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American Journal of  Economics and 
Business Innovation (AJEBI)

The Fleeting Possibility of  Merging the World’s Largest Chip Manufacturer in 2017: 
The Pain of  Chinese Chip Industry 

Lingkai Kong1*, Runyang Shu2, Hao Lu3, Qiaozhi Xiong3, Peng Wu4, Rui Xue3

Volume 1 Issue 3, Year 2022
ISSN: 2831-5588 (Online)

DOI: https://doi.org/10.54536/ajebi.v1i3.561
https://journals.e-palli.com/home/index.php/ajebi

Article Information ABSTRACT

Received: September 07, 2022

Accepted: September 16, 2022

Published: September 21, 2022

This article examines a possible Chinese semiconductor industry’s merger and acquisition in 
2017, the year before the Sino-US trade war and US high-tech sanctions against China. The 
feasibility of  a merger between Tsinghua Unigroup and Taiwan Semiconductor Manufactur-
ing Company is thoroughly examined as well as their development history and the current 
financial standing. The financial data collected form the two companies’ annual report was 
analyzed using multiple corporate valuating models. We discovered that the industrial policy 
and financial reports in 2017 favored the merger, but the combination ultimately collapsed, 
which was quite a pity for Chinese chip sector. The research contributes to an in-depth com-
prehension of  China’s semiconductor business and serves as a model for future financial 
analyses of  comparable sectors.

Keywords
Chip Sector, Financial Analysis, 
Mergers and Acquisitions, 
Semiconductors

1 Izmir University of  Economics, Izmir, Turkey
2 ESSEC Business School, Paris, France
3 Beijing Foreign Studies University, Beijing, China
4 Sun Yat-sen University, Guangzhou, China
* Corresponding author’s e-mail: lingkai.kong@std.izmirekonomi.edu.tr

INTRODUCTION 
With the US’s August 2022 ban on exporting EDA 
software to China, the path to technologically advancing 
China’s high-end chip production has been obstructed 
once again. Since 2018, the United States has levied 
penalties on China in the high-tech sector, particularly 
in the semiconductor industry. In April 2018, when 
the Sino-US trade war began, the Chinese high-tech 
corporation ZTE was added to the sanctions list. The 
announcement that Huawei was set to be sanctioned was 
made afterwards. During this period, China grasped the 
significance of  independent research and development 
in the chip industry, and progressively boosted its 
investment in this sector. However, it is impossible for a 
single nation to overcome all restrictions and technologies. 
The patent hurdles and long-term technological reserves 
constructed by the United States and its allies have made 
it exceedingly difficult for China to advance. Tsinghua 
Unigroup’s potential acquisition of  TSMC emerged as a 
hot subject in Chinese society as early as 2017, when the 
trade war started. At that time, China’s capital market was 
red-hot, and Tsinghua Unigroup’s aspirations rose swiftly 
following many large-scale mergers and acquisitions while 
TSMC’s R&D experienced challenges, and the company’s 
financial status has varied, the relative power disparity is 
at its narrowest.
In truth, Unigroup did suggest a proposal to purchase 
TSMC, but it was unsuccessful for a variety of  complex 
reasons. Later experts largely held the opinion that 
Tsinghua Unigroup’s acquisition strategy at the time was 
little more than a catchphrase intended to boost the stock 
price, but the Chinese semiconductor sector will always 
rue this botched purchase since the United States blocked 
the advancement of  China’s semiconductor technology 
only one year later. TSMC’s condition also got better at 

the same time, overtaking Samsung and slowly growing 
to become the biggest chip manufacturer in the world. 
Tsinghua Unigroup also experienced bankruptcy as a 
result of  bad management in the latter years, which is 
something that makes one groan. Although history 
cannot be assumed, it may be examined. This essay will 
go back to 2017 in an effort to assess the likelihood and 
viability of  Tsinghua Unigroup acquiring TSMC at that 
time, as well as to understand the highs and lows and 
mistakes made in the past by China’s chip sector. Readers 
will better grasp the particular M&A data and financial 
analysis by understanding the analysis of  this paper’s 
study of  the two firms’ financial standing.

LITERATURE REVIEW
Many East Asian nations and regions, including South 
Korea, Japan, Singapore, and Taiwan, have implemented 
aggressive industrial policies and pursued export-oriented 
strategies since the 1970s. These economies’ ability 
to catch up is dependent on their quick understanding 
of  the sophisticated Western underpinnings after 
initially copying them (Hobday, 1998; Mathews & Cho, 
1999; Edgington & Hayter, 2000). One industrial park 
after another has been built in these nations, amassing 
manpower, money, technology, and management from 
labor-intensive sectors as they move toward capital- 
and knowledge-intensive ones. The success of  this 
agglomeration economy is discussed by McCann and 
Arita (2006), who also explain the function of  economic 
industrial parks in late-developing nations. The Taiwanese 
government has effectively built a chip manufacturing 
industry chain by combining R&D, design, and 
production using reverse engineering models. Knowledge 
transfer from a multinational corporation’s parent 
business to its subsidiary has a significant positive impact 

