The decision by a group of South Korean creditors to support ailing DRAM chipmaker Hynix Semi-conductor with a US$7 billion rescue package may deal a death blow to parts of the local DRAM industry, analysts and industry watchers said yesterday.
"This is negative for Taiwan DRAM makers and for the overall industry," said Rick Hsu, semiconductor analyst at Nomura Securities in Taipei.
He said the Hynix decision would compel Taiwanese DRAM makers to speed up their exit from DRAM manufacturing. Companies unable to shift production may seek out merger partners, while others may simply cash in their chips and fold.
Hynix, the world's third-largest semiconductor maker, holds nearly 17 percent of the global DRAM market. Taiwanese firms produce nearly 10 percent of the world's memory chips, Dataquest said.
The worldwide meltdown in spending in the information-technology sector has sent the price of industry standard 128 megabit DRAM chips from US$10 to US$1 this year. Companies are now making the chips at a loss since the cost of production remains around US$2 per chip.
Industry losses have been steep. In the first nine months of this year, Taiwanese firms such as Mosel Vitelic Inc (
This nearly equals the amount lost by Hynix in just the third business quarter alone, but pales in comparison to the US$6.5 billion tab the company has already run up. The new rescue package added fresh operating cash to keep chip production lines operating.
Many in the industry hoped Hynix would be allowed to collapse under its staggering debt. If this had happened, the over-supply of chips would dissipate. Now, the production of memory chips has become a war of attrition.
"The big question right now is ... how much longer can these DRAM makers survive?" Hsu said. As early as May of next year, the convertible bonds of some local DRAM makers will come due and they will have to find money to pay off the bonds. Without some change in memory chip prices, these companies will continue to bleed red ink.
The credit rescue package signed on Wednesday is Hynix's third multi-billion US dollar bailout in the past six months. Analysts believe government pressure on South Korean banks has been keeping loans flowing into Hynix coffers. The banks themselves may also be reluctant to see the firm go under.
The new deal is likely to raise the ire of competitors who will petition for trade sanctions. Japanese and American semiconductor firms are reportedly pressuring their governments to file complaints against the Hynix bailout with the WTO.
So far, Taiwan has no plans to file anti-dumping or other charges against the firm.
"There have been no complaints filed with our office ... It would take at least one year from the time the petition first reaches us for us to begin imposing anti-dumping measures, provided the findings justify doing so," said an official at the Ministry of Economic Affairs who requested anonymity.
Taiwan is not yet a member of the WTO, and therefore is limited in the action it can take in such cases.Also See Hynix Inside
RSS