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.