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on the local economy and technology (Minbaeva et al. 
2003). According to Baum and Ingram (1998), companies 
that are adept at transferring information from one unit 
within a company to another are more productive than 
those that do not. The movement of  engineers between 
businesses may help knowledge transfer and innovation 
in the US semiconductor sector, according to Almeida 
and Kogut (1999). This phase of  knowledge-based 
economic transfer has benefited the East Asian model’s 
use of  this very effective organization. Although there 
are significant country variances, multinational firms 
and their local affiliates play a significant part in these 
strategies. In this sense, the experiences of  Korea and 
Taiwan are particularly instructive (Biggart, 1996; Poon et 
al., 2006). The government of  Taiwan adopted a strategy 
to support and stimulate the chip manufacturing sector at 
the right moment. The representative one is TSMC.
At the outset of  its existence, TSMC ignored the highly 
competitive chip R&D and design fields and instead 
concentrated on production (Tsai & Cheng, 2006; 
Chang, 2011). It preserves limited money to invest in the 
most vital sectors, while avoiding competition with its 
own upstream and downstream clients. The success of  
latecomers hinges on their ability to modify the demand 
for and usage of  costly capital equipment in sophisticated 
ways in response to market volatility and fluctuating 
customer requirements (Winston, 1974; Chien et al., 
2009). Scholars have determined that this is TSMC’s 
greatest edge against Samsung of  South Korea. Because 
TSMC would not compete with them for business, 
Samsung’s US partners are compelled to move certain 
orders to TSMC. TSMC’s rise demonstrates the role of  
latecomers as creative local players (Hsu, 2012), replacing 
the original dominance of  MNCs in Taiwan and moving 
the nation’s operations away from low-cost production 
of  standardized electronics, transitioning to value-added 
manufacturing based on R&D (Wu et al., 2006; Lee & 
Pecht, 2020).
Heikal et al. (2014) evaluated Indonesian stocks using 
return on assets (ROA), return on equity (ROE), net 
profit margin (NPM), debt to equity ratio (DER), and 
current ratio (CR) as Exchange and Profit Growth 
indicators. Kothari and Ball (1994) identified Growth, 
Profitability, Turnover, and Financial Leverage as the 
four most essential performance indicators for a business. 
Ozkan (2000) investigated the influence of  debt structure 
on corporate operations and decision-making and his 
research supported us to use TSMC as a study model. 
Martin and Scott (1974) also examined the impact of  
debt-equity structure and leverage use on business 
decision-making. Jaggi and Gul (1999) demonstrated that 
cash flow and business size would influence investment 
decisions and preferences differently when firms 
confront debt. The research of  Newberry and Novack 
(1999) demonstrated the effect of  government taxes on 
company debt maturity and business behavior; hence, 
we infer the potential positive effect of  China’s tax relief  
policy on UNIS and TSMC M&A.

METHODOLOGY 
The data in this article are obtained from Tsinghua 
Unigroup and TSMC’s public information releases, 
including annual reports of  publicly traded firms, all data 
are provided in excel and compared as categorical data. 
By logging on to the websites of  these two companies, 
we search for the financial information of  the concepts 
of  the two companies, and aggregate and compare the 
information provided by “East Money Information” and 
“Guotai Junan Securities” (securities trading software). 
The information comes from several sources, thus it is 
trustworthy. The process of  gathering information is 
distributed across the team members; after collecting 
the classified material, we summarize and sanitize all 
the information, removing any blatantly incorrect 
content. Multiple financial indicators, such as Return on 
Equity (ROE), Profit Margin on Sales, Debt to Asset 
Ratio are utilized for data analysis. Measuring the cash 
flow, liabilities, and future profitability of  a firm is a 
complicated endeavor, and it is impossible to utilize a 
single quantitative measure. For thorough analysis, it must 
be coupled with several indicators. In order to provide a 
thorough view of  UNIS’s financial standing at the time of  
the impending purchase, we present several computations 
in the “VALUATION” section. These indicators are also 
helpful for subsequent scholars.

Taiwan Semiconductor Manufacturing Company
Taiwan Semiconductor Manufacturing Company, often 
known as TSMC, was formed in 1987 in Hsinchu Science 
Park, Taiwan, China (the republic of). In 1987, Morris 
Chang founded the world’s first and largest professional 
integrated circuit manufacturing provider (Wafer foundry) 
(Perry, 2011). At the time, semiconductor firms worldwide 
(including Intel, Samsung, and other heavyweights) 
all followed the same business model: to develop their 
own chips, manufacture them in their own fabs, and do 
chip testing and packaging on their own. As a result, 
Morris Chang saw a tremendous economic opportunity: 
creating the model of  manufacturing. His company does 
not make its own goods, but rather produces things 
for semiconductor design firms. After its founding, his 
factory continued to expand and progressively increased 
its portion of  the global market. TSMC was the first 
wafer foundry firm to join the semiconductor industry’s 
top 10 in 2002 (the others are design giants). Despite 
being a foundry, TSMC contributes significantly to the 
innovation of  the whole semiconductor industry (Ip, 
2008). In addition to advancing the technology level, it 
establishes standardized methods and diverse platforms 
to assist several IC design firms in Taiwan,  utilizing part 
of  its own power to assist Taiwan’s whole semiconductor 
industry (Chao, 2012).
In 2015, TSMC’s market share was 54.8%, which was 
much higher than GlobalFoudaries’ 9.6% and UMC’s 
9.0%. It was worth 4.79 trillion New Taiwan dollars (160 
billion dollars). In addition, it utilized 3% of  Taiwan’s 
total electricity and generated 3.8% of  Taiwan’s GDP and 

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6.8% of  its total export value. In 2016, TSMC’s sales was 
947.938 billion New Taiwan dollars, and its net profit was 
334.38 billion, although the earnings of  all 39 Taiwanese 
banks combined did not exceed 300 billion New Taiwan 
dollars (1 US dollar = 30 New Taiwan dollars). On 
March 20, 2017, TSMC surpassed Intel in market value 
and ultimately becomes the largest semiconductor 
manufacturer in the world. TSMC stated in 2016 that 
it had inked an investment agreement with the Nanjing 

Municipal Government and will spend $3 billion to create 
TSMC (Nanjing) Co., Ltd. in Nanjing, China. It would 
have a 12/14/16-inch fabrication facility and a design 
center. In 2018, manufacturing began at TSMC in Nanjing. 
TSMC’s 14/16-nanometer wafers presently account for 
more than fifty percent of  the global 14/16-nanometer 
wafer market. It is anticipated that TSMC’s market share 
in the 14/16-nanometer sector would continue to rise as 
a result of  the Nanjing facility as that time.

