Asia Memory-Bad memories fading

TMT
Memory Devices Technology
8 October 2010
abc
We are positive on Hynix’s NAND prospects on
two accounts – rising fab capacity and accelerated
process migration. Hynix lost market share in the
past two years as it shut down uneconomical
200mm fabs. But with strong NAND demand and
removal of excess global capacity, and the
financial ability to build capacity, Hynix is in a
favourable environment to raise NAND
production. This year’s capex includes capacity
expansion of M11 (currently 50-60kwpm at
300mm) to 80kwpm by year-end.
Technology – process migration
Following a couple years of production stagnation,
Hynix’s priority is to narrow the technology gap
with the NAND leaders. By this year-end, Hynix
aims to have over 50% of NAND production on
the 32nm process with another c35% on 41nm.
Still, Hynix’s margins remain lower than rivals’.
The current ramp up to 32nm process should
partially close this gap. Hynix targets >50% of
NAND bit production of 32nm by year-end.
NAND process migration
Production capacity, capex
In June, Hynix raised 2010 capex by 33% to
KRW3.05trn. This increase was not a surprise; as
with Samsung, market expectations of Hynix’s
2010 capex had already been higher. Positively,
Hynix is spending the extra capex to accelerate
process migration, raising its 44nm DRAM bit
proportion from current c15% to c50% by yearend.
More recently in October, Hynix raised its
2010 capex further to KRW3.38trn to accelerate
migration to 3xnm DRAM. Effectively, it brought
forward some capex from next year to compete
with Samsung, which started mass production on
the 3xnm process in July this year.
Consolidated capex (KRWbn)
5,000
4,000
3,000
2,000
1,000
-
2008 2009 2010f 2011f 2012f
100%
80%
60%
Source: Company, HSBC estimates
DRAM
NAND
40%
20%
0%
2007 2008 2009 2010f 2011f 2012f
8xnm 6xnm 5xnm 4xnm 3xnm 2xnm
Source: Company, HSBC estimates
Key to longer term competitiveness is process
migration to 26nm at which level Hynix believes
that it can generate comparable margins. In this
respect, things are looking positive, as Hynix
completed development of its 26nm process based
64Gb NAND in February 2010 and customer
samples are out, with certification within six months.
Creditor shareholding
In early March 2010 Hynix creditors sold down a
6.7% stake (one creditor, Korea Finance Corp.,
did not want to sell) in the firm through a block
sale to mostly domestic institutional investors.
Following the success of this selldown (priced at
zero discount), a follow-through selldown in
2H10 could be successful, especially if
expectations of operating outlook improvements
rise on strong results. Most recently there has
been market speculation over various possible
domestic strategic investors that could acquire the
remaining 15% stake held by creditors.
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