Silicon Storage will announce the agreement on Thursday at Grace's headquarters in Shanghai through Silicon's chief executive Bing Yeh and Grace's President Winston Wang, Grace Semiconductor said in a statement. The terms of the pact weren't disclosed.
"We haven't put out a statement yet," said Mary Vegh, a spokeswoman for Sunnyvale, California-based Silicon Storage. Grace officials were unavailable for comment as they were flying to Shanghai from Taiwan, said a company spokeswoman in Taipei.
The stake purchase signals stronger ties between Chinese- invested technology companies in Silicon Valley and Taiwan that are aiming to take advantage of China's semiconductor market.
The chip market in China is expected to become one of the world's largest in the next 10 years, according to the US Semiconductor Industry Association.
Winston Wang, the son of Formosa Plastics Corp tycoon Wang Yung-ching, founded Grace Semiconductor with Jiang Mianheng last year. Other Formosa Group affiliates include Nanya Technology Corp, which makes memory chips in Taiwan, and Via Technologies Inc, the world's second-largest maker of computer chipsets.
Pact with Vanguard
Flash memory chips are used in consumer electronics products to store data and software until they are erased or upgraded. The chips retain their contents even after power has been turned off.
In January, Silicon Storage signed an agreement with Vanguard International Semiconductor Corp of Taiwan under which Vanguard will supply flash memory chips to Silicon Storage.
Buying a stake in Grace Semiconductor wouldn't hurt the agreement with Vanguard, Silicon Storage spokeswoman Vegh said.
Silicon Storage this week cut its first-quarter profit outlook because customers are returning products and canceling orders.
The company expects first quarter sales of between US$75 million to US$85 million and "significantly lower" earnings of US$0.05 to US$0.10 a share, Silicon Storage said in a statement.
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