By Kim Yoo-chul
While SK hynix has denied that the SK Group’s semiconductor affiliate may establish a joint venture with China’s Tsinghua Unigroup, the Korean memory chip maker is still being urged to collaborate closely with Tsinghua to cut growing market risks.
On Sunday, several fund managers at European and U.S.-based investment banks in Seoul said that SK hynix was “more than interested” in sharing some of its memory chip technology with the Chinese company.
“SK hynix may enter into a comprehensive licensing period with Tsinghua focusing on flash-type memory chips, in which SK has relatively weak presence compared to its strengths in DRAM-type of memory chips,” one manager said. “This is because Tsinghua is well-positioned to manufacture SK chips at a better price.”
He said chances were very low that SK hynix would establish a joint venture with Tsinghua.
“China is a real threat and it is a big market for SK. Sharing patents via a licensing deal will be beneficial, helping SK reduce looming risks and boost its market presence,” he said.
Earlier, SK hynix said its licensing partnership with Toshiba of Japan and Samsung Electronics was intended to cut uncertainty because the global memory chip industry had been reshaped into a “few rational players.”
Last week, SK hynix shares were up on speculation that the Chinese company might acquire a stake in SK as a precondition for SK hynix for a venture.
According to this proposal, Tsinghua would then make SK hynix's NAND products for all digital devices from smartphones to corporate servers.
SK hynix said its officials had met Tsinghua, but was not interested in such a proposal.
A fund manager with a Europe-based investment bank in Seoul stressed that SK hynix “doesn’t have to license its DRAM patents” with Tsinghua because the Chinese semiconductor sector was set to play a pivotal role in the global NAND flash industry.
“China is very close to developing this particular industry. In correlation with such moves, SK, which has a competitive technology portfolio in NANDs, may seek a long-term partnership with Tsinghua,” he said.
While businesses operating in the NAND market are anticipating a short-term boom due to oversupply, growth in high-end applications has been very rapid from the long-term perspective, said Sean Yang, assistant vice president of DRAMeXchange, a unit of TrendForce.
NAND chip-embedded applications are certain soon to become the core technology in the storage and memory industries as the number of consumer electronic products using solid state-drives (SSDs) and eMMCs increases.
“If SK expands its partnership with Tsinghua, then SK may see an opportunity to sell more products to be used in corporate servers by foreign companies in China,” he said.
SK hynix’s global NAND share was fifth with 10.9 percent at the end of the third quarter of this year, according to research companies.
SanDisk of the United States, which was acquired by Western Digital (WD) of which Tsinghua owns 14 percent, was No. 3 during this quarter.
“We see the options becoming increasingly limited now as we believe both Micron Technology and SK have refused to collaborate,” said Bernstein Research senior analyst Mark Newman. “The final option we are increasingly worried about is Intel, which has very little to lose in terms of memory profit and lots of political favor to gain from working with China.”
This means if SK hynix strikes a deal with Tsinghua, then the Korean company, which has been successful in China, would expect a favor from China.
But a major challenge for SK is the Korean government’s national policy.
Because Korea has made it clear that its policy is to prevent core technology “leaking” to China, SK must persuade top government officials that its partnership with Tsinghua will not hurt national interests.
As a comparison, the world’s top memory chip producer, Samsung Electronics, operates its massive chip plants in the western Chinese city of Xian. Before the Korean government approved the plan, Samsung said it would export its technology step-by-step.
“If SK hynix takes a bold step with China, such as a plan to set up a joint venture, then SK Group should overhaul its ownership structure, which would be very tough,” said Kim Kyung-min, an analyst at Daishin Securities in Korea.
“The persuasive option is to maintain a constructive link with Chinese companies to fill the voids being left by its chief competitors, especially in NANDs," said a high-ranking industry executive. “Like Intel’s approach to China, it seems evident that SK hynix will also move closer.”