Tue, Mar 23, 2004 page12

• STMicroelectronics to help Hynix build chip plant

  BIG INVESTMENT The European chipmaker will help its South Korea rival set up a memory-chip plant in China that some reports say will cost up to US$1.7 billion

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  STMicroelectronics NV, Europe's largest chipmaker, may help South Korea's Hynix Semiconductor Inc build a memory-chip plant in China, the world's fastest-growing semiconductor market, Hynix said.

  STMicroelectronics expressed interest in participating in the investment, said Hynix chief financial officer Chung Hyung-ryang. He said talks have not progressed since then and he declined to comment on a Korea Economic Daily report that the venture would cost US$1.7 billion.

  Franco-Italian STMicroelectronics and Icheon-based Hynix need to invest in new manufacturing facilities to make faster, cheaper chips and to keep up with bigger rivals such as Samsung Electronics Co. A plant in China would give them better access to the nation's US$19.2 billion chip market, which is predicted to grow 41 percent this year, some investors said.

  "Considering how good China looks as an investment spot, the idea for both companies to team up seems to make sense," said Jeon Woo-dong, who manages the equivalent of about US$430 million at KB Investment Trust Management Co. in Seoul. "In this industry, you've got to invest in new plants to survive and since Hynix doesn't have that much money, it's positive for it to team up with someone else."

  STMicroelectronics spokeswoman Joanne Tan was not available for comment. Wang Jianzhang, planning director of China's Ministry of Information Industry, said his department hasn't received any application from Hynix to build the factory, which would need the ministry's approval.

  The foray into China may coincide with a trade dispute between the US and Beijing over chip taxes. The US on Thursday filed the first complaint by any country against China at the WTO since the Asian country joined in 2001.

  The US said a tax break for domestically manufactured semiconductors gives them an unfair advantage over imports.

  The plan involves building a 2 trillion won (US$1.7 billion) Chinese chip plant, able to build memory chips from 12-inch wafers, according to the Korea Economic report, which cited an unidentified Hynix creditor official. Hynix and STMicroelectronics will each spend US$500 million on the plant with China paying the rest, the report said.

  The alliance may test STMicroelectronics' strategy in Asia under incoming chief executive Carlo Bozotti, who's replacing the retiring 68-year-old Pasquale Pistorio. Under Pistorio, STMicroelectronics lost money in only two quarters during the past decade.

  STMicroelectronics said in February it expects revenue from China to rise 55 percent this year to US$2 billion. The company is also planning to spend US$100 million over five years investing in chip design centers in India.

  Hynix, which in February said it planned to build a Chinese factory next year, doesn't make chips on the larger 12-inch wafers that the industry is shifting to, unlike companies such as Suwon, South Korea-based Samsung Electronics, the world's second-biggest semiconductor maker, and other rivals. Hynix makes chips on 8-inch wafers.

  Geneva-based STMicroelectronics was the world's sixth-largest maker of semiconductors last year, slipping one spot from 2002, according to market researcher Isuppli Corp. The company said in January that fourth-quarter profit fell 11 percent. Its shares are down 8.3 percent this year.

  Hynix lost its third-place spot in computer memory chip production to Germany's Infineon Technologies AG last year, according to market researcher IDC. Hynix's net loss last year widened 19 percent to 2.3 trillion won.

  A joint investment would not be the first time that the companies team up. In April last year, Hynix and STMicroelectronics signed an agreement to jointly build so-called NAND flash memory. Through the partnership, Hynix said it is aiming to be the world's third-biggest NAND maker by next year.

  As businesses and consumers replace their computers, demand for semiconductors is poised to grow 18 percent this year, according to market researcher IDC. Samsung Electronics said last week that it expects a shortage of computer memory, known as dynamic random access memory, during the final two quarters of this year. Spot DRAM prices are up 30 percent this year.

  In February, Hynix posted fourth-quarter operating profit of 158 billion won from a year-earlier loss of 348 billion won, earning more than double the median estimate of analysts surveyed by Bloomberg. Sales surged 56 percent in that period.

  "DRAM prices are looking good and will probably stay that way until August or September," KB's Jeon said.
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