Table 1: Top Semiconductor Revenue and Market Share from 2017 to 2021 (Unit: Billion U.S. Dollars). In 2020, 
those four companies: Powerchip, Specialty IC, H-Grace, Dongbu HiTek has been dropped out of  the Top-ten list. 
Source: Rimol, M. (2021)
Rank Company 2017 

Revenue
2017 Share 
(%)

... 2020 
Revenue

2020 Share 
(%)

2020 
Revenue

2021  Share

1 TSMC 32040 55.9 ... 45562 59.7 56674 56.6
2 GFoudaries 5407 9.4 ... 4850 6.4 6585 6.6
3 UMC 4898 8.5 ... 6009 7.9 7606 7.6
4 Samsung 4398 7.7 ... 5150 6.8 8537 8.5
5 SMIC 3099 5.4 ... 3907 5.1 5443 5.4
6 Tower-Semi 1388 2.4 ... 1266 1.7 1508 1.5
7 Powerchip 1035 1.8 ... - - - -
8 Specialty IC 817 1.4 ... - - - -
9 H-Grace 807 1.4 ... - - - -
10 Dongbu HiTek 676 1.2 ... - - - -

SWOT Analysis of  TSMC
Next, we do a SWOT analysis of  TSMC and UNIS 

Group, respectively, in order to determine their relative 
strengths, weaknesses, opportunities, and threats.

Table 2: SWOT Analysis of  TSMC
Strengths Weaknesses
Excellent production efficacy
Excellent revenue scenario
Superior manufacturing technology

Low R & D expenditures
Senior employee departure
Reduction in profitability

Opportunities Threats
Artificial intelligence development
Large market demand in China
US embargo on China

The growth of  more Chinese manufacturers
Wafer design homogenization
The global economy confronts new obstacles

Strengths: 1. Excellent production efficacy. Wafer 
industry success is contingent upon the manufacturing 
cycle (Tung, 2001). The most modern 3nm mobile phone 
chip features an 180-layer internal structure, making it 
is a highly difficult procedure. The factory management 
system at TSMC can compute the optimal production 
layout in one minute. The on-time delivery percentage is 
99.5%, and the duration of  the manufacturing cycle is 
1.2 days. 2. Excellent revenue scenario. In recent years, 
TSMC’s operational revenue has continued to increase. 
And the rise is considerably greater than its two rivals. 3. 
Superior manufacturing technology. The “Most Powerful 
and Smartest” iPhone bionic processor, the A11 chip, 
includes 4.3 billion transistors and 6 CPU cores, including 
4 tiny cores and 2 small cores. Even though it was separately 
designed by Apple, only TSMC can manufacture it on a 
global scale. Qualcomm is aggressively developing a new 
generation of  Snapdragon 855, which can only be made 
by TSMC using a 7-nanometer manufacturing technology.
Weaknesses: 1. Low R & D expenditures. Compared to 
comparable firms, TSMC has less R&D spending and 
a lower R&D investment-to-revenue ratio (Chen et al., 

2019). This may result in TSMC’s future development 
failing. 2. Senior employee departure. High-level TSMC 
executives, including Jiang Shangyi, Cai Lixing, and 
Liang Mengsong, left the company to work for mainland 
Chinese manufacturers. Xu Guojin went to another US-
based organization. Not only does the recent loss of  
executives have a significant impact on TSMC’s routine 
operations, but it also promotes the technical growth 
of  its rivals and diminishes TSMC’s competitiveness. 
3. Reduction in profitability. In April of  2018, TSMC 
released their financial report for the first quarter of  the 
year. Compared to the previous quarter, TSMC’s revenue 
decreased 8.2%, net profit decreased 9.6%, and wafer 
shipments were unchanged. The slow fall in TSMC’s 
profitability may be attributed to the sluggish global 
growth in smartphone sales. This demonstrates that 
TSMC is significantly impacted by the global economic 
climate.
Opportunities: 1. Artificial intelligence development. 
The smart medical and artificial intelligence industries 
are thriving, and the need for high-level processors will 
expand substantially. In the near future, there will be a 

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high demand for chips in linked industries, and as the 
leading chip manufacturer, TSMC stands to generate 
a substantial profit. 2. Large market demand in China. 
In 2017, the import value of  ICs in China was $227.02 
billion US dollars, while the import value of  oil was 
$116.45 billion US dollars; therefore, the import value 
of  ICs has almost twice that of  oil, while the demand 
for ICs in China continues to increase at a pace of  20% 
each year. Taiwan’s tight business ties with mainland 
China present an excellent opportunity to capitalize 
on the massive market. 3. US embargo on China. The 
United States prohibits U.S. businesses from selling 
information technology equipment to ZTE (a Chinese 
telecom company), causing a severe crisis in the Chinese 
high-tech sector and causing some Chinese enterprises to 
move their orders to TSMC.
Threats: 1. The growth of  more Chinese manufacturers. 
Chinese enterprises like as Huawei, ZTE, and HiSilicon 
have achieved considerable strides in R&D and chip 
design as the IC and chip design sector in China grows 
fast. The sales volume of  the Chinese integrated circuit 
industry increased by 23.5% in 2017 to 535.52 billion 
yuan, while the design, manufacturing, and packaging 
tests increased by 24.7%, 29.1%, and 18.8%, respectively. 
2.Wafer design homogenization. With official backing, the 
outputs of  foundries in China and other nations continue 
to rise, putting significant pressure on TSMC’s profit 
margin. Emerging firms will exert considerably more 
effort in the research and development of  new kinds of  
chips, thus TSMC confronts intense competition in both 
old and new industries. 3. The global economy confronts 
new obstacles. As the pandemic persists and the global 
supply chain continues to be stressed, global commerce 
and industry face growing uncertainty: the world’s major 
economies are facing economic risk, China’s deleveraging 
task is arduous, the US stock market is in a false prosperity, 
the cloud of  trade war does not dissipate, and Europe 
and Japan have sluggish growth.
UNIS Group
Before 1980, China’s IC industry was all but nonexistent 
(Chen, 2020). China contributed less than 1% of  all IC 
production in the globe in 1996. But the strength of  the 
country’s burgeoning electronics industry being a major 
exporter promises a ready market for any acceptable 
IC that Chinese wafer fabrication factories can provide 

