`Cash flow top priority for Hynix in 2009`

The chief executive of Hynix Semiconductor said yesterday he will focus on the financial stability of the cash-strapped firm this year as tepid demand threatens to exacerbate its losses.

"We should put our utmost priority on stabilizing finances," Kim Jong-kap said in a New Year`s message. "Given the unstable worldwide economic environment and semiconductor business climate, we should focus on cash flow management this year."

The world`s No. 2 memory chip maker has been grappling with a cash shortage as oversupply has dragged down chip prices, leading to losses.

The economic downturn, which has battered demand for consumer electronics, has been further eroding chip prices and deepening losses.

Kim acknowledged that the highly cyclical chip industry is in an unprecedented downturn as the macroeconomic environment worsens.

"The downward cycle of the memory chip sector has been prolonged by the economic crisis ... But cautious predictions point to the possibility that the downward cycle that lasted for more than two years will come to a halt in the latter half of this year," the CEO said.

Falling prices and tumbling demand have hurt the profits of the company, which posted losses for fourth quarters in a row.

Analysts said that one source of relief is that the company`s major shareholders are committed to providing cash to Hynix to help keep the company afloat.

The largest shareholder Korea Exchange Bank and four others have agreed to provide 500 billion won in new loans to Hynix, in addition to participation in the company`s new issuance of shares worth 300 billion won.

On top of the 800 billion won in fresh funding, they also agreed to roll over Hynix`s maturing debt until the end of 2009, which will give 1.8 trillion won in liquidity to the company.

Hynix also came up with self-help measures. It plans to secure 1 trillion won through asset sales and 180 billion won through restructuring efforts.

Hynix`s smaller rivals -- Germany`s Qimonda and Taiwan`s chip suppliers -- are also reeling from heavy losses and have secured or plan to secure funding from their governments.

But the funding is not sufficient to help global chipmakers improve their fortunes as weak demand continues due to the economic downturn, analysts said.

Despite news of fresh funding for Hynix, Standard & Poor`s Ratings Services cut its debt rating for the Korean company late December, "reflecting the extremely challenging market situation and the rapid deterioration in the company`s financial risk profile."

The credit ratings agency expected Hynix`s operating loss to widen in the current quarter by about 30 percent from the previous quarter, and the company to continue to incur "significant" losses over the next few quarters.

Hynix, the No. 2 maker of dynamic random access memory, or DRAM chips after Samsung Electronics, seeks to increase profitability by raising the portion of value-added DRAM chips for mobile devices and servers, Kim said.

"We will secure an absolute competitive advantage in profitability," he said.

He also said the company should pursue a long-term cooperation with large clients to create a stable source of income.

To deal with the cash shortage and industry slump, the company earlier slashed the production of its DRAM chips by 20 to 30 percent, cut planned spending on a Korean plant and put off $260 million won in investment in its Chinese joint venture.

By Jin Hyun-joo



(hjjin@heraldm.com)