Will Korea Money Moves Hit
Drives, LCDs, Chips?
Date: 2/17/98
Author: Reinhardt Krause
South Korea's fiscal crisis is forcing its electronics
companies to rethink where to put their ebbing
capital.
Many U.S. companies have a stake in what they
decide. One reason is that Korean firms'
aggressive investments in some industries have
caused oversupply.
Korea is seeking aid from the International
Monetary Fund to ease its financial woes. And
IMF loans come with conditions that won't let
Korean firms operate quite like they have in the
past.
''The chaebol (Korean conglomerates) are
supposed to have their manufacturing units operate
in the black, rather than operate at a loss to build
market share,'' said Jim Porter, president of
market researcher Disk/Trend Inc. in Mountain
View, Calif.
If the IMF forces Korean firms to change their
ways, ''then it will alter the competitive
environment quite a bit,'' Porter said.
To build market share, Korean electronics firms
have invested heavily in factories. Then they've
aggressively priced products. Their push into the
memory-chip market helped create a huge glut in
'96. Analysts also blame them partly for the
current oversupply of flat-panel screens and
hard-disk drives.
In '97, Korea's Samsung Group , Hyundai Corp.
and L.G. Electronics Inc. held about a third of the
$21 billion memory-chip market.
The Koreans' heavy spending on chip factories
has made them big customers for the makers -
mostly U.S. companies - of chip manufacturing
gear.
In fact, a group of U.S. chip equipment companies
is trying to help Korean chipmakers find new
financing from investment banks, says James
Morgan, chief executive of Applied Materials Inc.
in Santa Clara, Calif. It's the largest maker of chip
equipment gear.
Morgan tempers his worries. He says Korea's
chipmakers are better positioned than most of the
country's other industries, such as automobiles.
''Money finds its way to (industries) that have
long- term potential,'' Morgan said.
But Korea's problems are hurting Applied
Materials. Last week, it said Korea accounted for
6% of its new orders in the first quarter, down
from 15% in the year-ago period. And on
Thursday, Applied rival Lam Research Corp. said
it will lay off 14% of its work force, or 700 jobs.
In the short term, Korean chipmakers can maintain
their market share, says George Iwanyc, chip
industry analyst at Dataquest Inc. They've
invested in enough factories to make 64-megabit
chips. Today's standard chips store 16 megabits of
data.
But longer term, Korean firms might not be able to
invest in new plants that make chips more
efficiently. That could be a factor in the next era
of memory chips - 256 megabits. If Korea doesn't
invest, that's good for U.S. memory-chip makers,
such as Texas Instruments Inc. and Micron
Technology Inc.
Similar issues face the computer disk-drive
market, where Korean tech leaders Samsung and
Hyundai are trying to become bigger players.
They, along with Japan's Fujitsu Ltd., have helped
spark the price warfare and oversupply that are
affecting the entire industry, says Disk/Trend's
Porter.
Disk-drive prices fell 10% to 12% in the fourth
quarter. The oversupply is pressuring U.S. disk-
drive makers, including Quantum Corp., Western
Digital Corp. and Seagate Technology Inc.
Seagate in January said it planned to lay off 10,000
employees, about 10% of its work force. It's the
largest one-time layoff for a company based in
California's Silicon Valley. The bulk of the layoffs
are in Asia. Western Digital and Quantum also
have said they'll take restructuring charges related
to oversupply problems.
''U.S. hard-disk makers are fighting to hold their
share in face of renewed Asian competition,''
Porter said.
Similarly, Korean firms have picked up market
share in the flat-panel screen industry. That has
boosted U.S. equipment suppliers.
The thin, lightweight screens are commonly built
into notebook computers. The flat panels, or liquid
crystal displays, are electronic screens consisting
of layers of liquid crystal suspended between
glass.
Wholesale prices for 12.1-inch, active- matrix
screens fell 40% in late '97 to $360, from about
$645, says Ross Young, president of
DisplaySearch Inc. in Austin, Texas. He cites
Korea's aggressive pricing.
Korean firms sold about 22% of active-matrix
screens in '97, up from 14% a year earlier, says
DisplaySearch.
The active- matrix LCD market rose 21% to $6.95
billion last year, from $5.75 billion in '96. And flat
panels eventually could replace cathode-ray tube
monitors in desktop PCs, which would really boost
the market.
Korea's flat- panel makers invested heavily in new
factories in the early '90s, enough to stay
competitive now.
Despite the country's fiscal woes, Korean firms
could boost their LCD market share to more than
35% in '98, says David Mentley, an analyst at
Stanford Resources Inc., a market research firm
in San Jose, Calif.
But Korean firms may have difficulty building
next-generation plants needed for larger flat-panel
displays. If that happens, a shortage of bigger,
14.1-inch LCDs could occur sometime in '99, says
DisplaySearch's Young.
Should Korean companies decide to attack other
markets because of oversupply in chips, drives and
flat panels, they might target telecommunications.
Cell-phone makers are on their guard because of
Korea's record in tackling new markets, says Jane
Zweig, an analyst at market researcher Herbert
Shosteck Associates Inc. in Silver Spring, Md.
Samsung, for example, already is making digital
cellular phones.
''Are they paying attention to Samsung? I believe
so,'' she said.
(C) Copyright 1998 Investors Business Daily, Inc.
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