Mergers & Acquisitions

Chipmaker SMIC targets new foreign acquisition to bolster expansion

Shanghai-based firm seeks to drive new business from untapped market segments

PUBLISHED : Thursday, 01 September, 2016, 9:28pm
UPDATED : Thursday, 01 September, 2016, 11:20pm

Semiconductor Manufacturing International Corp, China’s largest contract chipmaker, could be gearing up for another foreign acquisition to further expand its production capacity and drive new business from untapped market segments.

“There are quite a few opportunities available for us out there, and we’re now evaluating them,” Gareth Kung, the executive vice-president for strategic business development and finance at SMIC, told the South China Morning Post on Thursday.

“After completing our LFoundry acquisition, we were approached by a number of [integrated-circuit foundry] players in Europe and Asia. They see SMIC as for real after that transaction.”

Shanghai-based SMIC bought a 70 per cent controlling interest in Italian contract chipmaker LFoundry for 49 million in June, marking its first purchase of an overseas-based semiconductor foundry.

That takeover was expected to add much-needed scale to SMIC’s production capacity amid the average 99 per cent utilisation rate at its Chinese fabrication plants, or fabs, over the past six quarters.

It would also pave the way for the company to enter and supply chips to the vehicle and industrial markets.

Kung declined to identify SMIC’s potential new targets, but described them as similar-sized foundries “working with mature [chip-processing] technologies on a number of niche applications”.

He said a potential new deal could likely be made in the next 24 months.

“We’re weighing the risks and rewards,” he said. “We also have to make sure that we can successfully integrate LFoundry.”

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

The Italian firm, which had revenue of 218 million in the financial year to March, is an international contract manufacturer of so-called complementary metal-oxide semiconductor image sensors as well as analogue and mixed-signal chips used in security, vehicle and industrial-related applications.

Kung said the immediate goal of SMIC was to increase LFoundry’s capacity to produce as many as 50,000 wafers per month, up from 40,000 now.

The company expected LFoundry to significantly raise its overall fabrication capacity over the next three to four quarters.

“There is more room for us to expand capacity,” said Kung, noting the rapid growth of sales from Chinese firms that outsource chip production to SMIC.

In China, SMIC has fabs in Shanghai, Beijing, Tianjin and Shenzhen.

Mark Li, a senior analyst at Bernstein Research, said in a report that if SMIC “can bring LFoundry utilisation to the full level, that would add about 14 per cent to SMIC revenue”.

SMIC has estimated that a fully ramped-up LFoundry fab can contribute about US$300 million a year in sales to its total revenue.

Listed in both Hong Kong and New York, the firm reported on Wednesday record-high revenue and profit for the first six months of this year.

Net profit rose 20 per cent to US$159 million on the back of increased wafer shipments while revenue grew 25 per cent to US$1.32 billion.

Chip foundry SMIC blows past market estimates with record US$690m Q2 revenue

Sales from Chinese customers reached an all-time high of 49.7 per cent of total revenue for the first half.

“SMIC is able to maintain close to 100 per cent utilisation consistently [at its fabs], thanks to strong demand, especially from Chinese customers such as Huawei Technologies,” Nomura analyst Huang Leping said in a report.

SMIC earlier this year raised its capital spending to US$2.5 billion from US$1.5 billion last year to continue with its capacity expansion as well as research and development activities.