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To: santhosh mohan who wrote (28877)	2/24/1998 12:14:00 PM
From: DJBEINO	Respond to of 53903

Korean DRAM Makers Eye The Foundry Business By Dylan McGrath San Jose, Calif.--Feeling the squeeze of the persisting weakness of DRAM pricing and the devaluation of the won, the major Korean DRAM manufacturers are entering the growing silicon foundry market. According to Strategic Marketing Associates (SMA), a Santa Cruz., Calif.-based semiconductor industry research firm, 17 percent of the new capacity added to the foundry market in 1998 will come from DRAM producers. Korean DRAM companies can offer an advantage in pricing compared to dedicated foundry companies because the won was devalued so much compared to the U.S. dollar in recent months, depreciating the cost of running fabs. Korea's Big Three DRAM suppliers-- Samsung, Hyundai and LG Semicon-- also have an enormous amount of capacity at a time when continued overcapacity in the industry is killing their businesses. The questions surrounding these companies' roles in the foundry market primarily focus on whether customers can count on them to remain devoted when DRAM capacity finally tightens. Doing contract foundry work is nothing new to Korean DRAM companies. Many have been doing it to some degree for several years. But with rough economic conditions in Korea and the DRAM market, the question is whether Samsung, Hyundai and LG are planning to rely more on this aspect of their businesses. "We are seeing them all over the place," said Tom Gurnee, president of Chartered Semiconductor U.S. "They are everywhere, and generally with very low prices. We have seen them very aggressive on pricing." "Samsung and LG Semicon are going to be actively going after some foundry business," said Jim Hines, principal analyst with Dataquest. A spokesman for Hyundai said the company has done some foundry work for customers since its inception. He said there is "no connection" to Hyundai soliciting foundry business and low DRAM prices or the devaluation of the won. "We're continuing to diversify our business model," he said. "We have current Asian capacity that we are able to use for this." He said Hyundai's foundry work was being done at 0.6 and 0.5-micron geometries. LG Semicon admits the DRAM blues have the company looking for more foundry business. "Expansion into non-memory products has long been a strategy of LG Semicon, and foundry activities are viewed as one vehicle for such expansion," said Mark Schroeder, a spokesman for the company. "Given the continued, depressed state of the DRAM market, however, profitable opportunities in the foundry area are being sought on a regular basis now as a way to improve further LG Semicon's profitability and to enhance its diversification." Mr. Schroeder said the company currently has several ASIC relationships with business partners. VLSI Research President G. Dan Hutcheson said Samsung is the most serious entry of the three companies into the foundry market. "They've actually got a fair amount of customers," he said. Representatives from Samsung could not be reached for comment. While he respects the competition, Mr. Gurnee said he believes many questions need to be resolved before the major Korean memory companies can provide a serious long-term challenge to the successful dedicated foundry companies because it takes time to build customer relationships and communication channels, he said. He also suggested customers may be more concerned about compromising intellectual property (IP) with a DRAM company than with a dedicated foundry. He further said the companies will need to make an investment in equipment to convert their fabs from DRAM to ASIC foundries. "In this business, you've got to have some deep pockets," Mr. Gurnee said. "The Koreans will do fine in the short term, but long term it's a little bit of a hurdle. They have the will to compete, and that counts for a lot. The question is whether they will have the determination and all the things that go with it." Mr. Hines of Dataquest said he doesn't think many customers will abandon dedicated foundries and use DRAM companies, but he does think the DRAM companies have the potential to cash in on integrated device manufacturers (IDM) that might be interested in taking advantage of the low prices to increase their outsourcing. "I think these companies can make life difficult for the other players in the foundry market from a pricing standpoint," Mr. Hines said. "However, I don't believe the new entrants will be particularly successful in capturing a long-term market share. There is a certain premium dedicated foundry customers will continue to be willing to pay for the service." "Historically, a lot of DRAM companies have wanted to do something else," said Steve Cullen, senior analyst for market research company In-Stat. "They've never felt completely comfortable. Many have tried to get into the microprocessor business because that's kind of the sexy thing to do, but foundry is probably a better choice." Mr. Hutcheson said the topic of Korean DRAM companies entering the foundry market is likely to be discussed this week at a Feb. 24 Fabless Semiconductor Association (FSA) quarterly event in San Jose. The event is titled, "The Effects of the Asian Crisis on N. American Electronic Companies." From Page One of Electronic News: February 23, 1998 Issue