UPDATE 3-Hynix says power outage hits China DRAM plant

Tue May 20, 2008 6:11am EDT

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(Adds DRAM price increase, updates shares to close)

By Marie-France Han

SEOUL May 20 (Reuters) - South Korea's Hynix Semiconductor (000660.KS), the world's second-biggest maker of memory chips, said a power outage disrupted production at a plant in China, hitting its shares and boosting those of rival manufacturers.

The plant at Wuxi, near Shanghai, represents about half of Hynix's total output of dynamic random access memory (DRAM) chips, widely used in personal computers.

Hynix said the outage on Monday was likely to result in $16-$18 million in lost sales.

"The figure includes chips lost during the outage and lost production while the plant goes back into full operation," said James Kim, vice president in charge of investor relations.

He said it would take about two days for the plant to fully ramp up. The outage was not thought to be related to last week's earthquake in Sichuan.

Separately, a chip industry source said South Korean computer memory chip makers, including Hynix and Samsung Electronics Co Ltd (005930.KS), had raised their contract prices for the first half of May by around 5 percent.

"The market is on an upward trend," said the source, who is familiar with chip makers' price negotiations and declined to be identified.

Shares in Hynix fell more than 4 percent in early trade and closed down 2.45 percent, underperforming the wider market's .KS11 0.65 percent dip.

Shares in rival chip makers in Japan and Taiwan gained on hopes the disruption would reduce worldwide DRAM supply and boost prices in a depressed market.

Makers of DRAM chips worldwide have been mired in a steep market downturn for more than a year, with prices of some key chips falling more than 90 percent since early 2007.

"If we assume that around 30 percent of monthly capacity was affected by the outage, this may affect around 3-4 percent of monthly global DRAM supply for the coming one or two months," said CW Chung, analyst at Lehman Brothers in a note.

In Japan, shares in Elpida Memory 6665.T rose 3 percent against the wider market's .N225 0.8 percent drop.

In Taiwan, Powerchip Semiconductor 5346.TWO and Promos Technology 5387.TWO also rose, outperforming the TAIEX .TWII which dropped 2.4 percent.

Shares in Samsung fell 2.1 percent.

POSITIVE FOR MARKET

Lehman's Chung drew comparisons with an outage at Samsung last August that disrupted output of NAND memory chips, but which eventually had little impact on prices. Chung noted the Hynix case was different as the outage occurred against a backdrop of industry capex cuts.

"This should help supply-demand dynamics more positively than last year's case," Chung said.

An analyst at NH Investment & Securities estimated the outage could reduce worldwide DRAM output for May by about 5.6 percent.

Other analysts downplayed the likely impact of the outage.

"About three days' worth of DRAM production is likely to be affected, which could provide a temporary boost on the spot market," said Lee Min-hee, an analyst at Dongbu Securities.

Peter Yoo, analyst at BNP Paribas, said Hynix could even benefit from the outage if DRAM prices rise. "In the case of last year's Samsung outage, prices jumped 14 percent."

Hynix operates the China DRAM plant jointly with Numonyx, which is a joint venture owned by STMicroelectronics (STM.PA) (STM.N), Intel (INTC.O) and Francisco Partners. (Additional reporting by So-eui Rhee in TOKYO, Kim Yeon-hee and Park Ju-min in SEOUL and Faith Hung in TAIPEI; Editing by Keiron Henderson & Ian Geoghegan)

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