Infineon expands chip business in China

German chipmaker Infineon Technologies said it will increase production of computer memory in China and in the process help a local foundry become more globally competitive.

Under the deal announced in Munich and Shanghai, Shanghai Manufacturing International Corp. (SMIC) will manufacture computer memory based on the 110-nanometer manufacturing process for Infineon. SMIC already makes 140-nanometer memory for Infineon. (A nanometer is a billionth of a meter; the measurement refers to the average size of features on a chip.)

The extension of the alliance will more than double the amount of memory being produced for Infineon, according to the company, which is trying to catch up to Samsung Electronics and Micron Technology in this market.

"Through the extension of our cooperation with SMIC, we can grow our DRAM business without having to invest in production facilities," said Harald Eggers, CEO of Infineon, in a statement.

Additionally, Infineon will provide technical assistance to SMIC in developing a fabrication facility, or fab, for wafers with 300-milimeter diameters. Fabs outfitted to produce 300-milimeter wafers can produce far more chips than standard 200-milimeter fabs, but the shift isn't easy. It costs billions of dollars, and companies have to reorganize their production techniques around a new set of equipment.

North American and European chipmakers have only begun to operate 300-milimeter fabs. That a Chinese company is moving this quickly will likely reinforce predictions from some analysts and executives that China will become a power in the international chip industry.

A year ago, Chinese foundries, which make chips on behalf of companies that don't have their own fabs, were talking about making 350- and 250-nanometer chips in 200-milimeter fabs. Importing 300-milimeter manufacturing equipment and other cutting-edge chip technology to China was also barred in many instances by various national trade regulations.

Research firm Gartner estimates that the Chinese semiconductor market will grow from $16 billion in 2002 to $31 billion by 2006.

SMIC is generally considered the leader in China's growing foundry market. The company's CEO, Richard Chang, was formerly an executive at Taiwan Semiconductor Manufacturing Co., which created the foundry business.

The new fab should start producing chips by summer 2004, the companies said.