S. Korean chip industry enters full recovery track: analysts

By Kim Young-gyo
SEOUL, Jan. 24 (Yonhap) -- South Korean memory chipmakers have entered a full
recovery track, probably earning more than 10.8 trillion won (US$9.42 billion) in
the fourth quarter of last year, analysts said Sunday.
The combined sales of the nation's chipmakers -- Samsung Electronics Co.'s
semiconductor division and Hynix Semiconductor Co. -- are expected to set a
record high in the October-December period, traditionally a low season for the
industry, according to analysts at securities firms here.
Hynix, the smaller of the two, said last week in an earnings report that its
sales surged 85 percent on-year to 2.8 trillion won, its best quarterly
performance ever.
Samsung Electronics, scheduled to announce its fourth-quarter earnings on Friday,
is estimated to top 8.02 trillion won in semiconductor sales. It would be also an
all-time high, according to the South Korean branch of Prudential Investment and
Securities. Samsung's operating profit for the same period was estimated to reach
1.99 trillion won.
The rebound comes as chip prices are on the rise. According to Taiwan-based
DRAMeXchange, the spot price for 1-gigabit double-data-rate three (DDR3) 128Mx8
chips that run at 1,333 megahertz was $3.25, the highest since the technology
emerged.
The contract price, or the average cost of chips traded in large volumes between
suppliers and PC manufacturers, for 1-gigabit double-data-rate-two (DDR2) 128Mx8
chips that run at 667 megahertz has remained steady at $2.38 since early
November, according to DRAMeXchange.
In terms of profitability, the South Korean companies outmatched their overseas
rivals.
Hynix earned a 25 percent operating profit margin, rising 15 percentage points
from a quarter earlier, while Samsung Electronics's operating profit margin will
likely be between 23 and 25 percent in the chip division.
U.S. chipmaker Micron Technology and Taiwan's Nanya Technology Corp. were
reported to have operating profit margins of 12 percent and 1 percent,
respectively.
Inotera Memnories Inc., a joint venture between Nanya and Micron, earned a 6
percent margin in the fourth quarter.
"Strong memory chip prices in the traditionally slack season are attributable to
greater-than-expected demand for personal computers, especially in China," said
Lee Man-hee, an analyst at Dongbu Securities Co.
Amid the worldwide economic recession, South Korean chipmakers successfully
launched higher-value added chips, such as DDR3, and lowered the cost of
production, Lee said.
"The winners will likely take all as the industry sees a recovery this year," he
added.
According to a report by Samsung Securities Co., the two Korean chipmakers saw
their combined share of the global dynamic random access memory (DRAM) market
reach 61 percent during the April-June period of 2009. It is a 13.1 percentage
point rise from the same period last year.
Shares of Samsung Electronics closed at 825,000 won last Friday, rising 88.14
percent since Jan. 23, 2009. Shares of Hynix closed at 26,100 won, up 275.54
percent compared to the same date.
U.S. Investment bank Goldman Sachs last week reiterated its "buy" rating and
raised its 12-month target price for Hynix.
"(W)e still believe in a strong DRAM cycle with upside risk to profits," it said
in a report Thursday.
ygkim@yna.co.kr
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