Under the terms of the agreement, MagnaChip (Seoul) will have a 10 percent equity stake in the new independent entity. It will continue to provide foundry services to the new entity. The sale is expected to be finalized in January 2006.

The application processor business primarily includes assets, staff and intellectual property related to MagnaChip's 8-bit and 32-bit microcontroller, SmartCard controller, microperipheral IC and linear IC product lines.

GreenChips makers remote control ICs and other products. The Korean company is also a distributor for MagnaChip, Micronas, STMicroelectronics and Avago, formerly the semiconductor unit of Agilient Technologies Inc.

“We are very optimistic about acquiring the application processor business as a logical extension of our current MCU business,” said Won Choi, CEO of GreenChips, in a statement. “We are also pleased that there will be no disruptions in the foundry business as the high yields historically delivered by MagnaChip are central to future profitability."

Youm Huh, president and CEO of MagnaChip, said the deal would enable the chip maker to focus on its key markets. "After this deal, we plan to focus further on our three core businesses -- display solutions, imaging solutions and our semiconductor manufacturing services,” he said in a statement.

Recently, the company acquired two fabless companies: IC Media in the U.S. and Isron of Japan. IC Media makes CMOS image sensors, while Isron is a supplier of TFT driver chips.

MagnaChip was the former non-memory chip unit of South Korean memory maker Hynix Semiconductor Inc. In October of 2004, the non-memory chip unit of Hynix was sold to a newly-created South Korean company formed by Citigroup Venture Capital (CVC) Equity Partners L.P., CVC Asia Pacific Ltd. and Francisco Partners.

Huh explained the company’s strategy in a recent Q&A.