semibiznews.com
South Korea makes surprising turnaround in IC sales
By Jack Robertson
SEOUL -- Who would have guessed that South Korea's semiconductor industry could have turned things around so quickly?
But only a year after a major financial crisis slammed this country, and despite a roaring fight that still rages over the forced merger of LG Semicon Co. into Hyundai Electronics Industries Co., chip shipments are coming back stronger than ever.
Early signs now indicate that industry visitors arriving next week for SEMI's Semicon Korea exhibition on Feb. 22-24 will find that Korean chip makers are beginning to expand cautiously. Some experts now see Korean semiconductor capital spending rising more than 10-to-15% in 1999 over last year.
When the financial bubble burst last year, the Koreans ended up slashing their chip equipment spending by nearly two-thirds to an estimated $2 billion in 1998. But that hasn't seemed to slow the surging production ramp-up now underway. This has come from the massive investments made earlier and the upgrading that has continued on existing fabs.
Korea's DRAM output in the first quarter of 1999, measured in bits, will nearly double the rate of the first quarter a year ago, estimates Dataquest. This represents most of Korean production, since DRAMs make up about 90% of all production. By contrast, the San Jose market researcher figures that U.S. output of DRAMs, now driven primarily by Micron Technology Inc., grew by 50% in the same 12 months.
Currently, Samsung Electronics Co. is cranking out 20-million 64-Megabit DRAMs a month, while Hyundai and LG Semicon are each turning out 11-million of the 64-Mbit chips a month, estimates Sherry Garber, chip analyst with Semico Research Corp. in Phoenix. But spokesmen for Hyundai and LG Semicon claim their 64-Mbit output was 33% higher than her estimate.
Samsung is expected to keep its DRAM production going all out because it is battling with Micron to retain its title as the largest DRAM supplier in the world. But the Korean giant doesn't plan to increase semiconductor capital expenditures this year. It expects to hold them to about $1 billion, the same as the company spent last year. Instead Samsung will focus on making technology upgrades of its existing fabs.
One new fab that's still on hold is Samsung's Fab 9 in Kiheung, where construction was halted in the midst of the financial downturn last year. Some observers believe, however, that if the global DRAM market turns up sharply this year, Samsung might decide to move quickly and equip the unfinished fab.
The big distraction in the Korean chip business is still the projected merger of LG Semicon into Hyundai Electronics. New obstacles were blocking the merger in mid-February.
Even after seven months of torturous negotiations, the two companies were still deadlocked over what Hyundai would pay for LG Semicon. So, once again, they turned to U.S. experts to settle the dispute. LG Semicon is using its financial advisors, Goldman Sachs and Lehman Brothers, while Hyundai Electronics brought on Merrill Lynch & Co. to try to set an acceptable price for the acquisition.
The South Korean government, which has been putting heavy pressure on the two chip makers to make this combination, has come out with another ultimatum. It now wants a final deal signed by the end of February, based on the asset valuation placed on LG Semicon by the U.S. investment firms.
An earlier roadblock to the merger was removed in early February when striking fab workers from LG Semicon fighting the sale returned to work after a 15-day walkout. They agreed to go along with the merger after LG Semicon offered them a six-month salary bonus.
But even if the deal is signed, it could have a continuing negative impact on the Korean chip industry. The marriage of two bitter chip rivals most likely will turn out to be a rocky one for some time. The two companies operate vastly different fab processes with disparate chip designs and dissimilar distribution channels.
The best guess now is that Hyundai will continue to run the LG fabs in much the same way they are operated by LG Semicon now. This would continue until Hyundai can ease these fabs into a more unified operation.
While equipment vendors attending Semicon Korea are counting on improving order rates from the Koreans, confusion caused by the LG Semicon-Hyundai Electronics battle may hold back gear purchases until the merger is a done deal.
Clouding the picture even more for equipment vendors are demands by Korean chip makers that suppliers help to finance their capital equipment orders, according to many sources.
Another problem for them is that the Korean chip makers may continue what they did last year in delaying payments. Last year, they often paid for equipment purchases out of cash flow, which meant that suppliers sometimes had to wait months beyond normal payment dates to get their money. But the Koreans may be in a stronger financial position this year if firmer DRAM prices hold up.
Forecasters are unsure what to expect this year from Korean equipment purchases. G. Dan Hutcheson, president of VLSI Research Inc., predicts that Korean equipment purchases this year will fall 7% to $1.3 billion. Clark Fuhs, Dataquest's equipment analyst, on the other hand, estimates that chip capital spending this year will be slightly higher, up 10-to-15% to $2 billion. |
