Home > Policies>Announcements & Orders

MOFCOM Announcement No.81 of 2017 on Anti-monopoly Review Decision concerning Conditional Approval of Concentration of Undertakings in the Case of Acquisition of Equity Interests of Siliconware Precision Industries Co., Ltd by Advanced Semiconductor Engineering, Inc.

The Ministry of Commerce of the People's Republic of China (hereinafter referred to as the “Ministry of Commerce”) received the anti-monopoly declaration of the concentration of undertakings on the case of the acquisition of the equity interests in Siliconware Precision Industries Co., Ltd. (hereinafter referred to as “Siliconware”) by Advanced Semiconductor Engineering, Inc. (hereinafter referred to as “Advanced Semiconductor”) (hereinafter referred to as the “Case”). Upon review, the Ministry of Commerce decided to approve the concentration of undertakings with additional restrictive conditions. In accordance with Article 30 of the Anti-monopoly Law of the People's Republic of China (hereinafter referred to as the "Anti-monopoly Law"), relevant matters are hereby announced as follows:

I. Case-filing and review procedures

On August 25, 2016, the Ministry of Commerce received the anti-monopoly declaration for the concentration of undertakings concerning the Case. Upon review, the Ministry of Commerce considered that, the documents for declaration were incomplete and required the declarer (Advanced Semiconductor) to supplement. On December 14, the Ministry of Commerce confirmed that the supplemented documents for declaration complied with Article 23 of the Anti-monopoly Law, and therefore the anti-monopoly declaration for the concentration of undertakings was admitted to be filed, and a preliminary investigation was launched. On January 12, 2017, the Ministry of Commerce decided to further review the concentration of undertakings. Upon such further review, the Ministry of Commerce believed that the concentration of undertakings might exclude and restrict the competition to the market of outsourcing service for semiconductor package and test. On April 12, with the consent of the declarer, the Ministry of Commerce decided to further extend the review period. On the expiry of such extended review period, the declarer applied to withdraw the case and obtained the consent from the Ministry of Commerce. On June 6, the Ministry of Commerce reviewed the re-declaration submitted by the declarer for case-failing. At present the Case is in the extended period of further review, and the deadline is November 29, 2017.

In the course of the review, the Ministry of Commerce solicited opinions from relevant government departments, trade associations, competitors and downstream customers, understood relevant market definition, market structure, market participants and industry characteristics by issuing questionnaires to relevant parties, holding seminars and conducting field research, and reviewed the authenticity, completeness and accuracy of the documents and materials submitted by the declarer. And meanwhile, the Ministry of Commerce also engaged independent third party consultative agency to analyze and evaluate the matters of competition concerning the concentration.

II. General information of the Case

The acquirer, Advanced Semiconductor, which was incorporated in Taiwan Region in 1984, is listed in Taiwan Stock Exchange and New York Stock Exchange, and the ultimate controller is Jason Chang. Advanced Semiconductor is mainly engaged in the outsourcing services for semiconductor package and test, and a little real estate business and processing and production of electronic parts and components.

The acquiree, Siliconware, which was incorporated in Taiwan Region in 1983, is listed in Taiwan Stock Exchange and New York Stock Exchange and has no ultimate controller. It is mainly engaged in the outsourcing services for semiconductor package and test.

Advanced Semiconductor and Siliconware signed an agreement on June 30, 2016, to establish Advanced Semiconductor Investment Holding Co., Ltd (“日月光投资控股股份有限公司”, hereinafter referred to as the “Holding Company” or “Advanced Semiconductor after concentration”). Upon the completion of the transaction, the original shareholders of Advanced Semiconductor held all the equity interests in Advanced Semiconductor and Siliconware through the Holding Company and realized individual control over Advanced Semiconductor and Siliconware.

III. Relevant markets

According to the Anti-monopoly Law, the Guidelines of the Anti-monopoly Committee of the State Council on Defining the Relevant Markets and other provisions, the Ministry of Commerce has defined the relevant commodity markets and related regional markets in this Case.

(I) Relevant commodity markets.

Upon investigation, it is found that both parties of the transaction are engaged in the outsourcing service for semiconductor package and test (hereinafter referred to as the “P&T”) with their business horizontally overlapped. The production of semiconductors mainly covers chip design, wafer fabrication and the P&T. P&T services include package service and test service. The providers of P&T services categorized into the providers of integrated design manufacture (“IDM”) and the providers of professional outsourcing services (also known as the “Outsourced Semiconductor Assembly and Test” or “OSAT”). Along with the development of the integrated circuit industry with a tendency for small size, intelligence and multi-functions, the P&T technology keeps developing and has evolved into various types of technologies.

