Chartered Semiconductor Manu-facturing Ltd (特許半導體) shares surged after it agreed to share computer chip plants with International Business Machines (IBM) Corp, trying to close a gap in market share and technology with Taiwanese rivals.
The shares of the world's third-largest provider of made-to-order chips rose as much as 9.9 percent on the plan to offer customers manufacturing capacity in IBM's factories that use 300mm (12 inch) wafers, which yield more chips at a lower cost.
Chartered won't have such a plant until 2004.
The alliance lets the companies save costs and fill unused capacity at plants as the chip industry recovers from its worst ever year in 2001. Without IBM, Chartered Semiconductor may have lost more of its 5.3 percent share of the made-to-order chip market to Taiwan Semiconductor Manufacturing Co (TSMC,
"With the IBM credentials, it certainly enhances their position substantially, especially in terms of the technology gap they have with the Taiwanese," said Teng Ngiek Lian, who helps manage about S$160 million (US$90 million) at Target Asset Management and doesn't hold Chartered shares. "The technology gap has been quite wide. The ability to upgrade is very important."
The agreement will give IBM more customers for its US$2.5 billion plant in East Fishkill, New York, which opened in February. Chartered Semiconductor will pay IBM an undisclosed deposit against future orders. IBM will also have the option of using manufacturing capacity from Chartered Semiconductor starting in 2005.
The two companies will work together to develop manufacturing systems for making chips with transistors 90nm and 65nm in width.
Chartered Semiconductor will delay initial production by one year at its new Fab 7 plant, which is expected to cost as much as US$3.5 billion to fully equip, saving money on capital expenditure.
"Because of the near term uncertainty we thought it would be prudent for us to delay investment in starting up Fab 7," Chief Executive Chia Song Hwee said in an interview. "This would not be viable in terms of our longer-term vision unless we have this arrangement."
Singapore-based Chartered will pay IBM US$40 million this year and make two more smaller payments next year related to the development of manufacturing systems. It expects research and development spending to increase 25 percent next year on costs related to the alliance. The companies declined to say how much IBM is contributing.
"From a technology standpoint, Chartered will actually accelerate its learning curve," said Warren Lau, an analyst with HSBC Securities, who rates the shares "reduce." "It makes a lot of sense."
The company now poses more of a threat to United Microelectronics Corp (聯電), the No. 2 provider of made-to-order chips, Lau said.
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