Thu, Sep 14, 2006 - Page 11 News List

SMIC counter-sues TSMC for not honoring commercial agreement

DAVID AND GOLIATH? TSMC CONTROLS 50 PERCENT OF THE WORLD'S MARKE

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Semiconductor Manufacturing International Corp (SMIC, 中芯) of China, facing a lawsuit from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) in a US court over alleged breaches of a commercial agreement between the companies, has responded with a suit claiming the Taiwanese company didn't honor the accord.

The Shanghai-based company, China's largest made-to-order chipmaker, also filed a response "strongly denying" allegations made by TSMC in its complaint, SMIC said in an announcement yesterday.

"The lawsuit by TSMC shows it's taking SMIC seriously in China," said Pranab Kumar Sarmah, head of electronics research at Daiwa Institute of Research in Hong Kong who has an "outperform" rating on both companies.

"Since Taiwan doesn't allow it to put advanced technology fabs in China, there's potential for customers" to go to SMIC, he said.

SMIC said in a statement it will "vigorously pursue" a cross-complaint and defense against the Taiwanese chipmaker's claims. TSMC spokesman Tzeng Jinnhaw (曾晉皓) confirmed in an interview that his company received a cross-complaint and are reviewing it.

"We have no further comment at this time," he said.

TSMC filed a suit on Aug. 25 in the California Superior Court of Alameda County, alleging that SMIC didn't comply with an agreement inked in January of last year that settled an earlier suit brought by the Taiwanese chipmaker, which said that the Chinese company had violated trade secrets.

SMIC agreed last year to pay TSMC US$175 million in installments stretched over six years to settle the earlier suit, the Taiwanese company said in a release on its Web site. That agreement included a cross-licensing accord that will run until December 2010, according to the release.

The cross-complaint alleges, among other things, that TSMC has "undertaken a concerted effort since the previous lawsuits to discredit SMIC by making unfair and misleading accusations," SMIC said in its statement.

The chipmaker said that it is seeking damages for TSMC's "breach of contract and breach of implied covenant of good faith and fair dealing."

The Chinese company also said the Taiwanese chipmaker was using the lawsuit to "disrupt SMIC's business and valued relationships" with its customers.

"Some of SMIC's customers may get nervous because of these legal disputes, Sarmah said.. Customers of the Shanghai-based chipmaker include Infineon Technologies AG and Elpida Memory Inc.

TSMC controls 50 percent of the world's market for customized chips, while SMIC, the industry's fourth-biggest manufacturer, holds 7 percent, according to IC Insights.

Shares in SMIC rose 2.9 percent to close at a two-month high of HK$1.05 (US$0.13) in Hong Kong. The stock has gained 8.3 percent since falling to a record low on Aug. 29 after the company said it was being sued. TSMC shares closed 3 percent higher in Taiwan, at NT$58.40 (US$1.77).

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