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I am in not by any means a financial wizard, but a big red flag just got hoisted over the headquarters at Hynix with the news that its total debt burden has increased by 240 billion won to 4.4 trillion won at the end of the third quarter. Hynix now has a debt-to-equity ratio of 46 percent! 

It didn’t come as a surprise that its third quarter results (though retaining profitability) were significantly down Q-on-Q and Y-on-Y. The company also revealed that capital spending would be lower in 2008 than this year but not by as much as many expected.

Basically, all Hynix is doing is trimming CapEx to 4 trillion won for 2008 compared to 4.6 trillion won this year.

The slim profits were only achieved by significantly ramping NAND flash production, achieving a 92 percent bit growth in the third quarter alone! Of course the over-supply resulting in falling ASPs kicked in later, reducing the expected revenues!

If there is a weak link in the memory manufacturing market at the moment then Hynix looks like being the fall guy. If over-capacity remains in NAND and DRAM through 2008 it will be interesting to see if they indeed spend that much money. Older 200mm fabs are also at end of life for commodity products so production bit growth may actually decline if losses occur and debt continues to build!

News that Hynix is to start CMOS image production at older 200mm fabs comes as no surprise, as the company cites higher margins and good growth prospects. It’s obvious that they didn’t talk to Micron about falling ASPs in that market and slower-than-expected growth in key markets!

Hynix may be clutching at straws as to what to do with so many legacy fabs. The company also has to invest heavily in 300mm facilities at a time when it really is starting to struggle financially.