Grace delays its share sale plans until next year

Grace Semiconductor Manufact-uring Corp (宏力), China's second-largest supplier of customized chips, will delay its initial share sale for a third time, postponing the offering until next year as the company isn't yet profitable.

Grace's "capital investment is too high," Zou Shichang (鄒世昌), chairman of the Shanghai-based company, said in an interview on Wednesday.

The chipmaker has invested US$1.63 billion to build two semiconductor plants, only one of which is in production.

The delay underlines the challenge facing China's foundries in building a made-to-order chip industry, dominated by companies such as Taiwan Semiconductor Manufacturing Corp (TSMC, 台積電), which is outspending rivals to build larger, more efficient plants.

"TSMC has the best returns on invested capital and that makes it the obvious investment choice," Ivan Goh, head of research at Dresdner Kleinwort Wasserstein in Tokyo, said in a telephone interview.

He has a "hold" on TSMC.

Grace, co-founded by Jiang Mianheng (江綿恆), son of former Chinese President Jiang Zemin (江澤民), has said it wanted to raise US$1.8 billion in the initial public offering, the same amount its bigger Chinese rival Semiconductor Manufacturing International Corp (中芯) raised in March 2004. Grace had planned a share sale in 2004.

"We're doing the preparatory works for the listing internally," Zou said.

rising demand

Demand for consumer electronics such as Microsoft Corp's Xbox 360 game consoles and high-speed mobile phones has boosted sales of made-to-order chips, lifting earnings at companies such as TSMC, the world's biggest customized chip producer.

"TSMC is ahead in terms of technology and know-how," said Alan Richardson at Baring Asset Management Ltd in Hong Kong. "For the higher-quality and more technologically advanced chips, not all foundries can do that."

TSMC on Jan. 26 reported fourth-quarter profit rose 53 percent to a record NT$33.9 billion (US$1 billion).

The company's capital spending will rise to between US$2.6 billion and US$2.8 billion this year from US$2.3 billion last year. Shares of the Hsinchu, Taiwan-based company rose 30 percent last year.

young company

Grace, which started commercial production in April 2003, aims to increase the monthly production capacity to 35,000 eight-inch silicon wafers from 25,000 units now "to help boost revenue," Zou said.

Semiconductor Manufacturing had a monthly capacity of 152,219 8-inch equivalent wafers as of the last quarter of last year.

The company, China's biggest chipmaker, on Feb. 7 reported a fourth-quarter loss of US$15 million, its fifth straight quarterly loss.

China's chip market grew 32 percent to US$40.8 billion last year, according to an IC Insights report on Jan. 9. Revenue at made-to-order chipmakers is projected to rise 21 percent annually from 2005 to 2010, the researcher said.

"China's integrated-circuits market is in its infancy and is the bottleneck of the IT industry," Zou said.

Located in the Zhangjiang Hi-Tech Park in the Pudong district of Shanghai, Grace is a neighbor of Semiconductor Manufacturing.

Grace was founded in November 2000 by Jiang Mianheng and Winston Wang (王文洋), whose father Wang Yung-ching (王永慶) is the chairman of Formosa Plastics Group (台塑集團), Taiwan's biggest industrial group.