Hynix sloughing backend ops to China JV

May 19, 2009 – Hynix hopes to save $1.6B through a new backend JV in Wuxi, China with a local partner — a move that beyond the Korean chipmaker’s books suggests a changing of leadership in China’s semiconductor industry.

Korean memory chipmaker Hynix Semiconductor is expanding its profile in China by establishing a joint venture in Wuxi to offload some of its backend work and focus more on frontend work and R&D investments.

The deal, which will raise Hynix’s outsourcing of backend manufacturing to 50% from 30%, involves selling about $300M worth of backend equipment from sites in Korea and China to the new business. Wuxi Industrial Development Group. The chipmaker will own 45% of the venture, which will be capitalized at $150M, according to Japan’s Nikkei daily. Hynix has established a significant presence in China, with the 2005 launch of a JV with ST Microelectronics with two fabs onsite; ST sold its minority stake to Numonyx in 2008.

Like most memory firms, Hynix posted yet another eye-popping loss (1.17T won/$930M) in the most recent quarter — but the backend JV/sale, combined with the raising of some 724.5B won (~$575M) in a rights offering last week, should “completely remove financial risk in Hynix,” said Lee Sun-tae, an analyst at Meritz Securities, quoted by the Wall Street Journal. This deal will help the firm reduce capital investments by more than 2T won (~$1.6B) over five years, notes the Nikkei; it’s tentatively earmarked abut 1T won (~$795M) for capex in the current year.

Besides reducing risk/financial exposure, the JV indicates something else — a shift in the de facto center of China’s chip industry. “Shanghai is not the bellwether of China’s semiconductor industry any more. Now Jiangsu Province is the envy of others,” said Jiang Shoulei, secretary-general at the Shanghai Integrated Circuit Industry Association, quoted by the China Business Daily. Boosted by Hynix and others (e.g. CR Microelectronics, SEMICO, Memsic), Wuxi surpassed Shanghai in chip production last year (CNY 50B/$7.3B vs. CNY 45B/$6.6B), and expects to reach CNY 100B ($14.7B) by 2012, the report notes — adding that Hynix’s 300mm output in Wuxi alone exceeded that of SMIC in Shanghai last year (200mm and 300mm combined). Shanghai’s not giving up, though; Jiang said his association is actively seeking government help to maintain its leading position.


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