More details emerge on Korean mergers, note bottom line:
A service of Semiconductor Business News, CMP Media Inc.
Story posted at 3 p.m. EDT/noon PDT, 9/4/98
Hyundai, LG Semicon at odds over details in merger plan
By Jack Robertson
WASHINGTON --Desperate to save its imploding economy,
the South Korean government earlier this week ordered the
merger of the semiconductor operations of Hyundai Electronics
Industries Co. Ltd. and LG Semicon Co. Ltd. (see Sept. 3
story)
But no sooner had the companies signed an agreement in
principal than they began arguing over which side would take the
controlling interest of the new venture.
The companies' reaction is indicative of what analysts say is a
forced marriage between two fierce competitors. Observers say
the plan's objective--to enable a single, consolidated enterprise
to manufacture its way out of a massive debt load--faces
mountainous hurdles.
"These guys were dragged kicking and screaming to the
negotiating table, and they've finally been told that they've been
'volunteered' to merge," said analyst Jim Handy of Dataquest Inc.
in San Jose. "They're going to have a very hard time being team
players."
Both Hyundai and LG Semicon were reportedly coerced by the
government, which overcame months of resistance by the two
companies' parent groups. The stalemate broke this week,
according to sources, only after the government's Financial
Supervisory Commission directed South Korean banks not to
make new loans to the nation's five largest conglomerates until
they agreed to the series of Big Deal exchanges and mergers.
The merger, part of the government-orchestrated "Big Deal,"
was the only semiconductor consolidation announced this week
as South Korean companies engaged in a veritable swap meet
that included extensive trading of petrochemical, aerospace, and
industrial holdings. Not included in the deal was an earlier
government proposal that would have seen Samsung Electronics
transfer its auto division to Hyundai in return for that company's
chip operation. That plan was vetoed by both companies last
spring.
Exactly how two sprawling companies such as these will wed
their global design and manufacturing operations, as well as their
marketing, sales, and distribution channels, is unknown. A
Hyundai spokesman in Seoul said the details to be worked out
"are very complex and may take as long as six months to
complete." LG could not be reached for comment.
Sources said one plan under consideration would see the new
company set up separate operations--one for memory chips and
the other for non-memory devices. Hyundai and LG would each
control one chip group, although the sources said there is
disagreement as to which operation would be governed by each
company.
Observers speculated on how the Hyundai-LG union will change
the memory-market landscape while continuing to meet
customers' production requirements. Also in question is the fate
of a stalled Hyundai DRAM fab in Scotland and a similarly
postponed LG facility in Wales. It's uncertain whether the new
company will need both U.K. fabs to satisfy future DRAM
capacity needs.
"The biggest challenge right now is that we still have a massive
oversupply of DRAM," Handy said. "As the industry's
second-largest DRAM supplier, can they do anything about it?"
Hyundai is believed to have more fabs equipped with
sub-0.25-micron lines than LG has, and is potentially able to
produce 50% more DRAMs on an 8-inch wafer than LG's most
advanced fabs. More significantly, Hyundai has special financing
arrangements with European banks to acquire more leading-edge
equipment that could enable a united South Korean chip
company to increase DRAM yields even further.
END OF NEWS ARTICLE
These guys are in hopeless debt yet miraculously still have borrowing capability that could significantly increase their manufacturing output. More supply, just what the world needs. |
