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Trade war

Exclusive: Taiwan's UMC to scale down chip project with Chinese partner

Sources say Fujian Jinhua project to be dismantled after US charges

An embedded phase-change memory chip displayed at the stand of Shanghai Institute of Microsystem and Information Technology of Chinese Academy of Sciences.   © AP

TAIPEI -- Taiwan's United Microelectronics Corp. will move nearly half of its DRAM team to new positions within the company in what sources say is the first step toward terminating its memory chip development business.

The world's third-largest contract chipmaker is making the move just over a month after it was charged with economic espionage by the U.S. along with its Chinese government-backed semiconductor partner Fujian Jinhua Integrated Circuit.

UMC has notified around 140 engineers out of a total of roughly 300 staff working on the dynamic random access memory program with Fujian Jinhua in the southern city of Tainan that they will be moved to other positions within the company, industry sources familiar with the discussion told Nikkei.

Many in the DRAM team are looking for jobs elsewhere, even though UMC has not announced any plans to lay off employees, said three people who knew about the situation. One source said UMC's eventual aim is to abandon the memory chip development business.

According to sources, UMC is planning the withdrawal in light of tensions between Washington and Beijing, despite having previously identified the project as a future growth engine.

Some UMC executives are wary that the close alliance with China could eventually threaten the Taiwanese company's core contract chipmaking business, which relies heavily on U.S. semiconductor equipment makers such as Applied Materials and Lam Research. However, UMC's management team is also reluctant to explicitly state it plans to exit the DRAM program out of fear of angering Chinese authorities, Nikkei has learned.

"UMC is really stuck in between a rock and a hard place," said a source familiar with internal discussions.

Fujian Jinhua, one of the top DRAM chip projects in China, was cut off from American suppliers amid allegations that it had stolen intellectual property from U.S. semiconductor company Micron Technology at the end of October.

On Nov. 1, UMC, Fujian Jinhua and three of its employees were charged with industrial espionage by the U.S. Justice Department, with each company facing a maximum fine of more than $20 billion.

The crackdown is part of Washington's ongoing efforts to curb Beijing's technology ambitions, and clamp down on Chinese appropriation of intellectual property and forced technology transfers, a key battleground in the trade conflict between the world's two largest economies.

If UMC walks away from the DRAM technology development program, it will be another setback for China's ambitions to create a self-reliant semiconductor industry. The $5.6 billion Fujian Jinhua project in the southern Chinese city of Jinjiang was previously set to enter trial production by the end of 2018, which would mark the country's first memory chip output. But construction was suspended because of the U.S. ban in November.

DRAM chips are used in a wide range of electronic devices including mobile phones, servers, consumer electronics and autonomous cars. Samsung Electronics and SK Hynix of South Korea, and Micron of the U.S. control around 96% of global output of such chips. China is eager to achieve self-reliance in the field by building its own facilities with funds from local and central governments.

UMC announced a technology partnership to help Fujian Jinhua develop specialty DRAM technology in May 2016. The company said in a stock filing then that it had accepted a commission from Fujian Jinhua to work on specialty DRAM technology but did not have plans to take a stake in the Chinese entity.

Fujian Jinhua would pay UMC according to technology development and it would be responsible for buying all the necessary equipment for the program, according to the stock filing. The two companies would share ownership of the DRAM memory technology afterward, the documents said.

Up to 30 billion New Taiwan dollars ($980 million) worth of chip production equipment purchased by Fujian Jinhua remains at UMC's Tainan site, sources said. UMC said on Oct. 31 that it had temporarily halted DRAM research and development activities after the U.S. took action to block Fujian Jinhua from using American technology.

Liu Chi-tung, UMC's chief financial officer and spokesman, told the Nikkei Asian Review that UMC would not publicize information regarding internal staff changes. "We have more than 20,000 employees and we won't tell the public if there are some personnel changes within the company," said Liu. He declined to comment on whether UMC would terminate the DRAM project but said the program is currently suspended.

As a smaller rival to industry leader Taiwan Semiconductor Manufacturing Co. and a close competitor to Chinese homegrown contract chipmaker Semiconductor Manufacturing International Co., UMC is looking for its next growth driver as mobile demand slows.

Eyeing easier capital access in China, UMC in June announced it would list its Chinese subsidiary in Shanghai to raise around 2.5 billion yuan ($377 million). The company's shareholders approved the plan at the end of August, but the initial public offering will likely be delayed after recent events.

UMC's clients include Qualcomm, AMD, MediaTek, Novatek, Realtek, Infineon, Rockchip and Allwinner Technology. It mainly produces chips such as mobile processors, graphics processors, Wi-Fi and Bluetooth chips, sensors and automotive chips. UMC does not produce DRAM chips but the company said it had retained internal memory chip R&D resources since 1996.

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