Chinese Chip Upstart Takes On Taiwan Semi

BEIJING -- Chinese chip concern Semiconductor Manufacturing International (SMI Quote) announced a resumption of hostilities with arch-rival Taiwan Semiconductor (TSM Quote) on Wednesday, disputing charges that it spilled trade secrets.

Semiconductor Manufacturing International (SMIC) also launched its own legal claim in response to the lawsuit that Taiwan Semiconductor (TSMC) filed against it two weeks ago.

In a statement sure to raise hackles in Taiwan, SMIC said it will tell a California court why its "leading role in mainland China poses a substantial threat to competitors like [TSMC]."

In reality SMIC looks somewhat less than fearsome. The money-losing company has seen its shares drift steadily downward ever since it went public two and a half years ago, losing more than half their value in that time. Shares in New York closed Thursday at $6.67 vs. a close of $15.52 on its first day of trading in March 2004.

The latest round of tit-for-tatting highlights SMIC's ambitions -- and its role as a thorn in the side of TSMC. Six-year-old SMIC has devoted itself to grabbing share from the two top Taiwanese companies that dominate the foundry business: TSMC and United Microelectronics (UMC Quote).

Foundries outsource chipmaking for semiconductor companies, many of which have left the chip manufacturing business because of the multibillion-dollar investment it requires.

SMIC's longstanding fight with TSMC got under way in 2003, when the Taiwanese foundry accused SMIC of patent infringement and theft of trade secrets. The matter dragged on until January 2005 when SMIC agreed to pay $175 million over six years to settle.