Paul and ALL, Article... Koreans won't touch chip budgets...
Chaebol insulate semi units from spending cuts
December 17, 1997
Electronic Buyers' News via Individual Inc. : Silicon Valley- Unfazed by an imploding economy, South Korea's industrial conglomerates appear determined to protect their semiconductor operations from painful spending cuts, a sign that the country's chip makers won't abandon their global market position without a fight.
While the parent companies of all three of South Korea's largest electronics makers have announced deep reductions in their overall 1998 capital investment plans, none are yet willing to scale back spending for their semiconductor divisions, traditionally a strong source of revenue.
The LG Group, for example, said last week it will maintain its capital investment levels for its U.S. chip subsidiary, even as it slashes its total 1998 investments by more than 50%. And the Samsung Group and the Hyundai Group, both of which plan to cut their spending by 30%, have said they also will leave their chip budgets intact.
But even that may not be enough to keep the wolf from the door, according to analysts. Given the combination of rising costs for manufacturing equipment and the prolonged slide in the price of DRAM - South Korea's leading semiconductor export - the country's chip manufacturers will likely find it hard to keep pace with their competitors.
"These companies have violated the financial speed limit," said Dan Hutcheson, president of VLSI Research Inc., San Jose. "And now the market is handing out speeding tickets."
Despite the $57 billion bailout package recently authorized by the International Monetary Fund, South Korea is still plumbing the depths of a financial crisis that has devastated the national currency and triggered a string of failures at merchant banks, steel manufacturers, and automakers.
Amid the growing turmoil, South Korea's industrial conglomerates, or chaebol, are scrambling to rein in their spiraling debt, much of which must be paid back to overseas investors in the form of increasingly expensive foreign currencies.
That the chaebol's chip operations are being insulated from the spending cuts is not surprising, Hutcheson said. In a market already as price-sensitive as the DRAM sector, a missed opportunity would hurt chip subsidiaries and other industry sectors that have been buoyed in the past by solid semiconductor margins.
"For quite a while, these companies have made all their money in DRAM, which for the most part has lifted their steel and automotive and ship-building operations," Hutcheson said. "Their success was dominated by the money they made in DRAM."
The Samsung Group has said it will reduce its 1998 investment to 6 trillion won, down from 8.2 trillion won in 1997. But spending at its U.S. chip subsidiary, Samsung Semiconductor Inc., will remain flat at 1.7 trillion won, according to a spokeswoman.
The Hyundai Group said last week that while it will cut its investments to 5.5 trillion won from 7.8 trillion won, it also plans to place a greater emphasis on exports, of which DRAM is a significant component. Although a company spokesman declined to provide specific figures for Hyundai Electronics America, he did say that "previously committed 1998 budget investments in HEA are still planned to go forward."
A company spokesman for LG said that it will cut spending next year by more than half, to $2 billion, but will not significantly reduce outlay for semiconductor development, estimated by analysts to be about $1 billion.
But even at those levels, such investments will enable South Korea's semiconductor manufacturers to do little more than tread water in a rapidly evolving market, VLSI's Hutcheson said. Without a well-financed plan to move to next-generation 300-mm- (12-in.-) wafer production, the country's chip suppliers could lose their market lead within three to four years. A 12-in.- wafer fab is estimated to cost as much as $3 billion.
"We haven't found any major equipment cancellations," Hutcheson said. "But at the same time, we're not seeing them placing a lot of new orders or making a new facility announcement every other month."
Samsung said it will push ahead with plans to bring on line the first phase of a $1.2 billion 8-in.-wafer fab in Austin, Texas, in the first quarter of 1998. Another line in South Korea is also standing ready and will be equipped as customer demand dictates.
A spokesman for HEA's chip subsidiary, Hyundai Semiconductor America, said the company will also press on with plans to begin test production next month at its new $1.4 billion 8-in.-wafer fab in Eugene, Ore. A report last week from the British government that Hyundai's cutbacks may force the postponement of construction at a proposed fab in Scotland could not be confirmed.
LG reported that its chip subsidiary, LG Semicon Co. Ltd., will not alter plans to open a $1.9 billion 8-in.-wafer fab now under construction in Wales. That facility is slated to come on line in January 1999, when it is scheduled to begin producing 64-Mbit DRAM.
Yet despite all those efforts, South Korea's U.S. chip operations have not been entirely shielded from the plight of their parent companies.
Hyundai Semiconductor America, San Jose, learned last week that Standard & Poor's Corp., New York, has placed the company's triple-B-minus long-term currency rating on credit watch. S&P cited a slower-than-expected production ramp of 64-Mbit DRAM chips and the difficult market faced by San Jose-based hard drive manufacturer Maxtor Corp. as contributing to the credit warning.
South Korea's economic turmoil has, in fact, curbed the appetite of at least one chip-industry contender. The Dongbu Group, which had planned a 2 trillion- won venture with IBM Corp. to build a facility to manufacture 64-Mbit and 256- Mbit DRAM, has now postponed the deal, according to a report from the Reuters news service.
In other areas, the collapse of South Korean distributor Woo Young Tech Co. Ltd. has sent its own shock waves across the Pacific. Lattice Semiconductor Corp., Hillsboro, Ore., said the failure of its South Korean distributor has left it unable to fill certain customer orders and has placed $3.5 million worth of inventory at risk. The company said it is working with its South Korean OEMs to arrange direct shipments.
Meanwhile, this month's South Korean national elections are compounding the country's economic woes by introducing an element of political uncertainty, local observers said.
"The current situation in Korea is very bad," said a spokesman for the LG Group. "The won-dollar exchange rate has to improve before we can begin to hope for a strong recovery, and there is uncertainty over what new government policies may bring."
______________________________________________________________________
Regards, Michael
|
