Blue chip

Hynix aiming high with advanced chip manufacturing technology

By Kim Yoo-chul

The memory chip industry is cyclical and volatile upon economic moves because consumers usually cut back on their spending on chip-embedded digital devices when economies get into trouble.

Volume is the key word to gauge the intensity of corporate sustainability as more volume means increased possibility to secure the

"bottom line" even in the industry's cyclical slump.

Korea's Hynix Semiconductor, which only trails industry leader Samsung Electronics, is one of them which has already realized the "economies of scale" in its chip-making business.

It controls more than 20 percent of the global demand for DRAM chips used in traditional computers, according to market research firm iSuppli, while the Icheon, Gyeonggi Province-based outfit is the world's third-biggest NAND flash memory chip player.

NAND flashes can store data even when the machine is switched off and are used in high-end personal devices such as smartphones, tablet PCs and camcorders.

Hynix, which received its best sales and profit last year ever (12.1 trillion won sales and 3.3 trillion won operating profit), seems that it's not satisfied with its business scale.

With advanced technologies, it is planning to stamp its authority as the trusted chipmaker, while the company is set to widen the gap between its overseas rivals.

"Hynix has seen substantial progress in cost-efficient chip-making technology. That will help us improve our position even in the industry’s structural realignments," said Park Hyun, a senior Hynix spokesman, Tuesday.

Chipmakers are busy migrating to thinner technologies in an attempt to retain price competitiveness in the volatile sector.

In the chip industry, thinner is better. For example, a DRAM chip with 40-nanometer processing technology could save more than 50 percent of costs than that of 50-nanometer technology.

Hynix is one of the leaders of the finer strategy. It can fully manage 40-nanometer processing technology ahead of its Japanese and Taiwanese rivals' 50-, 60, and 70-nanometer norms.

"There is constant pressure on chipmakers to come up with something better and cheaper than what redefined state-of-the-art only a few months earlier," Park said.

"Even in a down market, weak sales are seen as no excuse for not coming up with better products to whet the appetites of customers who will eventually need to upgrade their computing and electronic devices. Hynix seems quite able meet the requirements of consumers," said Kim Hyung-shik, an analyst at E-Trade Securities, a local brokerage firm.

The global chip-making industry is nearing consolidation as the leading Japanese chipmaker Elpida has reached an agreement on production with a top Taiwan maker.

This is a major step toward a Japan-Taiwan alliance to compete with the South Korean rivals who dominate the field.

"We've increased the portion of DRAM chips of 40-nanometer level to 50 percent out of the total by the end of last year as scheduled," said Park.

He added it is planning to boost the portion of chips applied with 30-nanometer level gradually.

In order to meet the rising calls from its bigger overseas clients amid the popularity of ``smart’’ devices including tablet PCs, Hynix plans to further produce more value-added DRAM chips such as mobile, graphic and server ones, Park added.

In NAND flashes, it's been under a stable route to provide more, according to company officials.

"Another goal which has been set this year is to realize a balanced business structure. Our NAND facilities will receive more investment," added Park.

With the contribution of its local plants, the company’s plant in Wuxi, China, is flexing its muscles in the Chinese market, which is seen to become the world’s biggest consumer electronics market by passing over North America from next year.

Although iSuppli claimed that the semiconductor industry by chipmakers reached its highest level in two and a half years in the fourth quarter of last year, it’s been expected chip prices will remain healthy throughout this year thanks to the higher demand for consumer electronics, which is also favorable for Hynix.

Along with technology and size, price is the other critical factor to gauge the profitability of chipmakers.

Having declined for the past four months, the contract prices for both DRAM and NAND flashes are seen to have stabilized during the first half of this year, giving top-tier chipmakers including Hynix further corporate growth, according to the data from DRAMeXchange, a market research firm.

"Hynix is differentiating itself by increasing NAND flash memories and non-PC DRAMs. It's becoming a player to better handle premium chips," Shin Hyun-joon, an analyst at TongYang Securities, another local brokerage, said expecting Hynix to see sequential revenue growth after the second quarter.

Financial soundness

What it did and what it’s doing now are helping Hynix strengthen its financial soundness.

In the chip industry, cash is one of the top words as it prevents companies from suffering market downturns by also helping secure the bottom line.

Thanks to the brisk yearly results, Hynix has decreased its debts to 5.9 trillion won to the end of last year from 6.9 trillion won a year earlier, another Hynix spokesman Sohn Kyung-bae said.

It's holding over 2 trillion won in cash-equivalent assets and Hynix officials expect to further lower the debts within this year on a healthier overall industry outlook.

"I am positive the DRAM industry will see continuous growth in the long-term as the `mobile era’ has emerged because of the release of 'smart' gadgets. Hynix will report profit regardless of market situations," said its chief executive Kwon Oh-chul.

"We are aiming to lower the debts 600 billion won more by the end of this year, which is achievable," the CEO added.

Hynix is planning to invest 3.4 trillion won on facilities, with 75 percent set to DRAMs and the remaining 25 percent for NAND flashes.

Most of the spending will be used to sharpen and upgrade its chip-making technologies, Sohn said.

Market analysts say the processes of finding a new buyer will be accelerated as Hynix’s chip-making technology was reaching a level to cushion any downturns.

Hynix is now up for sale. Creditors are trying to sell their combined 15 percent stakes, though the procedures have been stalled without finding big breakthroughs.

Yoo Jae-han, the chief executive at the Korea Finance Corporation, recently said it will seek buyers for the stakes and complete the basic framework for the sale by saying creditors had failed to find a new owner for the chipmaker.