BEIJING Foundry Semiconductor Manufacturing International Corp. is once again capturing attention as a target for private equity. The company is reviewing offers worth $600 million for up to a 25 percent stake, according to a report in the South China Morning Post.
The paper cited unnamed sources in a Monday report saying Kohlberg Kravis Roberts & Co., Bain Partners, and General Atlantic were all interested in buying a stake in SMIC, which is China's largest chip foundry.
SMIC chief executive Richard Chang is holding out on a decision, in part to see if others come in to bid and also because he wants to ensure that he would remain in control, according to the paper. Chang founded SMIC in 1999, and quickly grew the company into the world's third largest foundry. However, it has struggled with profitability.
SMIC eked out a profit in the fourth quarter, but failed to remain in the black for the entire year. In 2006, revenue hit a record $1.46 billion, but losses totaled $40.4 million. The fourth quarter's modest $1.2 million profit came, in part, because SMIC sold some old equipment to a fab in Chengdu that it will manage for local investors, including government entities.
In January, SMIC said it would implement a few strategies to improve its chances of attaining consistent profitability, including a new method for calculating depreciation.
Depreciation continues be a significant drag on SMIC, totaling $964 million last year. To help alleviate this, the company said it will begin lengthening the depreciation period of some of its equipment.
Depending on the expected lifetime of the tool, depreciation will be applied at five, six or 10 years. The traditional period had been five years. Under the new system, depreciation should total about $800 million this year.
Rumors of private equity interest in SMIC first emerged in March, sending its stock up 9 percent in Hong Kong. SMIC has reportedly hired investment banks Morgan Stanley and Deutsche Bank to find an investment partner.
In 2004, SMIC raised about US$1.8 billion in an initial public offering. Its shares now trade 59 percent below the listing price of HK$2.69 each.