Semiconductor Manufacturing International Corporation

History

SMIC was founded in 2000 by Richard Chang (Traditional Chinese: 張汝京), a Taiwanese-American entrepreneur who had previously worked at Texas Instruments and Taiwan Semiconductor Manufacturing Corporation (TSMC). Under Chang’s leadership, SMIC built its first fab in the Zhangjiang Hi-Tech Park in Shanghai, China, and subsequently expanded its manufacturing operations to other cities in mainland China. SMIC is currently the largest and most advanced semiconductor foundry in mainland China. The company was listed on the SEHK and New York Stock Exchange in 2004.

In October 2007, the United States Government enrolled SMIC in its Validated End User (VEU) program as a trusted customer of regulated U.S. technology, thereby reducing many of the export control barriers for SMIC.

In early 2009, Harvard Business School wrote a case study on SMIC's business model, characterized as a Reverse Build-Operate-Transfer (BOT). The case study found that SMIC is executing a strategy that leverages the desires of municipalities in China to build clusters of high technology companies. By partnering with those cities to build new semiconductor fabs that SMIC would then operate under contract, the company could build scale without necessarily confronting immediate large capital outlays. Unlike the Build-Operate-Transfer model that some municipalities were using to build infrastructure like the new subway in Shenzhen, in the SMIC "Reverse BOT model" a municipality would build a capital intensive fab and SMIC would operate it, sharply lowering its capital costs. This model gave the company a unique level of flexibility in an industry where capital costs were the major driver of product costs.

In November 2009, Richard Chang resigned as CEO and was replaced by David N.K. Wang (Traditional Chinese: 王寧國), a former executive of Hua Hong (Group) Co., Ltd. and Applied Materials. Wang served until 2011, when he resigned and Tzu-Yin Chiu (Traditional Chinese: 邱慈雲), an experienced semiconductor industry executive, was appointed as CEO.

Litigation with TSMC

The company was the target of a lawsuit brought by TSMC, accusing SMIC of misappropriating TSMC intellectual property. The first round of litigation ended in 2005 with a $175 million settlement. A second round was opened in 2006. The liability phase of the lawsuit began on September 9, 2009 in Oakland, California, and the jury found SMIC liable on 61 out of 65 claims.

SMIC entered into a settlement agreement with TSMC to resolve all pending lawsuits between the parties, including the legal action filed by TSMC in California for which a verdict was returned by the jury against SMIC on November 4, 2009 and the legal action filed by SMIC in Beijing. SMIC and TSMC have entered into a settlement agreement on November 9, 2009 to settle and dismiss the CalifoCase, including all claims and defenses of SMIC yet to be decided in that case and SMIC's appeal in the Beijing Case, thus concluding all pending court litigation between the parties.

Key provisions of the settlement include a mutual release of all claims that were or could have been brought in the pending lawsuits; termination of SMIC's obligation to make remaining payments under the prior settlement agreement between the parties (approximately US$40 million); payment to TSMC of an aggregate of US$200 million; and a grant to TSMC of approximately 8% of SMIC's issued share capital and a warrant which would allow TSMC to obtain total ownership of approximately 10% of SMIC's issued share capital.

Locations

SMIC has customer service and marketing offices in the U.S., Europe, Japan and Taiwan, and a representative office in Hong Kong. It has wafer fabs at the following locations: