Korea chipmakers turn the corner, Q2 outlook bright
By Kim Miyoung
SEOUL, April 17 (Reuters) - South Korean chipmakers are beginning to enjoy the fruit of tighter market conditions stemming from consolidation in the sector and rising demand for chips used in computers and handsets, analysts said on Wednesday.
Recovery hopes for the hard-pressed sector were underscored on Monday when Hynix Semiconductor Inc (00660.KS), one of the main victims of last year's chip price collapse, posted net profit for the first time in six quarters.
``Selling price of DRAM chips jumped 130 percent from the fourth quarter and boosted our revenues on DRAM chips to 82 percent in the first quarter (from some 70 percent last year),'' Hynix said.
Spot prices of DRAM (dynamic random access memory) chips, used to run computers, have jumped to over $4 a piece from lows of below $1 in early November. This has emboldened creditors of heavily-indebted Hynix to seek better terms in sales talks with U.S. rival Micron Technology Inc (NYSE:MU - news).
A $3.85 billion loss in 2001 forced Hynix, the world's third largest memory chipmaker, into talks to sell core assets to larger rival Micron for $4 billion.
Analysts expect capacity to be taken out of the market, whether or not a merger agreement is reached .
``If the acquisition does not go through, Hynix would upgrade all seven fabrications this year,'' said Salomon Smith Barney in a recent research note. Hynix has pledged to invest 1.3 trillion won this year in chip production.
STEADY RISE IN PC DEMAND
An expected recovery in demand for personal computers after Intel cut prices on its microprocessors is keeping chip investors optimistic about the second quarter. This period traditionally suffers a modest decline in demand due to seasonal factors.
Intel Corp (NasdaqNM:INTC - news) cut prices on some of its microprocessors over the weekend, including its second-fastest Pentium 4, part of the world's largest chipmaker's long-standing strategy of lowering their cost to make way for new processors.
``That will prompt more demand for PCs,'' said Park Jung-jun, an analyst at Good Morning Securities.
Hynix's chief executive Park Chong-sup last month forecast PC demand to grow 4.8 percent this year and 12 percent next year.
SAMSUNG BIGGEST BENEFICIARY
Analysts agree industry leader Samsung Electronics Co (05930.KS) will be the biggest beneficiary of steady chip prices as the chip giant commands higher prices with specialty products resilient to volatile chip prices.
``Samsung has solid pricing power in not only DRAM but across all of its core businesses,'' said Sun Chung, an analyst at Merrill Lynch.
``Samsung shows the ability to set higher sales prices via its product mix and at the same time to lower cost of sales by pressuring component vendors.''
Samsung said it was considering increasing investment for chips by one trillion won this year and was advancing originally planned investment to make the most of economic recovery.
Samsung has set aside 3.2 trillion won for investment in plants and equipment, including 2.5 trillion won for the semiconductor division. That is down 24 percent from 4.2 trillion won spent last year but dwarfs planned spending by Hynix.
Analysts expect Samsung to post a 60 percent year-on-year jump in first quarter net profit on Friday, bolstered by a strong performance in its semiconductor division.
Samsung shares hit a fresh lifetime high of 408,500 won by 0109 GMT as investors bet on strong quarterly results on Friday.
ANAM BOOM ON HANDSETS
Contract chipmaker Anam Semiconductor (01830.KS) also looks set to be part of the recovery story as major clients increase orders.
``More than 70 percent of our chips are sold to Texas Instruments Inc (NYSE:TXN - news) and the demand from the U.S. chipmaker is rising,'' Anam spokesman Yun Hyun-shik told Reuters.
TI, the world's No. 1 maker of semiconductors for mobile phones, said on Monday customers were restocking chips after a year of cutting inventories.
Anam exports include DSP chips, or digital signal processor chips, used in cell phones, and graphic chips to TI, Atmel (NasdaqNM:ATML - news), NEC Corp (6701.T) and Toshiba Corp (6502.T).
Analysts expect about 420 million cellular handsets to be shipped this year, up from 399.6 million units last year, which was the weakest year on record for the 10-year-old industry.
($1=1317.9 won)
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