Creditors Pressing Hynix to Sell
A day after rejecting a $2.9-billion deal to sell its memory chip business to Micron Technology Inc., South Korea’s Hynix Semiconductor Inc. is facing intense pressure to reconsider from its creditors and regulators.
In a blistering comment to South Korean news agencies, the country’s finance minister said Hynix’s decision was “regrettable and embarrassing for the government,” which has labored in recent years to attract foreign investments.
Hynix also is facing the possibility that its creditors, who favor the deal as a way to recoup part of their $5 billion in loans to the company, may assert its option to convert more than $2 billion in bonds this month to stock. Doing so would give creditors a 75% stake in the company, enough to oust the current board and install members who would approve a sale.
“This game is far from over,” said Jack Geraghty, an analyst with Gerard Klauer Mattison in New York.
Micron stock rose $1 to $24.70 on the New York Stock Exchange, partly based on increasing optimism that government pressure will force the deal through, said David Wu, vice president of research with Wedbush Morgan Securities in Los Angeles.
Nevertheless, Hynix officials said Wednesday that they are determined to steer an independent course and are seeking a buyer for the company’s smaller non-memory-chip business to stay afloat.
But industry analysts say such a move would not only ensure the company’s eventual demise, it also would create a drag on the overall industry by depressing prices and creating a temporary chip glut amid the worst downturn in a decade.
Hynix “will die slowly under that scenario,” Geraghty said. “They may make it through the next upturn and live, but by the next downturn, they won’t be able to keep up.”
Last year, anemic demand from the personal computer industry, which consumes most of the dynamic random access memory, or DRAM, chips produced by Hynix, pushed worldwide DRAM sales to $11.2 billion, down dramatically from $28.9billion in 2000.
With chip prices on a roller coaster ride in recent months, estimates for this year’s market ranges from $8 billion to $20 billion.
Extreme price volatility is one reason investors are pushing for Hynix to sell its DRAM factories and exit the business, leaving 80% of the market in the hands of three suppliers, Boise, Idaho-based Micron, Korea’s Samsung Electronics Co. and Germany’s Infineon Technologies.
“The problem now is that there are too many suppliers and not enough demand,” said Jeremy Lopez, an analyst with Morningstar Inc. in Chicago. “No one wants to cut supply on their own.”
Even executives at Samsung, which would lose its position as the world’s largest memory chip maker should Micron succeed in buying Hynix, favor the deal.
“Consolidation is good for the industry,” said Tom Quinn, vice president of sales for Samsung’s semiconductor business in San Jose. “We think it brings some level of stability to the industry.”
The supply of DRAM chips is expected to remain stable in the next several years, with companies scaling down investment in new equipment in the current downturn. As a result, no new factories are expected to come on line this year.
