Kingmax setting sights on mainland
By Li Weitao (China Business Weekly)
Updated: 2005-04-17 09:52

Taiwan-based Kingmax Group, a major manufacturer of computer memory and flash memory, is awaiting approval from Taiwan authorities to increase its investment in the Chinese mainland.

The firm hopes to move high-end packaging and testing equipment to the Chinese mainland, which is its largest revenue contributor.

That underlines a growing desire by Taiwan's chipmakers to move production facilities to the Chinese mainland to take advantage of low labour costs and to be closer to their customers in the mainland, which is one of the world's most dynamic semiconductor markets.

"Moving (semiconductor) production lines to the mainland is clearly a trend in the industry," said Joe Liu, chairman of Kingmax.

"We will do it if the Taiwan authorities gives us the green light."

Taiwan authorities have imposed numerous restrictions on investments in and the transfer of technology to the mainland by Taiwanese chip makers.

An executive with Kingmax Semiconductor, the chip-making unit of Kingmax Group, told China Business Weekly the firm was considering where to place a US$200-million semiconductor assembly facility in the mainland.

The executive said Kingmax had talked with local government officials in Shanghai, Chongqing, Shenzhen and some other cities in South China's Guangdong Province about its investment plan.

At that time, he said he expected construction of the plant would begin before the end of last year.

But the investment plan appears to have either been delayed or shelved.

Kingmax's executives would not say whether the delay had been thwarted by Taiwan authorities' decisions.

Taiwan's "Ministry of Economic Affairs" (MOEA) previously said it will consider loosening rules governing chipmakers' investments in the Chinese mainland, but recently has apparently become cautious about the policy shift.

Last February, Taiwan authorities launched a series of raids against offices of Taiwan's leading chipmaker, UMC (United Microelectronics Corp), over allegations of "illegal investment" in the mainland.

UMC could face fines up to US$800,000 and its executives could be jailed for up to five years if they are found guilty.

On March 31, "MOEA" fined Richard Chang, president and chief executive officer of Shanghai-based Semiconductor Manufacturing International Corp (SMIC), US$150,000. He was also required to withdraw his investment in SMIC.

"MOEA" said Chang "illegally invested" in the mainland in 2000, when he still held a Taiwan identification card.

The tightened investment restrictions would make Taiwan chipmakers' business activities more difficult, as they have begun relying more on the mainland market to grow revenues.

Lawrence Chang, vice-president of Kingmax Semiconductor, said the Chinese mainland is the top priority for the firm's investment decisions.

"We will be very active in investing in the mainland, if Taiwan regulators give us the permission," he said.

Kingmax Semiconductor is now building its first mainland factory, in Shenzhen, which will have five SMT (surface mount assembly) lines.

SMT is low-end in the industry, and Kingmax's first-phase investment in the new plant was US$2 million.

The Chinese mainland contributes about one-third to Kingmax Group's total revenues.

The chip-making unit, Kingmax Semiconductor, last year generated about US$260 million in annual revenues. The mainland contributed 25 per cent.

Lawrence Chang expects the global revenues of Kingmax Semiconductor to hit US$300 million this year, up about 15 per cent year-on-year.

The ambition for the Chinese mainland is even higher.

"We are expecting a 20-per -cent growth in revenues in the mainland," he said.

"Internally, in fact, our target is 25 per cent."

The Chinese mainland's PC market has been slowing down in recent years, but demand for memory products will continue growing, especially given the low PC penetration in the small cities and township areas, the vice-president said.

And an upcoming consolidation in the computer memory market will boost to Kingmax Semiconductor's business.

"I expect a worldwide consolidation will occur within two to three years, and the number of DRAM (dynamic random access memory) makers in the world will be reduced to no more than five," Lawrence Chang said.

"Kingmax Semiconductor will definitely remain alive and competitive."

Kingmax Group also counts on the surging demand for flash memory products in the Chinese mainland to grow revenues.

Kingmax Group has three subsidiaries: Kingmax Semiconductor; Kingmax Digital Inc, in charge of manufacturing of flash memory products; and Kingpak Technology Inc, in charge of packaging and test business.

Jack Liu, assistant vice-president of Kingmax Digital, said he expects Kingmax's flash memory sales in the mainland market to double or triple this year.

"The galloping mobile phone market in the mainland is a potential big driver to our revenue growth," he said.

Small digital storage cards are increasingly being used in handsets to enable users to store music files, phone and video clips.

US-based Sandisk dominates the mini-digital storage card market in China.

But Liu said many of the products sold in China under the Sandisk name are fake.

Kingmax has adopted an industry-leading packaging technology called PIP (product in package) that makes counterfeiting impossible, Liu claimed.

"In fact, we are the top player in the market," he said.

Kingmax Digital last year generated US$50 million from storage card sales worldwide. The division expects the figure to double this year.

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