Korean Electronics Giants Curb Growth, Sell Assets
(01/19/98; 9:24 a.m. EST)
By Jack Robertson, Electronic Buyers' News
The major electronics companies of South Korea last week began slowing
expansion, cutting production, shaking up executive staffs, and selling
off assets as part of an effort to dig themselves out of a mammoth
financial crisis.
Hyundai Electronics Industries Co. Ltd. confirmed that it has postponed
the construction of a $1.4 billion fab in Scotland, a delay that had
already been signaled by the British government. KoreLG Semicon Co. Ltd.
had no announcement on whether the company would delay the construction
of a $2.2 billion fab in Wales. A Welsh development agency was
reportedly discussing whether to provide additional support to keep that
venture on track.
Samsung Electronics Co. Ltd. said the company would slash production of
TV sets and other consumer electronic devices by up to 40% at plants in
China, India, Indonesia, Malaysia, the Philippines, and Thailand.
South Korea's electronics companies are undergoing executive changes.
Michael Williams, senior vice president of sales and marketing at LG
Electronics America, has resigned. Reached at his home, Williams said
the South Korean company steadfastly denied that it was facing any
economic problems before he left the company. A spokeswoman for Samsung,
Seoul, South Korea, said the company's semiconductor unit was in the
midst of broad staff changes. She said that details would be released
when the reorganization is completed.
Hyundai and LG Semicon did not return calls.
Samsung announced that it was selling its gallium-arsenide semiconductor
operation in Milpitas, Calif. The company said in December that it was
selling its audio equipment business in South Korea. The deals are part
of the Samsung Group's plan to shed more than 25 operations.
Analysts expect Samsung and other South Korean companies to make more
divestitures. A.A. La Fountain III, a financial analyst at Dominick &
Dominick, New York, predicted "fire-sale purchases" of various South
Korean electronics operations that were launched or acquired in the past
two years of free-wheeling corporate expansion.
Vladi Catto, chief economist at Texas Instruments Inc., Dallas, expects
the South Koreans to sell off operations but stay in the semiconductor
arena. "I suspect they will retrench but do everything they can to
preserve their presence in semiconductors," he said.
Analysts said they were watching what the South Korean companies will do
with money-losing businesses, including AST Computer Inc., owned by
Samsung, and Zenith Electronics Corp., owned by LG.
South Korea's electronics companies have extensive ties with foreign
partners. Intel Corp., Santa Clara, Calif., has a secured 10% equity
interest in Samsung's new DRAM fab in Austin, Texas, and has developed a
digital PC camera with the company. Samsung produces a System LSI
single-chip graphics device for Chips and Technologies Inc. that is at
the core of Intel's PC graphics strategy. Some sources said that Intel
might act to safeguard these efforts.
Texas Instruments has given South Korea's Anam Industries the front-end
wafer production technology to make DSPs and has agreed to purchase
between 40% and 70% of the output of an Anam fab that will use the
technology. A TI spokeswoman said that Anam's fab in Buchon, South
Korea, should not be adversely affected by the current crisis.
One tactic used last month to raise desperately needed foreign currency
- clearing out a large inventory overhang of DRAM chips - has apparently
run its course for the most part. Analysts and some DRAM competitors in
the United States said that the South Koreans are no longer flooding the
spot market but that it remains to be seen if the lower level of South
Korean chips in the spot market will hold up. But some analysts
attending the SEMI Industry Strategy Symposium in Pebble Beach, Calif.,
said the South Koreans will pump out all of the DRAM chips they can
possibly produce in the months ahead.
The efforts to raise cash come as the country's conglomerates, or
chaebol, wait for their short-term debt to be refinanced by South Korean
banks. These banks, in turn, face $40 billion of their own short-term
debt on money borrowed from abroad, which will come due by the end of
March. When the South Korean banks restructure that debt, the chaebol
will be able to finance their loans.
South Korea's banks desperately need the bailout to replenish their
tills with foreign currency, which has virtually run dry, causing a
traumatic impact on South Korean imports. The country's banks have
almost no foreign currency against which letters of credit to foreign
shippers can be written. Sources said that the lack of foreign currency
could become a monumental barrier to the South Korean chip industry if
producers can't get letters of credit for such critically needed
semiconductor materials as epoxy from Japan, which is used to
encapsulate chip packages. South Korean companies must juggle priorities
until the current financial crisis eases.
Electronic competitors will closely watch how the South Korean companies
restructure their massive short-term loans to the country's banks as
part of the bailout. Executives at Micron Technology Inc., Boise, Idaho,
South Korea's archcritic, said last week that they have been assured by
the U.S. Treasury Department that none of South Korea's corporate debt,
either principal or interest, would be forgiven.
Press reports from South Korea indicate that many South Korean companies
may be looking to float their own bond issues to refinance some of their
private loans and gain critically needed capital. Most attempts to issue
bonds last fall were unsuccessful.
Darrell Dunn contributed to this story. |
