chip.gifLatest results from SMIC, China's largest chip company, show a Q3 loss on soft global demand. That kind of comes with the territory in the chip business, which is notoriously cyclical.

It is also hugely capital intensive but the HK-based company says next year will be better, as it scales back capital expenditure to focus on profitability.

Nevertheless, I keep wondering why China feels it needs to be a major player in the cut-throat semiconductor foundry business.

Particularly as its now faces a lawsuit from Taiwan's TSMC that essentially alleges that the only way SMIC can keep up in this high-stakes game is by poaching staff and misappropriating IPRs from its Taiwanese rival.

According to Marketwatch, TSMC recently filed a complaint in a California court alleging that SMIC hired 100 key employees from TSMC and benefited from confidential information.

The Taiwanese firm says SMIC's “theft and misuse” of proprietary TSMC's proprietary technologies and related information has been key to SMIC's growth and explains the “remarkable ramp-up” of its 0.18-micron processes.

For non-techies, 0.18-micron , or 180nm, is hardly state-of-the-art in the fast-moving semiconductor industry. Intel's latest generation of processors use 65nm process technology. Nevertheless, SMIC appears to be picking up speed as it is it is now mass-producing 90nm memory chips.

SMIC and TSMC first clashed in the law courts over patent issues in 2004. After an uneasy, truce the issue has flared up again. More in this EETimes article.

SMIC made a Q3 loss of $35m compared with a net profit of $2.2m in the preceding second quarter. A year earlier, the company made a Q3 loss of $26m. Q3 revenue grew just 2% to $369m over the preceding quarter. Marketwatch has the low-down on SMIC's financials here.

Despite its current problems, SMIC achieved a minor coup in the quarter by signing a “strategic agreement” with Qualcomm of the US.

Qualcomm makes sophisticated wireless chips but the manufacturing deal with SMIC is focussed on relatively simply power management chips.

Qualcom is itself no stranger to IPR disputes and, indeed, its tight control on key CDMA patents is one of the reasons that China has embarked on developing its own 3G wireless technology, TD-SCDMA.

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