FOCUS-Korean chipmakers set stage to avoid merger
By Yeom Yoon-jeong
SEOUL, Nov 5 (Reuters) - Expected strong second-half earnings in South Korea's semiconductor industry following a jump in memory chip prices could prompt two of the country's top chipmakers to abandon plans to merge, analysts said on Thursday.
Korea's chipmakers forecast on Thursday an improved second-half performance, underpinned by stable global prices for dynamic random access memory (DRAM) chips.
A spokesman at Samsung Electronics , South Korea's largest semiconductor producer, said profits generated from semiconductor sales would rise to about 700 billion won ($530 million) in calendar 1998. No comparison figures were given.
''Rising DRAM prices will contribute to increasing our profits later this year,'' he said. ''But it's too early to have a positive view for the future as the price increase was partly because of seasonal demand by PC makers for Christmas.''
The country's two other major chipmakers, LG Semicon and Hyundai Electronics , also predicted a better second half -- a situation analysts said could lead them to abandon plans to merge and form one of the world's largest chipmaking groups.
So far Hyundai Electronics, a unit of Hyundai Group [HYGR.CN], and LG Semicon, a unit of LG Group [LUGG.CN], have been unable to agree on much of anything.
''They (LG and Hyundai) are trying to drag their feet, hoping they can stand on their own two feet in the long run if they can tide over the current critical point,'' said Yook Dong-jo, a semiconductor analyst at CS First Boston.
Jon Chong-hwa, an electronics analyst at KEB Smith Barney, said: ''The companies appeared reluctant to strike the deal as they have pinned their hopes on the belief they can catch up past losses from the year 2000 on the back of industrial recovery.''
He said the two companies might post 200 billion ($152.44 million) to 300 billion won in net profits in 2000.
LG Semicon spokesman Han Sang-soo said on Thursday the company would post a profit in the fourth quarter of this year but declined to give details.
He said the unit price for 64-mega DRAMs rebounded to $10 in October from a low of $8 in June, while that for 16-mega DRAMs rose to $2 from previous $1.5.
''The current price level is above the break-even point for us. So, we can make profits from the fourth quarter and are sure to post profits for the whole next year,'' Han said.
A spokesman at Hyundai Electronics said his company would also benefit from recent rising DRAM prices.
Still, the outcome of any tie-up between the two remains anyone's guess.
''The government is very strong-willed, while the two companies are trying to find various excuses to abandon the deal,'' said Bahn Youngone, an analyst at Ssangyong Securities. ''We need to closely watch what happens.''
Government officials and top business conglomerates, or ''chaebol,'' plan to sit down late on Thursday to discuss expediting their ''big deals'' -- a term used to describe proposed mergers in seven industries that lie at the heart of the government's plan to restructure the economy.
The chaebol business association, the Federation of Korean Industries, has stepped in to help Hyundai Electronics and LG choose a foreign consulting firm to help sort out who would get majority ownership and management control of a merged entity.
A decision on the consultant was expected late on Thursday.
But anlaysts said the chipmakers were trying to lay the groundwork to abandon the deal, after two major Korean business newspapers ran editorials opposing it.
''Let's rethink the big deal in semiconductors,'' said a headline on a Thursday editorial in the Korea Economic Daily.
''Who would benefit from the forced merger? The government should reconsider it from a longer point of view, considering a change in global environment,'' it said.
The Maeil Business Newspaper said the merger would not create the synergies the government expected because of different systems, equipment and assembly line designs in the two firms.
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