ASE is the world's largest test and assembly house, with a clientele that includes ATI Technologies, Qualcomm Inc. and Freescale Semiconductor. Chairman and chief executive, Jason Chang, has already agreed to sell his 18 percent stake to a consortium led by Carlyle, the companies said Friday.

Carlyle said the deal will increase ASE's chances of winning more outsourcing business from other companies it owns, such as Freescale, as well as other firms. That would increase ASE's lead over Taiwan rival Siliconware Precision Industries Ltd., U.S.-based Amkor Technology Inc. and Singapore's STATS ChipPAC Ltd.

Analysts are speculating that Carlyle and Chang, who will retain his leadership position, have already agreed to set up the new entity as a non-Taiwanese firm and list it on another stock exchange, such as Hong Kong. By registering ASE as a foreign company, it would not be governed by Taiwan rules that severely restrict technology investments in China.

The Taiwan government said in April that it would allow packaging and testing companies to invest in China. However, according to the U.S.-Taiwan Business Council, Taiwan has yet to grant any licenses for such investment and "questions remain today over the process."

Taiwan is also reportedly finalizing a plan to relax restrictions on the use of 0.18-micron chip manufacturing technology in China, which would allow foundry Taiwan Semiconductor Manufacturing Co. to expand operations at its Shanghai fab. Currently, Taiwanese firms are restricted from investing in sub-0.25 micron capacity in China.

The government is also close to approving applications by Powerchip Semiconductor and ProMOS Technologies to move 8-inch wafer fabs to the Chinese mainland, but because the applications have been in limbo for more than two years, these companies are not sure if they will move ahead with the investments anytime soon.

This is the first major deal for private equity in Asia since the recent multi-billion buyouts of US and European semiconductor firms. Carlyle participated in a group of investors that shocked the industry in September with its $17.6 billion acquisition of Freescale Semiconductor. Carlyle has also participated in buy-outs of Jazz Semiconductor, Toshiba Ceramics and AZ Electronics. Another private equity consortium recently agreed to acquire an 80.1 percent stake in Philips Semiconductors, now NXP Semiconductor.

The only other large-scale private equity deal percolating in Asia at the moment is the potential sale of H-3C, the Chinese joint venture between Huawei Technologies and 3Com Corp., which is attracting bids from private equity firms that range from $1.5 billion to $2 billion