Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is reportedly in talks with the nation’s top LED chipmaker, Epistar Corp (晶電), to sell its unprofitable LED lighting subsidiary via a share swap, Chinese-language media reported yesterday.
TSMC, the world’s largest contract chipmaker, signed a memorandum of understanding (MOU) on Dec. 24 with Epistar to sell TSMC Solid State Lighting Ltd (台積固態照明) in a deal worth between NT$1.26 billion and NT$1.89 billion (US$39.7 million and US$59.6 million), the biweekly Wealth Magazine said, citing unspecific sources.
Under the agreement, TSMC would hold a 2 percent share of Epistar, the report said.
The merger would end months-long speculation that Hon Hai Precision Industry Co (鴻海精密) is in discussions with TSMC to acquire TSMC Solid State Lighting via its LED chip packaging subsidiary, Advanced Optoelectronic Technology Inc (榮創), the report said.
“If true, such cooperation might allow Epistar to gain access to TSMC Solid State Lighting’s patents on silicon-based LED chips, enhancing its portfolio of niche LED chips,” Primasia Securities Co analyst Filia Lin said in a report.
However, Lin said the silicon-substrates LED technology, developed by the TSMC Solid State Lighting, has “the problem of a mismatch between the crystal structure and coefficient of thermal expansion, so the yield has not been good enough to manufacture LED chips.”
Primasia retains its “buy” rating on Epistar with an unchanged target price of NT$69, implying 9.68 percent upside in the next 12 months, from the LED chipmaker’s closing price of NT$62.9 on Wednesday.
Lin expects Epistar to deliver strong growth this year as its acquisition of local rival Formosa Epitaxy Inc (璨圓光電) is set to help boost capacity and patent portfolio.
In a filing to the Taiwan Stock Exchange yesterday, Epistar spokesman Rider Chang (張世賢) said the report is totally “media speculation.”
“We do not comment on such [speculative] reports as usual,” Chang said in the statement.
TSMC Solid State Lighting, established in 2011, has lost NT$3.65 billion over the past three years, according to TSMC’s annual reports.
The figure has surpassed 50 percent of the LED company’s share capital of NT$6.01 billion, indicating that TSMC Solid State Lighting is in a poor financial situation.
The Chinese-language Economic Daily News yesterday also reported on merger talks via a share swap, saying that TSMC is likely to hold up to 10 percent of Epistar via subscribing to Epistar’s new share offering.
If the report proves true, it would make TSMC the largest shareholder of Epistar, according to the report, which also indicated the companies might formally announce the deal later this month.
In 2009, TSMC set up the New Business Development Organization to tap into the solar and LED businesses.
Company chairman Morris Chang (張忠謀) said at the time that the company hoped the new business group would help drive the company’s revenue as the growth of the semiconductor industry slowed.
At the time, TSMC said it expected its new solar and LED businesses to help boost the chipmaker’s revenue to up to US$15 billion in 2018.
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