Hynix Semiconductor, the world's third-biggest maker of computer memory chips, has been at the centre of the controversy over South Korea's faltering reform programme. The highly indebted firm has been the subject of three rescue deals this year. Hynix's troubles stem partly from being forced to merge with another heavily indebted Korean chip-maker, LG Semicon, said Bhavin Shah, head of Asian technology research at Credit Suisse First Boston. Hynix, which was spun out of the Hyundai group this year, has also suffered the consequences of an aggressive expansion drive by it and LG Semicon between 1995 and 1998, said Mr Shah. Typical of pre-crisis Korea, when there was little regard for return on capital, the two companies spent US$7 billion increasing the number of factories from five to nine and raising production capacity five-fold. Hynix funded the building programme with loans and sent its debt-to-equity ratio soaring towards 400 per cent. Slumping demand and global overcapacity sent memory-chip prices plunging about 90 per cent from their peak in August last year. Standard 128-megabit chips produced by Hynix now fetch US$1.72, but the production costs are US$2.50 to US$3. For Hynix to stay in business, it will need continued leniency from its creditors, said Mr Shah.