Leaker of TSMC Secrets Joins SMIC as Co-CEO

　　Liang Mong-song, a former employee at Taiwan Semiconductor Manufacturing Co. (TSMC) who leaked process technology to Samsung several years ago, has joined Semiconductor Manufacturing International Corp. as co-CEO.

　　SMIC, China’s largest foundry, announced Liang’s appointment in a press statement on Oct. 16.

　　In 2015, TSMC won a lawsuit against Liang, a former senior director of R&D who leaked secrets including 28-nm process technology to Samsung, TSMC’s largest rival in the foundry business. After leaving TSMC, Liang became Samsung's system LSI division chief technology officer. The TSMC lawsuit prevented Liang from working for Samsung.

　　TSMC Senior Director of Corporate Communications Elizabeth Sun said that the company has no comment regarding Liang’s new appointment at this time.

　　SMIC said Liang will work with Co-CEO Haijun Zhao, both of whom will also be executive directors. Liang may help SMIC catch up in the process technology race with TSMC and Samsung, according to Andrew Lu, an independent analyst writing for information provider Smartkarma.

　　“We expect this to be structurally positive to SMIC to narrow its advanced technology node gap with TSMC and Samsung,” Lu said in an Oct. 16 report. “SMIC clearly needs the help of technology, R&D and yield improvement for the long-term.”

　　Competition in China’s foundry business is expected to grow as the nation accounts for an increasing portion of demand, according to a report from market research firm IC Insights. Pure-play foundry sales in China are expected to reach $7 billion in 2017, up 16 percent from 2016, according to IC Insights. China’s growth rate more than doubles that for global foundry sales, the research firm noted.

　　TSMC is forecast to hold about 46 percent of the market for China's foundry revenue with sales of about $3.2 billion, up 10 percent from 2016, IC Insights said.

　　TSMC is likely to turn up the heat. In the second half of 2018, TSMC will open a new fab in Nanjing, China that will start production at the 16-nm node. The company also plans to start production of 7nm chips in Taiwan next year. By contrast, SMIC is still cutting its teeth on 28nm.

　　With the appointment of Liang, SMIC should be able to narrow its technology gap with United Microelectronics Corp. (UMC) on 14nm to as little as one year from an earlier estimated two or more years, Lu said. Earlier this year, UMC, the world’s third-largest foundry, started 14nm production.

　　Likely Suspect

　　Since Liang leaked TSMC’s secrets to Samsung, both TSMC and Samsung are likely to watch Liang carefully when SMIC ramps up its 28nm and 14nm in volume, Lu said. TSMC may take legal action against Liang for leaking 28nm secrets as well as SMIC, he said.

　　TSMC sued SMIC in Dec. 2003 for stealing TSMC's secrets and forced SMIC to pay a $175 million settlement in Jan 2005.

　　Samsung may also sue Liang and SMIC because Liang has detailed knowledge of Samsung’s 14nm development work and trade secrets, Lu said.

　　SMIC’s lower yield on its 28nm node compared with TSMC and UMC has put SMIC under price pressure, according to Lu.

　　The company is likely to see weak year-on-year sales growth ranging from -3 percent to 0 percent during the third quarter this year as well as a deteriorating gross margin, he said.

　　“We won't see this lose-lose situation change unless SMIC can improve its 28nm yield rate to boost wafer prices or overall utilization rate back to over 90 percent from the current level of 80-85 percent,” Lu said.