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Hynix Posts Steep Quarter Loss as Chip Glut Weighs

Hynix Semiconductor, the world's No. 2 memory chip maker, reported a larger-than-expected quarterly loss on Friday as chip prices remained weak, but a market recovery may be nearing.

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Hynix is facing another grim quarter as overproduction and falling prices of dynamic random access memory (DRAM) chips, used mainly for personal computers, will continue to plague the industry until cutbacks in capital investment by major chipmakers curb supply later in the year.

But market research firm iSuppli in a note dated Thursday upgraded its rating on the DRAM market to "neutral" from "negative," citing indications that the worst was over for DRAM suppliers.

The January-March loss was Hynix's second straight quarterly deficit, coming on the heels of January's 465 billion won loss.

Most analysts expect South Korean-based Hynix to post another net loss for the second quarter of 2008.

Hynix posted a 675 billion won ($677.7 million) net loss for the quarter to March 31, compared with a 418 billion won profit booked a year ago and a 458.5 billion won loss forecast by 12 analysts polled by Reuters.

Makers of DRAM chips are still in the throes of a 15-month-old market slump during which some key product prices fell more than 90 percent.

They are betting that spending cutbacks from cash-starved chipmakers and improving demand ahead of the gift-giving seasons later in the year will help them turn return to profit in the second half.

"Everyone knows a rebound in the DRAM market is inevitable; the only question is when," iSuppli said in its note. "The DRAM market is inherently cyclical, meaning a market recovery is certain to arrive."

ISuppli predicted DRAM market conditions will slowly improve starting in the second quarter.

Analysts expect Hynix to post a total net profit of 490 billion won for 2008, according to Reuters Estimates, better than the 328.6 billion posted for 2007 but far behind the 2 trillion won posted during 2006.

Hynix said average prices of DRAM chips fell 16 percent in the first quarter after falling 35 percent in the fourth quarter, while shipments rose 5 percent, against a 7 percent rise in the previous period.

Average prices of NAND chips, used in cameras and other portable devices, fell 39 percent after dropping 34 percent in the fourth quarter. Shipments rose only 9 percent, against a 43 percent growth in the previous quarter.

Shares of Hynix, valued at about 13.3 trillion won, rose 7.3 percent in the first quarter against the wider market's 10 percent drop.