TIANJIN, China (Bloomberg News Service) — Motorola Inc., the No. 2 cell-phone maker, won approval to invest $1.9 billion in a communications chip factory in Tianjin, making the company, based in Schaumburg, Ill, the mainland's largest foreign investor.
The approval marks the end of a five-year odyssey for Motorola, which started construction of the chip plant in 1995. The factory will make Motorola a leader in chip production in China even though NEC Corp., the world's fourth-biggest memory chipmaker, edged out the U.S. company as the mainland's first foreign producer of semiconductors, analysts said.
"It helps Motorola cement its lead in the (China) wireless handset market as its major competitors Nokia and Ericsson do not have any major semiconductor technology to give," said Boris Petersik, an analyst with Donaldson, Lufkin & Jenrette. "The deal is another example of China soliciting semiconductor technology and granting or supporting that company's equipment sales."
The Motorola chip project exemplifies China's effort to attract foreign investment in high-tech industries and the difficulties some multinationals have faced. Beyond that, China is emerging as one of the world's leading markets for mobile phones. China, where cellular phone subscribers now total 51.7 million, earlier this year overtook Japan as the biggest mobile phone market in Asia, according to market researcher Dataquest Inc., a unit of the Gartner Group Inc.
Under the original 1995 plan, the factory would have produced chips for China's automobile market. That all changed after the Asian economy went into recession in 1997 and the semiconductor industry entered a three-year slump around the same time.
The factory building in Tianjin has stood empty since 1997, when Motorola executives postponed plans to move in production equipment and start chip production.
Under the new plan, the factory will primarily make communications chips and reach full production capacity sometime in 2002. The chips will be used in mobile phones and pagers.
"The site will become one of the largest integrated semiconductor manufacturing facilities in the world, and the most advanced in China," said Christopher Galvin, Motorola's chief executive officer, in a statement. "The result will be greater market opportunities for Motorola, supplied by our China facilities and exports from the U.S. and other locations."
With this latest project, Motorola's total investment in China will reach $3.4 billion. The company is ranked No. 1 in China's mobile phone market in part because of its sizeable investments in the nation going back more than 15 years.
Half of the chips produced will be sold domestically, while the rest will be exported.
Motorola will benefit from local production of chips for mobile phones and pagers because the company will not need to pay import duties for imported semiconductors, said Scott Stephens, Asia Pacific communications director for Motorola.
NEC Corp., the world's fourth-biggest memory chipmaker, has leapfrogged past Motorola with production of 8-inch silicon wafers at a plant in Shanghai, together with joint venture partner Hua Hong Microelectronics Co. The joint venture produces 64 megabit and 128 megabit memory chips. NEC said it may build a second plant in Beijing together with Beijing Shougang Steel.
The Motorola factory will make its first chips by June 2001 using production technology enabling chips with circuit features at the 0.35 micron level. By comparison, the world's most advanced chipmakers are already using 0.17 micron production technology. Finer circuit sizes mean smaller chips and lower production costs.
Motorola has approval from the U.S. government to use 0.25 micron production equipment in the Tianjin factory. Previously, the U.S. government prohibited equipment exports to China below the 0.35 micron level on the grounds that it is militarily sensitive technology.
The Japanese government has no such restrictions on exports of chipmaking equipment, and NEC is already making 0.25 micron memory chips at its plant in Shanghai.
As China prepares to enter the World Trade Organization, some analysts have predicted that more chipmakers will be interested in building chip plants in China to supply growing local demand. "It will be interesting if Samsung (Electronics) matches the move," said Petersik.