January 6, 2009 / 10:59 AM / 11 years ago

UPDATE 1-China SMIC discussing stake sale to Intel-sources

(Adds possible cooperation, Intel no comment, background)

By David Lin

SHANGHAI, Jan 6 (Reuters) - Semiconductor Manufacturing International Corp (SMIC) (0981.HK), China’s top contract chip maker, is discussing the possibility of selling a strategic stake in itself to Intel Corp (INTC.O), sources familiar with the talks said on Tuesday.

The sources declined to be named because of the sensitivity of the talks. Nick Jacobs, Intel’s Asia-Pacific corporate communications manager, said he could not comment on industry rumours, while a spokeswoman for SMIC declined to comment.

Future cooperation between the two companies might include a $2.5 billion microchip plant which Intel began building in the northeast Chinese city of Dalian in 2007, the sources said. They declined to elaborate.

An investment by the U.S. technology giant could facilitate SMIC’s plans to develop its manufacturing base in China, and help it ride out the slump in the global technology industry. In October, SMIC said its fourth-quarter revenue was likely to tumble 25-29 percent from the third quarter.

An alliance could also help Intel expand its business in China, which it has described as its fastest-growing major market.

In November, SMIC SMI.N said it had agreed to sell $171.8 million worth of new shares to Beijing-based Datang Telecom Technology & Industry Holdings Co, raising funds to boost its working capital.

Datang Telecom, an indirect unit of China’s State Development and Investment Corp, is involved in the development of TD-SCDMA third generation (3G) mobile telecommunications, wireless access and integrated circuit design.

SMIC's Hong Kong-listed shares surged 4.55 percent to 34.5 Hong Kong cents in active trade on Tuesday, outperforming a 0.35 percent drop by the Hang Seng Index .HSI. (Additional reporting by Kirby Chien in Beijing) (Writing by Andrew Torchia, Editing by Jacqueline Wong)

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