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Last updated: December 8, 2008 6:10 pm

Seoul considers state aid for Hynix

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South Korea may consider helping Hynix Semiconductor with funding if creditors for the troubled chipmaker decide not to provide it with financial support.

Hynix, which like other chipmakers is feeling the impact of oversupply and falling prices, has faced mounting concerns about its future in recent weeks. The company reported a Won1,650bn ($1.14bn) net loss in the third quarter, its biggest quarterly loss in at least seven years,

Lee Youn-ho, South Korea’s minister of knowledge and economy, said on Monday that creditors had almost agreed on support measures for the world’s second largest memory chipmaker.

“At the moment, the government is not considering direct support [for Hynix] because shareholders have agreed on providing liquidity to some extent,” Mr Lee told foreign correspondents. “But if creditors can’t help out Hynix, then the government may look into it.”

Korea Exchange Bank, Hynix’s main creditor, was more cautious, saying that creditors were still reviewing Hynix’s request for Won500bn-Won1,000bn of financial support. Creditors including KEB, state-run Korea Development Bank, Woori Bank and Shinhan Bank own a combined 36 per cent stake in Hynix. They bailed out the chipmaker through several debt-to-equity swaps in 2001, when the company was pushed to the brink of bankruptcy.

Monday’s comments came after Hynix announced over the weekend a tough restructuring plan to cut its workforce and reduce pay for its executives. Hynix plans to cut the number of executives by 30 per cent and trim their pay by 10-30 per cent as part of efforts to survive one of the industry’s most severe downturns.

The company will also introduce a voluntary retirement programme for workers with more than 10 years’ experience and ask all of its employees to take a two-week, no-pay leave on rotation from January to April.

Hynix, which has about 22,000 staff including 96 executives, expects the cuts to reduce its wage bill by more than 15 per cent.

“The semiconductor market remains bad and if this downturn persists through the end of next year, we could be in trouble. So we need a contingency plan in case of a protracted slump,” said James Kim, vice-president at Hynix.

Hynix had Won1,200bn in cash reserves as of end-September. It plans to keep its capital expenditure for next year at Won1,000bn-Won2,000bn, compared with Won2,600bn for this year. But its chief executive said last week that the company would still report a profit for the year and forecast the global chip market would hit the bottom in the first quarter of next year.

Market researcher iSuppli, however, expects Hynix to report a 29 per cent drop in 2008 revenue, the biggest drop among leading chip manufacturers.

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