TSMC to Take No Day-to-Day Role in SMIC
SMIC announced the terms of its legal settlement with TSMC. After founder Richard Chang was replaced as SMIC CEO, sources speculated that TSMC would play a behind-the-scenes role at the Shanghai-based foundry. SMIC will grant TSMC stocks and warrants worth ~10%, but TSMC will not have a seat on the board or take an active role in day-to-day operations, SMIC said.
David Lammers, News Editor -- Semiconductor International, 11/11/2009
In an amicable end to six years of bitter legal disputes, Semiconductor Manufacturing International Corp. (SMIC, Shanghai, China) announced the terms of its legal settlement with Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC, Hsinchu, Taiwan), saying, "TSMC is welcomed as a new shareholder."
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SMIC announced the terms of its legal settlement with TSMC, including granting ~10% of its stock and warrants. (Source: Courtroom View Network) |
On Monday, the two foundries agreed to a settlement, following a Nov. 4 jury verdict against SMIC in the trade secrets lawsuit. Some observers painted the ouster of former SMIC CEO Richard Chang, who Monday left the company he founded in 2000, as the first step in a virtual takeover of SMIC by TSMC. The SMIC announcement of the settlement terms Tuesday said, "SMIC anticipates no disruption in its wafer foundry service to its customers, or in its independent management of the company as a result of the settlement."
TSMC will not take an active part in SMIC's management, and will not have a representative on the board of directors. "TSMC will not be granted representation on SMIC's board of directors, will vote its shares in favor of the actions (including recommended directors) recommended by SMIC's board (except as to certain change in control transactions), and will not be involved in the day-to-day operations of SMIC," SMIC announced.
The settlement provides TSMC with stock and warrants worth ~10% of SMIC's outstanding shares. Though any stock transfer from China must be approved by the Taiwan government, TSMC will receive 1.79 billion shares of SMIC, representing ~8% of SMIC's total shares as of the end of October. The settlement grants TSMC warrants that will give TSMC the right to purchase another 695.91 million shares over the next three years, at a share price of HK$1.30 ($0.17).
The Tuesday announcement also said the agreement between the two parties will allow SMIC to continue to use the disputed trade secret technology contested in the recently concluded trial. That clause will allow SMIC to process wafers, and to serve its U.S. customers, effectively dropping TSMC's earlier threat to block SMIC's exports to the United States if SMIC was found to have violated the 2005 settlement between the foundries. "SMIC may continue to use the trade secrets and technology disputed in the California case, subject to confidentiality restrictions, under a covenant not to sue," SMIC announced.
In 2005, SMIC had agreed to pay TSMC $175M to settle intellectual property claims contested in the California court system. In mid-2006, TSMC re-opened that suit, claiming that SMIC CEO Richard Chang had instructed his staff to destroy or hide technical documents that were to be placed in a document escrow. When the lawsuit appeared headed toward trial, SMIC stopped making the final payments called for in the 2005 agreement.
The latest settlement forgave the remaining payments of $40M due under the 2005 settlement, effectively reducing the cash portion of this week's settlement from $200M to $160M. SMIC will pay $15M immediately from its cash reserves, and will pay the remainder in installments over a period of four years, including $80M due by the end of next year.
The settlement terms appear designed to preserve SMIC's ability to operate as China's flagship foundry, ensuring the support of China's central government as well as from Shanghai and other municipal governments that have supported SMIC's fab expansions. Had TSMC effectively forced SMIC into bankruptcy with a large up-front cash settlement of the lawsuit, it could have created political problems for TSMC's ability to expand in China, a fast-growing economy expected to replace Japan next year as the world's second-largest economy.
"SMIC believes this settlement is a win-win for the parties, resolving uncertainty for their employees, mutual customers, and other stakeholders. With new certainty, opportunity and synergy for our customers and management, SMIC looks forward to improving shareholder value," the company statement said.
SMIC operates a 300 mm fab and three 200 mm fabs in Shanghai, two 300 mm fabs in Beijing, and a 200 mm wafer fab in Tianjin acquired from Motorola, and has another 200 mm fab under construction in Shenzhen. In addition, SMIC manages and operates a 200 mm wafer fab in Chengdu, owned by Cension Semiconductor Manufacturing Corp., and a 300 mm wafer fab in Wuhan owned by Wuhan Xinxin Semiconductor Manufacturing Corp. It operates an in-house assembly and testing facility in Chengdu.
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David N.K. Wang, SMIC CEO |
David N.K. Wang, named as the new CEO, is a native of China who earned his doctorate in materials science from the University of California at Berkeley. He developed plasma deposition technologies while at Bell Labs, is named on ~100 patents, and spent two decades at Applied Materials, where he managed the deposition business unit and later ran Applied's Asian operations until mid-2005. Wang was the chairman of foundry Shanghai Huahong NEC Electronics until June 2007.
SMIC's website reflects other management changes beyond Wang's appointment as president and CEO. Morning Wu is listed as the acting CFO, Chiou-Feng Chen is vice president of corporate marketing and sales, and Anne Wai Yui Chen — who was called upon to testify in person at the trial in Oakland, Calif. — continues as company secretary, Hong Kong representative, and compliance officer.
The website's short list of the new management team has no mention of Marco Mora, who with Richard Chang played a role in the misappropriation of TSMC's process recipes dating back to the early days of SMIC's founding. Until last week, Mora was listed as the COO of SMIC.
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