SEOUL, South Korea - LG Semicon Co. is hinting at a possible compromise in the face of financial sanctions imposed after it threatened to sue a U.S. consultancy that chose Hyundai Electronics
Industries to head the company's newly merged semiconductor operations.Arthur D. Little Inc. issued a report on Dec. 27 calling for Hyundai to assume control of the merged IC company, which would become one of the world's largest chip makers. As part of the government's ongoing efforts to reduce overcapacity in South Korea's key industries, the two sides had earlier agreed to split the new company 70-30.
Calling the U.S. consultant's report "insufficient and biased," Koo Bon-joon, LG Semicon's president, announced plans last Sunday (12/27) to sue the Little consultants for damages. "All of the suspicions that [Arthur D. Little] changed its report in the last [minute] should be turned over to a U.S. court," Koo said. He said that LG Semicon would file suit against the consulting firm in early January.
Fifteen creditors responded last week to LG's resistance to the terms of the merger by imposing financial sanctions that included cutting off fresh loans. Under government pressure, they also threatened to call in existing loans to the recalcitrant chip maker.
The government and creditors began preparing financial sanctions immediately after LG Semicon announced its plans to sue the U.S. consultant. On Dec. 7, the Korean government and the two conglomerates agreed that new financing would be stopped and debts collected if either company disagreed with the final report.
An official at the government's Financial Supervisory Commission said it would consider "withdrawing existing loans gradually" after the creditors' meeting last week.
Koo hinted at a possible compromise with the government to resolve the merger dispute. "We are examining a third alternative plan, which the government has suggested," he said without elaborating. If an "objective and open evaluation" of the two chip makers is performed, Koo said, "We may be subject to assessment again and accept the result."
Analysts interpreted LG's defiance as a gambit to win concessions from the government and Hyundai.
LG Semicon executives also questioned key aspects of Arthur D. Little's decision giving Hyundai control of the merged company. Kim Nack-joo, an LG executive director, said the company is "superior to Hyundai in every respect of sales" of non-memory products and development of 256-Mbit DRAMs. Little "has [concluded] arbitrarily that Hyundai holds a dominant position," Kim said.
Jung Tae-soo, managing director of Arthur D. Little Korea, responded that "the result of our assessment was correct and will not be changed in the future." The management consultants were designated by the Federation of Korean Industries to assess the two companies as a merged DRAM maker.
LG Semicon's major creditor banks, meanwhile, planned to issue guidelines covering the procedures and severity of planned financial sanctions.
Officials at the Financial Supervisory Commission nevertheless said they expected an eleventh-hour compromise, adding they "will be relaxed soon if the two firms come to an agreement."
Still unclear is what the new South Korean semiconductor landscape will look like once the merger is completed. For now, both Hyundai and LG Semicon have been moving to protect their profitable thin-film transistor LCD businesses.
In November, LG Group transferred LG Semicon's TFT-LCD assets totaling $1 billion to a separate LCD unit. The move was expected to reduce LG's debt-to-equity ratio by nearly a third, to less than 200 percent, by the end of 1998.
LG also said the integration plan is designed to attract foreign investment in TFT-LCDs, which it claimed is growing at an annual rate of 225 percent.
LG Electronics Co. announced a deal with Japan's Hitachi Co. in mid-December to supply 29-inch "perfect plane" CRTs. The deal calls for LG to initially ship 4,000 tubes.
Hyundai Electronics is also focusing on the Japanese display market. It announced a contract on Dec. 19 to supply Japanese computer makers with 15-inch TFT LCD monitors. The deal is expected to total 100,000 displays annually.
The merger of LG's and Hyundai's semiconductor operations would create one of the world's largest memory-chip makers. Both companies specialize in a range of memory devices ranging from development work on high-end 256-Mbit DRAMs to SRAMs and flash memory. LG offers a line of Rambus DRAM products while Hyundai has edged into system ICs that include 0.8-micron ASIC technology, DSPs and image sensors.
The combined company would likely remain a formidable competitor in the global semiconductor market, but U.S. observers worry that the merger won't solve the core problem in Korea and the rest of Asia: over-capacity.
"Capacity doesn't go away when Korean semiconductor firms are merged," said Clyde Prestowitz, president of the Washington-based Economic Strategy Institute. "Capacity remains."
Exclusive to EE Times by Chom Dan Publishing Inc. (Seoul, South Korea). Additional reporting by George Leopold.