Hynix Cuts Number of Executives by 30%
By Kim Yoo-chul
Staff Reporter
The time is approaching to end fierce competition that has lasted for two years among chipmakers for a bigger market share as the prolonged downturn in the industry and rapidly deteriorating consumer demand are forcing them to cut production and their workforces.
Most chipmakers, from the industry leader all the way down have been aggressive in increasing their production volume since early 2007 to be in a better position when the global chip industry turned around.
But the profitability of first and second-tier chipmakers has been plunging due to rising inventories, and rapidly decreasing demand for consumer electronics devices amid the continued economic slump.
Last month, the Semiconductor Industry Association in its annual forecast for 2009 predicted the first decline in sales since the tech bubble burst in 2001, mirroring the growing belief that the fourth quarter looks bleak.
Hynix Semiconductor, which trails Samsung Electronics in the global dynamic random access memory (DRAM) segment, announced Sunday a restructuring plan that will cut its workforce, slash the number of executives by 30 percent, and lower pay for its CEO and other executives by 30 percent and 10-20 percent, respectively.
As part of a contingency plan, the Icheon-based chipmaker will have its workers on unpaid leave for two weeks between January and April to lower labor costs and to tackle falling sales and soaring losses.
``The wide-scale restructuring efforts will help us reduce labor costs by over 15 percent,'' its spokeswoman Park Seong-ae said.
Last week, Hynix called for urgent financial help from its creditors led by Korea Exchange Bank (KEB). KEB is positively reviewing injecting up to one trillion won in cash to the struggling chipmaker, backed by the government.
Hynix shut down its money-losing 8-inch wafer fabrication lines and it plans to invest one trillion won on chips in 2009. The company reported a 1.65 trillion won net-loss from July to September ― its worst quarterly results in nearly eight years. Its cash flow was 1.2 trillion won at the end of the third quarter.
For survival amid the industry's downturn, the world's No. 2 NAND flash chipmaker Toshiba said two of its main chip lines will be shut down over the New Year holidays.
Lines at its plants in Yokkaichi, Mie Prefecture and in Oita are to be shut down from Dec. 27 to Jan. 4, the first time since the burst of the dot-com bubble in 2007.
Toshiba plans to lay off 380 contract and temporary workers in Oita, and another 100 at its plant in Kitakyushu by the end of March. Toshiba has also warned that any further production cuts could lead to more job cuts.
``Other companies will likely follow Toshiba,'' Goldman Sachs said in a letter to clients.
The situation is more desperate for German's Qimonda and Taiwanese chipmakers.
One of the hardest hit, Qimonda, a two-year-old spin-off of Infineon, is desperately searching for money to survive ― it said it urgently needs new investment or it could run out of cash early next year.
The market leader Samsung Electronics in both DRAMs and NAND flash memories, however, is alone in maintaining full production capacity at its chip lines. Samsung also doesn't have any plans to cut its workforce or slash output.
``Only workers of a six-inch fab line will leave for a few days during the New Year holidays. The remaining lines will operate 24-hours a day,'' a Samsung spokesman said.
Analysts say the ``complete ending'' of competition among makers is now up to governments' financial support to troubled chipmakers.
``If Qimonda and Taiwanese chipmakers receive a massive rescue package from their governments, then the global chip industry will continue its current weak movement over the next few years,'' an official from Samsung Electronics said.
Taiwan's Powerchip warned its government that without quick action the country will have no DRAM industry if related makers are beaten off by the Korea. The government decided to help the consolidation and mergers by providing more funds from the National Development Fund.
``The global chip industry has been reshaped within four or five periods with the winners taking the benefits. It is interesting to see whether the formula repeats,'' said an official.
JP Morgan recently said in a report that survivors will benefit when the global economy rebounds. The brokerage said Samsung will be the last one standing in the industry.