SMIC's shares jump 19%

"The strategic investor may be one of Semiconductor Manufacturing's customers that wants access to their production capacity and would be able to bring in orders, which is a model that's been common practice in the chip industry."

Rick Hsu, an analyst at Nomura Holdings in Taipei

Semiconductor Manufacturing International Corp (SMIC, 中芯國際), China's biggest chipmaker, rose the most since its 2004 Hong Kong trading debut after saying it was in talks with an undisclosed suitor.

Negotiations sell a "significant" stake to a strategic investor are at an advanced stage, the Chinese chipmaker said in a statement late on Monday.

The company's shares surged a record 19 percent to HK$0.54 (US$0.07) at the midday break.

Semiconductor Manufacturing's factories in China, the world's biggest chip consumer, makes it a target for global companies looking to win a bigger share of a chip market that may triple over the five years ending in 2010.

SMIC's have fallen 34 percent this year in Hong Kong, compared with a 21 percent decline in the benchmark stock index.

"The strategic investor may be one of Semiconductor Manufacturing's customers that wants access to their production capacity and would be able to bring in orders, which is a model that's been common practice in the chip industry," said Rick Hsu (徐禕成), an analyst at Nomura Holdings Inc in Taipei, who rates SMIC's shares "neutral."

China the world's biggest buyer of chips in 2005 as Nokia Oyj and Sony Corp produced more handsets, gaming consoles and other consumer electronics in the nation, research firm IC Insights Inc said.

Semiconductor in China may surge to US$124 billion in 2010 from US$40.8 billion in 2005, according to the Scottsdale, Arizona-based researcher.

Part the company's management may also buy shares, the Shanghai-based SMIC said on Monday, without elaborating.

The chipmaker hasn't signed a binding agreement and the talks may not result in a transaction, it said.

SMIC spokeswoman Reiko Chang declined to comment beyond the statement.

The chipmaker has attracted interest before. Richard Chang (張汝京), chairman of Semiconductor Manufacturing, said last April that it was reviewing proposals from private equity funds.

Bain Capital LLC, General Atlantic LLC and Kohlberg Kravis Roberts & Co sought to buy a 25 percent stake for US$600 million, the South China Morning Post reported earlier that month.

Rivals, including United Microelectronics Corp (UMC, 聯電) and Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電) have had customers turn into shareholders. Royal Philips Electronics NV owned 5 percent of TSMC, the world's biggest manufacturer of custom-made chips, as of the end of last year.

TSMC more than NT$4 billion (US$132 million) of chips to Philips in 2006, TSMC has said.

Silicon Integrated Systems Corp, a customer of UMC, owned a 2.3 percent stake in the world's second-largest custom-chip maker as of last April, UMC has said.

UMC on Monday that it was not in talks to buy a stake in Semiconductor Manufacturing.