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SMIC soars on acquiring IBM's 45nm technology

"We've an early start and customer engagement [on 45nm chips]."

Chia Song Hwee, Chartered Semiconductor CEO

Semiconductor Manufacturing International Corp (SMIC, 中芯), China's biggest chipmaker, jumped by a record in Hong Kong trading after acquiring a technology license from International Business Machines Corp (IBM).

SMIC surged 15 percent to HK$0.85 (US$0.11) at the midday break, the biggest increase since its initial public offering in March 2004. The Shanghai-based chipmaker acquired the right to employ IBM technology to make 45-nanometer chips for mobile devices and consumer electronics. Financial terms weren't disclosed.

The license allows SMIC to expand its range of chips for third-generation mobile phones, which run broadband Internet and video. The company is investing in advanced technology to extend its lead over its nearest rival, Singapore's Chartered Semiconductor Manufacturing Ltd.

"To the extent that SMIC successfully ramps up" production of more advanced chips in 2009, "we believe Chartered, as an existing foundry partner to IBM, could lose some market share," Donald Lu (呂東風), a Beijing-based analyst at Goldman Sachs Group Inc, wrote in a report yesterday.

Lu has a "sell" rating on Chartered and a "neutral" recommendation on SMIC.

Chartered, which counts IBM as its second-biggest customer, fell 0.5 percent to S$0.97 at the 12:30pm break. The shares have fallen 24 percent this year, making it the third-worst performer on the benchmark Straits Times Index.

"We'll deal with the competitive pressure and the challenges this development might bring," Chartered chief executive officer Chia Song Hwee said in a conference call yesterday.

"We've an early start and customer engagement" on 45nm chips, he said.

Chartered is a member of an industry group led by IBM for chip research and development on a common platform technology. The group also includes Samsung Electronics Co and Infineon Technologies AG.

SMIC posted sales of US$1.47 billion last year, while Chartered reported revenue of US$1.44 billion. Market leader Taiwan Semiconductor Manufacturing Co (台積電), the world's biggest chipmaker for other companies, had sales of US$9.6 billion last year.

"Having the technology is only one part of the game, SMIC still has a lot of room for improvement" in producing 65nm chips, said Warren Lau, an analyst at Macquarie Group Ltd, who has an "underperform" rating on SMIC.
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