Second, third largest Chinese foundries merge

Shanghai-based Hua Hong and Grace Semiconductor announce merger which will bring in combined revenue of US$600 million.

Two of China's largest semiconductor manufacturing companies, Hua Hong Semiconductor and Grace Semiconductor Manufacturing, have announced their merger but a market observer is skeptical that this will boost the country's chip industry.

The merger of the two companies would bring in a total revenue of US$600 million and a net income of US$600 million in 2011, said both companies in a joint statement Thursday announcing the merger.

A EETimes report noted that Hua Hong and Grace, respectively, were the second and third largest semiconductor companies in China.

However, a Wall Street Journal (WSJ) report noted that the combined revenues of the merged companies at US$600 million would still be behind China's biggest foundry Semiconductor Manufacturing International Corporation (SMIC) which saw a revenue of US$1.6 billion in 2010.

Fu Wenbiao, chairman of Hua Hong and Grace, said in the statement that both companies have fabs in Shanghai. "By integrating the manufacturing facilities, process technologies and human resources, Hua Hong and Grace are able to leverage their complementary strengths to further expand their combined product range and customer coverage and to improve economies of scale," Fu said.

The merged company would be able to provide a boarder range of services to their customers, with increased capacity and stronger R&D (research and development) capabilities, he added.

Citing market analysts, the WSJ report expressed skepticism that the merger would create a stronger player to boost the country's semiconductor market. It quoted JP Morgan analyst Rick Hsu as saying: "The combination of these two isn't going to create a powerhouse in China... It's a consequence of industry consolidation because the whole [chip] foundry industry is facing a tough macro economic environment. It's a matter of either going out of business or consolidating."