China’s semiconductor ambitions get a reality check as Stats ChipPac deal sees poor returns

One of the first major acquisitions spurred by China’s aggressive policy to expand its semiconductor industry could turn into a financial albatross for some of the sector’s largest companies, according to analysts.

The deal in question is last year’s US$780 million buyout of semiconductor test and packaging giant Stats ChipPac by mainland rival Jiangsu Changjiang Electronics Technology (JCET), which was backed by Hong Kong-listed Semiconductor Manufacturing International Corp (SMIC) and the China IC Industry Fund.

“We find this merger has become an example that China should avoid in the future,” Bernstein senior analyst Mark Li said in a research note published on Monday.

“Recent performance shows no noticeable synergies from the merger of JCET and Stats ChipPac.”

Singapore-based Stats ChipPac is ranked fourth among the world’s largest outsourced semiconductor assembly and testing (OSAT) companies, which focus on the back end of the chip manufacturing process.

Sluggish global demand in smartphones, along with the lingering economic slowdown, has resulted in weak sales over the past few quarters for Stats ChipPac and other OSAT providers as handset manufacturers and contract chip makers bring more testing and packaging in-house, according to a report by Fitch Ratings.