Silicon Integrated Systems Corp (SiS, 矽統科技), the world's third-largest maker of computer chipsets, has offered rival United Microelectronics Corp (UMC, 聯電) three vacant seats on its board of directors as part of a deal to settle a patent infringement suit that UMC won in October.
UMC purchased 25 million shares in SiS since Dec. 10, giving it a 2.3 percent stake in the company. The move indicates the two former partners have finally kissed and made up after more than two years of bitter wrangling, analysts said yesterday.
"SiS has surrendered to UMC with this gesture," said George Wu (吳裕良), a chip-industry analyst at Primasia Securities Co whose portfolio includes UMC. "The legal case is too big for SiS ? and to get rid of the burden, it has made this offer of three board seats to UMC."
The October ruling by the US International Trade Commission (ITC) barred from the US market SiS chips that were made using a mold, or master, which was found to be UMC's patented technology. In addition, motherboards with the chips built into them were impounded -- with a bond equal to 39 percent of the value of the motherboard.
"The final result of the ITC case cannot be changed," SiS spokeswoman Irene Hsiao said yesterday. "However, a different case with the US District Court will be withdrawn."
Since the October ruling SiS has changed the master it uses to make chipsets. Chipsets allow the different components of a computer -- like memory and graphics -- to communicate with the main processor.
Future disputes are expected to be avoided by a cross-licensing agreement between the two companies, Hsiao said.
UMC's spokesman agreed. "Under the cross-licensing agreement, [patent infringements] will not be an issue," Alex Hinnawi said yesterday.
Hinnawi stressed that the two companies intend to work together on process technology, forming "a long-term strategic alliance."
The rapprochement between the two companies is essential for SiS to clear its reputation in the key US market, analysts said. US computer companies only use chips that are free from legal disputes, Wu said. "SiS will now be able to sell to US companies without patent problems," said James Huang, (黃建銘), an analyst at SinoPac Securities Corp (建華證券). But UMC will gain more than a major voice on SiS' board of directors -- it will win orders, Huang said.
SiS may need to place orders with UMC as soon as next month. The company's own chip-manufacturing plant, or fab, is running at above 90 percent capacity, spokesperson Hsiao revealed.
And by outsourcing to UMC -- the world's second-largest supplier of made-to-order chips -- SiS may be able to increase its profit margin.
"In the past few years, fabs have become a burden," Wu said. "Their high cost has shrunk profit margins. SiS should use UMC's capacity to make chipsets, and use its own fab to concentrate on graphics chips." SiS entered the graphics-chip market in April this year. Graphics chips have much higher profit margins, and it makes more sense to make them in-house, Wu said.
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