Chip-making giant revamped

SK hynix diversifies biz portfolio

By Kim Yoo-chul

When it comes to mergers and acquisitions (M&A), post-purchase integration matters most. A freshly acquired company needs to develop a chemistry with its buyer otherwise the results can be dismal. Only when the entity can create new value does the purchase become worthwhile.

In this regard SK hynix, formerly Hynix Semiconductor, is on the right track. The chipmaker has been reborn as a competitive player under the ownership of SK Group, injecting new confidence and vision. Now qualified undergraduate, graduate and even Ph.D.

degree holders are applying to work at the company. Under the new ownership the focus is shifting to growth from survival.

SK hynix said the company has boosted its corporate value through SK Telecom and that it now has various options to diversify its business portfolio.

Citing the chipmaker’s first participation in the Mobile World Congress (MWC), the biggest annual telecommunications show, at which SK hynix displayed various premium chip solutions for cars and telecom companies, SK hynix spokesman Son Hee-young said it has resulted in a stronger client base.

Ownership

The chip-making business is highly-volatile and cyclical because consumers usually buy fewer digital devices when the economy is in trouble. This requires bold decision making from chip businesses.

SK hynix seems under safe management as SK Group Chairman Chey Tae-won is directly controlling the chip-making business. Chey is also co-CEO of SK hynix with Kwon Oh-chul.

``Under proper leadership, SK hynix is growing with finely-tuned business strategies. This is a very positive factor,’’ said Son. The company has said it will invest 4.2 trillion won this year, up from last year’s 3.5 trillion won and the bullish investment decision was finalized by Chey.

The union has also sided with top SK hynix and SK Group management on key pending issues.

``Investment and technology development are key aspects for company competitiveness. Faster decision-making and management consistency are significant. That’s why we are happy about Chey’s direct involvement in the running of SK hynix,’’ SK hynix’s union said.

Employees are also impressed by the chairman’s care as Chey has stressed that the conglomerate will help the chip-making business along with the group’s core telecom and oil refinery businesses, the statement said.

Going global

In this year’s management reshuffle, SK hynix created the so-called future strategy office. It is being tasked to find solutions to help the firm see sustainable corporate growth.

SK hynix declared interest in Japan’s Elpida Memory but dropped its bid last month. Officials say this shows the ongoing changes under the new owner.

``That means SK hynix has various strategic options for corporate growth,’’ said Son.

The firm is also busy sharpening chip-making technologies especially in flash NAND memory chips, a vital component in devices such as smartphones, cameras and tablets.

SK hynix is a top-tier supplier of DRAM chips but experience ``some gaps’’ between market leaders in NAND chips.

It’s been partnering qualified overseas players or even buying companies for growth in the highly-competitive chip market.

In April, flash memory vendor Spansion said it will offer single-level-cell (SLC) NAND flash devices for the embedded market in a patent cross-licensing agreement with SK hynix.

This month, the company agreed a partnership with IBM of the United States to usher in phase-change memory, also known as PcRAM, as a potential next generation of non-volatile flash memory.

The Korean company seems to believe its days as a DRAM manufacturer are numbered but with the assistance of IBM, the company hopes to get a competitive jump start in a future market where DRAM and flash alternatives like MRAM, STT-MRAM and Re-RAM are expected to burgeon.

PcRAM promises far higher densities, a property which should translate to higher storage capacities in a smaller physical space.

This month also saw SK Hynix acquire Italy-based NAND flash developer Ideaflash as its first technology center in Europe, to be used for research and development. It also recently bought U.S.-based controller maker LAMD. These purchases have been viewed positively by investors.

The top three credit rating agencies ― Moody’s, Standard and Poor’s and Fitch Ratings ― each upped their ranking of SK hynix by one-notch.

``A stable outlook reflects Fitch’s view that SK hynix’s financial profile is likely to remain intact over the next 12-18 months. Its large cash balance of 3.4 trillion won at the end of the first quarter of this year, partly supported by an equity injection from SK Telecom amounting to 2.3 trillion won in February, 2012, should enable the company to comfortably cover capital requirements, mainly in NAND,’’ said Fitch’s associate director Alvin Lim.

``Fitch may consider a positive rating action if SK hynix’s fund from operations-adjusted leverage remains below 2x or if it EBIT margin rises above 6 percent with positive free cash flow generation on a sustained basis,’’ Lim wrote in a note to clients.