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October 12, 1999

Hyundai Looks at TFT-LCD Sale After Chip Merger

By CBR Staff Writer

With the world’s largest dynamic random access memory (DRAM) chip maker being formed today by the merger of Hyundai Electronics Industries Ltd (HEI) and Hyundai MicroElectronics Co, HEI can now concentrate on selling or spinning off its non-semiconductor businesses. It needs to, as the integration adds the hefty debts of what was LG Semicon to its own considerable debt burden, and it will struggle to service debt repayments from revenue in the short to medium term despite a booming DRAM market, where it holds a 20% share.

Prospective buyers are already in talks with Hyundai, with its active matrix liquid crystal display (LCD) business the focus of a great deal of interest, thanks to supply for TFT (thin film crystal) LCDs for notebook computers lagging well behind demand on the international market. It also has a telecoms equipment business.

While the Hyundai and LG groups were involved in hard negotiations over the semiconductor deal, LG separated its own TFT-LCD business from LG Semicon and formed a new company, LG-LCD. Philips NV of the Netherlands bought a 50% stake in the new company for $1.6bn, the largest ever single foreign investment in Korea, at least partially to ensure it had access to a reliable supply of computer displays. LG Philips LCD is now vying with Samsung Electronics for top spot in the world flat panel display market, with each predicting sales of about $2bn for this year, or around four times last year’s levels.

Meanwhile, most of the news from Hyundai Electronics has concentrated on the build-up to the semiconductor merger, but its TFT-LCD business has quietly continued to grow in the background. The first public expression of interest has come from a group of Taiwanese notebook PC manufacturers, led by Mitac International Corp and Compal Electronics Corp, which claim to have banded together to make a bid for part or all of HEI’s TFT-LCD operations. A Taiwanese press report said they had made an NT$5bn ($156m) offer to Hyundai, but did not say what size stake they were expecting for that price.

We joined the tender because we need a more stable supply of TFT-LCDs for our notebook computers, Mitac International spokesperson Lin Rong-shen was quoted as saying by the Economic Times. There has been an acute shortage of TFT-LCDs worldwide, a trend that is expected to last for another year, he said. Mitac expects to make 900,000 notebook PCs this year while Compal’s target is 1.3 million.

An HEI official said: We have been considering spinning off the TFT-LCD business, but there are no specific companies with which we are negotiating. There will be many companies, not only from Taiwan, but in other countries interested in an investment. Despite the interest from Taiwan, Hyundai may well be able to shop around for a buyer or strategic investor, as TFT-LCD supply will lag demand by 14% this year and 20% next year, according to a report by investment bank Warburg Dillon Read.

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