SEOUL (Dow Jones)-- Hynix Semiconductor Inc. said Monday it will set up a back-end chip joint venture in China with state-run Wuxi Industrial Development Group Co. in the third quarter and sell $300 million worth of its packaging and testing equipment to the new company.

Hynix said in a statement the move will allow it to focus more on manufacturing chips rather than testing and assembly and will also allow it to focus on research and development investment.
“By establishing a back-end joint venture, the portion of outsourcing of back-end manufacturing will be extended by up to 50% from the current of 30%,” the company said.
Hynix, the world’s second-largest computer memory chip maker by revenue after Samsung Electronics Co., said by expanding its outsourcing of chip testing and assembly it would help it save more than 2 trillion won (US$1.58 billion) over the next five years.
Hynix first established a joint venture in China with ST Microelectronics N.V. of Switzerland in 2005. But in 2008, ST Micro sold its stake in the joint venture to U.S.-based Numonyx, a joint venture between Intel Corp. (INTC) and STMicro. The joint venture, now called Hynix-Numonyx Semiconductor Ltd., has both front-end and back-end chip plants.
Chip makers such as Hynix have been suffering from a slump in demand for memory chips, leading them to cut their capital investments over the past year. But they need to invest in capital spending even during downturns in order to upgrade their technology to lower manufacturing costs. Through the sale, Hynix will be able to secure much-needed cash to sustain its operations and invest in capital expenditures.
The announcement comes after Hynix raised KRW724.5 billion through a rights offering last week.
“Following its successful rights offering last week, this (equipment) sale is expected to completely remove financial risk in Hynix,” said Lee Sun-tae, an analyst at Meritz Securities.
With new funding, Hynix is now considering raising its investments to increase NAND flash memory chip output, a Hynix official, who declined to be named, told Dow Jones Newswires.
NAND flash memory chips are widely used in music players and digital cameras.
Prices of these chips have been steadily rising since earlier this year after chip makers cut output.
“(Hynix) will remain flexible on the (chip) investment. Hynix is in talks to further invest in chips that are better priced,” the official said, declining to provide specific figures.
For all of 2009, Hynix has earmarked around KRW1 trillion for capital spending.
Shares in Hynix were up 0.4% at KRW13,350 as of 0300 GMT, outperforming the broader market’s 1.4% fall.