The South Korea government is 'sceptical' of Hynix's ability to survive on its own, because of falling memory prices.

Speaking yesterday, SK Finance Minister Jeon Yun Churl said the memory maker's future will be decided 'soon'. The government is awaiting a report from Deutsche Bank which is mulling break-up, sell-off, or lots more taxpayers' money sunk into the strick DRAM producer, Bloomberg reports.

Earlier this month the Korea Economic Daily reported comments from Lee Keun-young, head of Korea's Financial Supervisory Commission, that "Hynix must be sold overseas before the December presidential elections."

The government wants Hynix to open up talks again with Micron, and soon, to avoid its sale turning into an election issue. But if Micron returns to the table - and it may prefer to avoid this headache - it will be offering much less money this time around.

Hynix is the world's third biggest memory company, and by far the weakest financially. Micron, the US DRAM rival, bid $3.4bn for the firm in April after months of tortuous negotiations, but was rebuffed, after everyone thought the deal was sealed. Korea's intensely nationalistic unions were aghast at the thought of Hynix falling into the hands of an overseas firm, and were horrified at the thought of huge job losses. At the time, memory prices were on the rise, for the first time in more than a year, so the argument from the unions was that Hynix could trade its way through to profitablility.Since then, memory prices have sunk back again to historically low, lossmaking levels.

The upshot, Hynix was left in financial limbo until control of the company was seized by the creditors in June this year. Hynix is still in limbo - the debtholders, largely banks, have no longterm interest in running a semiconductor firm.

Our guess is also that Hynix is losing market share - even if it is dumping product into the EU, as Infineon alleges. This week, Samsung, the world's biggest DRAM maker, said that its slice of the world DRAM market has jumped from 27 per cent in 2001 to 33 per cent in 2002. Samsung also announced that it is to make 90nm DRAM chips. This will press home a unit cost advantage once the new chips start rolling, but of course this production process costs an awful lot of money to get off the ground.

Money which Hynix doesn't have. How can it keep pace with the capital outlays of competitors? Answer: it can't. ®

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