TSMC Lawsuit Puts Cloud Over SMIC IPO
Taiwan Semiconductor Manufacturing Co., (TSMC) the world's
largest chip foundry, filed suit against its new Shanghai-based
rival Semiconductor Manufacturing International Corp.
(SMIC), in northern California, alleging patent infringement
and misappropriation of trade secrets.
TSMC,
which has most of its chip foundry facilities in Taiwan's
Hsinchu Science-based Industrial Park, is the world's
largest chip foundry and acts as a virtual fab for many
of the world's electronics companies, was founded in 1987.
SMIC
is a new company with operations in Shanghai, and was
founded by Richard Chang, a Taiwanese semiconductor veteran
formerly from Worldwide Semiconductor Manufacturing Corp.,
a company which was absorbed by TSMC in 2000.
The lawsuit alleges that certain SMIC-made products sold
in the US had violated TSMC patents which it had registered
in the US. The suit does not mention when the tests were
made. It also alleges that 100 former TSMC employees had
become SMIC employees and were asked to furnish their
new employer with TSMC trade secrets. The case also refers
to a judgement made in 2001 by Taiwan's Hsinchu District
Court, which later issued an injunction against SMIC requiring
it not to use TSMC trade secrets or poach TSMC's employees.
Most observers believe that TSMC's lawsuit is aimed at
derailing SMIC's listing in the US and Hong Kong, and
plan to raise US$750 million next year.
The chip foundry business is very capital intensive and
cyclical. Each fab requires approximately US$2 billion
in capital investment, and must run at 70 percent capacity
to become profitable. Since the manufacturing technology
changes in 1 1/2 - 2 year cycles, timing is very important,
especially in the early stages of a new company. Failure
to secure orders and become profitable for a new startup,
would throw doubt on its whole management team, making
raising capital difficult.
SMIC has been able to secure initial orders from Japan's
OKI. SMIC has said that it intends to supply chips mainly
to Chinese makers of electronics products. The general
business climate in the chip industry is favorable, with
growth in 2004.
Recently, TSMC's founder and chairman Morris Chang has
been critical of mainland Chinese foundries, saying that
their aggressive expansion will lead to overcapacity and
the next cyclical downturn.
The company is best known in the US for its highly publicized
ties to Jiang Mienheng, the son of the former Chinese
president Jiang Zemin; Winston Wang, son of Formosa plastics
mogul Wang Yung-ching, and Neil Bush, younger brother
of US president George W. Bush.
TSMC has actively sought to expand into China, and has
received
permission from the Shanghai municipal government,
but its close ties to the Taiwan government have been
a stumbling block. Since the Taiwan government was an
original
investor in the company, any investment moves into
China have inevitably been blocked by internal political
forces in Taiwan's parliament. Many who favor Taiwan independence
feel that allowing TSMC to invest in China would amount
to transferring technology to the enemy. Since Taiwan
is having its presidential election on March 20, 2004,
virtually everything is on hold, including TSMC's proposed
investments in China.
SMIC claims that it has not received any money from Taiwan.
Before you go, did you like this article?
If so, you can receive a free email newsletter version
each weekday. Sign up using the China Business Express
form on this page.
