TSMC Moves to Take Stake in Chinese Rival

By TING-I TSAI
Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker by revenue, has applied to the Taiwan government for approval to acquire a 10% stake in China's Semiconductor Manufacturing International Corp. as part of a legal settlement.

The expected move, the direct result of a lawsuit in which TSMC accused its mainland rival of stealing trade secrets, brings TSMC one step closer to becoming a major shareholder of the Chinese company that had set out to challenge its market dominance.

Under their settlement last November, SMIC agreed to pay $200 million, an 8% stake in itself and warrants covering a further 2% to TSMC. The settlement came a week after an Alameda County Superior Court jury in California ruled in TSMC's favor in the case after a nine-week trial.

But the Taiwanese government had prohibited its technology firms from investing in China. In February, however, it moved to ease regulations allowing the island's chip makers to invest in their Chinese counterparts.

J.H. Tzeng, spokesman for TSMC, confirmed a local media report on the application to take the stake Sunday.

TSMC filed suits in 2003 accusing SMIC of infringing on its patents and stealing technological secrets related to manufacturing recipes used in fabricating chips on silicon wafers. SMIC disputed the allegations, but in January 2005 agreed to pay $175 million as part of a settlement over those allegations. Later that year, TSMC filed another suit that accused SMIC of violating terms of the settlement.

Following last year's settlement, Richard Chang, founder of SMIC, resigned from his post as chief executive. Mr. Chang, a semiconductor industry veteran, founded SMIC in Shanghai in 2000, with backing from the Shanghai government and Chinese banks. SMIC is part of China's broader push to develop advanced high-tech industries, but has been struggling with annual net losses since 2005.

Please note - the closing price of the US - ADR for SMIC was at US$6.67 ( up by 61 cts - 10.07% ) from this....you will see another steady move again today!

HUAT AH!!!! and enjoy the nice ride!