Ah, the tech trade: nothing better than buying based on technicals, playing hot potato and ignoring the fundamentals. And when the fundamentals indicate that yet another major chip maker, this time MagnaChip, has filed for bankruptcy, why bother?
Executives for the former spinoff of Hynix, 2006/7 distressed debt darling, and CVC and Francisco partners portfolio company, were seen entering Bankruptcy court in Delaware not surprisingly without the idiotic grin of all those pundits on CNBC who keep pushing hyper-overvalued tech companies (but the new iPhone is out - what gives?). From the press release:
The company's sales units in Europe, Taiwan and Japan are not part of the Chapter 11 filing, according to reports. MagnaChip has assets up to $50 million, but it also estimated liabilities of more than $1 billion.
At the same time, a fund led by South Korea's KTB Securities Co. Ltd. has acquired MagnaChip and its affiliates, according to court documents. The deal is valued at about $80 million.
In 2004, the non-memory chip unit of Hynix was sold to a newly-created South Korean company formed by Citigroup Venture Capital Equity Partners L.P., CVC Asia Pacific Ltd. and Francisco Partners.
The new company, MagnaChip, inherited three main business lines from Hynix, including CMOS image sensors, LCD drivers and foundry services. In 2005, MagnaChip's sales were $937.7 million, a 13.6 percent decrease over 2004. It also showed a loss of $100.9 million in 2005.
Looks like being stuck with a foundry that only allowed 1 megapixel cell phone CMOS and several hundred turns of leverage was not the recipe for success that CVC thought it was. Oh well, here is hoping that KTB knows how to run the business now that it has been stripped of all that bad, bad debt.
Other chip makers that recently went the way of the dodo include Qimonda AG and Spansion Inc., both of which Zero Hedge has written about in the past. Anyway, this will only reinvigorate the short squeeze for all the other fab companies, so it is likely very prudent to throw all your money in a company that directly competes with any of the abovementioned three as the ensuing price war will likely have a tremendous (good/bad - pick one, the market doesn't care) impact on the stock you invest in.