During the past year, Infineon has forged similar agreements with a handful of Taiwanese companies that normally play on the periphery of the DRAM market. It has entered into a technology-for-capacity swap with Winbond Electronics, agreed to build a 300-mm wafer fab joint-venture with Nanya Technologies and is reportedly trying to increase its capacity at Promos Technologies Inc., a 300-mm wafer fab joint-venture between Infineon and Mosel Vitelic Inc. that has been in the spotlight because of management tensions between the companies.

"In entering this production cooperation with the technologically leading Chinese semiconductor manufacturer we are systematically...strengthening our regional presence in the promising market of China and aiming overall at a leading market position in Asia/Pacific," said Harald Eggers, memory products group chief executive at Infineon. "At the same time the partnership with SMIC will enable us to grow our DRAM business without having to invest in production facilities."

Pilot runs at SMIC will begin in mid-2003, starting with 256-Mbit double data rate DRAM chips, and if the commodity memory market outlook improves, then the Chinese foundry could produce higher densities, too. By 2005, Infineon estimates the partnership will boost its capacity by about 20,000 wafer starts per month.

For SMIC, having Infineon around adds even more weight to its pursuit of advanced technology. SMIC's chief technology officer, Simon Yang, recently told EE Times that his company would begin basic development work for the 90-nanometer technology node next year. The company took delivery of a 193-nanometer scanner in November to help it get underway with that work.

The company has also forged a technology-for-capacity and equity agreement with Chartered Semiconductor Manufacturing Ltd., covering 0.18-micron processes, and a capacity agreement with Texas Instruments, Inc. It also has a technology-for-capacity deal with Toshiba regarding SRAM.

Across the Taiwan Strait

Last week, near Taipei, Infineon and Nanya broke ground on their 300-mm wafer plant, which is due to come online in 2004 and eventually crank out 20,000 wafers per month. The two companies have already started co-developing 90-nanometer and 70-nm production technologies for 300-mm wafers. Infineon already has one wholly owned 300-mm wafer fab in Germany, which was brought on line late last year.

Since it has placed more emphasis on DRAMs over the last several years, Infineon argues that it has come from 9 percent market share to 14 percent today, making it the third largest DRAM producer. Hynix Semiconductor Inc, however, maintains that it is still the No. 3 producer, behind Samsung and Micron.

Perhaps more important than that dispute, is the edge that Infineon may win if it decides to push the DRAMs manufactured for it in China by SMIC to the Chinese end-user market. Currently the Chinese government charges a value-added tax of 17 percent on electronics products and components shipped into China and sold into the domestic market. That drops to about 3 percent for products made or packaged in China.

Citing estimates from market research firm Gartner Dataquest, Infineon said the semiconductor market in China is expected to grow from about $16 billion in 2002 to around $31 billion in 2006. Many of those chips will be for export.