Hynix Eyes China Chip Plant

SHANGHAI, China -- Hynix, the world's third-largest maker of memory chips, plans to invest up to $800 million in its first chip plant in China as it looks to carve out new markets and escape big U.S. and European tariffs.

A Chinese official said Tuesday loss-making Hynix Semiconductor Inc. was in talks with the government of the eastern industrial city of Wuxi about setting up an 8-inch wafer plant to make DRAM chips, possibly through a local joint venture.

The investment official with the Wuxi government said a decision could be made in June.

South Korean Hynix, which has long eyed entry into China's $30 billion semiconductor market, hopes to start producing chips at a new plant by next year.

Last year, the United States and the European Union slapped tariffs on imports of Hynix chips made in South Korea, alleging the company received government subsidies. The U.S. International Trade Commission levied a 44 percent duty on DRAM imports from Hynix last July. The EU took similar action the following month.

But if Hynix made chips in China, analysts say it could export to those markets without facing tariffs.

Hynix is in the process of shedding noncore assets after heavy losses and is shifting to more profitable products, such as flash memory chips used in digital cameras and cellphones. Just over a year ago, it sold a display maker to China's BOE Technology Co.

Market research firm Gartner says China's chip market could balloon to $38 billion this year, triggering rapid expansion by the likes of NEC Corp. and local foundry Semiconductor Manufacturing International Corp.

China's microchip market is growing at an average 20 percent per year on the back of raging demand for everything from cellphones to personal computers, analysts say.

"Hynix wants to build a DRAM plant, 8-inch. This has been in the works for quite a long time, almost a year now," said the Wuxi official, who is familiar with the talks.

"The investment could be worth $500 million to $800 million."

But Hynix said Wuxi -- about 128 kilometers west of Shanghai and sited in the booming industrial area of Jiangsu province -- was just one area under consideration.

"We're looking into setting up a DRAM chip plant in China, but no decision has yet been made as to where it will be built," a spokeswoman said.

"We're reviewing a number of sites, and Wuxi city is only one of many."

"Hynix wants a plant in China because of an expected rise in China's demand for chips and it also provides a way for the chip maker to escape the tariffs rather than for cheap labor costs," said Chin Yeong-hoon, analyst at Daishin Securities in Seoul.

The global industry is expected to rebound further this year following its worst-ever downturn in 2001 and 2002.

Rival Samsung Electronics said Monday it expected a global shortage of memory chips later this year as chip makers start switching to flash memory.