March 1, 1999
Korean DRAM makers getting aggressive again
By Jack Robertson
SEOUL -- Don't ever forget that South Korea is still the center of the DRAM universe. Despite the major financial crisis that sent its chip makers reeling and the "shotgun marriage" being forced on LG Semicon Co. Ltd. and Hyundai Electronics Industries Co. Ltd., the South Korean tiger is roaring again.
This aggressiveness showed up big-time at SEMI's Semicon Korea meeting in late February. Korean DRAM makers certainly had regained their confidence. Discussions with local chip makers and production equipment suppliers at the show confirmed that the Koreans are ordering tools to upgrade fabs to 0.18-micron design rules
as quickly as possible so they could ramp up their DRAM output.
Korean DRAM makers were sure of themselves. They were certain, for example, that next year Samsung Electronics Co. and the new Hyundai-LG Semicon merged operation, along with Micron Technology Inc., will
control 70% of the global DRAM market.
Soon Y. Hwang, director of Hyundai Electronics' semiconductor strategic development, claims the new global
"big three" will drive most other memory vendors into much smaller niche memory markets. "These three companies will have such economies of scale in production," he maintains, "that they will price DRAMs so
competitively that few other supplies will be able to afford to match the price."
Officials from the "big three" Korean chip makers, as well as exhibitors at Semicon Korea, agree that next year
Samsung and Micron will each be turning out in excess of 50 million 64-megabit DRAMs a month, up from 20-to-25 million units now. Hyundai and LG each are running at 15 million 64-Mbit DRAMs per month now, but
their consolidation, most people believe, would result in a lower total output that would be in line with what the other two DRAM giants are now producing.
Meanwhile, the long, tortured discussions aimed at coming up with a deal that Hyundai and LG Semicon will agree to now have another deadline. This time the two companies have until March 7 to sign a final agreement. At the end of February, the two chip makers were still deadlocked on price and a government-sponsored mediation
panel was trying to bring about a settlement.
The companies remain at odds over how much Hyundai will pay for LG Semicon. Hyundai is offering about $1 billion and the LG Group is seeking up to $4 billion, according to Jun-Ho Cho, vice president for corporate restructuring in LG's Executive Office.
LG Group "is committed to keeping its word on going ahead with the acquisition of LG Semicon by Hyundai Electronics," insists LG's Cho. "However," he says, "we want a reasonable price."
And that pricetag seems to have gone up recently. The value of other DRAM producers is climbing due to the improved global market, the LG vice president points out. "The price of Micron stock has doubled and is now priced seven times higher than LG Semicon stock," he says. "Only six months ago, share prices of both companies were in the same range."
Even without a merger, Hyundai would remain the third largest DRAM producer in the world and LG Semicon would be the fourth largest. But the longer the merger is delayed, the more difficult it will be for LG Semicon to make the strategic investments necessary to upgrade its six Korean fabs, officials say. LG Semicon, however, has continued to upgrade a leading-edge 8-inch fab to 0.20-micron processing, says Jun-Ho Cho, vice president ofLG's Executive Office who heads corporate restructuring.
Samsung and Hyundai, of course, are facing no such uncertainties, and they already have started to order leading edge equipment to convert their existing lines and fill out fabs. First step is to push die shrinks to 0.2-micron, then later this year move to 0.18-micron design rules.
Equipment vendors at Semicon Korea were delighted to see the Koreans ordering again, even though the amount was still a far cry from the free-wheeling days of 1995-97 when the Korean chip makers were on a fab-building spree. "The Koreans are dedicated to maintaining their global market strength," sums up Dennis Key, vice president of marketing for Varian Associates Inc.'s Semiconductor Equipment Division in Palo Alto, Calif.
Korean device makers are expected to double their equipment purchases this year to $2.6 billion, predicts Chi-Luck Kim, president of the Korean Semiconductor Industry Association (KSIA). While he says that it's still too early to determine how a merged Hyundai-LG chip operation would affect capital spending, "whatever happens, semiconductor companies must invest heavily to remain competitive in the world market."
The biggest boost now to Korean confidence is a strengthening DRAM market. DRAM makers are convinced that memory prices have stabilized after two years of precipitous drops. Hyundai's Hwang agrees with the growing number of forecasts that call for a price pickup in the second half as DRAM supply moves closer into balance with demand.
In fact, it is this stronger DRAM market that is now the LG Group's key argument against the merger of its chip business into Hyundai. "The conditions of excessive oversupply of DRAMs no longer exists," LG's Cho claims. "There is no longer a valid reason to merge the two groups." Nevertheless, LG removed one roadblock to the merger in February when it gave all of its employees a six-month salary bonus to compensate them in the transition to the new merged company. LG fab workers, who were in the midst of a 15-day walkout protesting the acquisition, then returned to work.
According to LG's Cho, this bonus will cost his company $50 million to ease the path to the merger, an expense that he feels Hyundai should consider now in its acquisition price. The importance of DRAMs to Korean chip makers can't be overestimated. Despite intensive efforts to diversify into other chip markets during the past couple of years, the Koreans still remain locked into DRAMs. Memory chips last year still accounted for 84% of South Korea's $7.8 billion in chip sales, estimates KSIA's Kim.
He expects this ratio to continue at about the same rate this year due to rising memory chip prices and higher output. But he adds that the Korean industry's goal is still to ramp up non-memory chip business to at least 30% of Korean semiconductor sales by 2002.
Meanwhile, there is no action on the new fab front. All three Korean chip companies say they're holding off any plans to build completely new fabs. Two projected superfabs in the U.K. remain on hold, according to Hyundai and LG Semicon. Hyundai has no plans to go ahead anytime soon to equip the empty plant at its Scotland site, and LG's Cho says there are no plans now to move ahead with his company's postponed fab in Wales. But in event of a merger, "it's going to be a difficult decision on how to proceed on the two U.K. fabs," predicts
Hyundai's Hwang. Samsung, which is completing a second-stage expansion at its Austin, Tex., fab, says that it has no plans to start
any new fabs this year. The company's $1 billion semiconductor capital spending budget this year, which is just about the same as was spent in 1998, will go for upgrading existing production lines.
Samsung, however, has decided to go ahead with the next-generation 300-mm wafer. It will build a 300-mm pilotline in one of its current development fabs at Kiheung. But there are no plans at this time to move ahead into full production with the larger wafer, according to a company spokesman. |
