March 24, 2004 11:40 AM PST

TSMC calls rival chip 'strikingly similar'

The tussle between two foundries in China and Taiwan has been escalated.

Taiwan Semiconductor Manufacturing Company (TSMC), the world's top contract chip manufacturer, has disclosed new evidence as part of its suit against China's Semiconductor Manufacturing International Corp. (SMIC) for alleged corporate espionage.

In its latest filing, TSMC attached statements of former SMIC engineers, including a claim that 90 percent of one of its manufacturing processes was copied from TSMC. According to the Taiwanese company, forensic examination of an SMIC chip revealed features "strikingly similar" to TSMC's.

The lawsuit is in some ways a microcosm of the current trade disputes between Taiwan, China and the United States. TSMC invented the foundry business, which is the business of making chips for companies that don't want to build their own factories. Despite initial skepticism, foundries have become a multibillion-dollar business.

In the past few years, SMIC has emerged as one of TSMC's chief rivals because of its combination of Western business savvy and Chinese connections. SMIC CEO Richard Chang has held chip-manufacturing positions at, among other companies, Texas Instruments and TSMC. New Enterprise Associates and other U.S. venture capital firms have put $630 million into the company. Broadcom, among others, has become an SMIC customer.

SMIC has an opportunity to undercut TSMC in price because water, electricity and labor are cheaper in China than Taiwan, supporters assert. Western chip designers can also use SMIC to get around China's disputed value-added tax. On the other hand, TSMC is moving into China and can install more advanced semiconductor manufacturing processes because of trade laws that prohibit the importation of some equipment to China.

So far, SMIC has not impressed western investors. The stock went public earlier this month and is trading for about its offering price.

In its original complaint filed with a U.S. district court in California last December, TSMC had asked for an injunction as well as an undisclosed amount in monetary damages against its Shanghai-based rival. It claimed the latter had hired away TSMC engineers and subsequently asked them to reveal proprietary information.

"We feel that we have no other choice than to proceed through the courts in order to protect our technology. It is our obligation to protect our patents and trade secrets to maintain shareholder value," said Dick Thurston, vice president and general counsel for TSMC, in the initial statement.

SMIC said earlier this month it was reviewing TSMC's claims. The world's fifth largest foundry also asked for allegations to be dismissed on the grounds that U.S. courts do not have jurisdiction over a dispute between "two foreign corporations over events that occurred in Taiwan and China and which involved no issues of U.S. federal law".

An SMIC company representative could not be reached for comment about the latest charges.

Aloysius Choong of CNETAsia reported from Hong Kong.

 

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