1. It is not necessary to segment relevant commodity market based on the P&T procedures.

The package service refers to covering the crystalline grain cut from the processed wafers with plastic, ceramic or metal to prevent them from being polluted and making it easy for package, and realizing electrical connection, signal transmission, structural supports and chip heat transfer between the chips and the electronic system. The test service refers to provision of chip testing and final test for the purpose of excluding chips with poor electronic functions to reduce the proportion of integrated circuits (“IC”) products with lost functions and wasted production cost and ensure the normal function, speed, durability and energy consumption of IC products.

Although the P&T services include package service and test service, they are provided for the same customers, which are IC design and manufacturing enterprises. In the market, most P&T service providers can provide both services, and the customers usually entrust both services to the same provider to reduce the time and cost of commodity transshipment. In terms of billing, these two services are billed together rather than separately but in most cases. In addition, the difference in technology of different providers are reflected in the package rather than test, and to differentiate two services will have no substantial impact on the competitive analysis. Therefore, it is not necessary to define the market of package service and the market of test service.

2.IDM and OSAT belong to different relevant commodity markets.

Providers of P&T services are categorized into IDM providers and OSAT providers. IDM providers are providers with their own semiconductor brands and their business covering design, manufacture, package and test, and sales, and even extending to end electronic products, such as Intel and Samsung. OSAT providers have no independent brands and are mainly engaged in providing outsourcing P&T service for customers in design and manufacturing of semiconductors such as Advanced Semiconductor and Siliconware.

In the background of accelerated globalization and deepened international division of labor, IDM providers have been gradually stripping off their middle and low end production capacity, and hand their P&T service business to OSAT providers, despite IDM providers barely provide P&T services for third party customers. Restricted by the production capacity and for the purpose of satisfying their internal demands, IDM are unable to provide stable and reliable service for third party customers. Therefore, in terms of supply, it is difficult for IDM to become an effective substitute of OSAT, and they belong to different relevant commodity market. Advanced Semiconductor and Siliconware are both OSAT providers, providing semiconductor P&T services. Therefore, in this Case, the investigation only focuses on the market of semiconductor P&T outsourcing service.

3. It is not necessary to segment the commodity market based on the package technology.

Along with the development of IC industry with a tendency for small size, intelligence and multi-functions, the P&T technology keeps developing and has evolved into various types of technologies with different shapes and sizes, different pin configurations and different ways of connections. The market research shows that, the selectin of package technology mainly depends on the design of the customer’s chip products and the demands for end products, and has been decided when the custom designs the chip products. The same chip products may adopt different package technologies, depending on costs, prices and functions. Therefore, different package technology may replace each other when the functions are similar.

In conclusion, relevant commodity market is defined as the market of semiconductor package and test outsourcing service in the Case.

(II) Relevant geographic market.

The providers, customers and production capacity of semiconductor package and test outsourcing service are all around the world and there are no high tariff barriers between countries and regions. Relevant IC products are small and easy for transportation, the transportation cost is low around the world, representing less than 1% of the cost of the products. Therefore, relevant geographic market is defined as the world in the Case while the impact on Chinese market is investigated.

IV. Competitive analysis

In accordance with Article 27 of the Anti-monopoly Law, the Ministry of Commerce has deeply analyzed the impact of the concentration of undertakings on the market competitions in terms of the market shares of relevant market, market control, market concentration, the complexity of access to the market concerned and impacts on consumers and other operators. It is believed that the concentration of undertakings may eliminate and restrict competitions in the global market of semiconductor package and test outsourcing service.

(I) The market share of Advanced Semiconductor after concentration may be further increased.

Before the concentration, Advanced Semiconductor and Siliconware ranked the first and the third in the global market of semiconductor package and test outsourcing service, respectively and ranked the fifth and the first in Chinese market of semiconductor package and test outsourcing service, respectively. After the concentration, Advanced Semiconductor ranked the first in both global and Chinese markets of semiconductor package and test outsourcing service, representing about 25% to 30% of market share, followed by Amkor Technology, Changjiang Electronics Technology and Powertech Technology, which together take up about 10% to 15% of global market share. The other competitors are small in size and scattered in the market, all representing less than 4% of market share.

