SEOUL Hynix Semiconductor (000660.KS), the world's No. 2 memory chipmaker, sees the current strong market condition lasting until at least early next year and may raise investment, its chief financial officer said on Tuesday.
As the memory chip sector recovers strongly from its worst ever downturn, global chipmakers, led by industry leader Samsung Electronics (005930.KS), are aggressively raising investments, turning up the heat on rivals with less cash to compete.
Shares of Hynix tumbled more than 10 percent in two days to a two-month low on Tuesday, pummeled by Samsung's record 18 trillion won ($15.6 billion) investment plan announced on Monday.
Hynix's 2.3 trillion won investment plan for this year amounts to only one fifth of Samsung's 11 trillion won budget for its semiconductor business.
"Current strong market conditions will last for at least another three or four quarters...we are considering raising (capital investment for this year) by 20 to 30 percent," Kim Min-chul told the Reuters Global Technology Summit in Seoul.
"We've started bringing forward investment schedules for this year (on strong demand)...and we are still unable to meet demand for PC and server DRAM chips. The shortage will likely ease in the second half as supplies grow," Kim said.
The bullish outlook echoes comments made by its close rival Micron Technology (MU.O) of the United States on Monday.
The U.S. company, which is the world's No.4 memory chipmaker, also said at the Reuters summit that strong demand for computer memory would soak up massive increases in capacity this year.
Kim, however, cautioned that upside for contract DRAM chip prices was seen limited as a robust gain in prices since late last year made memory chips now account for around 10 percent of computer costs.
"We are not seeing yet reduction in memory contents per computer due to higher chip prices, but don't think prices can go up sharply higher from here either," Kim said.
Spot prices of dynamic random access memory (DRAM) chips, used mainly in computers and increasingly adopted in high-end handsets and digital TVs, more than doubled over the past year to more than $2.5 per 1 gigabit on double-data rate 2 product.
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Analysts warn the increase in Samsung's investment spending will be bad news for smaller rivals from Japan's Elpida 6665.T to Hynix jostling to ride the recovery boom, as it will widen the technology gap with second-tier manufacturers.
"No one would spend as much as Samsung...and I don't think supply will grow exactly in proportion to increased investment," Kim said.
"Most producers are struggling with newer technology and it would become even more serious as we migrate into finer circuitry."
Hynix, which swung to a quarterly profit last quarter and posted its best quarterly profit in more than three years, will see margins remaining stable throughout this year, Kim said.
"In the second half, demand will rise on seasonal factors but supply will grow too. We see a stable trend (in operating profit margins)."
Hynix is forecast to report 917 billion won in second-quarter operating profit on 2.97 trillion won in sales, according to Thomson Reuters I/B/E/S. The estimated profit would be a 15 percent rise from the previous quarter.
While the European debt crisis has not had a notable impact on global demand so far, it could affect consumer gadget sales later this year, Kim said.
"The United States and China appear to be doing fine now. But we are preparing for the worst-case scenario and will enhance our liquidity condition."
In NAND flash memory, Hynix aims to regain its No.3 position by mid-2011, Kim said, after earlier scaling back the business to focus on DRAM.
(Editing by Jacqueline Wong)