Analysts expect more bad news before profit recovery next year

Giant memory chip maker Hynix is unlikely to dig its way out of its current slump in profits before the second quarter of next year, say analysts in South Korea, where the manufacturer of DRAM and flash memory chips is based.

“We believe Hynix’s operating profit will hit the trough in the first quarter of 2008 and take an upturn in the second quarter, as production of 66-nanometer DRAM should produce visible results, and mass production of new, 48-nanometer Flash products gain steam in the second quarter,” said analyst Jay Kim of Hyundai Research in Seoul.

While Hynix avoided a loss in the third quarter of this year, weak memory chip prices meant that profits were far smaller than expected. Hynix is generally ranked as the world's second largest memory chip maker, behind local rival Samsung.

The company's profits fell almost 50 per cent from $353m in the third quarter of 2006 to $178m one year later. Revenues grew 24 per cent to $2.65bn.

“The increase in sales was primarily attributable to the improved pricing environment owing to seasonal demand for both DRAM and NAND flash in the earlier part of the quarter, as well as the company’s strategical movements to mitigate the rapid price drop that happened during the later part of the quarter. Such strategical movements include product mix shift to premium products such as graphics and mobile and larger sales exposure to long-term contract customers,” Hynix announced in a press statement.

Hynix has announced that it plans to reenter the potentially more profitable market for non-memory chips – starting with image sensors for camera phones and similar products. The company was barred from this market for six years under a restructuring agreement related to its parent firm.