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Biggest European Chipmaker to Tie Up With Chinese Firms

STMicroelectronics, Europe's biggest chipmaker, is in talks with several Chinese semiconductor firms on a possible manufacturing tie-up, a source familiar with the situation said on Friday.

The Franco-Italian firm -- which has already built a $2 billion joint chip plant with South Korea's Hynix Semiconductor in Wuxi, China - is in the early stages of talks with Chinese chipmaker Grace Semiconductor, the source said.

"STMicro doesn't want to do the expansion by itself -- they don't want to continue to build fabs, so they need to find a partner and they can transfer their technology," the source said.

After approaching an initial wider selection of companies, STMicro is also believed to be in separate talks with Semiconductor Manufacturing International and ProMOS Technologies, Taiwan's third-largest DRAM memory chipmaker, the source added.

It is unclear whether STMicro would want to buy a stake in a potential Chinese partner, or what mix of technology the partnership would produce, the source said, adding that STMicro was unlikely to set up another Chinese joint venture.

Spokesmen for STMicro, Grace Semi and ProMOS declined to comment. SMIC said it did not comment on specific customers.

"It depends first on finding a partner for a long-term relationship, and then they'll grow (output)," the source said.

Cutting Costs

Lured by its massive scale and cheaper costs, foreign chipmakers are turning to China - the world's fastest-growing semiconductor market - as a manufacturing and design base.

In a bid to cut costs, STMicro has already shifted most of its global 6-inch wafer production to 6-inch wafer plants in Singapore and 8-inch facilities around the world.

STMicro has said it will shut two U.S. silicon wafer manufacturing plants and halt packaging and testing in a Morocco plant as it moves operations to lower-cost facilities over the next two to three years.

Earnings at dynamic random access memory (DRAM) chip makers have been devastated by price drops. Encouraged by strong results in the DRAM chip market last year, manufacturers kept churning out DRAM chips in vast quantities despite clear signs of oversupply.

Technology market research group iSuppli, which has made a 6% 2007 growth forecast for the semiconductor sector, has said it was not ready to declare a recovery in the DRAM market.

STMicro and Hynix, the world's second-biggest maker of memory chips, have jointly set up production lines for DRAM and NAND flash chips using eight-inch and 12-inch wafers.

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