UMC snaps up SiS shares

United Microelectronics Corp (UMC, 聯電), Taiwan's second-largest manufacturer of made-to-order computer chips, bought 14 million overseas shares in Silicon Integrated Systems Corp (SiS, 矽統科技) yesterday.

UMC paid US$103.8 million for 56 percent of SiS' offering of 25 million global depositary receipts. This comes on top of 23.23 million shares UMC obtained on the TAIEX in December.

"This purchase takes UMC's total holding of SiS capital to 14 percent," Jessie Lee (李葦珠), corporate marketing and communications manager at SiS, said.

There may be more to the purchase than meets the eye, analysts said.

"This is part of an under-the-table arrangement between the two companies," George Wu (吳裕良), an analyst at Primasia Securities Co, said. "UMC agreed to buy a certain number of shares, and SiS agreed to place orders with UMC."

The deal comes after the two companies ended a patent infringement dispute last month, agreeing to form a strategic alliance. UMC offered to cross-license chipmaking technology to SiS, and SiS offered UMC three seats out of seven on its board of directors. Both companies denied that any cash arrangements were made in the deal.

"This is part of our agreement to form a long-term strategic alliance with SiS," said Liu Chi-tung (劉啟東), UMC's investor relations chief.

He denied that UMC had agreed to buy a specific number of shares as part of its deal with SiS, saying that the purchase was merely to "strengthen the alliance."

Lee also refused to comment on whether yesterday's purchase was part of any deal.

UMC may simply wish to increase its share in SiS to reflect its share of the board seats.

"Theoretically UMC should increase its holdings," said Rick Hsu (徐禕成), an analyst at Nomura International in Taipei. Hsu said that it wasn't necessary for UMC to reflect the board seats solely in cash holdings. It could provide technological know-how instead of buying shares.

Since its establishment in 1987, SiS ordered all of its chips from UMC until SiS built its own chipmaking plant in 2000. At that time, nearly 50 engineers from UMC allegedly moved over to SiS. By year-end, UMC accused SiS of IPR infringements, culminating in a court ruling against SiS in the US in October.

Some analysts speculate that UMC may be planning to take control of SiS' chipmaking plant.

"There has been a rumor that UMC is likely to buy SiS' fab, but UMC has denied the rumor," Hsu said.

He said that there was a certain incentive for UMC to use SiS' chipmaking tools to equip any future production plant UMC might set up in China.

But the Primasia analyst disagreed with this assessment.

"It is very unlikely that SiS will sell its fab and give up all its efforts over the past few years," Wu said. "By selling, it would have to get rid of all its engineers and its past investments."