While the Hyundai and LG conglomerates have still not reached agreement on the merger of their semiconductor operations following months of talks, the economic imperatives which last year led the government to insist on the deal are becoming less imperative. Analysts have long suspected the foot dragging by both parties is at least partially due to a hope that worldwide recovery of the DRAM market coupled with internal restructuring and cost savings at Hyundai Electronics Industries (HEI) and LG Semicon will result in two strong, profitable independent companies which do not need to merge.
Results and statistics released yesterday indicate that for Hyundai at least this may already be the case. According to statistics from International Data Corp, HEI is now the world’s second-largest producer of dynamic random access memory chips, and its DRAM sales increased last year by 9.4% to $1.74bn despite the nearly 30% contraction in value terms of the international market for DRAMs. HEI’s market share was up by more than 50% from 8% in 1997 to 12.4% in 1998 behind only Samsung Electronics, with 20.1% and ahead of Micron Technology, NEC and LG, in fifth place with an 8.4% share. The combined output of HEI and LG would give them the top spot worldwide if the merger goes ahead.
Announcing its results for 1998 yesterday, HEI made a point of separating out semiconductors from other business and reported an operating profit of 180 billion won ($146m) from semiconductors, which accounted for 57% of sales by value. Overall, the company registered a 140-billion won deficit, down 22% from 1997, and was able to report that it had reduced its debt-to-equity ratio from 688% to 446% through corporate restructuring. It said it is on target to reduce it to less than 200% this year.
Meanwhile the Maeil Business Newspaper reported prices of DRAM chips are once again on the decline following a surge earlier in the year, with the international price of a 64MB DRAM falling to $9.80 in March from $10 in February. However, the paper said, production costs at HEI, Samsung and LG have dropped by at least a dollar a chip to about $7 in the past few months, so their profits are increasing. The costs have come down thanks to the introduction of new technologies, including narrower circuit designs which allow 400 chips on a single wafer, double that of the last-generation wafers.
Fifth-generation wafers are expected to be released by the second half of this year, which will allow chip makers to cut production costs to about $5 a chip, the paper reported an industry insider as saying. All the good news could just make the government’s efforts to force the merger through that much more difficult.
