UMC to buy plant for NT$10.7bn to meet demand

United Microelectronics Corp (UMC, 聯電), the world's second-largest supplier of made-to-order chips, said it would buy the semiconductor plant of rival Silicon Integrated Systems Corp (矽統) for NT$10.7 billion (US$321.5 million) to meet demand for chips after a three-year global slump.

UMC will issue 357 million new shares to help pay for the unit that makes silicon wafers measuring eight inches in diameter, the company said in a statement.

Boards of both companies have approved the deal, and the firms have signed an agreement, UMC said.

The agreement frees Silicon Integrated from the burden of maintaining its own semiconductor plant or investing in a new one. For UMC, the deal cements the chip-making partnership between the two companies since Silicon Integrated outsources its chip production needs to UMC.

The additional plant should also help UMC at a time when its production lines are nearly full due to brisk orders.

"Improved economic conditions are the major driving force behind this merger," UMC said.

By the end of last year, the company was using all of its production capacity and was unable to meet demand. The cost of building a new plant would be as much as US$1 billion, the company said.

During its fourth-quarter investors' conference, UMC said its utilization rate would likely reach 100 percent in the January to March period, up from 96 percent in the fourth quarter.

Silicon Integrated's chip manufacturing unit is called SiS Microelectronics Corp (矽統半導體). The unit was formed on Dec. 25 last year and was capitalized at NT$8 billion (US$240.3 million).

Silicon Integrated, the world's third-largest designer of chipsets for personal computers, will focus on semiconductor design and be a "major customer" of UMC, the statement said.

Shares of Silicon Integrated, in which UMC held a 21 percent stake as of February last year, soared by the 7 percent market limit to NT$27.70 on the TAIEX before the announcement. UMC's shares rose 0.7 percent to NT$30.3.