koreaherald.co.kr
Hynix Semiconductor in dilemma over production cut
After stunning market watchers by successfully raising $1.25 billion two weeks ago, Hynix Semiconductor is gambling on a production cutback, apparently aimed at reducing operating losses resulting from a relentless fall in chip prices.
But analysts said that in the chip industry there would be no advantage for the first-to-move, with any cut doing little to reduce excess supply across the world.
Rather, they said, production cut attempts were highly likely to backfire. "Hynix's move toward an output cut would result in a loss of its market share," said Choe Suk-po, a semiconductor analyst at Meritz Securities.
Analysts said without support from such big players as Micron Technology of the U.S. and Samsung Electronics, Hynix's bid would not succeed.
Last week, speculation ran high that Hynix was considering output cuts in order to ease the global supply glut. Hynix President Park Jong-seop confirmed it, saying, "We are studying ways to reduce production volume. In two weeks, our plan will be announced."
Conditions surrounding the chipmaker, formerly Hyundai Electronics Industries, have been worsening since late last month. Offsetting the cheerful news of having attracted funds from overseas, chip prices started to fall at an alarming pace. For Hynix, a price recovery and a turnaround of the industry are the key to its revival.
"Hynix's market share is around 18 percent, which means its own production cut would not change the global chip supply much," Min Hoo-sik, a semiconductor analyst at Korea Investment and Trust & Securities.
Market speculation, however, has it that three other big players - Micron Technology, Samsung Electronics, and Infineon Technologies of Germany - will not be joining in with the production cutback.
Skeptics said the recent downfall in DRAM prices was triggered by the global slowdown in the info-tech industry and lackluster demand, which cannot be resolved by production cuts.
Unless the demand for PCs and other digital appliances picks up, a cut in production will not significantly impact the market, they asserted.
Choe from Merits Securities said, "Back in the recent downturn between 1996 and 1998, Samsung and Hynix implemented production cuts along with Japanese chipmakers. But the result was just an increase in the market shares of other rivals, such as Micron Technology."
For Hyinx however, a production cutback might be a viable option at this point, because it has been selling chips at below cost.
According to reports from Korea Investment Trust & Securities, Hynix's chip sale price stood at around $2.40 in May, well below the formally-estimated price level of $2.65.
The securities firm said that Hynix might have to revise future capital raising plans, taking into consideration that the sales price would fall further in the future.
On top of this, since June 27, when the first investors were allowed to convert the chipmaker's GDRs traded on the New York Stock Exchange, share prices have tumbled by around 26 percent to 2,315 won last Friday.
Its market cap was reduced to 2.34 trillion won from 2.9 trillion won during the same period.
Hynix may be thinking that other foreign players will follow its move, but analysts worry that it may result in Hynix giving up its market share to its bigger rivals. |
