The deal has near- and long-term implications for TSMC. "We are at first looking at ASMI as a capacity provider," a TSMC spokesman said. "This deal is not just a matter of satisfying near-term demand, but is the beginning of a strategic alliance with Acer Group," the parent of ASMI.

TSMC may buy some ASMI stock from Acer, the majority stockholder in ASMI. "We are still negotiating with Acer," the TSMC spokesman said. "If it does happen, it will be pretty soon."

TSMC said one reason it is acquiring an interest in ASMI's 8-inch facility is to increase production in order to meet current demand. That will not happen immediately, however. "We will need at least six months in order to transfer technology and management as well as install new machinery," the TSMC spokesman said. "Currently, ASMI is primarily a DRAM maker, so there is a lot of new equipment that needs to be installed, as well as the transferring of technology and fabrication expertise."

ASMI was formed over a year ago when Texas Instruments Inc. gave up its stake in TI-Acer Inc., a joint venture. Stan Shih, chairman and chief executive officer of Acer, has personally run ASMI for the past year in an attempt to change it from a DRAM production facility into a foundry. Turning part of ASMI over to TSMC for cash may be a smart move for the ailing fab, said observers here.