Got this off the C Cube thread
Korean Electronics Giants Curb Growth, Sell Assets
(01/19/98; 9:24 a.m. EST)
By Jack Robertson, Electronic Buyers' News
The major electronics companies of South Korea last week began slowing expansion,
cutting production, shaking up executive staffs, and selling off assets as part of an effort
to dig themselves out of a mammoth financial crisis.
Hyundai Electronics Industries Co. Ltd. confirmed that it has postponed the
construction of a $1.4 billion fab in Scotland, a delay that had already been signaled by
the British government. KoreLG Semicon Co. Ltd. had no announcement on whether
the company would delay the construction of a $2.2 billion fab in Wales. A Welsh
development agency was reportedly discussing whether to provide additional support
to keep that venture on track.
Samsung Electronics Co. Ltd. said the company would slash production of TV sets
and other consumer electronic devices by up to 40% at plants in China, India,
Indonesia, Malaysia, the Philippines, and Thailand.
South Korea's electronics companies are undergoing executive changes. Michael
Williams, senior vice president of sales and marketing at LG Electronics America, has
resigned. Reached at his home, Williams said the South Korean company steadfastly
denied that it was facing any economic problems before he left the company. A
spokeswoman for Samsung, Seoul, South Korea, said the company's semiconductor
unit was in the midst of broad staff changes. She said that details would be released
when the reorganization is completed.
Hyundai and LG Semicon did not return calls.
Samsung announced that it was selling its gallium-arsenide semiconductor operation in
Milpitas, Calif. The company said in December that it was selling its audio equipment
business in South Korea. The deals are part of the Samsung Group's plan to shed
more than 25 operations.
Analysts expect Samsung and other South Korean companies to make more
divestitures. A.A. La Fountain III, a financial analyst at Dominick & Dominick, New
York, predicted "fire-sale purchases" of various South Korean electronics operations
that were launched or acquired in the past two years of free-wheeling corporate
expansion.
Vladi Catto, chief economist at Texas Instruments Inc., Dallas, expects the South
Koreans to sell off operations but stay in the semiconductor arena. "I suspect they will
retrench but do everything they can to preserve their presence in semiconductors," he
said.
Analysts said they were watching what the South Korean companies will do with
money-losing businesses, including AST Computer Inc., owned by Samsung, and
Zenith Electronics Corp., owned by LG.
South Korea's electronics companies have extensive ties with foreign partners. Intel
Corp., Santa Clara, Calif., has a secured 10% equity interest in Samsung's new
DRAM fab in Austin, Texas, and has developed a digital PC camera with the
company. Samsung produces a System LSI single-chip graphics device for
Chips and Technologies Inc. that is at the core of Intel's PC graphics strategy.
Some sources said that Intel might act to safeguard these efforts.
Texas Instruments has given South Korea's Anam Industries the front-end wafer
production technology to make DSPs and has agreed to purchase between 40% and
70% of the output of an Anam fab that will use the technology. A TI spokeswoman
said that Anam's fab in Buchon, South Korea, should not be adversely affected by the
current crisis.
One tactic used last month to raise desperately needed foreign currency - clearing out
a large inventory overhang of DRAM chips - has apparently run its course for the most
part. Analysts and some DRAM competitors in the United States said that the South
Koreans are no longer flooding the spot market but that it remains to be seen if the
lower level of South Korean chips in the spot market will hold up. But some analysts
attending the SEMI Industry Strategy Symposium in Pebble Beach, Calif., said the
South Koreans will pump out all of the DRAM chips they can possibly produce in the
months ahead.
The efforts to raise cash come as the country's conglomerates, or chaebol, wait for
their short-term debt to be refinanced by South Korean banks. These banks, in turn,
face $40 billion of their own short-term debt on money borrowed from abroad, which
will come due by the end of March. When the South Korean banks restructure that
debt, the chaebol will be able to finance their loans.
South Korea's banks desperately need the bailout to replenish their tills with foreign
currency, which has virtually run dry, causing a traumatic impact on South Korean
imports. The country's banks have almost no foreign currency against which letters of
credit to foreign shippers can be written. Sources said that the lack of foreign currency
could become a monumental barrier to the South Korean chip industry if producers
can't get letters of credit for such critically needed semiconductor materials as epoxy
from Japan, which is used to encapsulate chip packages. South Korean companies
must juggle priorities until the current financial crisis eases.
Electronic competitors will closely watch how the South Korean companies restructure
their massive short-term loans to the country's banks as part of the bailout. Executives
at Micron Technology Inc., Boise, Idaho, South Korea's archcritic, said last week that
they have been assured by the U.S. Treasury Department that none of South Korea's
corporate debt, either principal or interest, would be forgiven.
Press reports from South Korea indicate that many South Korean companies may be
looking to float their own bond issues to refinance some of their private loans and gain
critically needed capital. Most attempts to issue bonds last fall were unsuccessful. |
