WRAPUP 1-Hynix gets funds, Powerchip seeks help in chip crisis

Hynix shares close down 6.2 percent, trimming an earlier 11 percent loss, while Powerchip shares dropped by their daily 7 percent limit.

CONSOLIDATION LOOMING

Talk about consolidation has gained strength through the global memory chip industry in recent months, as makers are reeling under falling electronics demand and chronic oversupply of DRAM chips.

Powerchip spokesman Eric Tang said Japan's Elpida (6665.T) was set to deliver a plan for a possible technology tie-up with the Taiwanese firm by the end of this week.

With the exception of sector leader Samsung Electronics (005930.KS), all memory chip makers have been posting heavy losses and analysts expect the sector's weakness to persist well into 2009.

"The bailout (of Powerchip) won't be good news for the industry because that would mean nobody will be leaving in the short term when the sector needs to streamline or consolidate," said Kenneth Lee, a semiconductor analyst at Primasia based in Taipei.

"But most Taiwanese makers are still under heavy pressure and we don't rule out seeing some credit defaults early next year."

Analysts say production cuts and cost saving efforts by companies are unlikely to trigger a market turnaround given the spreading economic downturn.

"A coherent and lasting industry-wide production cut is needed in order to reduce channel inventory before a gradual recovery happens," Moody's analyst Ken Chan said in a note issued late Monday. Moody's downgraded Hynix to B1 from Ba3 rating with a negative outlook.

Hynix announced last week a plan to cut production of its mainstay DRAM chips by 20-30 percent starting late-December.

It also pledged to cut labour costs and sell off assets to improve its financial base. It aims to raise 1 trillion won in asset sales and cut costs by 180 billion won, KEB said. ($1=1336.9 Won or 0.7146 Euro) (Additional reporting by Baker Li in TAIPEI; Editing by Marie-France Han and Lincoln Feast)