August 25, 2015 / 2:26 AM / 2 years ago

SK Hynix to spend $26 billion for two new South Korea chip plants

SEOUL (Reuters) - SK Hynix Inc, the world’s No. 2 DRAM chip maker, on Tuesday said it plans to spend 31 trillion won ($25.94 billion) to build two new chip plants in South Korea, aiming to update its production technologies to boost competitiveness.

A tower is seen at a SK Hynix plant in Icheon, about 80 km (50 miles) southeast of Seoul May 13, 2013. REUTERS/Lee Jae-Won

The firm, which competes with rivals including Samsung Electronics Co Ltd, Micron Technology Inc and Toshiba Corp, said the plants would be completed by 2024 but did not comment on what they would make or when they would begin production.

The memory chip industry has enjoyed robust profits in recent quarters, in part due to careful capacity management by major manufacturers like Samsung and SK Hynix. Investors are closely watching new capital investment, as aggressive spending could trigger oversupply or a price war.

Analysts said SK Hynix’s new spending likely would not harm the industry’s profitability, given it is spread over a long period of time. Spending for the new plants will likely fall well within the firm’s typical capital expenditures, they said.

SK Hynix said it would consider market conditions before deciding on specific construction plans for the new plants, suggesting a conservative approach.

“The memory chip industry is already firmly controlled by a handful of companies, so there’s no reason for any parties involved to start a game of chicken,” said HMC Investment analyst Greg Roh, adding that SK Hynix’s investments were in line with rivals like Samsung.

SK Hynix shares were up as much as 9.3 percent in early Tuesday trade, touching a one-week high as the announcement eased worries that the firm might invest too aggressively.

The new plants are part of a 46 trillion won investment plan first announced by conglomerate SK Group that controls SK Hynix last week. The plan includes 15 trillion won earmarked for the M14 DRAM chip plan in Icheon, a city southeast of Seoul.

The company said the M14 plant, the largest single DRAM production plant in the world, would start making chips during the current quarter.

Reporting by Se Young Lee; Editing by Stephen Coates

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