South Korea is the world's largest producer of dynamic random access memory chips (DRAMs), a key component for personal computers, but its chip industry has suffered lower sales for years due to sluggish demand for hi-tech products.
The slump sent Hynix Semiconductor Inc., the world's third largest microchip maker which accounts for 30 percent of South Korean chip exports, reeling under heavy debt.
Hynix managed to escape insolvency in December 2002 with a 3.2 trillion won bailout (2.8 billion dollars) arranged by creditors. Its loss widened 16.7 percent year-on-year to 2.27 trillion won in 2003.
This year, Hynix seeks a turnaround to attain an operating profit for the first time in four years, helped by a rebound in global demand.
Analysts are optimistic saying South Korea's semiconductor business will rally this year, riding on a strong rebound in chip prices.
Hanwha Securities said spot chip prices began rallying last month after US technology giant Micron Technology encountered problems in migrating to 0.11-miron technology.
"It seems trouble at Micron triggered concerns of a shortage and thus speculative buying of chips," Hanwha said.
But the unusual strength in chip prices may result in a delay in the purchase of personal computers (PCs), with many PC makers already worrying about higher production cost burdens, it said.
"With end-user demand still lagging, PC makers may decide to produce low-end PCs to sell more, a move that means lower demand for DRAM chips," Hanwha said.
The US Semiconductor Industry Association reported last week that global sales of semiconductors reported a 30.8 percent year-on-year increase in February.
Sejong Securities analyst Choi Si-Won said Hynix would turn in an impressive profit on the back of a rise in DRAM chip prices.
"Hynix will be one of the largest beneficiary from the recent DRAM chip price hikes... the chipmaker is expected to make a dramatic turnaround this year," he said.
Choi said the earnings momentum will likely continue well into 2005 as DRAM chip prices are expected to stay firm.
"Hynix has emerged again a key player with profitable product mix and advanced technology... its products are sold at the highest prices after Samsung Electronics," he said.
Samsung Electronics remained the focus of foreign investor buying in South Korea's stock market, rising 0.8 percent to 600,000 won.
Hynix Semiconductor closed unchanged at 13,750 won but Anam Semiconductor rose 8.3 percent to 5,600 won, extending gains on hopes that it may turn profitable this year.
Samsung, the world's largest chipmaker, decided Wednesday to buy back and retire two trillion won worth of its stocks between April 12 and July 11.
"The fact that it announced such a sizable buyback program at the moment its shares hit an all-time high suggests its strong confidence over the quarterly results and firm belief that the stock has more room to rise," Shinyoung Securities analyst Shim Hyo-Sup said.