UMC fined over China chip investment

The Taiwan government has fined chip maker United Microelectronics Corp. NT$5 million (US$155,000) for aiding in the establishment of a Chinese chip company without first gaining approval from Taipei.

The Taiwan government has fined chip maker United Microelectronics Corp. NT$5 million ($155,000) for aiding in the establishment of a Chinese chip company without first gaining approval from Taipei.

The fine is the latest move in an ongoing controversy between the company and government officials in Taiwan over alleged illegal investments in Chinese chip maker He Jian Technology (Suzhou) Co. But it was lighter than the NT$25 million maximum penalty the company faced and a sign Taipei may want to move past the issue, analysts say.

“Certainly, the dollar amount isn’t going to hurt UMC,” said Kenneth Lee, semiconductor industry analyst at Primasia Securities in Taipei.

The leveling of the fine could also work to UMC’s favor, because it’s a sign the government may want to end its spat with the world’s second-largest contract chip maker, Lee says. If UMC submits to the government’s China application process, a procedure it failed to follow previously, it could gain permission to legally take a stake in the Chinese chip maker it’s accused of investing in, he says.

Investors were so relieved by the small size of the fine, they sent UMC’s stock price rocketing 6.8 percent to NT$18.80 on Thursday. Industry watchers had been worried the government might take more serious action against UMC.

UMC declined to comment on the issue.

UMC ran afoul of the authorities in February 2005, when prosecutors raided UMC offices in Taipei and Hsinchu, and detained nearly two dozen Taiwanese employees of He Jian. The government had been gathering evidence that UMC invested in He Jian without applying for permission to do so, which is illegal in Taiwan.

Taiwan carefully controls chip investments to China, fearing it could lead to job losses on the island or that its technology could be used to bolster Chinese military prowess. The two separated in 1949 amid civil war, and Beijing has long threatened the use of force to take the island if it moves toward independence.

The chip maker has repeatedly denied wrongdoing in the He Jian case. Although UMC executives have admitted to offering extensive aid to the development of He Jian, they have maintained that they did so within legal bounds. Robert Tsao, the company’s former chairman, resigned along with another key executive early last month after Taiwanese prosecutors indicted them over the issue, and Taipei has leveled fines on UMC and He Jian executives.

He Jian has also offered UMC a 15 percent stake valued at US$110 million in return for its help in establishing the Chinese chip maker, an offer aimed at allaying one of Taipei’s criticisms: that UMC built a competitor, threatening its shareholders by hurting its own competitive position.