Micron Technology Inc. is back at the throats of Korean DRAM makers. Ten years after filing a landmark DRAM antidumping complaint against the Koreans, Micron late last week filed a countervailing duty case against the same chipmakers, alleging that illegal government subsidies were used to prop up their DRAM operations.
The clear target of the Micron suit is the financially-troubled Hynix Semiconductor Inc.
The other Korean DRAM producer, Samsung Electronics Co. Ltd., wasn't involved in the financial bailout that last year rescued Hynix. In complaints filed with the U.S. Commerce Department and International Trade Commission, Micron cited an equity-for-debt swap by government-controlled creditor banks, debt forgiveness, and government-assisted debt financing. The banks last year erased $2.3 billion in Hynix debt through an equity-for-debt exchange that ultimately gave the creditors an 80% stake in the company.
The Micron complaint follows in the wake of a similar subsidy case filed against the Korean firms last spring by Infineon Technologies A.G. which the European Commission is investigating.
The impact of the latest Micron case could be felt far sooner than the year or more that it will take the Commerce Department and ITC to reach their final judgment. That's because Hynix's creditors are in the final stages of arranging another financial restructuring that could include many of the same bailout methods that Micron protested during the earlier rescue efforts.
Micron clearly hopes that its latest countervailing duty complaint will dissuade the government-controlled creditor banks from bailing out Hynix yet again. If that doesn't happen, Micron hopes that fiscal reality will finally catch up with its rival and force it from the market.
It's unclear, however, how much concern the Micron suit will cause Hynix creditors. After all, previous Micron-orchestrated pressure against alleged government subsidies didn't stop the last refinancing of the company.
Micron had lobbied the U.S. Trade Representative and Congress to warn the Korean government not to use any International Monetary Fund (IMF) assistance to bail out Korea's semiconductor industry. Now Micron charges that despite the U.S. warnings, the Korean government in 2001 continued to subsidize the chip firms in many ways.
The government and Hynix argued that the debt-for-equity swap and debt forgiveness was made by commercial creditors. Micron claimed that the majority of debt was held by government-owned or controlled banks. The countervailing duty case will turn on which side can convince the Commerce Department on its stand.
Hynix also charged that Micron itself received large subsidies from the Italian and Singaporean governments to upgrade fabs in those countries. The argument is interesting, but Micron is likely to claim that it is irrelevant to its case given that only the Korean government's behavior is under investigation.
Meanwhile, Hynix's creditors have been unsuccessfully scouring the world to find a buyer for the company's main chip operations, after talks collapsed last May with Micron which had come close to acquiring six of Hynix's DRAM fabs.
Hynix's board of directors killed that deal, and in retrospect that might have been a fatal miscue. Not only did the board snub a potential buyer, but it brought on the countervailing duty suit that Micron had obligingly held back while it was negotiating with Hynix.
In reality, the Hynix board was playing its own game of chicken with creditors, because the sale of its mainstay DRAM business to Micron would have left the company desperately seeking a large sum for its remaining operations -- a sum that the creditors were unwilling to provide.
Hynix still has at least $5.5 billion in long-term debt outstanding. The company also needs significant additional financing to upgrade aging fabs. Hynix and its creditors also keep hoping that the global DRAM market will turn up, bringing higher profits that will bolster the embattled memory maker. Although DDR pricing has moved higher in recent weeks, this is not the big market turnaround that Hynix and its creditors are counting on. The government-controlled creditor banks are wrestling with this conundrum now.
Micron and Infineon are sure to scrutinize any new refinancing of Hynix for possibly more countervailing duty charges.