UPDATE 2-China's SMIC CEO change could augur consolidation

* Long-serving SMIC CEO Richard Chang resigns

* Industry veteran David Wang to take over

* Move may pave way for industry consolidation, analysts say

* SMIC to settle lawsuit with TSMC in cash, shares - source (Adds settlement with TSMC in para 6-9)

By Doug Young

HONG KONG, Nov 10 (Reuters) - SMIC (0981.HK), China's largest contract chipmaker, said its long-serving CEO has been replaced by another industry veteran, in a move that could pave the way for consolidation in China's struggling chip sector.

SMIC's founder Richard Chang had been replaced as CEO by David Wang effective immediately, the company said in a statement to the Hong Kong Stock Exchange on Tuesday.

Wang's strong industry background, as a former executive at Applied Materials (AMAT.O), the world's top supplier of chipmaking equipment, and more recently as head of another major Chinese chipmaker, Huahong NEC, could be setting the stage for much needed industry consolidation, analysts said.

"This will likely be a precursor for a merger of the two companies, and David Wang will take charge after the merger," Nomura analyst Rick Hsu said, referring to SMIC and Huahong NEC. "A new person will hopefully bring in a new culture, a new mission and new results."

SMIC's shares have been suspended since Nov. 4 pending the release of price-sensitive information. Last week, sources told Reuters the company was in talks to settle a U.S. court case that found SMIC guilty of stealing trade secrets from Taiwan's TSMC (2330.TW), the world's top contract chipmaker. [ID:nHKG215742]

SMIC will pay $140 million in cash to TSMC and may offer $100 million worth of SMIC shares to TSMC to settle the case, another source with knowledge of the matter told Reuters on Tuesday.

The source said SMIC could announce the settlement as early as Tuesday.

SMIC and TSMC settled a similar case a couple years ago after SMIC agreed to pay $175 million to TSMC, and the source said SMIC has paid the bulk of that amount and would pay the remaining $60 million to TSMC.

SMIC officials were not immediately available for comment.

QUARTERLY LOSSES

Chang founded SMIC in 2000 with major support from the Chinese government as China tried to build up its higher value-added technology industries to move away from lower-margin manufacturing that has become a staple of its economy.

After getting off to a relatively strong start, SMIC has languished over the last few years -- notching quarterly losses in 16 of the last 17 quarters -- as it tried to compete with larger, more established players like TSMC (TSM.N) and the industry's No.2 player, UMC (2303.TW).

Many saw Chang as an obstacle to SMIC's efforts to reform by merging with other rivals to attain greater economies of scale and bring in strategic investors.

The Chinese government, which remains a major shareholder, may have been getting impatient with Chang's leadership as early as a year ago, said Nomura's Hsu.

"The government has given Richard a certain period of time to really grow the business," he said. "But it's already almost nine years since the company was established, and it hasn't really generated real profitability. So it's pushing the government's patience a little."

Cash-strapped SMIC, whose share price has dropped steadily since its 2004 IPO, was looking for a strategic investor for much of last year and was reportedly talking with several potential major foreign partners, including Intel (INTC.O).

But none of those materialised and the company in the end said it would sell a $172 million stake to Beijing-based Datang Telecom Technology & Industry Holdings. (Additional reporting by Baker Li; Editing by Chris Lewis and Muralikumar Anantharaman)