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Hynix cool on merger talks

Posted: 12 Jul 2002 ?? ?Print Version ?Bookmark and Share

Keywords:chip demand? memory chip? micron technology? merger? dram?

Pinning hopes on a second half recovery in chip demand, Hynix Semiconductor Inc. is downplaying the possibility of rekindling talks with Micron Technology Inc. about the sale of its memory operations. Instead, it will forge ahead with a restructuring that will help it pay down its $5.3 billion debt and remain independent.

Micron is willing to reengage Hynix after a new, creditor-controlled Board of Directors takes tighter control of the company later this month. A deal between the two manufacturers would make Micron the undisputed DRAM king. "If they sort through the issues that they have and it looks like a reasonable process for us to reengage, then, sure, we are open to it," said Micron CEO Steve Appleton in a recent interview with EE Times.

Hynix has already rebuffed one offer from Micron, worth more than $3 billion, and just the suggestion that the door is still open elicited a negative response. "We can do fine on our own," said Farhad Tabrizi, vice president of worldwide marketing at the Korean memory maker. "Hynix is healthy and doing good and we are not at the stage where we have to be forced into any kind of merger."

The two companies entered into negotiations shortly after DRAM prices bottomed out toward the end of last year, at around 80 cents per chip. During months of negotiations, Micron had the chance to get a more intimate look at Hynix's structure and finances. Appleton said the company has "essentially been bankrupt" and would not survive without significant restructuring.

That has raised hackles at Hynix. Tabrizi said the company now has more than $250 million in cash on hand, has made its last payment of 110 Billion Won to LG Electronics to close out that merger and also recently made a $150 million debt payment for its Eugene, Oregon, fab. That, Tabrizi said, takes care of Hynix's major payments for the rest of this year.

During the past six months, Hynix has also been shifting its workhorse process for 256Mb chips from 0.185m to 0.155m. At the beginning of the year, Hynix ran about 60 percent of its DRAM capacity at 0.185m; now 75 percent runs at 0.155m.

Using its BlueChip technology, the company was also able to efficiently extend the life of its steppers into the 0.155m node instead of having to buy more expensive scanners. "Our cost of 256Mb in the industry is among the lowest because of the extension of the steppers," Tabrizi said.

Even so, the problems at Hynix arise outside of the fab. Its merger with LG, for instance, helped drive up its debt load and saddled it with the highest debt-to-equity ratio of the top DRAM producers-88 percent compared to Micron's 6 percent. Analysts have estimated that interest on its debt adds 80 cents to its chip cost. Tabrizi declined to comment on non-operational costs.

Hynix officials are optimistic that the industry will go into a shortage situation during the second half. Tabrizi thinks there are signs of that already. On mainstream DDR products, he claimed Hynix is carrying less than a week of inventory. That contrasts with 4-6 weeks at other chipmakers.

If the prices of 128Mb DDR stay higher than $2, then Hynix will enjoy high gross margins, Tabrizi said. "If the prices go to $4 or $5 then our profit margins would be in a range that we can pay our debt down very quickly," he said.

Nevertheless, in Korea, there have been mixed signals on the direction creditors will take Hynix once nine new directors join the board on July 24. "With restructuring, it can be independently competitive,'' said Commerce Minister Shin Kook-hwan, who once headed the creditors' restructuring committee, during a television interview. However, he hedged by adding, "This does not signify a willingness favoring solo survival.'' Other politicians have suggested a sale wouldn't be considered till the end of the year.

"Creditors benefit more if Hynix stays independent," Tabrizi said. "So we are focusing on our restructuring and improving our internal efficiencies. Of course, as a reasonable management, we always look at various proposals from different companies."

Mike Clendenin

EE Times

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