SK Hynix to cut 20% of executives

SK Hynix, the result of SK Group’s highly publicized merger with Hynix Semiconductor this year, is expected to dismiss up to 20 percent of its executives within the next two months.

Industry sources said the dismissal rate could go up to as high as 30 percent when including some non-executive employees.

The sources said SK Hynix has been without an owner for too long, and had become too big and unwieldy for SK to cope with.

“Think about it. It has had no owner for a decade. It’s high time that the company made some restructuring efforts,” a source said, speaking on the condition of anonymity.

SK Hynix’s executive body consists of 58 men including SK Group chairman Chey Tae-won and presidents Kwon Oh-chul and Ha Sung-min. The rest are mostly deputy or vice president-level executives.

There had been earlier reports of SK Hynix restructuring to slim down. The replacement of the company’s chief of corporate finance from “old school” Kim Min-cheol on the Hynix side with Lee Myeong-young, whose ties are with SK, further generated such rumors. This is because another rationale behind the scheduled reshuffling is to station more SK people in key posts.

SK Hynix denied plans for any such major shake-up, although regular personnel reshuffling is scheduled for the end of the year.

On Wednesday, the company said its operating profit once again slipped into the red in the third quarter, recording a loss of 15 billion won ($13.6 million). In the second quarter this year, SK Hynix had for the first time in three quarters recorded a profit. It had logged an operating loss of 237 billion won during the first half of the year, compared with the 769.7 billion won profit it registered in the same period last year.

The company’s ventures for acquiring overseas memory and NAND flash makers were seen as having put a strain on the company’s cash supply. SK Hynix also said that the loss from DRAM inventory loss eclipsed the gain from NAND flash sales.

SK Hynix currently has the fourth-largest share in the global market for NAND flash, a key component in smartphones. It also is the No. 2 supplier of DRAM chips, behind industry leader Samsung Electronics.

Despite its strong market presence and product development skills, the memory-chip maker was hit by sluggish DRAM prices, which have been sliding at an increasing rate since July this year.

Credit appraiser S&P, which has a BB-/Stable rating for SK Hynix, said earlier this month that while the company maintains a solid position in the global semiconductor memory market, its business risk profile is “weak” due to the “variability” in operating performance and capital intensity.

Regarding market conditions, it said the memory semiconductor industry is susceptible to overexpansion of capacity for DRAM and NAND flash, leading to further price declines and ultimately “erode the profitability of all market participants.”

Hynix’s need to continually make large capital expenditures is another factor that constrains the ratings, S&P said in its Oct. 19 statement.

By Kim Ji-hyun (jemmie@heraldcorp.com)