Hynix woes heightened by DRAM price dip
Where's the exit?
Samsung Corp and Hynix Semiconductor Inc have been forced to cut their 128Mb DRAM contract prices by between 16% and 20% according to Korean media reports. The price cuts, forced on them by their largest customers, push the 128Mb DRAM part price below $4 again, heightening fears that there could yet be a sting in the tail of the recent DRAM price crash.
Certainly, the weakening contract prices are a blow to Hynix as it struggles to stay afloat under the weight of massive debt. Although the company is still the world's third biggest DRAM maker after Samsung and its jilted recent suitor, Micron Technology Inc, Hynix is now seen as an also-ran by most observers, who note that its chronic lack of cash makes it impossible for the company to continue investing in new process technology.
Hynix's directors have used the recent rally in DRAM prices to argue that the company still has the opportunity to survive as an independent operator. However, this is looking increasingly unrealistic as the view hardens that a sustained DRAM price recovery must happen for the PC industry's traditional uptick period to start in September.
Yesterday, new rumors began circulating in Korea that Hynix is once again offering itself to potential buyers, with the company's major creditors said to be confident of reaching a memorandum of understanding by mid-July, prior to closing a deal in September. By then though, it is likely that Hynix's ability to retain its position in the global top tier of memory chip makers will have all but disappeared.
Hajime Sasaki, chairman of NEC Corp, believes the company has already missed its chance, and will soon be squeezed out of the top four DRAM maker rankings by Elpida Memory Ltd, his company's DRAM joint venture with Hitachi Ltd. Elpida, along with Micron, Samsung and Infineon AG are destined to dominate the next phase of memory chip production, Sasaki said.
In the meantime, Hynix's last contribution to the future of the DRAM industry will be its choice of exit. The company's creditors, led by Korea's major banks, are stepping up efforts to see the company broken up and sold, but they are meeting resistance from the company's directors, and from some shareholders who are afraid Hynix will be sold at a price that will leave them empty-handed once the creditors have taken their share.
Less obvious are the positions of Hynix's rivals, all of which have considered making a bid for some of the company's operations in the past eight months. Hynix's carcass would still hold enough manufacturing capacity to make it a tempting target for one of them to pick it clean as a means of growing market share.
However, after the disappointing collapse of its protracted attempt to buy Hynix's DRAM business failed last month, Micron Technology is thought unlikely to want to try again. Elpida and Infineon, on the other hand, may be reluctant to throw money at a business which will certainly need new investment to be a worthwhile acquisition.
This, in many observers' eyes, just leaves Samsung. Of all of the potential scavengers of Hynix, Samsung would at least have political backing in South Korea, and the resources and contacts to work out a suitable deal with the Korean banks.
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