Hynix seeks to boost China investment

By Kim Yoo-chul

Hynix Semiconductor, the world’s second-biggest maker of dynamic random access memory (DRAM) chips is seeking to boost its presence in China by fulfilling its role as a corporate citizen there.

The chipmaker is experiencing a slowdown in the fourth quarter due to a drop in operating profit coupled with a cyclical downturn and falling prices; however, it plans to bounce back through its China plant by investing more in value-added products.

It is common for Korean exporters to have their manufacturing bases outside the peninsula, which sometimes leads to a performance due to cultural differences.

But, Hynix has relieved itself off such concerns by applying customized strategies and spending more to create employee-friendly workplaces with good accommodation and competitive incentives.

``Hynix’s plant in China has successfully positioned itself as a localized company in the shortest time. Based on trust in its employees, Hynix plans to inject resources to produce advanced chips with thinner technologies,’’ said Lee Jae-woo, the president of its Chinese affiliate, in an exclusive interview with The Korea Times at the company’s headquarters in Seoul, Monday.

The factory, located in Wuxi, Jiangsu Province, has become an independent unit of Hynix five years after it was jointly established with then ST Micro, which has been renamed Numonyx, in 2005.

Beijing recently approved a request from the South Korean chipmaker to acquire the remaining 20.7 percent from Numonyx for $423 million and rechristened the plant Hynix Semiconductor China Limited (HSCL).

The plant is the largest foreign investment in Jiangsu and Lee said administrative support such as various tax benefits from Beijing were ``critical.’’

The cumulative investment in the facility will reach $5.5 billion by the end of the year, said a senior company spokesman Park Hyun.

The plant was completed in just 10 months and saw a turnaround a year after it went online in May, 2006, according to Lee.

HSCL is responsible for 50 percent of the total capacity of Hynix and 11 percent of global DRAM output.

``Some 600 chip experts from South Korea were initially sent to Wuxi as a strategy to boost technical capabilities to help the factory produce more advanced and efficient chips,’’ Lee said.

As of the end of October this year, Hynix had some 400 South Korean staff members stationed there.

Lee said increasing communication skills between Korean managers and local workers was the top issue to overcome cultural differences.

``That was time-consuming, however, we were waiting in a consistent manner.’’

In welfare-related systems, the HSCL is currently provides small-sized ``singing rooms,’’ and theaters, in addition to value-added accommodation ― which is rarely seen from a foreign firm that runs manufacturing facilities in China.

``Chinese workers made a significant contribution to an early soft-landing for HSCL and we will do more to help the workers have a better life while working here,’’ said Lee.

HSCL is running programs to educate skilled Chinese workers to take more responsibility in senior positions and Lee said that’s a strategy to inspire the so-called ``can-do’’ spirit and to soothe uncertainties about their future at the company.

As a corporate citizen, the Chinese affiliate is ready to spend more for corporate social responsibility (CSR) activities such as charity programs, voluntary rural work and environment-related activities.

Migration to thinner technologies

Lee said HSCL has decided its top priority for the next year is to manufacture premium computer memory chips by using a finer chip-making technology with a bigger budget to strengthen competitiveness.

In chip industries, producing premium chips with advanced technologies is critical as chipmakers are aiming to cut costs and boost productivity.

The industry leader Samsung Electronics and Hynix are virtually the only players handling the advanced technology, ahead of those in Taiwan and Japan.

``HSCL is planning to drive up efforts to raise the portion of enhanced DRAMs by applying 44-nanometer and even more advanced level processing technology next year,’’ said the president.

When asked about detailed investment plans, Lee said; ``For 2010, HSCL will invest a total of $700 million. A similar amount will be invested over the next three years, however, most of the spending will be used for technology migration.’’

Referring to the recent decision by Japan’s top-tier Elpida Memory to cut output, Lee said HSCL will discuss further with headquarters any corporate-wide help to widen the gap with its followers.

``The Chinese factory doesn’t have any imminent plans to build a new fab by 2013 as we have more room for equipment for 12-inch or 300 millimeters wafers,’’ said the executive, adding it has been converting the outdated 8-inch wafer producing C1 line to 12-inch ones.

The word ``inch’’ is the technical term commonly referred to as the barometer to explain chip-making advances, in addition to the tech migration.

Larger silicon wafers enable firms to produce more chips per unit, meaning increased efficiency, capability in data processing and even competitive manufacturing costs.

As the global memory chip industry has been seeing an overall recovery from a years-long continued market slump from price falls and meager demand, chip majors are transforming older and money-losing facilities for enhanced ones.

Good responses from top politicians

The efforts to merge with the local community is receiving favorable reviews from top Chinese politicians, with the site emerging as a ``must-visit’’ location.

HSCL, which produces 160,000 12-inch wafers on a monthly basis, has so far received visits from Premier Wen Jiabao, Vice President Xi Jinping and top legislator Wu Bangguo.

``It’s been uncommon for a non-Chinese company to get frequent visits from top-ranking Chinese officials and I can say this is a reflection of our increased awareness, here, as a company which owns cutting-edge technology,’’ said Lee.

Hynix has begun operating its first back-end memory chip plant near the Wuxi facility via a partnership with a Chinese company.

The $350 million separate plant, named ``Hitech Semiconductor Package and Test,’’ has a monthly capacity of 100 million 1-gigabit DRAM chips.

Hynix holds a 45 percent stake in the facility with China’s Wuxi Taiji Industry having the remainder.

``That’s partly due to the steady support from Chinese authorities. With the newest facility, we’ve secured room to cut production and shipping costs, through packaging and testing of chips produced by HSCL,’’ said Lee.

``The key point to advance into the Chinese market was because of its huge market potential and we needed a substantial pre-emptive measure to enjoy a `first-mover’ advantage. So far, the bets are yielding visible results,’’ according to the executive.

Market research firms expect China will take up about 20 percent of the total global DRAM demand, this year.

``Together, we work, eat and drink. That’s the catchphrase that we want to take root in the minds of all employees.’’