      |   | -              |   | -                                                         |  
|Issuance of employee stock bonus                                 |  | 43,363                        |  | 433,632       |  | -                                             |   | 450,977                      |   | -              |   | -                                                         |  
|Issuance of shareholders stock dividends                         |  | 200,692                       |  | 2,006,917     |  | -                                             |   | 2,087,193                    |   | -              |   | (4,094,110                                                | )
|Cash dividend                                                    |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | (2,006,917                                                | )
|Net income                                                       |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | 15,715,426                                                |  
|Purchase of treasury stock                                       |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | -                                                         |  
|Other comprehensive income, net of tax                           |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | -                                                         |  
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  
|Balance at December 31, 2003                                     |  | 4,352,237                     |  | 43,522,372    |  | -                                             |   | 55,306,778                   |   | 602,267        |   | 8,303,657                                                 |  
|Issuance of common stock for cash                                |  | 300,000                       |  | 3,000,000     |  | -                                             |   | 12,967,194                   |   | -              |   | -                                                         |  
|Appropriation for legal reserve                                  |  | -                             |  | -             |  | -                                             |   | -                            |   | 1,565,993      |   | (1,565,993                                                | )
|Issuance of shareholders stock dividends                         |  | 217,012                       |  | 2,170,119     |  | -                                             |   | 13,671,747                   |   | -              |   | (15,841,866                                               | )
|Issuance of employee stock bonus                                 |  | 88,792                        |  | 887,918       |  | -                                             |   | 5,593,883                    |   | -              |   | -                                                         |  
|Effect of disproportionate in investees capital increase        |  | -                             |  | -             |  | -                                             |   | 109                          |   | -              |   | -                                                         |  
|Cash dividend                                                    |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | (5,208,285                                                | )
|Net income                                                       |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | 18,112,548                                                |  
|Other comprehensive income, net of tax                           |  | -                             |  | -             |  | -                                             |   | -                            |   | -              |   | -                                                         |  
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  
|Balance at December 31, 2004                                     |  | 4,958,041                     |  | 49,580,409    |  | -                                             |   | 87,539,711                   |   | 2,168,260      |   | 3,800,061                                                 |  
|                                                                 |  |                               |  |               |  |                                               |   |                              |   |                |   |                                                           |  

F-60

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AU OPTRONICS CORP. AND SUBSIDIARIES


Notes to Consolidated Financial StatementsAs of and for the years ended December 31, 2002, 2003 and 2004

Consolidated Statements
of Cash Flows
Years ended December 31, 2002, 2003 and 2004(Expressed in thousands
  of New Taiwan dollars and US dollars)

