Semiconductor slowdown hits Hynix hard

South Korea's Hynix Semiconductor Inc. on Thursday reported deep losses for the quarter just ended on the back of continuing price drops in the semiconductor memory sector.

Hynix, the world's largest producer of computer main memory DRAM (dynamic random access memory) chips, said its nonconsolidated pre-tax loss for the second quarter was 1.28 trillion won (US$960 million) -- sharply lower than the 469 billion won loss incurred in the previous quarter and an indication of the rapid decline in prices and business experienced by the company, it said in a statement. The results announced Thursday are not audited.

"We felt that the quarter was a reflection of the industry as a whole," said Daniel Behrendt, investor relations manager at the company in Seoul. "No one will argue, it is a tough time in the semiconductor market."

The spot price for mass market 128M-bit DRAM chips was about US$5.35 at the beginning of the first quarter although this had slipped to about $4.80 at the beginning of the second quarter and had slid further still to $2 per chip when the quarter ended, according to market data from ICIS-LOR. A Hynix spokesman said in a late June interview that the company had about six weeks worth of chips in stock, a number considered high in the industry, and that it was losing money on production of 128M-bit chips at these prices.

In reaction to the worsening market conditions, the company announced Wednesday that it has halted production at its DRAM plant in Eugene, Oregon, for six months during which 600 employees will be laid off. During that time the company will spend $150 million on upgrades to its production lines. This will enable the company to switch from current output of 64M-bit DRAM chips produced using 0.22 micron technology to much more advanced 256M-bit DRAM chips produced using 0.16 micron production.

Revenue from its semiconductor operations fell 24 percent quarter-on-quarter to 951 billion won while total revenue was off 34 percent at 1.2 trillion won. Hynix reported an operating loss of 266 billion won against a 69 billion won operating profit in the first quarter.

During the quarter, the company continued off loading non-semiconductor operations to new subsidiary companies in an attempt to improve efficiency and attract foreign capital as it tries to dig itself out from under 5.7 trillion won of debt that will come due this year. Its LCD (liquid crystal display) and telecommunication operations are now handled by such subsidiaries and other units have been sold off.

In June, the company also raised $1.25 billion through the sale of GDRs (Global Depository Receipts) and accepted a debt-rescue package led by the Korea Development Bank that will see 2.9 trillion won of debt rolled over for payment from 2002 to 2005. The remaining 2.8 trillion won of debt will be paid this year as part of the plan.

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