Hynix to Sell Chinese Chip Line Equipment to CSMC

Hynix Semiconductor, the world's No. 2 memory chip maker, said Friday it had made a preliminary deal to sell the equipment at one of its Chinese production lines to contract chip maker CSMC.

"HSSL, the joint venture between Hynix and STMicroelectronics, and Hynix Semiconductor Manufacturing China have signed a memorandum of understanding to sell the equipment of the C1 line of the Wuxi plant to CSMC," a Hynix spokeswoman said.

The sale may mean the South Korean company is getting ready to upgrade its existing line with more efficient equipment as memory chip makers worldwide remain locked in a fierce price battle.

While Hynix declined to give any further details on the preliminary deal, online media service EDaily reported on Friday the deal was expected to be slightly below $400 million.

"CSMC is in an expanding phase and our purchasing department is continuously looking for and sourcing additional equipment," said Frank Lai, CSMC's chief financial officer, who declined to confirm the deal.

Most of Hynix's memory chip output is currently done on 8-inch (200 mm) lines, which use smaller wafers and have lower capacity than those using more efficient 12-inch, or 300 mm, silicon wafers.

Hynix currently has an 8-inch and a 12-inch line in its Chinese joint venture plant with STMicroelectronics, Europe's largest chip maker.

Hynix has said it planned to boost its proportion of 12-inch lines to 90% by 2012, from the current 40%. "Selling older equipment is a prerequisite for Hynix if it wants to upgrade its lines," said Lee Min-hee, an analyst at Dongbu Securities. "By the end of next year, Hynix won't be able to use those 8-inch lines any more."

Analysts also welcomed the potential relief the sale could provide to the overall memory chip industry.

"We believe that the news reflects memory manufacturers preparing for the seasonally weak 1H08 (first half 2008) by selling off 8-inch capacity," said CW Chung, an analyst for Lehman Brothers, in a research note.

Chung added that any further selling of 8-inch capacity by Hynix would be a positive for Hynix, its bigger rival Samsung Electronics and the overall industry.