Case Against Ex-UMC Execs Heads to Court

The court case against two former top executives from Taiwanese chip maker United Microelectronics (UMC) will likely begin in May, an official from Taiwan’s Hsinchu District Prosecutor’s Office said Wednesday.

Hearings to discuss evidence for the trial have already started, and legal teams from both sides of the case have been meeting over the issue, said the Taiwanese official, who asked not to be named.

The case against the two executives from the world’s second-largest contract chip maker, ex-Chairman Bob Tsao and former Vice Chairman John Hsuan, could have a major impact on investment by Taiwanese high-tech companies in China. The former executives, who resigned just hours before authorities publicly announced their indictment, have been accused of breaking Taiwanese law by helping establish a Chinese semiconductor company, He Jian Technology (Suzhou).

Tsao and Hsuan have maintained their innocence and said their aid to the Chinese company did not break any Taiwanese laws.

Government officials in Taiwan have cited the UMC-He Jian case as a major reason for revising regulations on China-bound investments and determining how to better manage such investments. The government is debating new, more stringent regulations for such investments, particularly those involving sensitive technologies such as semiconductors.

Taiwanese companies investing in China’s semiconductor sector are currently required by law to gain government approval for any money or technology transfers. Taiwan and China remain enemies after splitting in 1949 amid civil war. China has threatened to take the island by force if it moves toward independence.

Despite the strained relationship, China remains by far the favored destination for Taiwanese investment due to their shared language and culture. Last year, nearly three-quarters of all Taiwanese foreign investment went to China, more than US$6 billion, according to Taiwan’s Board of Foreign Trade. Private estimates place total Taiwanese investment in China at over US$100 billion.

The semiconductor sector has come under special scrutiny by Taipei because of its importance to the economy. Chips are Taiwan’s number-one export product, and the island fears it will lose jobs and internal investment if it flings open the door to China. Chip-manufacturing plants can cost up to US$3.6 billion these days, investments the island’s leaders would like to see made at home.

A UMC spokesman said the company itself has nothing to do with the upcoming court case. UMC is still waiting for word on an appeal it filed over an NT$5 million (US$154,000) fine levied by the government earlier this year, said Alex Hinnawi, spokesman for UMC.

Analysts say the case against the ex-UMC executives and the chip maker itself could worsen unless both sides find better ways to compromise. The small fine by the government was a sign it wanted to see the issue resolved, they say.

“It was a small fine. If they pay it and forget the appeal, I think the issue would be resolved,” said Rick Hsu, chip sector analyst at Nomura Securities in Taipei. He added that the company appears to want to prove it hasn’t done anything wrong, and that paying the fine would amount to an admission of guilt.

“It’s a very complicated situation,” he said.

Taiwan Semiconductor Manufacturing is the only Taiwanese chip maker that has undergone the application process and legally established a chip venture in China.

-Dan Nystedt, IDG News Service

For related news coverage, read Chip Makers TSMC and UMC See Big Growth in Q1 Sales.

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