South Korean chipmaker's losses mount

Hynix's survival is seen as a test of the Korea government

South Korea's Hynix Semiconductor, the world's third largest chip maker, has blamed interest charges and a slump in product prices for falling profits.

The debt-laden group, formerly known as Hyundai Electronics, reported a bigger than expected 1,620bn won (£866m; $1.25bn) net loss for the July to September quarter.

"On top of plunging chip prices, hefty costs stemming from 203bn won in interest charges and 269bn won in inventory revaluation losses weighed on profits," the company said.

With the price of some chips down by nearly 90%, Hynix has tried to cut its dependence on dynamic random access (DRAM) memory chips, bought largely by computer makers which are themselves suffering poor demand for PCs.

Nonetheless, the chip still accounts for almost two thirds of Hynix's sales.

Earlier in October creditors froze repayments on Hynix's debt while they worked on the second rescue package for the company this year.

Ensuring the group's survival is considered a key test of the ability of the South Korean government to restructure its economy.

Hynix's stock price has dropped by nearly 70% this year.

Losses mount

The third quarter loss was well above analysts expectations of up to 1,300bn won, and brings this year's total losses to 3,700bn won.

Sales in the quarter slumped to 552bn won from 2,460bn won in the same quarter last year.

Its unlikely that sales will pick up in the near future.

The global PC market is set to post its first decline ever in 2001 in unit shipped, because of the saturated US and European markets and the global economic downturn.

Research group Gartner Dataquest on Wednesday said it expected the global DRAM market to be worth $8.5bn next year, one-fifth of its value in 1995.

Government worries

Hynix's troubles pose a dilemma for South Korea's president, Kim Dae-jung, who has been trying to restructure the country's financial system by selling off indebted businesses.

Hynix is one of South Korea's key companies, accounting for 3.5% of exports.

The firm has been bailed out by creditors led by Korea Exchange Bank, swelling debts of government-controlled banks to 11,000bn won (£5.88bn; $8.5bn).

The US and Japan have protested at the bail-outs, arguing that Hynix is getting preferential treatment.