UPDATE 3-Hynix posts Q2 loss on weak chips; outlook tough

(Adds more details, updates share price)

By Marie-France Han and Rhee So-eui

SEOUL, July 31 (Reuters) - Hynix Semiconductor Inc (000660.KS), the world's No.2 memory chip maker, reported a smaller-than-expected quarterly operating loss that boosted its shares, but faces a bleak second half as chip prices and shipments weaken.

Shares in Hynix, worth about $10 billion, rose 2.6 percent to end at 21,650 won, leading the wider market's .KS11 1.1 percent gain, as its operating loss was narrower than analyst forecasts.

The stock had fallen on Wednesday to its lowest since late-November 2005, and was more than a third down from its 2008 high seen early last month.

Hynix's net loss was much worse than expected as it reflected the cost of closing its unprofitable U.S. plant.

Hynix, trailing home rival Samsung Electronics Co Ltd (005930.KS), faces a difficult second half as a recovery in dynamic random access memory (DRAM) chips, used mainly for personal computers, is still too weak to make up for the steep price falls of 2007.

The picture is bleaker still for NAND flash chips, used in portable gadgets, as Hynix faces massive shipment cuts. Hynix on Thursday slashed its 2008 NAND shipment growth target to 50-60 percent from an already reduced 90-100 percent.

It said average DRAM prices were seen falling 40 percent this year and NAND prices are expected to decline by a half.

"The overall chip industry is undergoing a recovery but the pace is much slower than people had expected," said John Park, an analyst at Daishin Securities.

Analysts predicted the memory market's slump could drag on into 2009.

"Toward the year-end, we expect better supply-demand balance for both DRAM and NAND," said O.C. Kwon, Hynix's senior vice president of strategic planning.

Sector leader Samsung last week posted a lower-than-expected quarterly net profit, also due to the weak memory chip market.

Hynix reported a 707.8 billion won ($697.5 million) net loss for the quarter to end-June, compared with a revised 213.5 billion won profit a year ago. The result missed a 225 billion won loss forecast by 12 analysts polled by Reuters Estimates.

The big loss reflected 352 billion won in write-off costs for its Eugene plant and the burden of servicing foreign currency debt, as the won's value KRW= against the dollar at end-June was 12 percent lower than a year ago.

Operating loss on a parent basis was 183 billion won, much smaller than the first quarter's 505 billion won and less than a consensus forecast for a 235 billion won loss.

"Hynix should turn to an operating profit in the third and fourth quarters, but it would be difficult to expect a sharp growth in earnings momentum," said Park Hyun, an analyst at Prudential Investment and Securities.

Makers of DRAM chips are mired in an 18-month market slump in which some key product prices have fallen more than 90 percent. While the average contract price of DRAM chips has risen about 30 percent this year, the scale of earlier price drops has made a financial recovery difficult.

Analysts still expect the strongly cyclical memory market to eventually recover thanks to spending cutbacks.

Hynix said it expects average DRAM prices to remain nearly flat in the third quarter after rising 9 percent in the second, with shipment growth should be in the mid-20s percent.

Average prices of NAND chips are seen falling by a single digit percent with shipments down around 10 percent, it said. (Additional reporting by Park Ju-min; Editing by Jonathan Hopfner & Ian Geoghegan)