(Hauge, 2019). Global corporations including Motorola, 
NEC, Mitsubishi, STMicroelectronics, Philips, Siemens, 
and Toshiba are assisting this emerging semiconductor 
sector. These businesses are constructing wafer fabs, 
spending money, transferring technology, and establishing 
joint ventures with Chinese partners. China’s IC output is 
unable to satisfy local demand despite fast increases in 
production capacity and technical advancement. In the 
2000s, two-thirds to four-fifths of  China’s required ICs 
came from imports. In order to lessen its reliance on 
foreign integrated circuit goods, the Chinese government 
is actively increasing domestic manufacture of  integrated 
circuits. Chinese chips still depend significantly on imports 
as of  2021, however. China imported 635.48 billion chips 
in total in 2021, a 16.9% rise from the previous year. 
The historical backdrops of  Japan, South Korea, and 
China’s transfer of  semiconductor industrial chains are 
analogous, allowing for the promotion of  the industry 
with strong government support. Benefiting from the two 
fundamental trends of  localization and the third transfer 
of  the semiconductor industry, China’s chip localization 
sector has huge potential in the localization of  low-end 
semiconductor goods, while high-end products must be 
further developed and improved.
Tsinghua Unisplendour, also known as UNIS, was founded 
in 1999. It is currently an A-shares listed technology 
company specializing in electronics and information 
technology. It is also the first university-owned company 
of  Tsinghua University, and it works to promote 
the industrialization of  scientific and technological 
achievements (Cai et al., 2015). Initially, it was a high-tech 
business that focused mostly on software development. 
Compared to TMSC, UNIS entered the semiconductor 
market much later, but it has become a rising force and 
is expanding rapidly. After 2009, when Zhao Weiguo 
became CEO of  Unisplendour, the company entered 
the semiconductor market; however, it was later revealed 
that Zhao’s primary business income was derived from 
the expansion of  the real estate industry (Zhang & Lan, 
2022); since then, Unisplendour has grown incredibly 
quickly in this industry by acquiring numerous other 
corporations. In June 2013, UNIS acquired Spreadtrum 
Communications, which was ranked first in China and 
third in the world in the field of  mobile communication 
baseband chip design. The following year, UNIS acquired 

Table 3: Top Semiconductor R&D Spender in 2016 and 2017. Source: IC Insight’s Strategic Review Database.
2016 Company 2016 R&D Spending 

(million $)
2016 R&D/
Sales (%)

2017 R&D Spending 
(million $)

2017 R&D/Sales 
(%)

1 Intel 12740 22.4 13098 21.2
2 Qualcomm 5109 33.1 3450 20.2
3 Broadcomm 3188 20.5 3423 19.2
4 Samsung 2881 6.5 3415 5.2
5 Toshiba 2777 27.6 2670 20.0
6 TSMC 2215 7.5 2656 8.3
7 Media Tek 1730 20.2 1881 24.0
8 Micron 1681 11.1 1802 7.5
9 Nvidia 1560 16.4 1797 19.1
10 SK Hynix 1514 10.1 1792 6.5

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RDA Microelectronics, which was ranked second in the 
field. These two acquisitions helped UNIS consolidate its 
leading position in the field of  mobile communication 
chips design. In 2017, UNIS became the No.10 Fabless 
company in the world and the No.2 Fabless business in 
China. Unlike TSMC, UNIS employs a fabless model, 

meaning that it concentrates primarily on its design 
capabilities and does not manufacture its own products. 
In December 2015, UNIS spent $11.1 billion and $2.3 
billion, respectively, to buy powertech and ChipMOS, 
both of  which are well-known chip manufacturing 
businesses.

Table 4: The Top Fabless IC Companies in from 2017 to 2021 (million dollars). Source: IC Insight’s Strategic 
Review Database.
Rank Company 2017 

Revenue
2017 Share 
(%)

2020 Revenue 2020 Share 
(%)

2020 
Revenue

2021  Share

1 TSMC 32040 55.9 45562 59.7 56674 56.6
2 GFoudaries 5407 9.4 4850 6.4 6585 6.6
3 UMC 4898 8.5 6009 7.9 7606 7.6
4 Samsung 4398 7.7 5150 6.8 8537 8.5
5 SMIC 3099 5.4 3907 5.1 5443 5.4
6 Tower-Semi 1388 2.4 1266 1.7 1508 1.5
7 Powerchip 1035 1.8 - - - -
8 Specialty IC 817 1.4 - - - -
9 H-Grace 807 1.4 - - - -
10 Dongbu HiTek 676 1.2 - - - -

SWOT Analysis of  UNIS
Table 5: SWOT Analysis of  UNIS
Strengths Weaknesses
Abundant financial resources
Good brand reputation
Talent advantage

Insufficient availability of  top-tier talent
Poor income performance

Opportunities Threats
National policy backing
US trade war against China
Large market demand

