Hynix Hit Hard by U.S. and EU Duties

The Korean semiconductor industry has entered into a crisis as the U.S. Department of Commerce decided to levy 44.71 percent countervailing duties on Hynix Semiconductor products. The industry sees this decision as America’s intention to check the Korean semiconductor business.

The Ministry of Commerce, Industry and Energy estimates that the amount of damage coming from the decision to be around 100 million dollars. This amount is expected to increase as the EU is likely to join the U.S. on the measures.

Hynix, which has been doing its utmost to survive, now sees itself at a crossroads once again. Even though the International Trade Committee in the U.S. has yet to make any final decision, Hynix will not be able to find any ways to export its products to the U.S. as well as to Europe.

Hynix`s exports of DRAM products to the U.S. accounts for some 25 percent. The company will have to pay an average of 27 billion won per month with the 44.71 percent duty applied.

This tax burden will become more severe if the EU starts to implement its preliminary decision to levy 33 percent for countervailing duties; the company may have to pay 33 billion won per month and may be unable to maintain its price competitiveness.

Hynix has already suspended direct exports to America since the decision.

There are increasing worries, too, in that Hynix has created tens of trillions of won in negative growth in the past three years. Hynix recorded net profit losses of 1 trillion and 47 billion won in the first quarter of this year.

An analyst at Daishin Investment Securities Lee Jung said: “In the business of cash flow, Hynix is better off than its rivals Micron and Infinion. If DRAMs continue to rise in price, Hynix will be able to avoid being hardest hit.”

The company plans to maximize local production by fully operating its local factories based in Oregan, America. It also plans to avoid additional taxes by exporting DRAMs through a PC motherboard manufacturer.

It has another plan to increase its production of DDR 400 DRAMs and flash memory products. But, it might have to suffer additional losses since there would be a limit in reducing its exports to the U.S. and EU.

In the meantime, Samsung Electronics excluded from a duty is expecting to have better opportunities to earn profits from the rising price of DRAMs due to the lack of supply in the market.

Tae-Han Kim freewill@donga.com