The public-listed Sarawak Enterprise Corporation Bhd (SECB) is said to be trying to get out of the wafer foundry business and concentrate on power generation, transmission and distribution.

"It is bleeding from its huge investment in Kuching-based 97 percent-state owned 1st Silicon (Malaysia) Sdn Bhd," according to well-informed sources.

"It wants to sell the shares back to the government," they told malaysiakini.

The Sarawak government-controlled SECB took up a 30 percent equity stake for about RM600 million via an investment in unquoted irredeemable convertible unsecured loan stocks issued by state-owned 1st Silicon in January 2001.

According to SECB 2003 annual report, the company had made a cumulative provision of RM197.2 million (2002: RM132.3 million) for the group to reflect what it called "the extent of a permanent diminution on investment share value".

To stop the 'bleeding'

The investment share value in 1st Silicon was written down by RM131.9 million in 2003 for the group.

The sources said the need to drop the investment even at a big loss was to stop the 'bleeding'.

"It is not a business that SECB is very familiar with. Look at the Singapore Semi-Conductor Manufacturing Pte Ltd whose CEO is someone with great professional expertise and well-connected, and is very well run and managed, yet until very recently it was losing money for 12 successive quarters," the sources said.

The sources said 1st Silicon, one of two wafer foundries in Malaysia, needs to produce and sell at least 15,000 wafers per month "to break even on operations."

Recently, 1st Silicon's top officials revealed that the company is producing about 15,000 wafers per month and generating sales of US$50 million this year .

"We can expect to generate sales of US$250 million next year."

But industry sources say given the highly cyclical nature of the business it is difficult to forecast ahead over a considerable period of time. "There are already signs the chips prices are on a slide."

Monopoly position

According to sources, the Kuching foundry is planned to produce 30,000 wafers, but to achieve this production will need its shareholders to put in a lot of money to bring in more equipment.

SECB through one of its wholly-owned subsidiaries Dunlop Properties Sdn Bhd also holds a 30 percent equity stake in a joint company involving Taiwanese and 1st Silicon in the business of integrated circuit design services, intellectual property licensing and operations support.

It is not known what is the extent of its investment in ringgit terms in the company or whether it is also contributing to losses.

Earlier this week the state legislative assembly passed a law to abolish the state electricity corporation and to transfer all its assets, rights and liabilities to a new company which will be a wholly-owned subsidiary of SECB.

This effectively gives SECB a monopoly position in power transmission and distribution in Sarawak while competing with new entrants like Sarawak Hidro Sdn Bhd, the owner of the 2400MW Bakun hydro-electric dam now under construction.

Hidro Sdn Bhd is a 100 percent federal government-owned entity.