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Hynix Semiconductor's loss widens in second quarter

A man walks in front of Hynix Semiconductor's headquarters in Seoul, yesterday. PHOTO: AP

Hynix Semiconductor Inc, the world's No. 3 maker of computer memory chips, reported its 10th loss in 11 quarters after prices fell further below the company's cost of production and it wrote down the value of assets.

The net loss widened to 530 billion won (US$450 million) in the three months ended June 30, from 418 billion won a year ago and compared with a 1.05 trillion won loss in the first quarter. Sales were 778 billion won, from 777 billion won a year ago.

Hynix's fifth straight loss, coming a day after the EU imposed 34.8 percent tariffs on its exports, may make it harder for the South Korean chipmaker to keep up with rivals such as Samsung Electronics Co, which are investing in new plants costing more than US$2 billion. Hynix has posted just one year of annual profit since 1998 and has been bailed out three times in three years, leading rivals to complain of unfair state support.

"Hynix is caught in a vicious circle of losses and low research and development investments," said Park Hyung Ryul, who helps manage the equivalent of US$1.02 billion of Korean equities at KTB Asset Management Co in Seoul and doesn't hold Hynix shares. "There isn't any company making a profit in the DRAM business except for Samsung Electronics."

Samsung and Germany's Infineon Technologies AG are switching production to advanced factories that use 300-millimeter, or 12-inch, silicon disks, which can cut manufacturing costs by about a third compared with plants that use standard 200-millemeter disks.

"Hynix are still going to survive for another couple of years but there is a limit to what they can do with their existing technology," said Jae Lee, an electronics analyst at Daiwa Securities. "In the future they will need 12-inch plants."

The company's operating loss in the second quarter widened to 258 billion, from 199 billion won a year ago. Hynix gets 80 percent of its sales from DRAM chips that provide the main memory for PCs.

"DRAM demand during the second quarter was still depressed due to the stagnant economy caused by the Iraq war and the effect of SARS," the company said in a release. Hynix said it expects "real demand" to emerge this quarter, "mainly due to the anticipated recovery in corporate IT spending, seasonal demand and a steady increase in memory per system."

Hynix was saved by a bailout in December organized by its main lender Korea Exchange Bank, which is 18 percent owned by the central Bank of Korea, prompting rivals to complain to their governments that the company received illegal state aid.

"Its future will depend on its creditors who control everything," said Daiwa's Lee. "They can probably find a buyer but that buyer would want financing from them and I am not sure if they would want to extend that credit."

Last month, the US's International Trade Commission determined that loans and guarantees to Hynix amounted to illegal subsidies and recommended imposing 45 percent tariffs on its exports to the US. The EU yesterday imposed a five-year tariff of 34.8 percent on imports of Hynix's memory chips.

Besides tariffs, the South Korean chipmaker has also had to contend with chip prices falling below production cost.
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