UMC pulls out of chip-making venture with Hitachi

Contract chip maker United Microelectronics Corp. (UMC), has decided to sell off its stake in a chip-making venture with Japan's Hitachi Ltd. after failing to take over management control at the joint-venture company.

Hitachi said Tuesday it will buy Taiwan-based UMC's 40 percent stake in Trecenti Technologies Inc. for ¥10.7 billion (AUD$140 million). After the purchase, Trecenti will become a wholly owned subsidiary of Hitachi, said Masanao Sato, a spokesman for Hitachi. Trecenti operates a 300-millimeter wafer fabrication plant in Japan.

The companies said the decision to end the joint venture came as a result of the semiconductor industry downturn and a need to focus efforts on their respective semiconductor operations. "The major issue was that the urgency for the fab was not as high due to the fact that there has been an industry downturn," said UMC spokesman Alex Hinnawi.

With a wholly owned 300-millimeter fab in operation in Taiwan and plans to build another 300-mm fab in Singapore through a joint venture with Advanced Micro Devices Inc., UMC felt its joint venture with Hitachi could place a drain on technical resources that would be needed elsewhere. "We have limited amounts of resources in technology development and engineering and we really need to focus those on the wholly managed 300-mm facilities," Hinnawi said.

Despite the decision to sell its stake in Trecenti, UMC had recently made a bid to take over control at the fab. Two weeks ago, UMC Chairman Robert Tsao made public his desire to see UMC take control at Trecenti, saying the company wanted management control of the fab or it would sell its shares in the joint venture back to Hitachi. UMC's stated goal was to remove any lingering competitive concerns that foundry customers might have when doing business with Trecenti.

"There might be an issue of the competitors of Hitachi not wanting to go to that fab because they perceive it as not being completely independent," Hinnawi said, adding that he had not heard of a specific case where this had been a problem.

Hinnawi would not comment on the specific reasons why UMC's bid to take over management control at Trecenti failed. "I'll let you put two and two together," he said.

Trecenti operates a single semiconductor fabrication plant at Hitachi's LSI (large-scale integrated circuit) facility in Ibaraki, north of Tokyo. The plant is one of Japan's most advanced and was the first in the country to handle semiconductor wafers of 300 millimeters diameter -- something that the partners chose to highlight when they named the company after the Latin for "300."

Industry-wide, most semiconductor production is now done with wafers that are 200 millimeters in diameter although a gradual shift towards the larger-size wafers is underway because a single 300-millimeter wafer can yield around twice as many chips as the smaller wafer, saving semiconductor companies money.

Hitachi said that once the buy-out is complete the Ibaraki plant will join facilities in Japan and Singapore as centers for production of system LSI chips, flash memories and SRAMs. Employees sent to Trecenti from UMC will return to the Taiwanese company while those from Hitachi will remain with Trecenti.

The semiconductor industry downturn blamed for the decision to end the joint venture has hit both companies hard.

UMC saw its fourth-quarter sales, for the period to the end of December 2001, drop 56 percent against the same period a year earlier and posted a NT$3.75 billion (US$106.9 million) net loss for the period compared with a net profit of NT$16.7 billion a year earlier. Hitachi, in its most recent financial statement, said its electronic devices business saw sales drop 14 percent in the six months to the end of September 2001 and posted a net loss of ¥72.9 billion (US$609.9 million) against a profit of ¥88.7 billion a year earlier.

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