An interesting artice for everyone.
-Long on ADPT
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Why Hyundai Sells
With borrowing shut down in South Korea, Hyundai is raising cash by
selling operations
By Peter Brown
San Jose, Calif.--Of the South Korean chaebols, Hyundai is one of the
most heavily leveraged, with one of the highest
debt-to-equity ratios in the country. With three of its main
businesses--autos, construction and shipbuilding--in the doldrums,
and its semiconductor business suffering from the collapse of DRAM
prices, Hyundai is finding it difficult to raise cash. To ease
the pinch, it has turned to selling off pieces of its empire.
Because it wants to preserve its business at home, Hyundai is divesting
some of its foreign subsidiaries. Last week Hyundai
Electronics America (HEA) sold its wholly-owned subsidiary Symbios to
Adaptec for approximately $775M in cash, including
assumed liabilities. The move comes only months after HEA divested
Odeum, the company's graphics subsidiary, and Image
Quest, a subsidiary dedicated to providing active matrix liquid crystal
displays (AMLCDs) for avionics and military uses. Both
of these were restructured out of existence within HEA because of poor
financials (EN, Dec. 1, 1997).
But Symbios was healthy. Symbios, however, was making money and doing
very well as an ASIC and mass storage supplier.
The company had revenues last year of approximately $620 million and
industry observers believe the company was doing the
right products at the right time to continue serious growth.
For Adaptec, industry observers believe the Symbios acquisition was a
prime opportunity and will mold nicely with Adaptec's
future goals and strategic focus. "We have had our eye on (Symbios) for
some time," said Grant Saviers, chairman, president
and CEO of Adaptec in an interview with Electronic News. "We were
impressed with the company and how they were
performing and when the opportunity emerged we went for it. We think
this is going to bring a tremendous amount of revenue
to Adaptec because the company has good products and has been profitable
for some time." Mr. Saviers remembered
Adaptec had attempted to acquire Symbios when AT&T spun out NCR two
years ago but the company lost in a bidding war
to HEA.
Recently, HEA's South Korean parent, Hyundai Electronic Industries
(HEI), said it will cut its investments in 1998 to 5.5 trillion
won (US$4.5 billion), down from 7.8 trillion won in 1997 (EN, Jan. 12).
Despite this, HEA said that previously committed
1998 budget investments by HEI to its U.S. subsidiary are still planned
to go forward. Now with these divestitures and HEA's
plan to return to its core business of DRAM, all is not certain.
Hyundai's Divestitures
According to Jim Handy, principle analyst at Dataquest, a market
research firm based in San Jose, Calif., the sale of Symbios
follows what the South Korean president-elect has been pushing the
electronics companies to do--restructure the
conglomerates and align themselves on their key businesses. "This makes
an awful lot of sense," said Mr. Handy. "Hyundai is
taking the president-elect's words seriously and has been making moves
to bring the company back to what made it successful
in the first place, DRAMs. I think a lot of their businesses they have
divested have not been making money and did not warrant
the resources being invested." In a statement, Hyundai said the sale of
Symbios to Adaptec is part of a continuing strategy by
HEA to divest itself of non-core businesses. The company added "We are
the number 4 producer of DRAMs in the world, and
we want to concentrate more on this product area, where we are on the
forefront of technological innovation. Hyundai and
Adaptec believe that this consummated transaction will benefit the
marketplace through better alignment of our respective
technologies."
Some analysts see this as a big mistake. Jerry Worchel, senior analyst
at In-Stat, a market research firm based in Scottsdale,
Ariz., said the move surprised him because Symbios was one of the only
parts of Hyundai that was experiencing growth. "It is a
mistake on their part because the entire industry is moving toward
integrated solutions and getting rid of one of the leaders in
cell-based technology leaves them on the short end of the stick and
gives Adaptec a feather in their cap," said Mr. Worchel.
"DRAM is a great technology to get a leadership position in but it is
not a technology of the future. For that, they need to get
into the logic market and obviously they just ended their best chance to
be a leader there," he said. Mr. Worchel pointed out
that Hyundai and LG Semicon, who have both attempted to ramp up their
ASIC lines, have done nothing so far to generate
growth in the logic market. Samsung Semiconductor has been the only
Korean supplier to make any headway in the ASIC
market with its embedded DRAM ASICs, he added.
Apparently HEA engaged an investment banker who then approached Adaptec
and other Silicon Valley companies about a
possible acquisition. Adaptec moved quickly to purchase Symbios, having
approximately $750M in cash on hand, said Mr.
Saviers. Adaptec said it will borrow to replenish its cash reserves that
paid for the Symbios acquisition. Symbios will be folded
into Adaptec, not as a subsidiary. Mr. Saviers claimed that pleases the
Symbios personnel who have "been bounced around as
a subsidiary for a long time." The only management change during the
transition will be the departure of Symbios president and
CEO Gene Patterson, who had ideas of taking Symbios public at one point.
Mr. Patterson apparently will exercise an option in
his contract that will allow him to leave and pursue other interests.
The remaining 2,500 personnel will all become Adaptec
employees with the completion of the acquisition. Mr. Saviers said
Adaptec estimates the acquisition will be complete in 90
days or less. Approximately two years ago, HEA completed its purchase of
the NCR Microelectronics business unit from
AT&T naming it Symbios Logic (EN, Feb. 20, 1995). HEA, at the time, was
attempting to diversify itself from doing DRAMs
only. HEA planned to let Symbios continue to maintain its business plans
to develop ASICs, ASSPs, mass storage and disk
controllers.
"We are looking at this more as a merger of two organizations rather
than one company acquiring another," said Mr. Saviers.
"This is not a decision done on a whim, we are in a mode to build for
the future and we believe Symbios will be a big part of
that future. There will be some redundancies but in isolated situations,
I expect there to be no wholesale changes."
Hyundai Electronics' intentions to concentrate on DRAM production may
take a hit when the new South Korean government
comes into power next month. President-elect Kim, who wants to cut back
the activities of chaebols, has suggested that
Hyundai trade all its electronics operations to the Samsung group in
exchange for Samsung's new automotive company. |
