Yeh Su-fei (葉素菲), founder of Taiwan's first gallium arsenide epitaxial (GaAs) wafer foundry, Procomp Informatics Ltd (博達科技), had been seen as a pioneer in the niche chip sector at a time when most Taiwanese companies only knew of the silicon wafer foundry industry, led by industry giant Taiwan Semiconductor Manufac-turing Co (台積電).
Media hype had termed the GaAs wafer foundry business a future star industry in the late 1990s and early years of this decade, when industry insiders awaited the arrival and rapid expansion of advanced third-generation (3G) mobile service.
PHOTO: CHIANG YING-YING, TAIPEI TIMES
But this much-anticipated boom is yet to bloom, and it is not only the industry's reputation that has tarnished. Last week Yeh, 46, was detained by the Shihlin District Prosecutors' Office on suspicion of breach of trust and of violating the Securities Transaction Law (
Investigators indicated that Yeh is suspected of insider trading and embezzling from Procomp, as she could not give clear explanations for anomalies in the company's capital flows. Chiu Chih-hung (邱智宏), a Shihlin prosecutor who is investigating the case, said on Saturday that Yeh was alleged to have stolen NT$6.3 billion from the company.
Chiu said that Yeh wired more than US$10 million to one of her US bank accounts on June 15, and that she provided insufficient explanations for that transaction as well as for the company's missing funds.
"She said, `I don't know' to most of our questions," Chiu said. Investigators said they also found unusual share trades in the weeks before June 10, when the chipmaker sought to sell its global depositary receipts and raise US$117 million to pay its debts.
The scandal broke out in mid-June as Procomp unexpectedly filed a restructuring proposal in a local district court, saying it was unable to maintain solvency.
Procomp's move stunned local investors, as the request for court receivership came on the eve of the maturity date for a NT$2.98 billion corporate bond on June 16.
Procomp blamed the cash crunch on the failure of its overseas share sale, but couldn't explain why the company defaulted on the bond payment while it still NT$6.3 billion in liquid assets on its books, as investigators and the nation's equities regulators pointed out.
"The approximately NT$6 billion fund is derivative instruments on our foreign accounts. The money was frozen because of certain special terms," Yeh said at a June 16 press conference.
These remarks did not answer reporters' questions about the company's cash flow.
"I'm not a financial expert," Yeh said. "I can't give you a clear answer about exactly what the derivative instruments are."
Procomp could be delisted from the local bourse if Yeh and her management team fail to give a clear explanation about the company's financial situations in the next six months.
"Procomp deceived us," said a creditor surnamed Chen who complained to the media, saying that the company swallowed up the life savings of some individual investors.
Chen is one of around 1,600 holders of the NT$2.98 billion in outstanding corporate bonds. Procomp has an additional NT$5.9 billion in bank loans from more than ten local lenders, including Chiao Tung Bank (
Procomp's collapse is in stark contrast to the company's glory days. In 1991, Yeh set up Procomp in Tamshui, Taipei County, with US$160,000 in initial capital. In the beginning Procomp was simply a computer accessory importer, but the company gradually diversified into manufacturing DVD players and motherboards in 1995.
Yeh was not a tech expert, as she holds a master's degree in economics of Belgium's Universite Catholique de Louvain and a bachelor's degree in French from Tamkung University.
But with the help of Clark Peng (
In 1998, with technology support from Japan's Sumitomo Electric Industry, the Tamshui-based chipmaker started to establish its toehold in the GaAs wafer market.
In 1999, Procomp was recognized by CommonWealth (天下), a monthly magazine, as one of the nation's 50 fastest-growing companies. In the same year the company also won the National Award for Small and Medium Enterprises from the Ministry of Economic Affairs.
GaAs chips are used in communications devices including mobile phones, satellite communications systems and car navigation systems due to their speedier transmission compared with other chips; they also enable electronic devices to run faster and make less noise.
Being more resistant to high voltage and consuming less electricity than silicon semiconductors, they make it easier to turn the semi-insulator substrate into a monolithic microwave integrated circuit.
In spite of these GaAs advantages, cheaper silicon chips still dominate the electronic gadgets and communications sector.
Procomp's early success convinced numerous Taiwanese companies to enter the niche market, including Visual Photonics Epitaxy Co (
Procomp initially offered its shares for NT$90 on the TAIEX on Dec. 18, 1999. Four months later, the stock price rocketed a record high of NT$368 as investors snapped up Procomp shares on overly upbeat reports of the GaAs chip industry's prospects.
The stock price of Procomp sank to NT$6.4 on the last trading session before the company was suspended from trading on June 24 due to the scandal.
"The biggest mistake I ever made was my ambition to build a complete supply chain in the GaAs sector while lacking support from the government or any conglomerate," Yeh said, blaming the industry environment for Procomp's collapse.
Yeh was Procomp's biggest shareholder with a 7 percent stake, but she told reporters that she still owned 14 percent before calculating dilutions by the company's regular bond issuances and rights issue in recent years.
George Wu (吳裕良), an analyst at Primasia Securities Co, pointed out that lack of corporate governance played a big role in the financial scandal.
"We've heard that the company is controlled by Yeh's family," Wu said. Yeh's brothers, Yeh Meng-ping (葉孟屏) and Yeh Meng-chuan (葉孟川), joined her on the company's board.
"That Procomp booked unusually high accounts receivable while it continued issuing bonds at home and abroad was a warning sign," said Charlie Chen (陳思旭), an analyst with Grand Cathay Securities Co (大華證券).
Local companies often pad out accounts receivable by selling products to their overseas branches rather than to real customers, Chen said, but he called Procomp's collapse an unusual case.
Procomp said it lost NT$3.67 billion last year, or NT$10.43 a share, a far cry from its projection of NT$169.25 million in earnings, or an NT$0.48 gain per share.
"Procomp's scandal could be just the tip of an iceberg," Chen said. "We just don't know which company will be the next one."
Procomp's collapse has caused a heavy sell-off of small-cap shares as investors feared that their money would be lost. Chen warned investors to watch small-cap firms to see if they regularly change their financial executives and accounting auditors, he warned.
In March, Procomp hired Deloitte & Touche (
Investors should also avoid buying shares of companies with high liabilities, Chen said, as in Pro-comp's case the company's liability ratio grew to 55.5 percent.
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