Hyundai, LG Semicon to run separate DRAM lines through 2000
By Andrew MacLellan
Electronic Buyers' News
(06/16/99, 05:28:02 PM EDT)
SEOUL, South Korea — Hyundai Electronics Industries Co. Ltd.'s impending merger with LG Semicon Co. Ltd. will not begin to affect global DRAM supplies until the companies coalesce their manufacturing lines around a second-generation 256-Mbit DRAM, most likely beginning late in 2000.
When fully integrated, the Hyundai chip group will rank as one of the industry's top two or three DRAM makers, according to analyst reports. However, despite early anticipation that the merged company would help reduce global DRAM oversupply by shuttering redundant DRAM manufacturing lines, Soon Y. Hwang, director of Hyundai's merger communications office who is helping to oversee the $2.1 billion merger of the Korean chip makers, said the companies will maintain separate and distinct manufacturing processes for the foreseeable future. Hwang said the companies will work jointly to steer the venture into non-memory markets and the foundry services sector.
Over the next several months, the companies will determine which fab lines to upgrade to leading-edge processes, which to leave alone, and which to close. But this process is not expected to seriously affect near-term DRAM output at either company, Hwang said.
"Both companies already have economies of scale and efficiency levels," he said. "LG [manufactures DRAM for] Hitachi, and their process is different [from Hyundai's]. Unification is going to take time. I'm not sure it's going to be economical to connect LG's fabs immediately with Hyundai's products . . . But gradually we will sort out our product portfolio [according] to each fab."
Under the merger agreement, which was finalized last month, Hyundai Electronics in September will carve off its telecommunications, LCD, CRT monitor, and automotive semiconductor units into a separate subsidiary. The remaining chip business will be combined with LG Semicon. While a name has yet to be selected, the new IC group is likely to be called Hyundai Semiconductor, according to Hwang.
Hwang noted that the buyout has received approval from anti-trust regulators in the United States, and is expected to clear anti-trust channels in Europe, South America, and Taiwan by the end of June. Following the deal, Hyundai will own 59 percent of LG Semicon's shares, and will convert the remaining outstanding common stock to new issues.
Hyundai this year expects to generate total semiconductor revenue of $2.5 billion, with another $2 billion coming from LG. The merged company's target for 2000 is $6 billion.
More immediate common ground between the two companies appears to lie in the area of R&D, and particularly in Direct Rambus DRAM development, where LG has an edge on Hyundai. By running lines on Hyundai's more advanced process geometries, the companies could bring the technology to market more quickly than if each had pursued Direct RDRAM independently.
"Certainly, there is synergy with Rambus," Hwang said. "We will sort out the whole R&D road map together and evaluate the status. Then we will choose the best [technologies] together and allocate the extra engineers into new areas."
Combined, the new company will depend heavily on DRAM, but eventually will expand into non-DRAM markets as well. This includes further development of image sensor and MPU technologies already marketed by Hyundai.
Additionally, about 10 percent of LG's chip operations are dedicated to system-level ICs, Hwang said. "By combining the two companies we will have enough manufacturing muscle, but to rely on just DRAM means that we could get back into an oversupply situation, and this would get us into trouble again," Hwang said. "We need to reinforce our R&D resources . . . to shorten our product development cycles and diversify our product portfolio."
Hyundai will also move to expand its foundry services by establishing unspecified design centers in the Unites States and by building up its intellectual property (IP) portfolio. Hwang said that while Hyundai is not likely to measure up to the likes of Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp., or Chartered Semiconductor Manufacturing, it will maintain a respectable second-tier foundry operation.
Saddled with what the financial community estimates to be $8 billion in combined debt, Hyundai said it will move to liquidate several remaining non-performing assets, including a Hyundai Electronics-owned power plant in Ichon. The company also plans to sell remaining shares in the Maxtor, GlobalStar, and Chip-Pac subsidiaries it divested last year. Additionally, Hyundai said it would welcome a variety of foreign investment sources.
But despite the technological, manufacturing, and financial pressures facing the new company, it's Hyundai's internal flame that needs fanning, according to Hwang.
"The biggest challenge is not the external environment; it comes out of our internal competitiveness and [Hyundai's ability] to be a technology leader," he said. "It's not about manufacturing muscle."
Another challenge will be to integrate the sales and marketing, technology development, and production teams of two companies that have been fierce rivals for years. Hwang said this is an area to which Hyundai has been especially attentive.
"The cultures of the Hyundai Group and the LG Group might be different, and there has been a little bit of hostility with the merger," he said. "But it's already an accepted thing, and we will work to minimize any conflicts. We will work with LG as an integration partner, not just as an acquisition."
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