Investors began sniffing around Hynix yesterday after a Korean newspaper claimed the chip maker's creditor-led management team has been talking to Micron CEO Steve Appleton about merging the two companies' operations.

Hynix's shares rose 7.1 per cent on the report before closing 4.6 per cent up at 2145 won ($1.704). That's the highest price Hynix shares have commanded since 6 July. We can't say we're surprised - merger rumours always generate increased investor activity.

The report, in Korea's Dong-a Ilbo newspaper, follows comments made by Shin Kook-hwan, head of the committee steering Hynix's future, that creditors would consider shutting the troubled memory maker down if necessary. They will also consider merging it with another chip maker, he admitted.

As we reported here, Shin included Micron as one of the companies the committee could contemplate merging with Hynix.

So did the Dong-a Ilbo report make too much of Shin's comments, or is Micron really talking to Hynix? The two companies have spoken about the matter, as a Micron spokesman admitted to Bloomberg. "Considering the market conditions, virtually everyone in the industry, except Samsung, has contacted us regarding some kind of strategic alliance," he said.

That said, the spokesman refused to comment on any specific company.

Indeed, Infineon has been widely reported as talking to Toshiba and a variety of Taiwanese memory makers about the possibility of bringing their memory operations together. Discussions continue, but the Toshiba tie-up is now looking increasingly unlikely.

Micron and Hynix have another possible line of communication: Micron's past complaints that the Korean company has been dumping product in the US market and that its $7 billion rescue plan contravenes World Trade Organisation government subsidy regulations. Micron hasn't been as vociferous about all this than it has been in the past - as sign that the two are talking about closer co-operation, perhaps even a merger?

Maybe, maybe not. As Micron's spokesman says, everyone's mooting mergers at the moment. Certainly with so much excess DRAM production capacity in the world, and with demand (and prices) so low, there's an urgent need for consolidation. Many operators were hoping that Hynix's rescue plan would fall through, prompting the company's collapse. But in the current market conditions, even the removal of a major player would do little to ease the pressure on the remaining memory makers. The pressure may only be relieved by other mergers.

Still, there seems a general unease about doing so. Infineon doesn't appear to have got anywhere with its tentative offers, and this week Shin admitted that the Hynix committee had had little joy in attracting overseas partners - though that may say more about the state of Hynix's finances than a more general lack of interest in mergers.

Like a class of kids by a school swimming pool, all the memory makers want to get in, but want someone else to get wet first. ®

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