United Micro to Buy Chinese Chip Maker

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In a deal that marks a first for both countries, Taiwan's second-largest contract chip maker on Wednesday said it planned to buy one of China's largest chip makers.

United Microelectronics (UMC) will pay US$285 million for 85 percent of China's He Jian Technology, which was established by former UMC employees in China in late 2001.

UMC wants to buy the company because of the promise it sees in the Chinese market.

"UMC believes that a production base in China is key" to increase profitability and promote growth at the company, UMC said in a statement.

The company already owned 15 percent of He Jian through a deal made by UMC executives several years ago in return for consultation and advice on how to set up the business.

Taiwanese authorities at the time charged two UMC executives with crimes under laws designed to prevent Taiwanese chip makers or personnel from establishing factories in China or transferring technology there without express permission from the government. The two were acquitted.

The deal shows how far Taiwan and China have come over the past few years. At the time the UMC executives faced trials, a pro-Taiwan independence party ruled the government. Now, a Beijing-friendly party reigns in Taipei. Taiwan and China separated in 1949 amid civil war. Beijing has threatened to take the island by force if it moves toward formal independence.

The new government in Taiwan has logged a series of firsts since it took power just under a year ago, including the first direct commercial flights between Taiwan and China since their separation. The deal between UMC and He Jian will be the first ever purchase of a Chinese chip maker by one from Taiwan.

UMC said regulators from China and Taiwan will have to approve the deal.

He Jian operates a factory in Suzhou, China, making chips on older 8-inch wafers. The company was profitable from 2005 to 2007 and its operating performance and financial condition remain promising, UMC said.

One of the executives acquitted in the He Jian case, John Hsuan, is now the head of Taiwan Memory Company (TMC), the company Taipei established to try to clean up the bad loan problem among its DRAM makers. Hsuan remains an honorary vice chairman at UMC.

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