Sunday, November 30, 2008

More News on Hua Hong-Grace Merger

My November 1 post on the imminent merger of Hua Hong and Grace appears to be correct if imminent means before Chinese New Year. News reports from the Chinese media have surfaced in the last few days suggesting this merger is in the works and will be completed before Chinese New Year (link). However, neither firm has made any official announcement acknowledging the merger talks.

Saturday, November 15, 2008

ARCA's Li Delei and Disgraced Former Beijing Vice Mayor Liu Zhihua

According to reports from several weeks ago announcing the proceedings in disgraced former vice mayor of Beijing Liu Zhihua's trial, Li Delei of ARCA was implicated in Liu's shenanigans because Li sent bribes to Liu via Liu's son in Canada for better treatment on loans for ARCA's building.

This sage of course goes way back to June 2006 when ARCA's problems first came to light--just at the same time that Liu Zhihua was arrested. Basically, ARCA reportedly took money from the government to do research on "China's CPU" but stopped doing CPU research while not reporting to the government that it had stopped doing the research. What is remarkable is Li Delei never seemed to get in trouble with the authorities over this and, more remarkable still, thus far Li Delei has escaped from any potential fallout from Liu's Oct. 18 guilty verdict, which included the count of bribery involving Li Delei detailed above.

Friday, November 14, 2008

State Looms Larger on SMIC's Board

The announcement that SMIC has sold 17 percent of the firm to state-owned Datang Telecom is very disturbing once one considers that Datang will have two seats on the nine-person board of directors. Currently there are eight members of the board, and three of them can be deemed linked to the Chinese state. Two of them, Zheng-Gang Wang and Jiang-Shang Zhou, are clearly representatives of the Shanghai municipal government. The third, Yang-Yuan Wang, is the head of the Institute of Microelectronics at BeiDa so he is less of a direct link to the government. What remains unclear is which board member will be replaced by a Datang representative. If one of the other directors other than the three above is replaced, that would mean four or five (if Yang-Yuan Wang is counted as linked to the state) of the nine person board were linked to the Chinese state. Given how poorly performing the state-owned firms in China's IC sector are, effective state control does not bode well for SMIC.

Saturday, November 1, 2008

Breaking News: Grace and Hua Hong to announce merger

A reliable source told me this past week that Hua Hong and Grace Semiconductor will merge their operations with a public announcement at the start of this upcoming week. A number of media outlets (such as Digitimes and WhatPC) mentioned the possibility of a merger as far back as 2005, but my source claims that the merger is now a done deal. The source went on to say that the management of Grace would run the company with a chairman from Hua Hong or some part of the Shanghai municipal government. The force presumably behind the merger is the Shanghai-owned conglomerate, Shanghai Industrial Investment, which has shares in both firms.

One CEO of a China-based fabless firm which uses Grace's fabrication services expressed great dismay at the prospect of this merger when I asked for his opinion about it. He basically thinks the merger with Hua Hong will be a drag on Grace's performance.

Indeed, even if the management of Grace remains in place, such a merger begs the question of how much operational leeway they will have to run the show with a chairman seconded from the Shanghai government or a government-owned enterprise. Furthermore, given the relatively weak performance of these two firms to date, I think the merger may end up fitting the unflattering description one wit offered of the LSI-Agere merger: two old ladies trying to help each other cross the street.