Hynix purchasing a stake in ProMOS

SEVERE COMPETITION: The alliance would allow ProMOS access to Hynix's 50nm process technology and to manufacture DRAM chips for the South Korean firm
By Lisa Wang
STAFF REPORTER

Taipei Times Friday, May 09, 2008, Page 12

ProMOS Technologies Inc (茂德科技), the nation's third-largest maker of computer memory chips, said yesterday it would sell a stake to Hynix Semiconductor Inc as part of its move to secure next-generation technologies.

The deal is the latest in a series of strategic alliances as dynamic random access memory (DRAM) chipmakers struggle to survive in an intensely competitive industry. Less than two weeks ago, German chipmaker Qimonda AG and Japan’s Elpida Memory Inc said they would jointly develop advanced DRAM technology.

“This [partnership with Hynix] will be a great help to the company’s long-term development,” ProMOS chairman Chen Min-liang (陳民良) said. “We hope to lift ProMOS’ competitiveness in the fastest and most cost-efficient way.”

The Hsinchu-based chipmaker said it had signed an agreement with Hynix to sell an 8 percent to 10 percent stake to the South Korean firm through a private placement. ProMOS has 6.7 billion in outstanding shares.

Based on the agreement, Hynix would transfer advanced 50-nanometer process technology to ProMOS. In return, ProMOS would manufacture and supply DRAM chips to Hynix. The transaction would make Hynix the second-biggest shareholder in ProMOS after chipmakers Mosel Vitelic Inc (茂矽) and United Microelectronics Co (UMC, 聯電).

“The deal is positive for ProMOS. For the overall industry, it’s not going to result in a reduction in supply,” said Rick Hsu (徐稦成), a senior research analyst at Nomura Securities Co Ltd’s (野村證券) Taipei branch.

DRAM chipmakers have suffered massive losses in the industry’s worst ever slump because of a supply glut. In the first quarter alone, ProMOS lost NT$8.05 billion after DRAM prices collapsed.

“[The deal] will not solve ProMOS’ imminent cash crunch,” Hsu said. “ProMOS is offering shares in exchange for technology rather than obtaining a capital injection.”

ProMOS has to pay NT$15.8 billion in debts, which will be due one year from now, compared with its NT$5.6 billion in cash and equivalent as of the first quarter, based on the chipmaker’s financial statement.

Last week, ProMOS’ board approved three fund-raising programs that call for issuing of 1.5 billion common shares, 1 billion preferential shares and US$350 million in overseas corporate bonds that would raise NT$31.8 billion in total based on the stock’s closing price of NT$8.44 yesterday.

“But, I wonder who will buy the corporate bonds that ProMOS plans to issue later this year,” Hsu said.

The ProMOS-Hynix deal still needs the approval of the South Korean government and ProMOS shareholders.

Commenting on the DRAM market, ProMOS spokesman Ben Tseng (曾邦助) said that prices started rebounding last month and he expected the recovery to pick up in the second half of the year.

“We are seeing early signs of a supply constraint now,” Tseng said.