It is shown in the anti-monopoly investigation that, the technology in the semiconductor package and test industry is distinctly driven by innovation with fast upgrading and replacement. The core competitiveness is mainly reflected in the capabilities of technical research and development and upgrading. Advanced Semiconductor and Siliconware have possessed distinctive technical advantages and R&D capability in the fast-growing SIP, and WLCSP and the recently-released 3DIC technology. The concentration will further integrate their advantages in research and development, and in the future, Advanced Semiconductor may rely on their cohesion to further widen the difference with the other competitors in terms of research and development, promotion and market exploration of new technology and products.

(II) The concentration will reduce the choice of customers for major providers of package and test services.

Semiconductor chips demands high requirements on the reliability and quality stability of package and test technology. It is required for customers of P&T services to closely cooperate with the providers of P&T services in the phase of chip design, and keep smoothing the cooperation in the following phases. It takes risks and costs to change providers. In order to avoid risks and counterbalance the providers’ ability to control prices, the customers usually choose several providers or designate one but have alternative providers available. In case of change of providers, it takes about six months to two years for the customers to smooth the cooperation. Therefore, there is certain stickiness of customers to the providers of P&T services, and the customers will not easily change providers.

According to the calculation of data in types of technology, from 2012 to 2016, among the common customers [Confidential] of Advanced Semiconductor and Siliconware, about [Confidential] have no alternative providers, i.e. totally rely on Advanced Semiconductor and Siliconware. Although it does not mean the customers will not have a third choice, at least for such customers, Advanced Semiconductor and Siliconware are their most competitive options. The selection of a third provider may bring troubles or inconvenience, and it is difficult for such providers to provide effective replacement in a short term.

It is found from the questionnaire to and panel discussion with customers that, customers usually choose Advanced Semiconductor, Siliconware, Amkor Technology and Changjiang Electronics Technology as their preferred providers of P&T customers, and it is considered that there are close substitutional relation among these providers. For Chinese customers, Amkor Technology is a U.S. company with linguistic and communication barriers; Changjiang Electronics Technology has just acquired STATS ChipPAC, and is in the period of technology integration at present, being not stable; Advanced Semiconductor and Siliconware are the most important providers of P&T services. Therefore, the transaction with further reduce the choice of customers.

(III) The concentration eliminates the tight competitive relation between Advanced Semiconductor and Siliconware and further enhance the ability of discrimination pricing.

The price of P&T service is determined through the negotiation between the provider and the customer one on one, while the terms of transaction depend on the comparison of the buyers’ and the sellers’ strength. It is indicated from the economic analysis that, the profit rates of Advanced Semiconductor and Siliconware derived from Chinese customers are close; the correlation coefficient of profit rate in China is 0.72 (“1” means the profit rates are the same) and their profit rates are strongly connected, indicating that they are tight competitors in Chinese market. The concentration will eliminate the competitive relation between Advanced Semiconductor and Siliconware, reduce the pricing restriction of Siliconware on Advanced Semiconductor. After the concentration, the market strength will further improve.

Seen from the buyers’ strength, customers of OSAT providers are categorized into IDM providers, Fabless and Foundry. Through the analysis of different types of customers of both parties of the transaction, and the profit rates derived from customers in different regions, the results have shown that, both parties of the transaction are able to conduct differentiated pricing to customers of different types and in different regions, and especially receive high profit rates derived from Fabless customers, Foundry customers and customers in China. It is indicated that both parties of the transaction have more powerful sellers’ strength over the buyers. As most customers in China are Fabless customers and Foundry customers with weak bargaining powers, Advanced Semiconductor after concentration have the ability and motive to implement the discrimination pricing strategy in order for maximized profits, causing adverse effects on customers and ultimately damaging the interests of consumers.

(IV) Advanced Semiconductor after concentration may have acts with unilateral competition eliminating or restricting effects such as raising prices.

During the anti-monopoly investigation, the profit rates of both parties of the transaction in terms of different types of package technology and in different regions in 2016 are compared. The results show that, the profits rates of the package technology in different periods are different; the profit rates of different package technology derived from Chinese customers are higher than those derived from customers in other regions; and the profit rates of Siliconware and Advanced Semiconductor are different. Due to the ability of discrimination pricing of both parties, after the concentration, it is probable for Advanced Semiconductors to adjust its pricing strategy after a comprehensive evaluation of the profit rates of their respective products, i.e. increasing relatively low profit rates, thus damaging the interests of customers and consumers.

