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Ailing chipmaker in discussions for partnership

(Agencies/China Daily)
Updated: 2008-06-05 14:34

Semiconductor Manufacturing International Corp CEO 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," said Chang. "We are very cautious and carefully evaluating all the possibilities, so it is taking 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.

"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 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 based on Tuesday's stock price.

Semiconductor Manufacturing shares have risen 21 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 HK cents.

Chang had earlier said the company was reviewing proposals from private equity funds.

A strategic investor such as customer "can inject orders or bring technology to the company, then it will make an impact on the company", said Rick Hsu, a Taipei-based analyst at Nomura Holdings Inc.

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.