Hynix, STMicro plan Chinese memory chip plant

South Korea’s Hynix Semiconductor Inc. and Swiss-based STMicroelectronics NV signed a joint-venture agreement on Tuesday to construct a memory chip manufacturing plant in Wuxi, about 100 kilometers west of Shanghai, in China.

The companies plan to invest a total of $2 billion in the project, they said Tuesday. Initial plans call for two productions lines to be built at the plant, they said in a statement. One will handle 200-millimeter diameter wafers and is expected to begin volume production in 2006 and the other will handle 300-millimeter wafers and is expected to begin volume production in 2007.

Each line will have a capacity of 20,000 wafers per month. On the latter production line, this means a much higher number of chips because of the greater area of the wafers to be processed.

The plant will produce two types of memory chips: DRAM (dynamic RAM) chips, which are most commonly used in personal computers as the main memory chips, and NAND flash memory chips, which are used in a range of devices such as cellular telephones and digital cameras because of their ability to hold memory contents even after power to the chips is cut.

“This is a nice marriage between the two companies. STMicro is very good at logic technology, and Hynix has very good experience at (large) capacity production technologies,” Kim Soo-Kyoum, program director for semiconductor research at market research company IDC.

Hynix will likely use the fab to boost its market share in DRAM production for the China market, while STMicroelectronics will probably use the fab to make more NAND flash memory for mobile phone applications for customers in Europe, said Kim.

That the fab is in China may also prove an advantage for Hynix, which is embroiled in disputes over alleged patent infringements and accusations that it is selling its memory products at unreasonably low and below-cost prices.

For example earlier this month, Toshiba Corp. filed patent infringement lawsuits in Japanese and U.S. courts against Hynix related to NAND flash and DRAM patents. In June, Japan’s major DRAM maker, Elpida Memory Inc. and Micron Japan Ltd. filed a petition for imposing countervailing duties on imports into Japan of DRAMs manufactured in South Korea by Hynix.

Competitors would be less willing to launch suits against Hynix in China for fear of antagonizing the Chinese government, Kim suggested.

“If Hynix moves DRAM production to China, it means that any petitions against them will involve the China government, and that would impact China’s economy and employment,” he said.

Hynix will contribute 67 percent of the equity investment and STMicro will contribute the remaining share. By the end of 2005 the two companies expect to have invested about $375 million of the total envisaged amount.

The global DRAM market is worth about $26 billion to $27 billion in 2004, IDC estimates. After single digit growth in 2005, the market will dip 13 percent in 2006, but should recover to be worth about $28 billion in 2007, the company estimates. Hynix currently has about a 15 percent market share, according to IDC.