Original URL: http://www.theregister.co.uk/2005/03/22/umc_hejian_stake/

UMC to take stake in Hejian

Nothing to do with investment probe, apparently

By Tony Smith

Posted in Financial News, 22nd March 2005 12:20 GMT

UMC, the world's second largest chip foundry, yesterday said it may take a 15 per cent stake in the Chinese foundry at the heart of allegations that it made a "breach of trust" with the Taiwanese government.

UMC said the stake, worth $110m, would be in return for advice the company gave to Hejian during its 2001 foundation by a number of ex-UMC executives, Silicon Strategies reports.

The deal may be seen by UMC and Hejian as a way of de-railing the investigation into the two foundries' relationship currently underway at Taiwan's Ministry of Justice. Taiwanese law forbids local foundries from setting up on the Chinese mainland without the Taiwanese authorities' say-so. Similarly, investments in Chinese companies must be declared to the government. The MoJ is probing allegations that UMC broke these laws in its dealings with Hejian.

UMC has always denied any investment in Hejian, from both a financial and technology standpoint, on its own part and by its executives as individuals.

However, chairman Robert Tsao has admitted to advising Hejian's founders on business matters. And it has been claimed that Hejian's facilities infringe on around 200 chip fabrication technology patents held by UMC, allegedly acquired through a link into UMC's intranet. The MoJ is clearly concerned that, if true, these links may indicate an attempt by UMC to sidestep Taiwan's restrictions on mainland operations.

UMC said that the 15 per cent stake - which is going through the usual vetting process, apparently - was not related to the alleged use of those 200 patents. In the past, UMC has said it has never taken legal action against Hejian because it was reserving the alleged violation as a bargaining tool should it decide to buy into or acquire Hejian at a future date. Tsao has said he may like to buy Hejian at some point.

Tsao made that admission after MoJ officials raided UMC's HQ and the homes of a number of executives. If the company and its staff are found guilty of breaking faith with the Taiwanese government, the firm could face fines of up to $800,000 and its staffers up to five years in gaol. Tsao this week told local media that the 15 per cent investment was the result of an agreement struck verbally between UMC and Hejian some years ago. ®

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