Chip Producers Lose Muscle Under Crisis
December 18, 1997 (SEOUL) -- Korea's semiconductor industry is expected to lose some of its strength in the wake of the country's crippling economic crisis.
The International Monetary Fund and Korea's allies have come to the rescue of the world's 11th largest economy, and they are asking Korea to fundamentally change its way of doing business.
The semiconductor industry, which combines high leverage and aggressive expansion, is under scrutiny. Its relentless growth is being checked by foreign investors who now think twice before offering funds to Korean behemoths.
Asia's troubles, including the Korean crisis, will contribute to the weakening of global demand for semiconductors and that will further hurt the business strategies of Korean microchip makers.
"Korea's semiconductor industry is likely to operate in the red in 1998 due to falling global demand, rising inventories and higher funding costs," said Kwon Oh Soon, senior analyst at Hannuri Investment & Securities Co.
The Korean won's dramatic plunge and soaring domestic interest rates will test the staying power of Korean microchip makers. The Korean unit has lost 50 percent of its value against the U.S. dollar this year and money-market interest rates more than doubled in recent weeks.
Korean chipmakers-Samsung Electronics Co. Ltd., LG Semicon Co. and Hyundai Electronics Industries Co., Ltd. have emerged as major actors in the global semiconductor industry. Their relentless expansion drives were blamed for the global oversupply that led to an 80-percent drop in memory chip prices in 1996.
The three companies accounted for more than a third of global dynamic random access memory (DRAM) sales in 1996, according to the Korea Semiconductor Industry Association (KSIA). And they accounted for 40 percent of global DRAM-related capital spending in that year, analysts said.
The Korean legend of expansion is coming to an end at least for a while. Business conglomerates supporting the microchip makers, called chaebol, are restructuring in efforts to survive. The big Hyundai and Samsung chaebols announced 30-percent cuts in their 1998 groupwide investment plans.
Economic difficulties also are derailing their global semiconductor projects. Samsung and Hyundai are seen as unable to implement their second round of investment plans for their U.S. semiconductor plants next year. In 1995, both groups started building their first overseas chip plants, each costing US$1.3 billion in Austin, Texas, and Eugene, Oregon. It remains uncertain whether Hyundai will be able to implement its plan to build a US$1.4-billion chip plant in Scotland next year. Also, LG may need to drop its U.K. semiconductor project valued at US$2.2 billion.
The Dongbu Group, whose core businesses are steel and insurance, recently put its semiconductor project, costing 2 trillion won, on hold due to funding problems. It had planned to enter the microchip business with technology assistance from International Business Machines Corp.
Keyword: Korean DRAM makers Samsung Electronics Co. Ltd. is the world's largest DRAM manufacturer. Samsung, LG and Hyundai are projected to control about 50 percent of the world's 64Mb DRAM market in 1998, according to the Ministry of Trade, Industry and Energy.
(James Lim, Asia BizTech Correspondent) |
