Siliconware Expects Client Backlash If Hostile ASE Bid Succeeds

  • Customers will limit dominance of combined company, Lin says
  • Tsinghua partnership seen as important marketing opportunity

Bough Lin, chairman of Siliconware Precision Industries.

Photographer: Maurice Tsai/Bloomberg

Bigger isn’t always better. That’s the message from the head of Siliconware Precision Industries Co. as Taiwan’s second-largest microchip tester fights off a hostile bid from a larger rival.

Clients would encourage other vendors to beef up capacity to avoid market share dominance and potential price rises if Advanced Semiconductor Engineering Inc. completes its takeover bid, SPIL Chairman Bough Lin said.

“Our two strong companies together cannot be more strong,” Lin said at the company’s headquarters in northern Taiwan’s Hsinchu. “The customer will never give you 70 percent over a long period of time when you still have a good market.”

ASE, the world’s largest chip packager by revenue, has been buying its rivals shares on the open market since August in an unsolicited attempt to consolidate. The Taiwanese companies both service chip industry giants such as Qualcomm Inc. and Intel Corp. but face pressures as clients explore moving advanced packaging in-house. Meanwhile, China, which consumes half the world’s microchips, is acquiring technology to cut its reliance on overseas supplies.

In an about-face yesterday, SPIL scrapped a proposal to increase its share capital from 3.6 billion outstanding to about 3.9 billion, which the 66-year-old chairman acknowledged was the result of shareholder concern over the potential dilution of their holdings.

SPIL shares fell 0.8 percent to NT$50.10 as of 11:45 a.m. in Taipei. ASE is offering NT$55 a share for the stock, after increasing its bid from NT$45.

Lin has twice tried to enlist a white knight to avoid falling to ASE. A plan to sell stock to Foxconn Technology Group at a discount, that would have made the assembler of Apple Inc. iPhones and iPads its biggest shareholder, was rejected by other investors. A December agreement for mainland China’s Tsinghua Unigroup Ltd. to spend about $1.7 billion buying a stake is now on hold, Lin said Monday.

The company won’t be putting the proposed Unigroup investment before shareholders at next month’s annual general meeting as uncertainty hangs over cross-strait deals under incoming Taiwan President Tsai Ing-wen. After Tsai’s inauguration on May 20, the company will need to secure government support for the Chinese investment.

For SPIL, Unigroup’s 25 percent stake would represent an alliance with a private Chinese investor that is expanding in memory such as DRAM as the world’s most populous nation seeks to build its capabilities in chips.

“Once they are successful, I think they will give assembling, testing to their related company,” Lin said. “We’d like to be one of their related companies. We don’t want to miss the opportunity for the marketing.”

For now Lin faces a determined ASE, which as of last month had accumulated almost a third of SPIL’s stock. That means it needs the support from ASE for a partnership with Tsinghua and won’t be executing its China plans, including possibly listing in China of a Suzhou unit, until the matter is cleared up.

If mutual trust can be established, Lin said he’d consider various structures, such as joining ASE as two distinct entities wholly owned by a holding company.

“They have very good financial operations but we grew up with Taiwan’s semiconductor industry,” Lin said, referring to cultural differences between ASE and SPIL, a company his father helped found 32 years ago with an NT$50 million loan ($1.5 million). “We would have some difficulty adapting to each other.”

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