Ruling against SIS to have little market impact

A recent ruling by the U.S. International Trade Commission (ITC) that Taiwanese chipset maker Silicon Integrated Systems Corp. (SIS) has infringed on a manufacturing-process patent owned by United Microelectronics Corp. (UMC) is unlikely to have a major impact on PC sales in the U.S.

As part of the ruling, ITC has moved to restrict the import of chips manufactured using the process to the U.S. The ruling affects all chips made by SIS using the process in question, including PC chipsets and Xabre graphics chips. Chipsets are the main interface between the components of a PC, such as memory, peripherals and the processor. [See ” Legal ruling won’t slow US chip shipments, SIS says,” Oct. 9.]

The ITC ruling is subject to a 60-day presidential review period, during which infringing SIS products can be imported into the U.S. if a bond is posted with the U.S. Customs Service. The bond must cover 100 per cent of the value for each chipset and graphics chip, and 39 per cent of the value of each motherboard or add-in card containing the chips.

In the wake of the ruling, some observers warned it could jeopardize prospects for a recovery among hardware makers struggling to maintain growth and profitability. “From where we sit, this looks like a lose-lose-lose situation for everyone,” said Jon Peddie, president of market analyst Jon Peddie Research, in a statement. “It’s the injunction that stole Christmas.”

But the effect of the ITC ruling may not quite be so drastic, particularly for motherboard makers and system vendors who use chips made by SIS.

“It doesn’t have any impact on system makers, this is an injunction against SIS,” said Dan Heyler, head of Asia-Pacific semiconductor research at Merrill Lynch (Asia-Pacific) Ltd. “Customers would require guarantees from the vendor (SIS) that they will not be penalized.”

For its part, SIS says it has already switched to a new manufacturing process and its chip shipments to the U.S. will not be affected by the ruling. If a situation arises where SIS chips are not able to reach the U.S. market, system vendors and board makers have the option of going to other chipset suppliers.

“Other sources, like Via (Technologies Inc.) and Intel (Corp.), are clearly sufficient suppliers to pick up the slack,” Heyler said.

From a business standpoint, SIS may have larger issues to worry about than the ITC ruling. The company has decided to continue to make its own chips while many of its toughest competitors in the chipset and graphics chip business have contracted manufacturing to chip makers like UMC and Taiwan Semiconductor Manufacturing Co. Ltd (TSMC). Shifting production to contract chip makers allows companies to get access to cutting-edge manufacturing technology without having to spend massively on capital expenditures.

“We question the sustainability of their current business model,” Heyler said.