Inadequate in the primary sectors
Global macroeconomic environment changes 

Strengths: 1. Abundant financial resources. As a state-
owned enterprise, UNIS receives substantial support 
from the Chinese government. It maintains close 
relationships with numerous banks in China, such as 
ICBC and China merchants bank, and has more than 
10 million yuan in outstanding loans at these banks, 
allowing it to support its operations with ample funds. 2. 
Good brand reputation. Since 1998, UNIS has received 
more than 70 national awards and has become one of  
the national important businesses and top 100 high-tech 
firms in China; therefore, these honors have given UNIS 
a solid reputation, and clients will have a greater degree 
of  confidence in the company. 3. Talent advantage. 
Tsinghua University is the origin of  UNIS and offers the 
talent pool and technical resources necessary for UNIS to 
achieve strong and sustainable growth.
Weaknesses: 1. Even though UNIS has access to Tsinghua 
University’s talent pool, it lacks elite talent. On the one 
hand, the domestic foundation of  the high-tech electronic 
information industry is still relatively weak; on the other 
hand, the talents prefer jobs in the financial sector or 
Internet industry due to their high rate of  return. The 
high risk and low return of  research and development 
jobs are insufficient to attract sufficient talent. 2. Poor 
income performance. The company’s performance in 
2016 reduced by 15.92% when a favorable tax policy 
is subtracted. In the first three quarters of  2017, the 

company’s net income decreased by 21.49 percent 
compared to the same period in 2016 due to the fact that 
it cannot generate money in this business.
Opportunities: 1. National policy backing. With the 
vigorous push of  national strategic deployments such 
as “Made in China 2025,” “Network Power,” and 
“Internet Plus,” China’s electronic information industry is 
accelerating the rate of  transformation and upgrading, and 
the digital economy has become increasingly important 
to economic growth, thereby creating tremendous 
opportunities for the development of  UNIS ’ chip 
industry. 2. Sanctions imposed by the United States on 
China’s high-tech sector led the Chinese to recognize the 
significance of  independent research and development 
and to reach a consensus on investing in chip production. 
3. Large market demand. This has been discussed earlier, 
therefore I will not expand.
Threats: 1. Inadequate in the primary sectors. China is 
still a latecomer to this market (Ernst et al., 2014), and 
its enterprises are still largely focused in areas with 
low added value and low technical content, such as 
manufacturing and packaging. In 2016, the share of  
the self-design industry in China was only 37.9%, and 
the sector as a whole is through a change, so it will take 
time to catch up to the advanced nations. 2. Changes in 
macroeconomic environment in the globe. Currently, 
the global economy is recovering, China’s economy 

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is growing steadily, and the merger of  the digital and 
conventional economies has provided UNIS with a wide 
market area. However, if  there is a shift in the domestic 
and international macroeconomic climate, the decline in 
digital construction investment may have an effect on the 
company’s operations.

Porter’s Five Forces Analysis
Then, we use Porter’s five forces model to evaluate the 
overall degree of  competitiveness in the semiconductor 
business, in terms of  “Threat of  New Entrants, Threats of  
Substitutes, Bargaining Power of  Customers, Bargaining 
Power of  Suppliers, and Intensity of  Competitive Rivalry.”

Table 6: Porter’s Five Forces Analysis
Threat of  New Entrants Bargaining Power of  Customers
1. Less capital is required to launch the firm.
2. There are little economies of  scale in place.
3. Customers may switch simply (low switching cost).
4. Critical technology is not difficult to get or is not well 
safeguarded.
5. Product is not differentiated.

1. Purchasing in bulk or controlling several access points 
to the ultimate consumer.
2. Few purchasers exist.
3. The cost to switch to a different provider is modest.
4. They threaten to backward integrate.
5. There are several alternatives.
6. Buyers are attentive to pricing.

Threats of  Substitutes Bargaining Power of  Suppliers
1. There are other alternatives accessible.
2. Customers may locate your goods at lower prices 
elsewhere.
3. The product of  the competition is of  higher quality.
4. By producing a substitute product, a corporation with 
large profits may cut prices to the absolute minimum. 

1. There are few significant suppliers.
2. They provide a rare resource.
3. It is expensive to move to a different provider.
4. Customers are hesitant to switch since the product is 
easily distinguishable.
5. The supplier may risk vertical integration.
6. There are no or few accessible alternatives.Intensity of  Competitive Rivalry

1. When there is a clear market leader, there are fewer 
rivals of  comparable size or size.
2. Customers have little switching expenses.
3. The sector is expanding.
4. Exit obstacles are strong, so competitors remain and 
compete.
5. High fixed costs result in massive output and price 
reductions

The Possibility and Benefit of  Unis to Merge Tsmc
If  the merger between Tsinghua Unisplendour and 
TSMC occurs, it would significantly alter the global chip 
manufacturing environment. The combined company 
will become a global leader in chip production, wafer 
polishing, and R&D. This article will examine the effects 
of  the merger between Tsinghua Unisplendour and TSMC 
in terms of  “large sales market,” “great capital investment 
and governmental support,” and “scale synergy effect.”
The Chinese government established an ambitious strategy 
in 2014 and would spend between $100 billion and $150 
billion in public and private finances. The purpose of  this 
action is to allow Chinese chip businesses to technically 
outperform the world’s top firms in the design, assembly, 
and packaging of  different kinds of  chips, and to terminate 
their reliance on foreign suppliers (Zenglein & Holzmann, 
2019). In 2015, the Chinese government also established 
a new objective: to improve the rate of  self-regulation 
on the domestic chip market to 70% within ten years. 
Tsinghua Unisplendour is able to develop high-end chips 
with government support, but its overall design and 
production capacity are insufficient. In contrast, TSMC 
has a complete chip manufacturing chain, but its R & D 
intensity is insufficient, and the departure of  a number of  
TSMC executives has severely weakened the company’s 
technological superiority. Compared to other chip firms 

