Hua Hong and Grace, the Chinese foundries, are to merge in what will be seen as a significant failure for China’s attempts to establish a domestic silicon foundry industry.
Hua Hong will own 51% of the combined company with grace holding 49%. The merged company will have revenues of $600m and profits of $100m say the companies.
China’s biggest attempt to establish a foundry was SMIC but this has remained chronically unprofitable despite revenues of around $1.6bn. In the quarter ending Sept 30, it lost $88m on revenues of $300m.
Hua Hong evolved from NEC’s first Chinese fab which it built for DRAM manufacturing.
Grace is backed by Shanghai Alliance Investment, Cheung Kong Holdings and Hutchison Whampoa of Hong Kong, Silicon Storage Technology, Sanyo, and private equity firms GEMS and UCL Asia.
The chairman of the combined group, Fu Wenbiao, points to the complementarity between the two companies: "Hua Hong and Grace have fabs in the Shanghai Pudong area. By integrating their manufacturing facilities, process technologies and human resources, Hua Hong and Grace are able to improve economies of scale."
With the exception of TSMC, the worldwide foundry industry has found it difficult to make profits. The No.2 foundry, UMC, has given up the race to stay in the forefront of process technology. SMIC has also been unable to keep up with the most advanced processes.
Samsung is making major inroads into the foundry industry and Globalfoundries, the Abu Dhabi backed initiative, is trying to make a viable entry into the industry.