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Taiwan-based fabless chipmaker MStar Semiconductor plans to raise US$500 million in an overseas initial public offering as soon as this year.

The company was deciding between Hong Kong and the United States for the listing, sources said, adding the deal would take place this year at the earliest  but  the first half next year was more likely.

'There's a misconception about higher valuations in the US. A good company can get a good valuation anywhere,' a source said. 'Also in the US, with  [Generally Accepted Accounting Principles], you have to expense your stock options and that kills your net income. You don't have to do that if you list in Taiwan or Hong Kong.'

Morgan Stanley, Goldman Sachs, Credit Suisse and UBS were among the banks pitching for the underwriter role, sources said.

MStar declined to comment.

Founded in 2002, MStar is the world's biggest supplier of controller chips for liquefied crystal display monitors  with a market share of about 70 per cent, JP Morgan analyst Alvin Knock said.

MStar employs about 1,000 workers with operations in Taiwan and the mainland. Last year, it bought the mobile-telephone baseband chips division of France's Wavecom.

'All the leading bands [of LCD monitors] use its chips,' Mr Knock said.

MStar's major competitors include US-listed Genesis, Taiwan-listed Realtek and Novatek.

The company expected income to reach US$200 million to US$300 million next year and the listing would give it a market value of  as much as US$3 billion, the source said.

MStar is tapping the equity market despite the lacklustre performance of offerings by other chipmakers.

'We've seen a lot of these fabless IPOs in the US but the only one that's been successful was Silicon Motion Technology. The others are disasters like Himax Technology, Vimicro International and Actions Semiconductors,' the source said.

Shares in Taiwan-based Silicon Motion, which  makes flash memory chips, have more than doubled  since they were listed in Nasdaq in June 2005. But its peers have lost 40 to 50 per cent since their listings in the past one to two years.

'[When] investing in  [integrated circuit] design companies, one has to pay attention to the product cycle risks since many of them are single-product companies. If a company lists at the peak of its product cycle, while it may maximise the funds they can raise, investors are exposed to substantial risks,' Mr Knock said.

Actions' revenue grew more than 1,000 times between 2002 and 2005 because of surging demand for its main product, MP3 player chips. Its revenue growth rate slowed to 13 per cent last year.

'In contrast, MStar has a broad pipeline of new products. It has expanded to WiFi, fingerprint, GPS and mobile-telephone baseband chips,' Mr Knock said.

Thinking big

MStar's income forecast for next year, in US dollars $300m



MStar seeks to raise US$500m from overseas share offering