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October 18, 2007 5:48 pm

Hynix to cut capital spending by 10%

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Hynix Semiconductor, the world’s second-largest memory chipmaker, on Thursday cut its capital spending for next year by almost 10 per cent and said it would re-enter the non-memory chip business to drive growth.

The announcement came after the South Korean company reported a worse-than-expected 56 per cent drop in third-quarter profit. Prices for D-Ram chips, mainly used in personal computers, have fallen amid an industry-wide oversupply, denting Hynix’s net profit which fell to Won168bn in the July-September period from Won384bn a year ago. Sales increased to Won2,340bn from Won1,820bn.

Hynix plans to cut its capital expenditure to Won4,000bn next year from Won4,400bn earmarked for this year amid uncertainty over how long the memory chips supply glut will last.

The company’s average D-Ram sales price fell 50 per cent in the third quarter from a year ago. The company’s average selling price for Nand flash memory chips – used in digital cameras, MP3 players and other mobile gadgets – fell 60 per cent.

Hynix expects D-Ram prices to stabilise in the fourth quarter on stronger seasonal demand ahead of the year-end holidays. It forecast a 10 per cent increase in the industry’s PC shipments in the fourth quarter from the previous quarter.

But analysts remained sceptical, predicting that D-Ram prices are not likely to recover until the second quarter of next year. Prices of D-Ram chips have fallen back after a brief rebound in the summer.

“We expect fourth-quarter earnings to fall sequentially due to already low D-Ram prices and weakness in flash pricing for the quarter. This decreasing profit trend should last until the first quarter of 2008,” Chung Chang-won at Lehman Brothers said in a report.

The oversupply problem has forced rivals such as Samsung Electronics and Micron Technology to report lower earnings. But Samsung raised planned investment in the semiconductor business by 25 per cent for the rest of this year.

Mr Chung at Lehmans expects second-tier chipmakers to reduce their capital expenditure next year as the first quarter is likely to be the bottom of the memory chip industry cycle.

Meanwhile, Hynix on Thursday affirmed its plan to re-enter the non-memory chip business as it sees high growth potential there.

“Hynix will utilise its business know-how and existing facilities to advance to the non-memory chip business,” the company said.

Hynix sold its non-memory chip business to the private equity arm of Citigroup for $830m in 2004 and pledged not to make non-memory chips for at least three years.

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