A chipmaker founded by a son of former Chinese president Jiang Zemin (
The company, which started making chips to the designs of other companies in April, will use the money to buy equipment and build a second plant, chief financial officer Daniel Wang said in a phone interview from Shanghai. Grace also aims to raise US$400 million in a private placement this year.
Grace and rival Semiconductor Manufacturing International Corp (
The Chinese companies need to expand before they can challenge Taiwan's dominance in made-to-order chips, analysts said.
"The pattern will be for the incumbents to capture most of the growth," said Dan Heyler, an analyst with Merrill Lynch & Co.
"The Chinese companies won't have the scale to turn to a profit next year," he said.
Merrill Lynch forecasts that sales of so-called chip foundries will increase by 25 percent this year and 26 percent next year. Growth next year would have to exceed 35 percent for the Chinese foundries to make profits, Heyler said.
Grace, which plans to list on the New York or another overseas stock exchange, expects to break even by the middle of next year, Wang said. The private placement will bring the company's investment so far to US$1.6 billion.
Grace and Semiconductor Manufacturing are both run by former Taiwanese chip-industry executives, who are betting China will replicate Taiwan's success in made-to-order chips.
Taiwan Semiconductor Manufacturing Co (台積電) and local competitor United Microelectronics Corp (聯電) are the world's biggest chip foundries.
"In the beginning, we'll mostly be serving customers in the US and Japan," Wang said. "With time, we'll also be serving chip designers in China."
China's semiconductor market grew 34 percent to US$23 billion last year, according to researcher Gartner Inc.
China still imports most of the chips used in those products.
The country's top 10 suppliers last year were all overseas, led by Intel Corp, according to Gartner.
The Chinese government has offered tax breaks and other incentives to encourage chipmakers to invest in an effort to build up the industry. Overseas investors have made little progress so far. Motorola Inc invested US$1 billion in a chip plant in Tianjin that's running at less than a tenth of capacity, eight years after the US company started building it.
Labor costs account for less than a tenth of production expenses in the semiconductor industry, giving chipmakers less incentive to follow their manufacturing customers into China. The US also restricts exports of advanced chipmaking technology to China on security grounds.
Grace's second factory will be one of the first in China to make 12-inch silicon wafers. Semiconductor Manufacturing is also building a 12-inch plant and may be interested in taking a stake in the Motorola plant, analysts said.
Expansion by the Chinese chipmakers and startup rivals in Malaysia may lead to oversupply, fund manager David Chapman said.
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