Hynix Semiconductor Inc's soaring stock price and third bank bailout have failed to persuade institutional investors the South Korean company can raise the billions of dollars needed to stay in the computer-memory market.
Hynix, the world's third-largest maker of memory chips, has gained 90.54 percent in the past month, making it the best performer among South Korea's 200 biggest stocks.
A 16 percent gain in memory-chip prices in that period has prompted individual investors to buy the stock, along with shares of Samsung Electronics Co and other rivals in the US$16 billion memory-chip industry, fund managers said.
Icheon-based Hynix piled up more than 17 trillion won (US$14.4 billion) in debt by 2000 trying to catch up with Samsung Electronics and other producers. As its rivals buy new production equipment to make more-powerful devices and exploit the increase in chip prices, Hynix will be left behind, investors said.
"It's still risky," said Yang You Sik, who holds no Hynix shares among assets equivalent to US$600 million he manages at LG Investment Trust Management Co in Seoul.
"The rally may continue in the second half, but I doubt whether the company has the competitiveness to survive," he said.
Samsung Electronics, which has more than 30 percent of the market, has said it will spend 5.77 trillion won on new semiconductor plants and equipment this year.
Memory chipmakers are investing in production lines that use bigger discs of silicon, or wafers, and narrow the distance between circuit lines to get more chips per disc and more memory per chip. This year, Samsung Electronics and others are shifting to wafers that are a 50 percent larger in diameter than the previous generation.
To build a plant to make the 300mm wafers costs US$2.5 billion, according to an estimate by JP Morgan Securities analyst J.J. Park.
Hynix ended the first quarter, when it reported a net loss of 1.05 trillion won, with 334 billion won in cash and total debts of 3.98 trillion won.
Hynix's bailouts, its takeover by creditors, a combined net loss of 9.48 trillion won since 1998 and the collapse of its overseas shares, sold in 2001, mean the company cannot raise the money needed to keep up, analysts said.
"That's Hynix's biggest weakness right now," Park said, who is advising investors to avoid the stock.
"Hynix is basically prevented from raising capital," Park said.
That hasn't stopped individual investors buying the stock along with those of other memory-chip makers after the benchmark price of dynamic random access memory chips, Hynix's main product, rebounded from a US$3.03 low on May 14.
Hynix shares restarted trading on April 14, following a stock writedown that formed part of its third bailout in two years.
Its shares have more than doubled since then, outpacing Samsung Electronics' gain of 39 percent.
Analysts say the increase in product prices isn't enough to provide Hynix with the cash needed for investment.
"Pricing still hasn't risen sufficiently to bring them into the black to really change things," said Daniel Heyler, head of semiconductor research at Merrill Lynch & Co in Hong Kong, who has a "sell" rating on the company.
"I think it will be a challenge for Hynix to break even this quarter," he said.