November 24, 2017 11:12 pm JST  (Updated November 25, 2017 2:01 am JST)

China approves merger of Taiwan chip assemblers

ASE-SPIL deal to go ahead after yearlong wait

CHENG TING-FANG, Nikkei staff writer

ASE Chairman Jason Chang, left, and SPIL Chairman Bough Lin inked the deal in May 2016.

TAIPEI-- China's anti-trust watchdog on Friday approved the merger of Advanced Semiconductor Engineering, the world's top chip assembler and tester, with smaller Taiwanese rival Siliconware Precision Industry Ltd., ending a yearlong wait for regulatory approval.

SPIL, meanwhile, announced late Friday evening to sell a 30% stake in its facility in Chinese city of Suzhou to Beijing-backed chipmaker Tsinghua Unigroup. The move is viewed as a trade-off to gain the greenlight for the deal from the Chinese regulator, according to a chip industry executive familiar with the matter.

The person said Tsinghua Unigroup could seek up to at least 51% ownership in the facility later in order to have full control.

SPIL's spokesperson told the Nikkei Asian Review that the stake sale to the Chinese company is meant to better serve the rapidly growing Chinese market and has no connection with Beijing's approval of ASE-SPIL tie-up.

SPIL's Suzhou plant mainly assembles and tests chips for major Chinese clients, such as Huawei's chip unit Hisilicon Technologies and Tsinghua Unigroup's Spreadtrum Communications.

The compromise comes at a time when China is eager to build a competitive semiconductor sector of its own with generous funding from local and central government. Beyond powering all kinds of electronic devices, chips are seen by Beijing as having national security implications.

The ASE-SPIL deal had been stalled in China, receiving extra scrutiny after local chip companies including state-backed Jiangsu Changjiang Electronics Technology and Tsinghua Unigroup voiced concerns that the merger could have a negative impact on their businesses and future development. On June 6, ASE resubmitted an application to the ministry for the Ministry of Commerce, as the regulator said it needed more time to review the case.

Separately, the ministry said in a statement Friday that the agency has approved the merger, with some pre-conditions. According to the ministry, the two entities will become fully-owned subsidiaries of a holding company, but need to operate independently in pricing, management, sales, procurement, manufacturing capacity and financials for a two-year period.

"Since ASE and SPIL have cleared all the necessary antitrust reviews worldwide, it will immediately proceed with the establishment of the holding company and expects to get shareholder's approval in February 2018," ASE said in a joint-statement with SPIL.

ASE officials said they expect to re-list as the new holding company in Taipei by May next year.

ASE and SPIL agreed on the deal in May 2016, aiming to form a new holding company to control both entities. It will have a combined market capitalization of $486.89 billion New Taiwan dollars ($16.17 billion) as at market close on Friday. The transaction has already been approved by antitrust regulators of major markets including the U.S., Taiwan and South Korea.

Although billed as a merger, the deal is effectively a takeover of SPIL by the bigger company. For 2017, ASE controls some 19.2% of global market share in the contract chip testing and assembling business, while SPIL, the world's number four player, accounts for 9.9% of market share, according to Taipei-based Topology Research Institute. ASE's top clients include Apple, Qualcomm, Infineon, MediaTek, NXP and Broadcom, while SPIL shares a similar customer base, excluding Apple.

The consolidation is good for the chip industry as a whole as overall demand is slowing down, according to Rick Hsu, an analyst at Daiwa Capital Markets.

However, chip industry executives said the two entities may face talent outflows and lose some customers in the near term, as their clients will want to diversify sourcing.

"We do see some overlapping customers from the two companies considering to diversify orders further, and we expect that eventually could lead to some revenue loss in the following years for the combined entity," said a veteran chip industry executive.

Asia300

Advanced Semiconductor Engineering, Inc.

Taiwan

Market(Ticker): TAI(2311)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 11,167.69M
Shares: 8,724.61M
Asia300

MediaTek, Inc.

Taiwan

Market(Ticker): TAI(2454)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 15,024.11M
Shares: 1,581.45M

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