ST Microelectronics and Hynix Semiconductors on Friday laid the first stone at the site of their front-end memory-manufacturing facility in Wuxi City, Jiangsu Province, China. The move marks growing importance of the country in the global semiconductor manufacturing business.

The new fab will manufacture both DRAM and NAND Flash and will begin production using 200mm wafer line by the end of the year. By late 2006 the fab will initiate production using 300mm wafer line. According to a report Chinese new-agency Xinhua, manufacturing capacity of the 300mm wafer line will be 17 000 wafers monthly, whereas the 200mm line will output 20 000 wafers monthly with possibility to expand to 60 000 wafers in future. The process technology for the facility will be transferred from Hynix’s existing fabs in Korea. Both companies expect the new manufacturing fab to offer world-class quality amid very cost-competitive production.

The fab is sited in Wuxi City, two hours from Shanghai, the companies said the location featured access to a large and highly-skilled labor pool, a robust and well-developed infrastructure, and room for expansion.

The total investment planned for the project is $2 billion. It will be financed with equity from both partners – Hynix will invest 67% and ST will invest 33%; $250 million of long-term debt from ST, as well as a financing package from Chinese local financial institutions, which will involve debt and a long leasehold. ST and Hynix are in the process of securing the required governmental approvals and financing package. In 2005, the equity investment from ST and Hynix is expected to reach around $375 million, split on a 1/3 – 2/3 basis.

The China market is currently about 15% of the worldwide semiconductor market and is projected to grow at an annual rate of more than 20% through 2008, according to predictions from IDC. Establishment of memory facility in China will allow Hynix and ST Micro to better serve their customers in the country, the companies believe. Eventually the companies may benefit from lower cost of manufacturing in China when shipping products from the country to other markets.