TSMC says it's not investing in Chinese chip designers

Taiwan Semiconductor Manufacturing Co., (TSMC) the world's largest contract microchip maker, on Friday found itself defending its clean record against more local news reports that it has invested in Chinese chip design houses.

Free IT resource Virtualization Insights from Top Experts - Learn how virtualization gets real! Sponsored by Dell Free IT resource Try Sun servers, workstations and storage products free for 60-days. Sponsored by Sun Microsystems

A venture capital investment firm, InveStar Capital, manages some of TSMC's money, but it is not owned by the Taiwanese chip maker, TSMC said, refuting a story by the local magazine, Business Weekly, which said the firm was owned by TSMC and had invested in a Chinese chip design company.

In addition, an investment by InveStar Capital in the chip design firm, Memsic, does not mean TSMC has broken Taiwanese rules against investing in China's chip industry because Memsic is a U.S. company, not a Chinese one, TSMC said.

Taiwanese companies have to clarify their position on chip-related investment to China because it's always been a hot issue with the government. Investments in China's semiconductor industry are highly scrutinized by Taiwan, which sits just 160 kilometers off the coast of its enemy. The two separated in 1949 after civil war, and Beijing has long threatened to take the island by force if it moves toward independence.

Taiwan, which is far more technologically advanced than its developing neighbor, created a number of rules governing investment in China's chip industry years ago over fears the technology could be used by China's military, and due to the possibility of job losses on the island.

TSMC's main rival, Taiwan's United Microelectronics Corp. (UMC), found itself in the uncomfortable position of defending itself after being accused of investing in a Chinese contract chip maker. Hundreds of Taiwanese investigators swooped on UMC offices in Taipei and Hsinchu to gather evidence earlier this year, and the company took out front page advertisements to clarify its relationship with the Chinese companies.

UMC has repeatedly denied breaking the law. No formal charges have been filed by the government.

TSMC is the only Taiwanese chip maker that's gone through the approval process and legally set up a manufacturing plant in Shanghai.

Last month, TSMC denied any plans to build an advanced 12-inch wafer factory in China, and refuted similar allegations of investments in Chinese chip design houses.

But the media scrutiny persists, and highlights a number of issues, including Taipei's approach to its chip makers' activities. Contract chip makers like TSMC and UMC depend on orders from chip design houses. They do not develop new kinds of chips; they only manufacture chips designed by customer companies. Chip designers without their own factories, like Qualcomm and Xilinx, outsource orders to TSMC and UMC, as do some companies that want to put off spending the billions of dollars required for a new chip factory.

TSMC and UMC have invested in chip design houses in the past, as a way to grow their market. The more chip designers, the more potential orders for the two contract chip makers. The two companies are also working with the Taiwanese government on issues related to China. Taiwanese chip makers want to be able to use more advanced production technology in China -- at least the same as their rivals in China.

Currently, they're barred from using any chip technology smaller than 250 nanometers, while China's Semiconductor Manufacturing International Corp. is using finer and more profitable 180-nanometer and smaller production technology.