Chey committed to reinvigorating Hynix

After more than a decade of trying to find a buyer, Hynix Semiconductor finally found a new owner in SK Telecom on Tuesday.

With the board naming SK Group chairman Chey Tae-won the co-chief executive and SK Telecom president Ha Sung-min as the head of the board for Hynix, the buyout was completed.

Chey, 52, chairman of the country’s No. 3 conglomerate, will officially direct the new Hynix, which could potentially be named SK Hynix, together with its current chief executive Kwon Oh-chul.

“Chairman Chey, who took control of the semiconductor firm, has high expectations for the chipmaker,” an SKT executive told The Korea Herald, asking not to be named.

Prior to Hynix, Chey had taken the CEO positions at SK Group and SK Innovation.

SK injected about 3.38 trillion won ($3 billion) for the Hynix acquisition and took 7.47 percent of the firm’s shares. With the new shares of Hynix planned to be issued on Feb. 22, SKT will garner 21.05 percent of its shares and become the largest shareholder of the world’s second-biggest memory chipmaker.

As if announcing the start of Chey’s era at Hynix, the SK chairman, along with SKT’s Ha, visited the chipmaker’s factories in Icheon and Cheongju, arranging meetings with its executives and employees as well as Hynix’s partnering firms throughout Wednesday.
 
“I will be open to taking up any role until everyone is happy at Hynix,” he told the employees. “Let’s move together towards achieving greater growth for the company. Not only SK, but Hynix will also be positioned as a global firm that represents Korea.”


Like father, like son

Chey took the helm of SK Group at the age of 38 in January 1999, following the death of his father Chey Jong-hyun from lung cancer.

The father and son not only graduated from the same graduate school -- majoring in economics at the University of Chicago -- but the younger Chey has inherited the elder’s appetite for merger and acquisitions.

Former SK chairman Chey Jong-hyun is well-known for taking over Korea Telecom -- the former incarnation of the nation’s top mobile service operator SKT -- in 1994. Designating telecommunications as SK’s next growth engine, the senior Chey was successful in establishing SK Group’s two cash cow businesses -- petrochemicals and telecommunications.

Similar to the steps taken by his father, the junior Chey is now eying the export-based semiconductor business, while already devising plans to expand its global projects. It is also attempting to go ahead with heavy investments in NAND Flash memory chips, used in smartphones and tablets, and the non-memory sector.

This comes as the domestic market for telecommunications, which has failed to see success in its overseas projects over the past 10 years or so, is already at saturation point.


Change of plan for Hynix?

“Hynix becoming part of the SK Group family is a big opportunity and also a challenge for SK as well as Hynix,” Chey told Hynix executives during his visit to the chipmaker’s plant in Icheon, Gyeonggi Province, in late December.

Hynix is also expected to go through restructuring in its product portfolio, giving more weight to the non-memory sector which only took up about 2 percent of sales in 2011.

In the non-memory sector, the chipmaker is currently manufacturing CMOS image sensors, which are embedded in camera phones, laptops, gaming devices and tablets, and partly in foundry projects since reentering the non-memory businesses in October 2007.

“Hynix must now turn its business tactics to focus on high value-added products,” said Chey.

On a related front, the new Hynix may pursue additional acquisitions to increase its share in the non-memory market, according to analysts.

“Bold and active merger and acquisitions are possible,” said Noh Geun-chang, senior analyst at HMC Securities. “Until now, Hynix lacked time, only looking after its memory businesses, but diversifying its product portfolio to System LSI and memory will inevitably decide the competitiveness of the chipmaker in the future.”

Nam Tae-hyun, an analyst at IBK Securities, also said that Hynix is likely to strengthen its non-memory unit whether through acquisitions or cooperation with other companies.

In its earnings report conference earlier this month, Hynix pledged larger facility investments of 4.2 trillion won -- with some saying the investment figure could approach 5 trillion won -- this year.

While preparing to spend 60 percent on NAND Flash memory, the firm will invest in its research and development workforce and focus on non-memory projects.


Favorable market response

Following the completion of the acquisition, the stock price of Hynix started at 29,150 won per share on Wednesday, a jump from Tuesday’s closing price of 27,550 won per share.

Global credit rating firms also raised the rating for Hynix, while downgrading SKT’s, citing a weaker financial profile and higher business risks, as soon as the buyout was finalized.

Fitch Ratings upgraded Hynix’s long-term foreign and local currency issuer default ratings and senior unsecured ratings to “BB” from “BB-,” assigning a stable outlook for the company.

“Notwithstanding limited operational synergy with SKT, the upgrades reflect Fitch’s view that Hynix will be an important asset for SKT given the chairman’s strong desire to expand into manufacturing,” said Alvin Lim, associate director in Fitch’s Asia Pacific telecom, media and technology team. “Therefore, Hynix is now rated a notch above its standalone level, reflecting the actual and implied support from SKT.”

Standard & Poor’s Ratings Services also upgraded the long-term corporate credit rating and senior unsecured debt ratings of Hynix to “B+” from “BB-” on Tuesday.

Pointing out that Hynix is ready to receive 2.3 trillion won in equity capital due to the newly issued shares, the firm’s capital structure and financial flexibility are to be improved, lowering the debt to capital ratio to about 37 percent this year, from 46 percent in 2011, it said.


Lingering uncertainties

Uncertainties, however, linger at the world’s second-largest memory chipmaker.

The lack of experience in the semiconductor field and the so-called “ownership risk” are pointed to as possible threats by industry insiders.

“The fact that chairman Chey is still being investigated by the prosecution and the excessive control of SK management are possible risks for Hynix,” said an industry source.

Analysts also say injecting large sums into non-memory when the time is not ripe could threaten Hynix along with unfavorable market conditions.

“Expansion in product portfolio is the right direction to take, but it may be risky for the firm if it invests excessively in non-memory when it is not prepared in its capabilities,” said Nam of IBK Securities.

With the global memory business still looking uncertain, SK’s Chey has a lot to digest, industry insiders say.

“Mergers and acquisitions are needed and the firm is almost nothing without research and development,” said Noh of HMC Securities. “I remain positive at this point but there still is a lot to map out in general.”

By Cho Ji-hyun (sharon@heraldcorp.com)