in the globe, TSMC’s R&D spending is comparatively 
modest. However, with the fast growth of  technology, 
TSMC should improve R&D to keep up with this wave 
of  technology. If  Tsinghua Unisplendour and TSMC 
can successfully integrate, the resulting business will have 
both robust R&D and comprehensive manufacturing 
capabilities.
China’s integrated circuit market grew from 126 billion yuan 
in 2001 to around 1.2 billion yuan in 2016, accounting for 
over 60% of  the worldwide market share, while the growth 
rates of  the integrated circuit industry and market were 
38.4% and 15.1%, respectively. In the context of  a sluggish 
global integrated circuit market, the proportion of  the 
Chinese market in the global market is steadily increasing. 
With the introduction and implementation of  “Made in 
China 2025,” the development of  high-tech enterprises in 
China will accelerate even further. Future demand for high-
end chips in artificial intelligence, big data, smart materials, 
and precision equipment production will be much greater. 
China’s present chip self-sufficiency rate is less than 20%, 
indicating that the Chinese market has a significant demand 
gap. The Central Government Government Procurement 
Network posts the “Announcement of  Public Comment 
on Information Products (Hardware) and Air Conditioning 
Products Procurement Projects of  Central Government”  
Included on the list were announcements pertaining to 
desktop, laptop, server, switch, air conditioner, and other 

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procurement brand-related product technical requirements, 
domestic operating systems, and domestic chips. This is very 
beneficial for the growth of  homegrown semiconductor 
firms. After UNIS and TSMC amalgamated, the resulting 
firm was recognized as a “medium concept” business, and 
it was deemed advantageous to enter the mainland China 
sales market. 
The Beijing Municipal Government and the Central 
Government will provide them with generous policies 
and financial support: not only in terms of  policies, but 
also actively promoting excellent companies at home and 
abroad to cooperate, and giving more financial and tax 
concessions in the planning and construction of  factories. 
On February 14, 2015, the National Integrated Circuit 
Industry Investment Fund stated it will invest 10 billion 
yuan in Beijing Zhanrui (a subsidiary of  UNIS Group), 
and the China Development Bank (CDB) announced 
it would give 20 billion yuan in complete credit grants. 
After the approval of  the National Industry Fund and 
China Development Bank, several marketplaces flooded 
the market with capital. China Development Bank and 
the National IC Industry Investment Fund provided 
UNIS Group with 150 billion yuan in investment and 
financial assistance in 2017. Under the direction of  the 
Taiwan Democratic Progressive Party, industrial power 
prices in Taiwan have continued to increase. The DPP 
administration opposed the Chinese and impeded the 
regular interaction between island and mainland businesses 
(Lo, 2022). Taiwan Semiconductor Manufacturing Co., 
Ltd. actively seeks a route out of  the island’s unfavorable 
economic climate. In Nanjing, Chongqing, and other 
Chinese cities, they construct factories in partnership with 
local businesses. If  TSMC and Tsinghua Unisplendour 
can work together, TSMC will be able to charge for the 
foreseeable future.

Valuation of  Unis
Financial Ratio Analysis
We will begin our appraisal by studying UNIS’s profitability 
ratio, liquidity ratio, activity ratio, and leverage ratio in 
order to have a basic knowledge of  the company’s financial 
situation. All information is obtained from the UNIS 
financial report (2017 edition). In this part, we will assess 
the profitability of  UNIS using two ratios: Return on 
Equity (ROE) and Profit Margin on Sales.

                                                                                                      
The return on equity (ROE) is a measure of  a company’s 
profitability; a ROE between 15% and 20% is often 
regarded as satisfactory. A return on equity of  9.1% is 
reasonable, given that UNIS operates in a rapidly expanding 
sector in China and invests heavily in R&D.

                                                                                                            

Profit Margin is the proportion of  the selling price that 
is converted to profit, and the higher it is, the better. 

This company’s 6.7% profit margin on sales is not 
outstanding, but its high R&D expenditure may help 
it attain a better profit margin on sales in the future.                                                                                         

The debt-to-asset ratio measures the financial risks and 
leverage ratio of  a corporation. Nearly one-third of  the 
firm is backed by debt, indicating that it is leveraged and 
that investors can anticipate typical levels of  risk.

                                                                                         

The average collection period is the estimated length of  
time it takes a firm to obtain payments owing. Also known 
as the activity ratio. The collection time of  51.4 days 
suggests that this firm collects money quickly, but also has 
severe credit restrictions. This provides UNIS with a rather 
stable financial flow.

                                                                                                            

Inventory turnover is the number of  times in a certain 
time period that inventory is sold. In 2017, UNIS sold their 
goods six times. Considering that high-tech businesses 
such as UNIS often have lengthy manufacturing periods, 
this rate is reasonable. Moreover, investors should be wary 
of  UNIS’s comparatively big inventory, which might result 
in a sluggish cash flow. Next, we utilize the current ratio 
and the quick ratio to get UNIS’s liquidity ratio.                                                                                                         

Current ratio is a liquidity ratio that assesses a company’s 
capacity to meet both short- and long-term commitments. 
The ratio of  1.67 is well within the acceptable range of  
1-2, showing that UNIS has the capacity to pay off  its 
obligations and uses its current assets and working capital 
well.

                                                                              

The quick ratio gauges a company’s capacity to satisfy 
its short-term commitments using its most liquid assets. 
The rate of  1.26 is moderate, suggesting that UNIS 
has sufficient liquidity, does not depend excessively on 
inventories and other assets to pay off  its short-term debt, 
and does not have excessive cash reserves.

