Hynix Semiconductor on Expansion
Mode into Non-Memory Business

Gov. official-turned CEO confident of success in downbeat semiconductor sector

This past March, Kim Jong-kap, 56, former first vice minister for trade and industry, took over as chairman-CEO of Hynix Semiconductor, sparking worries over the senior government official turned CEO's ability to lead the semiconductor company.
However, Kim demonstrated his managerial capability after the government decided not to allow the expansion of the Hynix Icheon plant, citing environmental problems. It was the most daunting issue he encountered since taking the helm, but Kim got the nod from the Environment Ministry for the plant's expansion on the condition the company no longer discharge wastewater into a stream that is part of the raw water resources of tap water for the Seoul Metropolitan area.
The chairman is now putting more energy into preparing for the future of his company. Under his leadership, Hynix is setting it sights on re-entering the non-memory sector. Hynix previously quit the non-memory field after undergoing a massive restructuring.
Kim said, "Hynix has learned a precious lesson - it has gotten back on its feet after recovering from miserable failures. We have been stuck to a survival strategy, but not for the future. Business prospects are good until 2010, however, if we do not turn our eyes to the future, problems may occur after that year."Kim's eyes are on the years to come, despite downbeat DRAM business circumstances.
DRAM chip prices have been nose-diving on the global markets since September. Hynix posted 2.43 trillion won in sales, including those from overseas operations, in the third quarter of 2007, a 24 percent surge over the same period of last year, but the company saw its operating income plunge 44 percent.
Semiconductor makers now face difficult times, but Kim is still upbeat about the future, saying that the business prospects are not bad from a long-term perspective.
The global semiconductor industry needs restructuring to solve the supply glut, but chances are high that Korean chip makers, including Samsung Electronics and Hynix, which are the front-runners in terms of technological power, could turn a crisis into an opportunity for growth, he noted.
The current situation of the global semiconductor industry can be compared to a game of "chicken"in which two cars are running on a collision course and the car that swerves is the loser. Some foreign chips makers, including Taiwanese companies, are showing signs of cutting down on investments for next year, while Samsung Electronics, the industry's leader, has announced a massive investment strategy. Hynix has also announced its 2008 plan to make investments similar to the 2007 levels.
Hynix has raised DRAM mass-production and yield (efficiency) to the world's highest levels thanks to its cost-saving efforts since 2000 when it was in danger of a collapse.
However, Hynix has an unfavorable business portfolio : the 70:30 ratio of DRAMs and NAND Flash memory chips. DRAM prices nose-dive and a drop in production efficiency in the course of its transition would have an adverse impact on its revenue structure.
Hynix's Revenues Surge 30 percent to ￦2.4 tln
Hynix Semiconductor Inc. announced earnings results for the third quarter of 2007, ended September 30. The company recorded consolidated (which is the consolidation of the Hynix's semiconductor operations) revenues of 2.44 trillion won, which is a 30 percent increase over the previous quarter's 1.87 trillion won, and 24 percent increase over the 1.97 trillion won recorded in the same period last year.
The increase in sales was primarily attributable to the improved pricing environment owing to seasonal demand for both DRAM and NAND flash in the earlier part of the quarter as well as the company's strategic movements to mitigate the rapid price drop that occurred during the later part of the quarter. Such strategic movements included a product mix shift to premium products, such as graphics and mobile, and larger sales exposure to long-term contract customers. As a result, Hynix's average selling price for DRAM increased 3 percent quarter-on-quarter. In addition, the company achieved 17 percent quarter-on-quarter bit growth supported by the strong demand from the PC OEMs. For NAND flash, the company achieved 92 percent bit growth, which was driven by strong demand in the video-capable MP3 players and mobile phone segments that require high-density NAND flash. Nonetheless, such growth in bits was partially offset by a 6 percent drop in the average selling price.
Third quarter operating profits more than doubled to 254 billion won from the previous quarter's 109 billion won. It is an improvement of 133 percent sequentially, but a drop of 44 percent compared to the same period last year. Net profits for the third quarter came in at 170 billion won with a 7 percent net profit margin, sustaining 17 consecutive quarters of profits since the third quarter of 2003. Adding the depreciation and amortization expenses to the operating profits, EBITDA came to 882 billion won with an EBITDA margin of 36 percent.
Meanwhile, consolidated cash and short-term financial instruments decreased by 576 billion won sequentially to 1.2 trillion won, while total debt increased by 240 billion won to 4.4 trillion won at the end of the third quarter. As a result, the debt to equity ratio and net debt to equity ratio were 46 percent and 33 percent, respectively. nw

Kim Jong-kap, chairman-CEO of Hynix Semiconductor