Taiwanese memory chipmakers suffered major stock market setbacks yesterday as investors dumped their stocks on news South Korea-based Hynix Semiconductor Inc will be bailed out by creditors.
The world's DRAM memory chipmakers are all suffering losses as the cost of producing one industry standard 128Mbz chip is almost double what it can be sold for on the spot market, according to figures from the DRAM Exchange.
Last year at this time, the price per chip was three times higher than production costs.
The price now sits at record lows because of too many producers. Current market competitors make 15 percent more chips than the market can absorb, and there has been no indication that the market will turn around anytime soon.
"I don't think there will be any reduction on the supply side soon," said Milton Huang, chip analyst at National Securities Corp (
Companies in Taiwan were hoping a Hynix closure would lead to a DRAM price rebound. The third largest DRAM maker by market share, Hynix accounted for 17 percent of the world market last year, according to market research firm Gartner/Dataquest.
If the company shut down today, it would erase the entire over-supply in DRAM memory chips, analysts and industry pundits said.
"If they continue to do business, the price of DRAM will not come up, a rise would be impossible. We're not very optimistic," said one industry player who requested anonymity.
Two days ago, Citigroup Inc announced its intention to join a group of Korean banks in helping Hynix stay in business with a US$3.5 billion bailout, the second rescue loan for the company in three months. Citigroup helped arrange a US$1.25 billion stock sale in June.
Last week, Hynix requested that creditor banks swap US$2.3 billion of its debt for stock shares and lend additional cash for plant upgrades. The company lost US$1.6 billion in the first half of the year.
When asked to verify the status of Hynix's loan situation, the company's media frontman appeared to be out of the information loop.
"I'm not sure what you are talking about ... We have a bunch of loans and a lot of financial stuff...," said Hynix public relation's officer, S.S. Kim.
The formal decision on whether or not to rescue Hynix will be made at a meeting with creditors by the end of next week.
As long as the lumbering giant remains in business, analysts said the price of DRAM chips will not go up, meaning continued losses for local DRAM companies.
"The companies with the most cash will survive," said Chris Hsieh, semiconductor analyst at ING Barings in Taipei.
In their current financial situation, most Taiwanese firms will have no problem so long as they continue cutting costs and reduce spending for new plants and equipment, he said.
The trouble is, DRAM makers have to continue expanding in order to reach economies of scale and remain competitive, he said. They also need to continue upgrading technology to remain competitive, which means they have to spend more money, he pointed out.
"Based on their cash positions, I believe ProMOS, Powerchip and Winbond can last maybe for two years, and the other ones, Nanya Technologies is weaker in structure ... but it can still sustain maybe for 18 months," said NSC's Huang.
According to Gartner/Dataquest statistics for last year, Taiwanese DRAM memory chipmakers accounted for 8.8 percent of the world's supply last year.
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