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Hynix to idle US plant for big overhaul

Not so fabulous * The Eugene, Oregon factory currently makes 64-megabit DRAM. After a US$150 million equipment upgrade, the plant will produce 256-megabit chips. * Rival NEC has also scaled back DRAM production at its UK plant. Samsung, though, doesn't have any plans to cut memory output. * Just four DRAM makers are planning 12-inch fabs. They are Infineon Technologies, Elpida Memory, ProMOS Technologies and Powerchip Semiconductor.

Hynix Semiconductor Inc, rescued from insolvency by creditors earlier this year, said it will shut a US memory chip plant that makes half its main computer chips as prices slump to record lows.

The third-largest memory chipmaker said it will close a Eugene, Oregon factory that makes 64-megabit dynamic random access memory chips for six months, putting 600 workers on leave.

Hynix said it will spend US$150 million to upgrade equipment so that it can produce 256-megabit DRAM when it reopens.

Oversupply pushed 64-megabit DRAM chip prices down 90 percent in a year to about US$0.80, below production costs. Hynix sold US$1.25 billion of shares overseas last month, averting bankruptcy by satisfying conditions imposed by Korean creditors to reschedule US$4.4 billion of debt due this year.

"It's not a foregone conclusion that it's going to just roll over and die," said Roland Wee, a fund manager at ING Investment Manage-ment Asia. "However, I don't expect any sustained recovery till the DRAM price recovers and cash flow improves."

Hynix's move to upgrade its oldest and least-efficient plant will help the company shift into production of chips that are now profitable, analysts said. Still, profits for 256 megabit chips may dwindle by the time Hynix restarts production in Oregon.

Tumbling prices have already forced rivals such as NEC Corp to scale back production. NEC is firing 700 workers at a DRAM plant in the UK.

The production cuts may allow larger rivals such as Samsung Electronics Co of South Korea and Micron Technology Inc of the US to increase market share at Hynix' expense, analysts said.

"If Hynix is shutting down, Micron and Samsung will put on more pressure," said Keon Han, an analyst at Bear Stearns Asia Ltd.

Hynix' market share currently stands at about 17 percent. The company has 10 plants making DRAM chips, including the Oregon facility. Samsung doesn't plan to cut DRAM output, said James Chung, a company spokesman.

Rivals in the memory chip business need to keep investing in new production technology to pare costs, analysts said.

Yet just four DRAM makers -- Infineon Technologies AG of Germany, Japan's Elpida Memory Inc and ProMOS Technologies Inc (茂德科技) and Powerchip Semiconductor Corp (力晶半導體) of Taiwan -- are planning to invest in new factories that will cut production costs by up to 30 percent. The four companies will build chip plants that make 12-inch silicon wafers.

"Those who can afford to invest during a tough time will be in a good position when the upturn comes," said Eric Tang, a Powerchip vice president. "The turning point should be [12-inch] technology."

Powerchip and ProMOS, both in Taiwan, plan to start commercial production from their 12-inch plants by the second half of next year, around the same time as they expect DRAM prices to revive. Infineon has started production from a plant in Dresden, Germany.

The production cut by Hynix "may help memory chipmakers in general and may also help the company temporarily," said Han Sang-soo, who manages 400 billion won (US$306 million) at Daehan Investment Trust in Seoul.

"It doesn't change the fact that Hynix is still in trouble."
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