This article first appeared in The Edge Malaysia Weekly on June 14, 2021 - June 20, 2021

The emergence of Hon Hai Precision Industry Co Ltd, or better known as Foxconn Technology Group, as a 5% shareholder in Dagang NeXchange Bhd (DNeX) gives rise to an interesting partnership in the company, which is in the midst of taking over SilTerra Malaysia Sdn Bhd.

DNeX is taking up a 60% stake in SilTerra while Beijing CGP Fund is taking up the remaining 40% in the semiconductor wafer manufacturing plant. The total acquisition cost is RM273 million.

Taiwan-based Foxconn was one of the bidders for SilTerra and had put in the highest price. It did not win, probably because some quarters contended that the company should remain Malaysian-owned.

On Thursday, Foxconn took up a 5% stake in DNeX, stating that it would pave the way for its indirect participation in SilTerra. It is a feat for DNeX, given Foxconn’s heft in the industry. 

Loss-making SilTerra, which needs a further capital injection of RM200 million after the change in ownership sale, requires both the financial muscle of CGP and technical expertise of Foxconn to become a semiconductor wafer manufacturer to be reckoned with.

Semiconductor wafer manufacturers need constant investment to produce upgraded semicon wafers and a steady stream of long-term customers. SilTerra had neither. 

The company had cost its parent Khazanah Nasional Bhd billions in losses. Based on a circular to shareholders, SilTerra has accumulated losses of more than RM2.8 billion and has been in the red for the past two years. In fact, the sale by Khazanah for RM273 million includes the capitalisation of a shareholder loan of RM718 million advanced by the sovereign wealth fund to SilTerra.

The losses are probably much more.

Khazanah’s former managing director Tan Sri Azman Mokhtar had disclosed in his parting note in 2018 that SilTerra had accumulated losses of some RM5.5 billion between 2008 and 2017 and was the second biggest liability for the sovereign wealth fund after Malaysia Airlines.

China and Taiwan may have their differences on the diplomatic front, but the global technology race today is to capture a bigger share of semiconductor wafer manufacturers. On this score, SilTerra has some of the big names in the industry as its shareholders. The challenge is to make it work.

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