(V) High entry threshold of P&T outsourcing service market makes it difficult for new effective competitors to emerge in a short term.

The technical and capital barriers of semiconductor P&T industry are high. In terms of technology, the semiconductor industry features highly complicated technology and rapid progress, along with huge costs in research and development, application and improvement of P&T technology and the close cooperation in all the procedures in the whole industry. In terms of capital, generally speaking, it takes about two years and costs about RMB 20 billion from the construction, commissioning, and customer trial production/certification to large-scale massive production, making it difficult for new effective competitors to merge in a short time to form effective competitive restriction.

(VI) Industry characteristics and development trends.

When evaluating the competition eliminating and restricting effects of the concentration in the market of semiconductor P&T outsourcing services, the Ministry of Commerce have also deeply investigated the characteristics and changes in demands and supplies of the industry of relevant commodities. Semiconductor industry develops rapidly and the P&T technology upgrades quickly with short research and development cycle. There are frequent mergers and reorganizations in the market of P&T outsourcing services with unstable competition patterns. The position of P&T service outsourcing service indicates that its development is largely restricted by the scale and ability of customers. The industry characteristics weakens the adverse effects of the concentration on the competition to certain extent.

V. Discussion with additional restrictive conditions

In the course of review, the Ministry of Commerce has notified the declarer in time of the review opinion that the Case might eliminate and restrict competition, and held several rounds of negotiations with the declarer with respect to matters concerning how additional restrictive conditions may reduce the detrimental effects of this concentration of undertakings on market competition. With respect to the proposal on restrictive conditions submitted by the declarer, the Ministry of Commerce has mainly made evaluations in terms of the effectiveness, feasibility and timeliness in accordance with the Provisions on Additional Restrictive Conditions for the Concentration of Undertakings (Trial for Implementation).

Upon evaluation, the Ministry of Commerce believes that the final proposal on additional restrictive conditions submitted by the declarer to the Ministry of Commerce on November 2, 2017 can reduce the adverse effects of the concentration of undertakings on market competition.

VI. Decisions

Given that the concentration of undertakings may eliminate and restrict the competition in the global market of P&T outsourcing service, according to the proposal on additional restrictive conditions submitted by the declarer, the Ministry of Commerce has decided to approve the concentration with the additional restrictive conditions, and requires Advanced Semiconductor and Siliconware to perform the following obligations:

(1) to maintain the legal person statuses of Advanced Semiconductor and Siliconware as independent competitors unchanged; to carry out independent operation according to their respective operation modes and market practices before the transaction and compete in the market within the restricted period (24 months), including but not limited to the conduct of independent management, independent financial matters, independent human resource matters, independent pricing, independent sales, independent production capacity and independent procurement.

(2) the Holding Company to exercise the shareholders rights within the restricted period, specifically including the following matters: in addition to the rights to receive dividends and financial information from both parties, the Holding Company does not exercise any other shareholders’ rights temporarily; the research and development related plans, arrangements and management, as well as the plans on the integration of research and development strength of both parties may be coordinated in the group resource integration and decision-making committee established by the Holding Company; matters related to business conducted by both parties in addition to the P&T services may be coordinated in the group resource integration and decision-making committee established by the Holding Company; the Holding Company and Advanced Semiconductor or Siliconware may provide funding loans or financing guarantee for each other according to the request or demand of the other.

(3) Both parties shall undertake to provide services for customers in a nondiscriminatory way within the restricted period, reasonably determine the service price and other transaction conditions.

(4) Both parties shall undertake not to restrict the selection of customers for other providers within the restricted period, and cooperate with the customers in smoothly shifting providers according to their requirements.

For the execution of the additional restrictive conditions mentioned above, both parties and the Holding Company shall submit a report to the Ministry of Commerce every six months.

Besides the supervision and execution of such restrictive conditions subject to the Announcement, the final proposal on additional restrictive conditions submitted by both parties on November 2, 2017 shall be legally binding upon Advanced Semiconductor and Siliconware.

The Ministry of Commerce has the power to supervise Advanced Semiconductor and Siliconware on its own or through a supervision trustee concerning the fulfillment of the above obligations. Where Advanced Semiconductor and Siliconware fail to fulfill the above obligations, the Ministry of Commerce will handle the matter according to the Anti-monopoly Law.

The Decision shall come into force as of the date of announcement.

Ministry of Commerce of the People’s Republic of China
November 24, 2017

(All information published in this website is authentic in Chinese. English is provided for reference only. )