Why local chipmaker TSMC showed mercy in its IP settlement with China's SMIC

Making Beijing a Winner

TSMC's strategy of settling out of court has another added bonus in that it makes the Chinese government look like a winner too.

Eager to develop a homegrown semiconductor industry, the governments of Beijing, Shanghai, Wuhan, Chengdu and Guangzhou had all dug deep into their own coffers to support SMIC. But frustrated with SMIC's lackluster performance, the major shareholders judged that Richard Chang's mission— laying the groundwork for a Chinese semiconductor industry and overseeing fab construction— had come to an end.

The next step for SMIC should be to accelerate R&D and increase innovation in IC design. The specific role of TSMC in this process remains to be seen, but the current sentiment within SMIC's board of directors is receptive to leadership from its new Taiwanese shareholder.

As one professional manager who used to be involved in SMIC's business puts it: “As long as there are people within TSMC who are able to help SMIC take off, why not? There's nothing to lose.”

In the past, TSMC disrupted the value chain in the chipmaking industry with its unique business model of a dedicated foundry. In the future, it will be able to realize its ambitions in China by nurturing Chinese IC design with an open innovation platform. In a tacit understanding, TSMC and the Chinese government fought a perfect intellectual property battle, both emerging as winners.

Translated from CommonWealth Magazine by Susanne Ganz

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