                                                                    
                                                                                                

     

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The book value of  equity per share is one measure investors 
use to decide if  a stock price is cheap, and the price-to-
book ratio (P/B Ratio) compares a firm’s market value 
to its book value (Salim & Pardiman, 2022). This rate of  
140.2 is approximately double the market rate; this is not a 
normal or acceptable rate and is quite upsetting. Likewise, 
the Price to Book ratio of  0.537 is not optimistic. The first 
explanation is the accounting method; given the nature of  
UNIS’s industry, the machinery quickly becomes obsolete 
and cannot be used to produce product if  the company 
is to remain competitive; consequently, the machinery can 
only be sold for scrap while the accounting value remains 
the purchase price. The second factor is that investors on 
the market are losing confidence in the company’s future 

and are withdrawing funds. Before purchasing this firm, 
we must do extensive due diligence to determine the true 
cause of  this situation. Then, we determine the current 
market value of  UNIS.

                                                                                           

UNIS has 206,000,000 outstanding with a value of  $72.03 
and 13,700,000,000 in debt at the end of  2017.

                                                                       

Table 7: Trading Multiples of  Similar High-tech companies.
Company Stock Index (in China) P/E Ratio
Beijing Thunisoft 300271 34.91
Tian Di Science 600582 18.67
Advanced Tech & Material 000969 132.65
Rapoo 002577 265.75
Chunqiu Electronic 603890 26.38
Kingsun Science 300235 257.19
GRG Banking 002152 20.60
Jieshun Science 002609 44.45
Wiscom System 002090 29.33
Shenzhen Longood 300543 47.01
SinoSun Technology 300333 186.23
Tecsun Science 002908 90.22
Zhejiang Leo 002131 33.17
Shenzhen MinDe 300656 74.04

Now that we have a rate of  the average price-to-earnings 
ratio of  comparable sectors in China, we can estimate the 
stock price of  UNIS. A ratio of  85.5 indicates that high-
tech is still a promising business in China, but investors 
should be wary of  bubbles

We can see that our estimate of  the stock price is 
significantly higher than the market price, but nearly in 
line with the book value of  equity per share; therefore, 
we can assume that our first explanation of  the low price 
to book ratio is accurate and that the current market price 
for UNIS stock is undervalued. 

China’s stock market is not yet completely established, 

thus its equity value should only be used as a point of  
comparison. There is no record of  UNIS acquiring 
another firm, but we may examine a merger of  two 
companies of  comparable size and industry: Marvell and 
Cavium. On 2017-11-14, Marvell acquired Cavium for 
six billion dollars and paid a 20% premium on target’s 
total asset value. We assessed the purchase price for UNIS 
based on prior transactions to be: Total Asset Price*120% 
= 51,120,000,000

Discounted Cash Flow
Revenue: Considering that UNIS operates in a mature 
high-tech sector, we predicted UNIS’s future operational 
performance based on the previous revenue growth rate 
of  the targeted firm.
Cost of  Goods Sold: We calculate the ratio of  COGS to 
sales using UNIS’s financial statements from the previous 
five years in order to get an estimate of  UNIS’s COGS in 
the next five years after the purchase has been completed.
R&D Expense: The information presented by UNIS’s 
financial statements and other sources reveals that 
research and development expenses have remained at a 
high level of  10% of  sales over the previous five years. 

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Table 8: Revenue and Growth Rate of  UNIS from 2013 to 2017 (Unit: Chinese Yuan).
UNIS

Year Revenue Growth Rate (%)
2017 39,071,040,894 41.00
2016 27,709,709,064 107.56
2015 13,349,904,816 19.78
2014 11,144,913,830 30.81
2013 8,520,037,292 -
Average 49.79

Table 9: Sales and Cost of  UNIS from 2013 to 2017 (Unit: Chinese Yuan).
UNIS

Year Sales COGS COGS/Sales 
2017 39,071,040,894 30,486,639,519 0.78
2016 27,709,709,064 22,525,182,549 0.81
2015 13,349,904,816 12,745,578,064 0.95
2014 11,144,913,830 10,628,793,427 0.95
2013 8,520,037,292 8,114,271,969 0.95
Average 0.83

This is why we have fixed R&D expenditures at 10% 
of  revenue collected. The ratio of  operating, finance, 
and administrative expenditures to revenue will remain 
unchanged at 8.3% during the next five years, based on 
historical financial data.
Tax Rate: According to its 2017 annual report, as a high-
tech business UNIS has a favorable 15% tax rate. The 
average depreciation rate is deemed to be consistent with 

the depreciation policy of  the parent firm: 14%, according 
to data from TSMC’s annual report (total fixed assets 
of  1,563,707,177 divided by total depreciation expense 
of  3,525,229). We consider this to be the future UNIS 
depreciation rate. Regarding the Change in Net Working 
Capital, we determine the average change in TSMC’s net 
working capital to its revenue and apply it to UNIS.

Table 10: Expense and Revenue of  UNIS from 2013 to 2017 (Unit: Chinese Yuan).
UNIS

Year OFA Expenses Revenue Proportion (%)
2017 6,531,763,538 39,071,040,894 16.6
2016 4,455,757,561 27,709,709,064 16.4
2015 386,694,158 13,349,904,816 2.9
2014 318,775,230 11,144,913,830 2.9
2013 235,064,380 8,520,037,292 2.8
Average 8.3

Table 11: Net Working Capital of  TSMC from 2013 to 2017 (Unit: Chinese Yuan)
UNIS

Year Net Working Capital Change of  NWC Percentage to Revenue 
(%)

2017 498,496,430 -993,423 -0.1
2016 499,489,853 120,556,739 25.5
2015 378,933,114 70,064,585 20.0
2014 308,868,529 217,945,660 72.1
2013 90,922,869 - -
Average - - -

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Discount Rate:

The β of  computer accessories industry is about 1.39; 
Rfis about 3.4% and Rm-Rfis about 5.81%; D/E=0.3 
(According to the annual report of  TSMC). We use the 

interest rate on 10-year bonds, which is 3.67 percent, as 
our risk-free rate. The majority of  research institutions 
predict that China’s GDP will expand by 6% during the 
next several years (removed the impact of  the Covid-19). 
This is the growth rate used to calculate the terminal 
value. The determination of  the discount rate:
K=WACC=0.23*2.2%*85%+0.77*(3.4%+1.39*5.81%)
=9.267%                                                                16            

