ASE seeks first plant for chip-packaging in China

Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), the second-largest chip packager, said it plans to open its first plant in China at the request of customers, such as Motorola Inc, which are expanding business there.

"We hope to make an announcement by the end of the year," said Freddie Liu (劉英武), an assistant vice president at ASE, in an interview. "We still need a green light from the [Taiwan's] government." While the government prohibits investments by local semiconductor companies in China, some have skirted the ban by setting up offshore companies. China, the third-largest chip market, is the only one that will grow this year, according to market researcher Gartner Inc.

Chip companies such as Philips Semiconductors and STMicroelectronics NV are expanding their operations in China to meet growing demand, according to Gartner. While China makes and exports some chips, the nation still depends on imports for most of its supplies.

ASE, which reported a net income of NT$352 million (US$10.7 million) on sales of NT$11.3 billion in the first quarter ended March this year, last week said it will probably report a loss in the second quarter on falling demand.

ASE encases chips in plastic packages and tests them for reliability. The company's largest customers include Motorola and ON Semiconductor Corp, both of which have chip plants in China.

The issue of setting up in China is "politically sensitive," said Liu. Jason Chang (張虔生), the chairman of ASE said during the company's third-quarter earnings announcement in October that the company hoped to make a decision on investing in China by the first quarter.

Trade relations between Taiwan and China have been thriving since rapprochement began in the late 1980s. Business groups have been urging the government to further ease restrictions on investments in China, which offers low labor costs and a potentially huge market.