August 5, 2011 3:08 pm

SMIC appoints new chief executive

Semiconductor Manufacturing International, China’s largest chipmaker by revenues, has appointed a new chief executive, in an effort to end a management upheaval which has threatened to derail a turnround at the struggling company.

SMIC said on Friday it had appointed Chiu Tzu-yu, who has worked as president and chief executive of Shanghai Huahong NEC Electronics, a smaller rival, as its new chief executive.

The new chief’s background at Huahong is set to give rise to new expectations of consolidation in China’s weak chip manufacturing industry.

In the 1990s, Beijing launched ambitious plans to create its own chip industry, to try to emulate developed markets in countries such as Taiwan. Regional governments subsequently offered financial backing to the new companies that were formed, but so far none of China’s contract chipmakers have been able to compete with global rivals.

The industry is dominated by Taiwan Semiconductor Manufacturing, which holds more than 40 per cent market share.

Mr Chiu’s appointment follows the shock resignation last month of David Wang, the chief executive whose restructuring programme had helped SMIC post a net profit for the first time in five years last year.

Mr Wang resigned after a power struggle between two of SMIC’s state-owned shareholders prevented his re-election to the board of directors in late June. The standoff had been triggered by the death of Jiang Shangzhou, then SMIC chairman, that month.

Mr Jiang had long been able to balance a push by Datang Telecom Technology & Industry, a state company which invested in SMIC in 2008 and is now its single largest shareholder, for control. China Investment Corporation, China’s sovereign wealth fund, took an 11.9 per cent stake in SMIC earlier this year.

Mr Chiu is the second Huahong executive to join SMIC’s management after SMIC picked Zhang Wenyi, a former Huahong chairman and China’s former vice-minister for the electronics industry, as its new chairman last month.

SMIC was founded by Richard Chang, a former TSMC executive, in 2001. Under his leadership, SMIC built a scattering of fabrication plants in different parts of China in partnerships with local governments. The strategy, which runs counter to the industry’s practice of concentrating capacity in one or few locations for scale, saddled it with higher production costs than its rivals.

Soon after SMIC’s creation, TSMC sued the company over intellectual property infringement. As part of a settlement of the long-running dispute in 2008, TSMC got a stake in SMIC, the Chinese company had to pay damages to the Taiwanese rival which contributed to its financial troubles, and Mr Chang was forced out as chief executive.

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