|                                                                          |  | 2002        |   |  | 2003        |   |  | 2004        |  
|------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                                          |  |             |   |  |             |   |  |             |  
|                                                                          |  | NT$         |   |  | NT$         |   |  | NT$         |  
|Cash flows from operating activities:                                     |  |             |   |  |             |   |  |             |  
|Net income                                                                |  | 4,938,882   |   |  | 15,715,426  |   |  | 18,112,548  |  
|Adjustments to reconcile net income to net cash provided by operating     |  |             |   |  |             |   |  |             |  
|activities:                                                               |  |             |   |  |             |   |  |             |  
|Depreciation                                                              |  | 11,912,829  |   |  | 15,028,830  |   |  | 23,965,649  |  
|Amortization of intangible assets, deferred charges and discounts         |  | 2,701,198   |   |  | 2,340,998   |   |  | 2,392,388   |  
|Loss (gain) on sale of investments and proprerty, plant and equipment     |  | (61,370     | ) |  | 168,637     |   |  | 26,842      |  
|Unrealized exchange loss (gain)  net                                     |  | 348,155     |   |  | (70,837     | ) |  | 4,046       |  
|Net change in fair value of derivative instruments                        |  | (78,024     | ) |  | (22,270     | ) |  | 249,054     |  
|Provision for inventory devaluation                                       |  | 33,945      |   |  | 290,241     |   |  | 588,428     |  
|Non-cash compensation-employee bonuses                                    |  | 433,632     |   |  | 1,719,431   |   |  | 5,593,883   |  
|Investment loss (gain) recognized by equity method                        |  | 90,206      |   |  | 177,825     |   |  | (279,700    | )
|Other than temporary loss of long-term equity investment                  |  | -           |   |  | -           |   |  | 922,900     |  
|Decrease (increase) in notes and accounts receivable  related parties    |  | (1,217,723  | ) |  | (1,876,237  | ) |  | 102,282     |  
|Decrease (increase) in notes and accounts receivable-third parties        |  | 46,233      |   |  | (5,017,969  | ) |  | (4,643,786  | )
|Decrease (increase) in inventories                                        |  | 470,180     |   |  | (1,770,744  | ) |  | (6,517,288  | )
|Decrease (increase) in prepayments and other current assets               |  | (484,340    | ) |  | 662,702     |   |  | (179,272    | )
|Decrease (increase) in deferred tax assets (net)                          |  | 211,953     |   |  | (3,230,114  | ) |  | 109,014     |  
|Increase (decrease) in notes and accounts payable-relatedparties          |  | 67,198      |   |  | 458,426     |   |  | (268,449    | )
|Increase in notes and accounts payable-third parties                      |  | 1,254,758   |   |  | 10,954,569  |   |  | 5,295,077   |  
|Increase in accrued expenses and other current liabilities                |  | 548,859     |   |  | 1,399,103   |   |  | 3,270,795   |  
|Increase in accrued pension liabilities and others                        |  | 10,973      |   |  | 59,252      |   |  | 199,345     |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Net cash provided by operating activities                                 |  | 21,227,544  |   |  | 36,987,269  |   |  | 48,943,756  |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Cash flows from investing activities:                                     |  |             |   |  |             |   |  |             |  
|Purchase of investment securities available for sale                      |  | (9,500,815  | ) |  | (7,801,640  | ) |  | (4,339,254  | )
|Proceeds from sales of securities available for sale                      |  | 10,219,973  |   |  | 8,775,642   |   |  | 4,057,400   |  
|Acquisition of property, plant and equipment                              |  | (18,035,305 | ) |  | (39,300,566 | ) |  | (82,011,081 | )
|Proceeds from disposal of long-term equity investment and property, plant |  |             |   |  |             |   |  |             |  
|and equipment                                                             |  | 78,719      |   |  | 10,954      |   |  | 230,736     |  
|Decrease in restricted cash in bank                                       |  | 97,342      |   |  | 23,000      |   |  | -           |  
|Increase in intangible assets and deferred charges                        |  | (1,239,156  | ) |  | (1,092,946  | ) |  | (579,267    | )
|Decrease (increase) in refundable deposits                                |  | (124,050    | ) |  | (136,798    | ) |  | 25,961      |  
|Increase in long-term equity investment                                   |  | (46,586     | ) |  | (817,013    | ) |  | (5,385,465  | )
|                                                                          |  |             |   |  |             |   |  |             |  
|Net cash used in investing activities                                     |  | (18,549,878 | ) |  | (40,339,367 | ) |  | (88,000,970 | )
|                                                                          |  |             |   |  |             |   |  |             |  
|Cash flows from financing activities:                                     |  |             |   |  |             |   |  |             |  
|Increase (decrease) in short-term borrowings                              |  | 770,444     |   |  | (469,649    | ) |  | 5,882,209   |  
|Repayment of short-term borrowings                                        |  | (2,585,961  | ) |  | -           |   |  | -           |  
|Increase (decrease) in guarantee deposit and others                       |  | 40,682      |   |  | (21,980     | ) |  | 1,455       |  
|Increase in long-term borrowings                                          |  | 4,664,932   |   |  | 8,740,405   |   |  | 22,315,772  |  
|Repayment of long-term borrowings                                         |  | (5,104,110  | ) |  | (10,792,110 | ) |  | (6,892,110  | )
|Issuance of common stock for cash                                         |  | 19,170,256  |   |  | -           |   |  | 15,967,192  |  
|Issuance of bonds payable                                                 |  | -           |   |  | -           |   |  | 6,000,000   |  
|Purchase of treasury stock                                                |  | (182,849    | ) |  | (68,132     | ) |  | -           |  
|Cash dividend                                                             |  | -           |   |  | (2,006,917  | ) |  | (5,208,285  | )
|                                                                          |  |             |   |  |             |   |  |             |  
|Net cash provided by (used in) financing activities                       |  | 16,773,394  |   |  | (4,618,383  | ) |  | 38,066,233  |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Effect of exchange rate change on cash                                    |  | 9,866       |   |  | (24,631     | ) |  | (173,438    | )
|                                                                          |  |             |   |  |             |   |  |             |  
|Net increase (decrease) in cash and cash equivalents                      |  | 19,460,926  |   |  | (7,995,112  | ) |  | (1,164,419  | )
|Cash and cash equivalents at beginning of year                            |  | 6,496,268   |   |  | 25,957,194  |   |  | 17,962,082  |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Cash and cash equivalents at end of year                                  |  | 25,957,194  |   |  | 17,962,082  |   |  | 16,797,663  |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Supplemental disclosures of cash flow information:                        |  |             |   |  |             |   |  |             |  
|Cash paid for interest expenses                                           |  | 1,253,983   |   |  | 823,773     |   |  | 771,423     |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Cash paid (received) for income taxes                                     |  | 19,343      |   |  | (15,581     | ) |  | 14,189      |  
|                                                                          |  |             |   |  |             |   |  |             |  
|Non-cash investing and financing activities:                              |  |             |   |  |             |   |  |             |  
|Convertible bonds applying for conversion                                 |  | 8,247,856   |   |  | 1,256,161   |   |  | -           |  
|                                                                          |  |             |   |  |             |   |  |             |  

F-61


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