Grace claims it's close to 130-nm process deal with U.S. IDM

SHANGHAI, China — Chinese foundry chip maker Grace Semiconductor Manufacturing Corp. said it is in the final stages of negotiating a technology transfer for a 0.13-micron manufacturing process from a U.S.-based integrated device manufacturer.

If brought about, a deal bringing advanced process technology from the U.S. would signal the further erosion of a post Cold War-era pact — known as the Wassenaar Arrangement — set up to limit the dissemination of technology that could have potential military use.

Until now, Grace has mostly relied on Japanese partners for its process technology, which ranges from 0.15-micron to 0.5-micron design rules.

The foundry would not disclose the potential licensor but Daniel Wang, an executive vice president, told EE Times that Grace would begin development and test runs by the end of this year, and start shipping chips based on 0.13-micron design rules in the second half of 2005.

Wang also disclosed plans to codevelop 90-nm process technology in 2005 with the same U.S. company, which he said it would likely name in a month's time. The list of partners is short, with likely possibilities including Freescale Semiconductor or LSI Logic, according to Semico analyst Joanne Ito. IBM and Texas Instruments are also possibilities, but considered less likely because of existing relationships with rival foundries.

The timeline for 0.13-micron and 90-nm processes is slightly behind Grace's original schedule, according to its Web site, and puts it at least a year behind its local rival, Semiconductor Manufacturing International Corp., which does some 0.13-micron production for Texas Instruments and is developing 0.11-micron technology for DRAM production with Infineon Technologies AG.

Still, Grace's progress on advanced process technology does parallel some of the region's second-tier foundries, which Grace more closely resembles in size, such as Silterra Malaysia Sdn. Bhd. and Korea's Dongbu-Anam Semiconductor.

Grace is well known for some of its high profile connections. In the U.S., it has reportedly agreed to pay $2 million for consulting services from semiconductor neophyte Neil Bush, the younger brother of President George W. Bush. In China, one of Grace's founders is Jiang Mianheng, the son of former Chinese President Jiang Zemin, and in Taiwan, its other founder is Winston Wang, scion of a powerful petrochemical magnate.

One of the next key hurdles for Grace will be its IPO. If it wants to expand beyond its full capacity of 35,000 wafers per month, a target it will hit in the first half of next year, then it will need to raise funds. The company recently said it would target a $700 million to $1 billion IPO placement in Hong Kong and on the Nasdaq. Before that, it may need to raise $50 million to $200 million through investors and further bank loans.

Wang said Grace wasn't overly concerned with the poor performance of recent IPOs by Semiconductor Manufacturing International Corp. and CSMC Technologies Corp., a Wuxi-based 6-inch foundry, and disagreed that investors may have soured on China semiconductor IPOs. "We just have to be very careful with the IPO, and make sure we do it in a good market. We also have to develop the right strategy for the IPO pricing. You don't want to be too greedy," he said.