Hynix Price Increase Could Signal Industry TurnaroundHynix Price Increase Could Signal Industry Turnaround

South Korean memory chipmaker Hynix Semiconductor Inc. said Wednesday it had raised contracted prices for the third time in a month, supplying just the tonic for the beleaguered DRAM chip market. After a year in which the average price of dynamic random access memory chips fell more than 80%, analysts say Hynix's recent increases may signal relief for an industry struggling to remain profitable. Investors shared that optimism, driving up chip stocks, most notably that of Micron Technology Inc., which is in discussions about possibly forming a strategic alliance with Hynix.

Analyst Frank Dzubeck, president of Communications Network Architects, says a good chunk of the blame for the pricing spiral that's hit DRAM makers falls upon Hynix. "They're like the pariah of the entire industry," says Dzubeck. Hynix dropped prices so low that it was causing problems for everyone in the industry, he adds. Hynix's price increase could be a move to make itself more attractive for a potential acquisition, says Dzubeck.

But Farhad Tabrizi, VP of worldwide marketing for Hynix, says Hynix's competitors pushed prices down in an effort to put the company out of business. Tabrizi says that because excess inventory has been sold and the pricing trend has reversed, Hynix has new hope that it can climb out from under $6 billion in debt. Spot prices for Hynix chips have risen from a historic low of 80 cents per chip in October to nearly $3, still a long way from the $9 they commanded a year ago. "The future is very bright if we can just hang on," Tabrizi says. "Our creditors know this market is cyclical."

Micron spokesman Sean Mahoney declined to specify the nature of the company's discussions with Hynix and wouldn't comment on whether a possible acquisition is being considered. Mahoney did say, however, that if market conditions allow Hynix's latest price increase to stick, Micron likely would follow suit. Steve Cullen, an analyst with Cahner's In-Stat Group, says the average price of a memory chip industrywide dropped from $9.47 in August 2000 to $1.72 in August 2001. That price basically had stabilized, with DRAM chips costing $1.70 each in November, and Cullen expects December's average price to be a bit higher. He also anticipates most other DRAM chipmakers to increase prices.