By Kim Yoo-chul
Staff Reporter
Chief executive of Hynix Semiconductor said the global computer memory chip market may enter a "healthy cycle" in 2010, denying any possibility of oversupply.
The Icheon, Gyeonggi Province-based chip manufacturer plans to increase its capital expenditure next year amid rising demand for highly advanced computer memory chips.
"Hynix forecasts a short supply situation to continue for the whole of 2010. The possibilities are low that the industry may reach oversupply," Kim Jong-kap, CEO of the world's second-biggest dynamic random access memory (DRAM) chip producer, said in an interview with The Korea Times, Tuesday.
"Even if Taiwanese and Japanese players ramp up production, the possibility of oversupply is slim as worries over a double-dip in the global economy are easing," Kim said, adding that the economy has already entered a recovery phase.
Some policymakers and economists are arguing that the global economy will undergo a W-shaped recovery, or a double-dip, the condition where an economy falls into another downturn after a short-lived recovery following a slowdown, given the protracted slump in major advanced economies.
"Hynix will invest more in 2010 than the 1 trillion won ($855.5 million) this year. We still haven't fixed the investment portions of DRAM and NAND flash chips. But the company is planning to allocate more to NAND," said the top company executive.
Sources who are familiar with the situation said Hynix projects an investment of 2 trillion won, an increase of 100 percent from 2009.
Kim said the company will have greater flexibility in investment volume and adopt a management scheme based on market situations.
When asked about the target portion of speedier double date rate 3 (DDR3) chips out of total DRAM production next year, the executive said, "The portion of DDR3 chips is estimated to have reached over 50 percent of the total DRAM production in the first half of next year. But we are considering more."
"Hynix is moving to meet the requests of our bigger PC clients to supply DDR3 chips. But one of the key questions will be how strong the chip demand will be from corporate clients."
He expects the upcoming Microsoft Windows 7 operating system to help the chip industry gain additional momentum.
DDR3 DRAM chips have strength in power consumption and enhanced functionalities.
Moving to DDR3 chip production is expected to help chipmakers charge higher prices, with these becoming the mainstream memory chip used in PCs by early next year, analysts say.
Along with Samsung, Hynix is a mass producer of DDR3 chips.
Unlike the South Korean chip duo, smaller makers ― which have been mired in serious financial difficulties with DDR2 amid the supply glut since last year, driving the price of DDR2 chips below production costs ― are still busy mobilizing funds to boost capital investments.
"By the end of this year, the prices of DDR2 and DDR3 chips won't drop. Meanwhile, the prices of NAND flash chips will also be healthier thanks to strong demand for mobile products such as smart phones."
Asked about the won-dollar exchange rate for next year, Kim said the currency is likely to be around 1,100 won.
"The greenback will steadily lose its value. Under that situation, I hope the government will effectively control the won-dollar movement. But a strengthening won against the U.S. dollar won't impact our profit structure too much."
To maintain its sustainable technology leadership, Hynix plans to allocate 10 percent of its total sales to research and development (R&D).
A sizable amount of the R&D budget will go into the NAND flash chip business, a segment in which the company lags in terms of market share.
"Despite the five-year efforts in the NAND flash business, it is true that our NAND capability hasn't reached a proper level to better compete with the industry leaders. We should consider profitability. But Hynix has acknowledged the need to increase our NAND shares in the global market," Kim said, adding that additional investment was subject to the successful development of 32-nanometer processing technology.
On a recent move by Hyosung Group to buy a stake in Hynix, Kim said he respects the shareholders' wishes to sell to a local company.
Hyosung, a conglomerate focusing on chemicals and heavy machinery, was the only company that submitted a letter of intent (LOI) in September when creditors offered to sell Hynix.
"Hyosung expressed keen interest in buying a 28.07-percent stake in our company. I think creditors made the right decision at the right time," the CEO said.
"I am against market worries over possibly less synergy for Hyosung after its purchase, if the deal is made successfully. However, Hynix itself is capable of tackling any market uncertainty as our financial soundness has been bolstered."
"Hynix had hoped for more local buyers to submit LOIs. No matter what the situations are, we hope the ongoing process will be completed without significant troubles. Shareholders are reflecting on our pursuit of solidifying our technology base in South Korea," Kim said.
In the annual National Assembly inspection of government offices late Tuesday, Min Euoo-sung, chairman of the state-run Korea Development Bank (KDB), reiterated the creditor banks' stance to sell a stake in Hynix to Hyosung as planned.
Hyosung may buy a 15- to 20-percent stake in Hynix, instead of the planned 28.07 percent.
Lead managers for the sale ― Credit Suisse, Woori Investment & Securities and KDB ― have previously proposed the idea to Hyosung, and the company is considering it.
The original stake is estimated to be worth more than 4 trillion won, including a management premium, but the 15- to 20-percent stake will lower the purchase price to less than 2 trillion won, according to KDB sources.