By Kim Yoo-chul
Samsung Electronics’ plan to build a chip factory in China has many effects. One of them is getting a leg up on SK Group, now in the final stage of absorbing Hynix Semiconductor.
On Wednesday, the government gave final approval to Samsung's plan to build its first-ever chip manufacturing plant in southern China.
Its legal team reached an agreement to avoid the leak of technology following a request from the Ministry of Knowledge Economy to prepare appropriate measures to protect valued chip-making knowhow.
This means the company will be able to proceed with its plan as chances are low that it will be rejected by the Chinese government, which wants to boost regional economies through massive investment.
Ironically, the approval could be negative for SK in the short-term.
Korea’s anti-trust regulator approved its plan to acquire a 21 percent stake in Hynix Semiconductor.
SK, which has been set to invest big in the chip-making business to generate growth, is getting nervous as Hynix’s chip-making technology is at least six months behind that of Samsung.
``Should SK invest massively to help the chip business get on track, there’s no guarantee that we will create the revenue that we want by competing with Samsung because it has undeniable bargaining power in chips,’’ said an anonymous SK source.
Such uneasiness is no exaggeration.
SK said it is going to invest more in non-memory chips, which are less volatile and more profitable than conventional memory chips.
Memory chips just read and write data, while non-memory chips are used to control entire computing systems. In order to ensure revenue in chip making, leading chip makers are rapidly migrating into non-memory with Samsung Electronics leading the way.
Samsung is spending on mobile application processors _ a key component used in Apple’s ``i-branded’’ consumer devices such as the iPhone and iPad.
Unfortunately, the portion of Hynix’s non-memory business is meager.
Out of 12 trillion won in sales Hynix reaped in 2010, the contribution from non-memory chips was 1 percent.
Although it raised that portion to 2 percent last year, Hynix still has a long way to go to effectively compete with market leaders.
If SK wants to strengthen its non-memory business, it must create consistent revenue from the memory sector.
To make matters worse, Samsung’s construction of its first flash memory plant in China is confirmation of the firm’s long-time ``golden pricing strategy.’’
Regardless of the market situation, it is always the winner as its advantages _ on-time delivery, pricing, product commitment and product quality _ has so far threatened the bottom line of its rivals.
``SK’s semiconductor business can’t compete with Samsung, and it’s expected that SK’s ambitious strategy to strengthen its non-memory business will stall if Samsung continues its pricing plan. Should we make money, however, we have a few options,’’ said another SK source.
``We don’t care,’’ said a Samsung source requesting anonymity.
Hynix runs its chip-making plant in Wuxi, Jiangsu Province, and it’s been supplying memory chips to some major technology firms such as Hewlett-Packard (HP) and Dell.
``Samsung’s strategy is simple. Further strengthen our traditionally-strong businesses and invest money that’s been earned from them into new businesses,’’ the Samsung source said.