ASE Plant Shut by Taiwan Regulators for Water Pollution

Advanced Semiconductor Engineering Inc., the world’s biggest chip assembler and tester, was ordered to close a factory in southern Taiwan after failing to stem water pollution at the site.

Evidence of hazardous chemicals was found during government checks at ASE’s K7 plant, Chen Chin-der, director of the Environmental Protection Bureau in the city of Kaohsiung, said at a press conference carried by cable networks today. The shutdown takes effect when ASE receives the government notice and will be lifted after the company makes satisfactory improvements, he said.

ASE had until Dec. 19 to fortify its waste-water systems or face suspension at K7, which houses capacity for $18 million per month in wafer production. The Kaohsiung District Prosecutors Office earlier said a director of the plant was detained for suspected offenses against public safety.

Chief Financial Officer Joseph Tung told reporters today the company regrets the regulator’s decision and may seek legal remedies. Tung said ASE is “actively communicating” with customers and declined to say whether orders have fled to other assemblers.

‘Concerted Steps’

“ASE will take concerted steps to promptly implement corrective actions in areas that require improvement,” the Kaohsiung-based company said in a statement. “It is our objective to swiftly complete the improvements and apply to the bureau to resume normal production at K7 and minimize the impact to our operations.”

The manufacturer reported NT$194 billion ($6.48 billion) in sales in 2012. Customers include Taiwan Semiconductor Manufacturing Co., the world’s biggest contract manufacturer of chips, and wireless-communications equipment maker Qualcomm Inc.

Foreign investors have bought more than they sold ASE shares every day for nearly two weeks, according to the Taiwan Stock Exchange website.

ASE shares were unchanged at NT$27.25 at the close in Taipei today. The stock has tumbled 8.4 percent since Dec. 9, when Kaohsiung’s environmental regulator said it would fine the company NT$600,000 for water pollution.

Estimated Effects

Halting production at K7 for one quarter would reduce sales and earnings per share by as much as 4 percent in 2014, Andrew Lu, an analyst at Barclays Plc, wrote in a report this week. Lu said “no material impact” would be seen in 2015. Mark Li, an analyst at Sanford C. Bernstein & Co., said Taiwanese chip designer and assembler Siliconware Precision Industries Co. could be a beneficiary of orders redirected from ASE.

ASE facilities in the northern Taiwan city of Chungli were fined NT$510,000 and some machines were idled at a company plant because waste water hadn’t been treated, violating pollution laws, Taiwan’s Taoyuan county government said on Dec. 15.

The company said earlier this week that waste-water systems at K7 were compliant with government standards and operating normally. Chairman Jason Chang pledged to donate at least NT$3 billion over the next 30 years toward environmental protection efforts in Taiwan.

A new water-recycling facility will begin operating in the second quarter of 2014, expedited by an additional NT$750 million investment, according to Chang.

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