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Ian/more
Which Other U.S. Semi
Makers Stand to Gain From
Taiwanese Deal?
By Herb Greenberg
Senior Columnist
6/15/99 6:30 AM ET
A late-in-the-day dispatch yesterday of this column noted
how "wild card" assets finally might be getting value at S3
(SIII:Nasdaq) and Alliance Semiconductor (ALSC:Nasdaq).
Several years ago both participated in a joint venture with
Taiwan's United Microelectronics to create United
Semiconductor, a private Taiwanese company that runs a
semiconductor plant. Only problem: There was no way to put
a value on the investment because United Semi was private.
Then, yesterday, United Micro announced plans to buy
United Semi and several other joint-venture fabs in return for
United Micro stock, which is traded in Taiwan. Based on the
price of United Micro's publicly traded stock, analysts
calculated attractive values for the S3 and Alliance holdings.
S3 and Alliance, as it turns out, weren't the only U.S. semi
companies to hold stakes in the fabs being bought by United
Micro. Oak Technology (OAKT:Nasdaq), for example, owns
9.3% of United Integrated Circuits. Same goes for Trident
Microsystems (TRID:Nasdaq), which holds 9.3% of United
Integrated assets as well. (Meanwhile, Integrated Silicon
Solution (ISSI:Nasdaq) agreed to sell its position in United
Integrated back to United Micro in April for its original
acquisition cost, although it says it will record a gain of about
$1.8 million in the June quarter on the sale. Timing is
everything!) Then there's Xilinx (XLNX:Nasdaq), which
actually records its proportional interest in United Silicon,
another United Micro venture, as part of its own income.
Adding to the intrigue was United Micro CEO John Hsuan's
comments, reported by Bloomberg, that efficiencies created
by consolidating the fabs could cause his company's
earnings to double next year.
The purchases are part of United Micro's efforts to play
catch-up to Taiwan Semiconductor (TSM:NYSE), whose
ADRs are the closest thing U.S. investors can get to a pure
play in fabs. Most U.S. semi companies have ditched their
fabs over the years. (See my colleague Marcy Burstiner's
story on the semi shakeout.) "It used to be that foundries
were nothing more than glorified Kinkos," says analyst Tad
LaFountain of Needham & Co. "But during the past down
cycle, Taiwanese foundries kept investing, and what they've
done is shifted the bar on a process technology basis. So
instead of being technology laggards, foundries are now
leaders, because they can do as sophisticated a process as
virtually any semi company."
Which is why U.S. companies have joint-ventured with the
Taiwanese and others. Avoid the downside; participate in the
upside.
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