UPDATE 1-IBM mulling chip facility at China plant -sources

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By Sophie Taylor

SHANGHAI, June 27 (Reuters) - IBM (IBM.N) is considering building a chipmaking facility at its plant in southern China to make advanced semiconductors, two sources familiar with the situation said on Wednesday.

"IBM already has a plant in Shenzhen for servers, and early this year senior management discussed whether they could make chips instead of importing them into China to put into their servers," said a China-based industry source close to IBM.

The source did not exclude the possibility that IBM would sell chips from the facility to outside clients.

Another of the sources said chips made in the prospective plant may be sold to outside customers such as Huawei Technologies Co. [HWT.UL].

No comment was immediately available from IBM.

The plan and investment amount have yet to be finalised, the sources said, but added that the Shenzhen city goverment was expected to be a key backer of the project.

Intel Corp. (INTC.O), the world's largest chipmaker, said in March it would invest $2.5 billion to build a microchip plant in northeastern China, which will be its first semiconductor plant in Asia, with the production of chipsets to begin in 2010. China's biggest personal computer company, Lenovo Group (0992.HK), bought out IBM's (IBM.N) PC division in 2005 for $1.25 billion.

(Additional reporting by George Chen)

((Editing by Edmund Klamann; sophie.taylor@reuters.com; Reuters Messaging: sophie.taylor.reuters.com@reuters.net; +86-21-6104-1791)) Keywords: IBM CHINA

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