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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: William Griffin who wrote (30798)	6/2/1999 5:18:00 PM
From: Duker	Respond to of 70976

TSMC Is in Talks to Take Stake in Acer Chip Unit By RUSSELL FLANNERY Staff Reporter of THE WALL STREET JOURNAL TAIPEI, Taiwan -- Acer Inc. is in talks that could lead to an investment in its unprofitable semiconductor unit by Taiwan Semiconductor Manufacturing Co., the island's No. 1 chip maker and the world's biggest contract producer of semiconductors. TSMC Chairman Morris Chang said Wednesday that the talks about a possible stake in Acer Semiconductor Manufacturing Inc., or ASMI, were part of broader discussions on an "alliance" in the semiconductor field between two of Taiwan's best-known high-tech manufacturers. Executives from the two sides said details aren't final, but TSMC may purchase as much as 30% of ASMI. A preliminary cooperation agreement could be announced within a week, an ASMI spokesperson said. Acer's shares rose Wednesday by 3.50 New Taiwan dollars to their 7% daily ceiling to NT$53.50 (US$1.63), on hopes the linkup with TSMC would help end ASMI losses -- totaling roughly US$300 million over the past two years. Shares in TSMC, a 27%-owned affiliate of Dutch electronics maker Philips Electronics NV, climbed 2.1%, or NT$2.50, to NT$119 on the belief that the company would profit from new capacity obtained through Acer. Benefits for Both "TSMC benefits because their plant utilization rates are high and they need additional capacity," said Joseph Liu, an analyst at Asia Research & Consulting Ltd., an affiliate of Hong Kong-based Bank of East Asia. "Acer benefits because they hopefully can turn profitable." The alliance comes amid a worse-than-expected 50% plunge in memory-chip prices this year that has delayed a recovery in profits at memory-chip makers. Among the hardest hit are companies such as ASMI, whose technology lags behind industry leaders, analysts say. Continued red ink, difficulties in diversifying from memory chips to other types of business, and looming U.S. antidumping duties on Taiwan's memory-chip exports later this year may force other local memory-chip companies besides Acer to seek alliances. "It wouldn't surprise me if there's more of this," said Jeffrey Toder, head of research at Jardine Fleming Taiwan Securities. TSMC, because of its growing contract manufacturing business, still may be looking for other firms to invest in, he said. For many, a move by Acer to hook up with TSMC would be a graceful retreat from a troubled business in which it once was regarded as a local pioneer. When Acer first entered the industry through a US$300 million memory-chip venture with Texas Instruments Inc. in 1989, it was hailed as an unlikely milestone for an island best known for producing shoes and toys. The agreement brought new technology to Taiwan -- now the world's No. 4 chip maker -- and launched Acer, then the is land's biggest maker of cheap computers known as "PC clones," into the semiconductor industry. Glow Has Gone But a decade later, the glow has gone. Net profit at the chip company, then called Texas Instruments-Acer Inc., peaked at NT$6.5 billion in 1995 before an industry boom ended. Texas Instruments has exited the memory-chip market and is no longer an investor in the Acer venture, which changed its name last year to ASMI. At the time it parted with TI, Acer said it wanted to add nonmemory products and expand contract production. Yet both businesses take time to build; meanwhile, the decline in memory-chip prices that was supposed to end early this year is poised to continue. For TSMC, working more closely with ASMI would make sense, in part because they know each other well and are both based in the Hsinchu Science-Based Industrial Park, the hub of Taiwan's semiconductor industry. Acer Chairman Stan Shih and Mr. Chang are high-tech icons in Taiwan and are said to be friends. The two sides already have a NT$2.6 billion chip-processing joint venture, Taiwan Semiconductor Technology Corp. "The proximity of facilities and the senior management offices of the two are pluses because it makes it easier to control quality and keep the operation up and running," said Don Floyd, a technology industry analyst at Credit Lyonnais Securities. "Also, for TSMC, Acer is a known entity, and there won't be any surprise. It makes a lot more sense than buying a lone facility in the middle of nowhere," he said.