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3 January 2002 Troubled memory chip giant Hynix has announced a 30% rise in its contract chip prices, a move that is hoped will bring relief to loss-making semiconductor manufacturers.

The South Korean group was formed by the forced merger of the conglomerates LG Semicon, a division of LG Electronics, and Hyundai Electronics following the South East Asian economic crisis of 1998.

Hynix has been particularly hard hit by the steep fall in dynamic random access memory (DRAM) chip prices, caused as a result of over-capacity and falling demand. Because of the high cost of plant and equipment, combined with the debt it inherited as a result of the merger, it had been forced to produce in high volume, while offering its products at low prices.

That policy helped fuel a downward spiral in prices and prevented concerted industry-wide efforts to cut production in order to stabilise prices.

Hynix was bailed out on a number of occasions by creditors during 2001. However, Hynix has pointed to a rise in PC sales, which it attributes to Microsoft's new Windows XP operating system, and a sales boom in China, as factors prompting its decision to raise chip prices.

This is the third time in a month that Hynix, the world's third-largest memory chip maker, has announced a price hike. Other manufacturers, including Samsung, Germany's Infineon and America's Micron, are expected to follow suit. For the moment, they are gauging the market reaction.

But analysts believe that PC sales remain lacklustre and, combined with continued difficulties in the telecoms industry, make a broad recovery for the chip industry unlikely. Consolidation, they say, is still essential to stabilise longer-term pricing in the memory chip industry.

However, talks between Micron and Hynix are thought to be focused on creating a limited alliance rather than a full-blown merger.