SMIC Seeks Partner, May Raise Chip Price
Semiconductor Manufacturing International Corp. Chief Executive Officer Richard Chang said China’s biggest chipmaker is talking to as many as four investors about a partnership.
The unprofitable company prefers to sell a stake to a strategic partner such as a customer, rather than a financial institution, Chang said. Semiconductor Manufacturing said in March it was in “advanced” talks with an unidentified investor after receiving proposals from private equity firms last year.
“When this deal was very close, a few others came in,” Chang, 60, said in an interview at his headquarters in Shanghai on June 2. “We are very cautious and carefully evaluating all the possibilities so this is why it takes a long time.”
Chang declined to identify the companies Semiconductor Manufacturing is talking with or say when he expects to reach an agreement.
Separately, the company is considering raising prices of some chips to reflect higher costs and a weaker dollar, Theresa Tang, head of finance and investor relations said. Taiwan Semiconductor said last month it may raise prices because of higher costs.
Delaying the sale may hinder Semiconductor Manufacturing’s ability to invest in new equipment and technology to compete against Taiwan Semiconductor Manufacturing Co., according to UBS AG analyst William Dong. The company’s shares have plunged 51 percent in the past year after a glut of computer memory chips forced price cuts and four quarters of losses.
‘Worse and Worse’
“It gets worse and worse the longer this drags out,” said Dong, a Taipei-based analyst at UBS. “SMIC will fall further behind in technology and their capital spending is slowing down.”
Chang and his board of directors have shareholders’ approval to sell as much as a 20 percent stake, worth HK$1.9 billion ($248 million) based on yesterday’s stock price.
Semiconductor Manufacturing shares have risen 14 percent since March 24, when the company disclosed it was in discussions to sell a “significant” stake to a strategic investor. Less than a week earlier, the stock had tumbled to a record low of 43.5 H.K. cents.
In April 2007, Chang said the company was reviewing proposals from private equity funds. The chipmaker attracted buyout funds seeking to buy a 25 percent stake for $600 million, the South China Morning Post said then.
A strategic investor such as customer “can inject orders or bring technology to the company, then it will make an impact to the company,” said Rick Hsu, a Taipei-based analyst at Nomura Holdings Inc.
Custom Chips
Semiconductor Manufacturing is abandoning the unprofitable computer memory chip business to focus on customized chips used in game consoles and mobile phones, Chang said. He reiterated the company expects a profit in the fourth quarter.
Prices of dynamic random access memory chips, which speed up computers by storing frequently used data, tumbled 85 percent last year because of a glut, according to prices compiled by Dramexchange Technology Inc. DRAM makers, led by Samsung Electronics Co., posted losses from the product during the quarter ended March 31.
The company is trying to convert its DRAM plants to meet demand for logic chips, Chang said.
Chang said he expects to see increased demand from the Chinese market, driven by chips used in MP3 players, digital television set-top boxes and mobile phones. The company, which has eight production lines and manages two for local city governments, has a 35 percent market share in China and 7 percent globally, he said.
China’s consumption of chips is poised to triple over five years to $124 billion by 2010, according to Scottsdale, Arizona- based research firm IC Insights Inc.
Tags: Electronics, Samsung, Semiconductor, SMIC, technology