Table 12: Expected TSMC NPV from 2017 (Unit: Chinese Yuan).
Future Year 1 2 3 4 5
Revenue 5,860,656,134 8,790,984,201 13,186,476,301 19,779,714,452 29,669,571,678
Less: Costs 4,864,344,591 7,296,516,886 10,944,775,329 16,417,162,995 24,625,744,493
Less: R&D expense 586,065,613 879,098,420 1,318,647,630 1,977,971,445 2,966,957,168
Less: Other expenses 486,434,459 729,651,688 1,094,477,533 1,641,716,300 2,462,574,449
EBIT Less: Tax -76,188,529 -114,282,793 -170,542,419 -257,136,287 -385,704,431
Depreciation 11,774,539,154 11,774,539,154 11,774,539,154 11,774,539,154 11,774,539,154
Less: Ch.NWC 1,758,196,840 2,637,295,260 3,955,942,890 5,933,914,336 8,900,871,503
Free cash flow 9,940,153,785 9,022,961,101 7,648,053,845 5,583,488,531 2,487,963,220

The calculation of  NPV:            

CONCLUSIONS
The transaction will be structured according to what is 
known as the Reverse Triangular Merger Model, which 
we believe to be the most effective approach. There are 
about four categories of  factors that contribute to our 
decision to go with this model rather than others: keeping 
away the minority shareholders for ultimate control; a tax 
shield effect (so that we accept stocks as the primary form 

of  payment); restrictions on certain sorts of  acts, such 
as selling target firms’ assets or stripping shares; possible 
for the obligations of  UNIS to be contained inside the 
subsidiary. 
To take advantage of  the tax shield effect, the kind of  
payment that we recommend is to pay a 20% premium 
on the target firm, with 80% of  the payment coming 
in the form of  stocks (common or preferred), and the 
remaining 20% coming in the form of  cash. In this way, 
UNIS and TSMC have completed substantial mergers 
and acquisitions and bundling of  interests by establishing 
a joint new company. Let’s call it a contingent approach 
for the sake of  argument. 

Figure 1: Proposed Acquisition Plan to Merge TSMC into UNIS
In addition to the benefit of  providing a tax shield, there 
are a number of  other considerations as following that 
strongly encourage us to use the stock as the payment. 
Such mergers and acquisitions will not be considered as 
unfriendly takeovers since both China mainland TSMC’s 
interest meet in the process. China maintains a long-
term policy favorable to the semiconductor sector and 
there is a reasonably strong demand for semiconductors 

both now and in the near future. TSMC also actively 
seeks long-term profit opportunities in the mainland 
Chinese market. Additionally, the majority of  UNIS’s 
senior managers are the most significant engineers in 
this business and are responsible for the most crucial 
tasks in production. According to the findings of  Zhang 
(2001), the buyer is more likely to pay with stocks when 
the scales of  the target enterprises are relatively huge. 

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When the scales of  the merger are great, using the stock 
as a form of  payment may help ease the burden of  cash 
and finance. The heavy demands for cash that TSMC 
has are still another important factor contributing to 
the restriction of  the payment. Because of  the high cost 
of  research, TSMC has a relatively low free cash flow, 
considering its magnitude, as was seen in the preceding 
section of  the company’s financial statement. Equipped 
with the favorable measures from Chinese government, 
for UNIS, the form of  payment is actually the investment 
problem. As the executive board of  UNIS, in theory 
prefers receiving cash, but as in a technological sector, the 
majority of  them are aware of  the long-term profit. The 
challenge of  funding for TSMC is the form of  payment. 
With a good return expectation from society, TSMC is 
under less pressure to get finance. But even if  its potential 
competitors’ market share is not as large as TSMC’s, they 
may also benefit from the same policy privileges, reduced 
material costs, and lower land costs. 
In fact, TSMC has lost its past capital and technological 
advantages as a result of  the general industrial subsidies, 
and its future profitability would be devalued. At this 
time, it appears to be a win-win situation if  UNIS acquires 
TSMC and develops a joint venture, as depicted in Figure 1.
Lastly, the attractiveness of  stock payment stems from its 
variable pricing feature. 
The new company will benefit from the value of  the 
coordinating effect. The contingent price indicates 
that shareholders of  the target firm who get the new 
company’s shares will receive the total payment value that 
is equivalent to or more than their proportionate part of  
the merger and acquisition profits. Acquisition profit is 
unpredictable; therefore, selecting stocks as payment will 
eliminate the profit uncertainty. According to the notion 
of  the corporate pecking order, the corporation chooses 
internal cash financing over treasury shares, the issuing 
of  new bonds, and the issuance of  new shares. The debt-
to-asset ratio of  TSMC is 21.2%, while the liquid assets 
ratio is 20%, showing a robust capacity for debt payback.
Despite the favorable financial and regulatory 
circumstances outlined above, the merger did not 
materialize, which is regrettable for the growth of  China’s 
semiconductor sector. 
The collapse of  the merger seems to be an indication of  
the problems and obstacles that China’s future high-tech 
route would provide. This article provides a thorough 
overview of  the history and evolution of  TSMC and 
Tsinghua Unigroup. In addition, we investigate the 
viability and profitability of  a merger between the two 
firms. 
Future investors are supplied with guidelines and financial 
analysis indicators for analyzing comparable enterprises 
on the financial market. 
The study has extensive ramifications. In the future, 
we will be able to examine the likelihood of  TSMC’s 
continued expansion and the acquisition of  other small 
and medium-sized chip makers by combining its recent 
growth and the current financial condition.

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