TSMC officials said Tuesday that China's top chipmaker, the Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) had agreed to pay US$200 million in installments and it will also issue 10 percent of its total shares -- 1.79 billion new shares and a warrant for another 696 million shares -- to TSMC after settling a dispute over the company's alleged theft of trade secrets and bringing an end to the dispute that had simmered since 2006.

TSMC sued SMIC in a California court that year, accusing the Chinese company of stealing its trade secrets and of breaching a patent agreement arrived at in 2005. TSMC said this caused damages valued at more than US$1 billion.

TSMC, the world's largest contract chipmaker, is expected to become SMIC's second-largest shareholder should it exercise the warrant. "TSMC's acquisition of SMIC shares will pave the way for a merger of the semiconductor industry, which will be a boon for the long-term development of Taiwan's contract foundries," Cheng Cheng-hua, an analyst at UBS Securities Ltd., Taiwan, told CNA.

TSMC might purchase 10 percent of SMIC shares if a good price is offered, but the issue fully depends on the stance of the government, which is slated to review its policy by the end of this year on whether Taiwan's chipmakers should be allowed to open or invest in 12-inch wafer fabs in China, Cheng said.

Lu Tung-fung, an analyst at Goldman Sachs Taiwan Office, also held forth a positive view of the possible TSMC-SMIC cooperation, forecasting that TSMC will become profitable in China by the end of the year.

J.P. Morgan Securities (Taiwan) Ltd. also viewed the possible venture as TSMC's first move to realize mergers in the growing Chinese market.

However, variables remain, as the government does not permit Taiwanese semiconductor companies to acquire stakes in Chinese firms -- a policy designed to maintain Taiwan's competitive edge.

Fielding questions in the Legislative Yuan's Economics Committee, Vice Minister of Economic Affairs Lin Sheng-chung said the ministry will need to review the TSMC case on a stand-alone basis, as the company did not acquire the SMIC shares on its own action but as a result of a legal action.

"An adjustment to the existing policy might be needed to deal with similar cases," Lin explained.

But he noted that the government has no established stance or fixed timetable concerning the issue at present, adding that a policy revamp will be conducted at some point in the future.

(By Flor Wang)