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To: Jeffrey D who wrote (29565)	4/14/1999 1:10:00 PM
From: Proud_Infidel	Read Replies (1) \| Respond to of 70976

China pins chip future on DRAM project By Reuters Special to CNET News.com April 14, 1999, 5:35 a.m. PT China is putting a lot of chips on the table in a high stakes bet that it could one day become a semiconductor powerhouse. It is spending nearly a billion dollars on a key project in Shanghai to gain what it sees as a strategic edge in microchip design and production. "There is a consensus at the central government level that China should be making this type of product," said Xia Zhongrui, president of Shanghai Hua Hong, which is spearheading the effort. "This is a big project and we hope to be able to compete," he told Reuters in a recent interview. China has some semiconductor production but Hua Hong is its boldest move to date and it is designed to put the nation into the industry big leagues eventually. Hua Hong is in charge of what has been dubbed the 909 project which includes production of 64-megabit DRAM or dynamic random-access memory chips. It has formed a joint venture with Japan's NEC to invest a combined $1.2 billion. China has 71.4 percent of the equity, and Xia said that much of the capital expenditure would be made this year. In February, the venture began operations at its Shanghai plant which is supposed to produce 5,000 eight-inch wafers a month this year and eventually reach 20,000 a month. Its production comes after a prolonged slump in DRAM prices and after some big producers--such as Matsushita, Nippon Steel Semiconductor, and Oki Electric of Japan--have pulled out of this fiercely competitive field. DRAM prices have steadied but opinion is sharply divided on the prospects for an extended recovery. There is no doubt, however, that this project has high-level backing. A company brochure shows a photograph of former premier Li Peng shoveling dirt at the groundbreaking ceremony in Shanghai's Pudong district, the city's main development zone. Beside him are Shanghai's top officials as well as Hu Qili, the Hua Hong chairman and a Communist Party heavyweight who was purged along with reformist party chief Zhao Ziyang in the 1989 crackdown on dissent. Hu crawled back from the political wilderness to head what had been the Ministry of Electronic Industry before taking up his latest post. Xia said one of Hua Hong's aims was import substitution in the fast-growing chip sector. China gobbles up about 10 billion chips a year, with demand driven by rapidly growing use of mobile phones, smart cards, and personal computers. Less than 10 percent of the total is produced domestically. "The chip market in China has great potential," said Xia. Hua Hong will be using 0.35 micron to 0.50 micron process technology for its 64-megabit DRAMs while the industry is using finer technology and moving to 128, 256, and 512-megabit DRAMs. U.S. limits on technology transfers to China may hamper efforts to produce chips with greater memory but Xia is not worried just yet. "There is room for mid and lower level technology products in this market," he said. Analysts say a key question is whether Hua Hong will conduct independent research and development like Japanese and South Korean firms or use the Taiwan method--highly efficient production that relies on outside design companies in the Silicon Valley. Hua Hong has a California-based company called Newave which is likely to push the parent company slowly towards design as well as production, they said. Whatever formula China uses, it will take time before Hua Hong sees its gamble pay off. "It will be two to three years before we see real returns on investment," said Xia. Analysts said it probably would be much longer before China became a significant factor in the industry--perhaps as long as a decade. news.com