Mergers & Acquisitions

SMIC ramps up global expansion with €49m purchase of Italian chipmaker LFoundry

PUBLISHED : Sunday, 26 June, 2016, 4:26pm
UPDATED : Monday, 27 June, 2016, 12:19am

Semiconductor Manufacturing International Corporation (SMIC), China’s largest contract chipmaker, has agreed to take over Italian company LFoundry in a 49 million (HK$422.34 million) deal that marks its first acquisition of an overseas-based integrated circuit manufacturer.

That purchase would enable SMIC to enter and supply chips to the automotive and industrial electronics markets, according to the company’s filing with the Hong Kong stock exchange late Friday.

“The successful completion of the LFoundry acquisition is an important step in our global strategy,” SMIC chief executive Chiu Tzu-yin said.

The transaction followed SMIC’s 2.65 billion yuan (HK$3.1 billion) investment last month to increase its stake in Jiangsu Changjiang Electronics Technology, which runs mainland China’s largest semiconductor packaging assembly and test business.

Listed in both Hong Kong and New York, SMIC agreed to buy 70 per cent of LFoundry from owners LFoundry Europe and Marsica Innovation, which will each retain a 15 per cent shareholding in the acquired company.

The deal is expected to close on or before July 29, according to SMIC.

“Together we can further improve LFoundry’s strength in optical sensor-related technology ... and continue to contribute to the growth of technology in Europe,” said Sergio Galbiati, the managing director at Marsica and chairman of LFoundry.

The Italian company, which had revenue of 218 million in its financial year ended March 31, is an international contract manufacturer of so-called complementary metal-oxide semiconductors and image sensors, as well as analogue and mixed-signal chips used in security, automotive and industrial-related applications.

Chiu said the LFoundry acquisition would enable SMIC to raise its production capacity by around 13 per cent, which would add much-needed scale amid the 99 per cent utilisation rate at its Chinese fabriction plants, or fabs, over the past five quarters.

SMIC’s current total capacity includes 162,000 8-inch silicon wafers per month and 62,500 12-inch wafers per month. LFoundry’s capacity amounts to 40,000 8-inch wafers per month.

A recent Jefferies research note said SMIC worried about capacity because its production of fingerprint sensors used on smartphones was already overloading work at its mainland fabs.

In a conference call with analysts last month, Chiu hinted at A possible merger and acquisition to achieve the firm’s annual growth target of 20 per cent in the next few years.

“We believe inorganic expansion is necessary to achieve such a rapid growth,” Bernstein senior analyst Mark Li said in a report.

SMIC, which posted a record-high first-quarter revenue of US$634 million, has a diversified product portfolio that includes radio frequency, connectivity, power management, image sensor and embedded memory chips for the communications and consumer electronics markets.

The state-backed China Integrated Circuit Industry Investment Fund invested about US$400 million in SMIC last year to help expand its production capacity and develop new technologies.