Korean Companies Restructure for Growth

After a shattering drop in the price of DRAMs, South Korea's semiconductor leaders look to a future low in overproduction and high in cooperation.

Staff -- Semiconductor International, 1/1/1998

The Korean semiconductor industry would like to forget 1996. That was the year when the memory chip market fizzled out and 16Mb DRAM prices dropped nearly 80% from $50 to $10. The sale of memory products, Korea's principal export item, plunged by 22%, seriously upsetting the country's balance of trade. Sales were flat, prices fell and profits grew leaner as the year unwound, until the currency itself began to lose ground. Late last year, Seoul had to appeal to the International Monetary Fund for the first time since the end of the Korean War for help to stabilize its currency.

In spite of this, some Korean semiconductor industry observers view 1996 as a blessing in disguise, because it forced chipmakers to come to terms with their limits and recalibrate objectives downward to more realistic levels. Viewed with the benefit of 20/20 hindsight, it is clear that the past few yearsboom business was too good to last. During this practically unlimited growth period, Korean semiconductor companies feverishly built additional fabs at home and worldwide, overproducing. In 1995, Korea exported ~$13 billion worth of semiconductors, planning on $40 billion for 1996 more than a fifth of total world production.

The feeding frenzy has spent itself, and now the companies are working to recover by focusing less on memory chips and more on higher value-added non-memory products, which are not as sensitive to business cycle fluctuations. At the same time they are restructuring, cutting down and pursuing more conservative growth rates.

These efforts, which have reduced competition and increased cooperation among Korean and international chipmakers, are beginning to bear fruit: the price of the 16Mb DRAM, the chip most in demand, firmed up and began climbing back up during 1997. It is useful, in this new beginning, to review the status, capabilities and plans of three of the major Korean semiconductor players.

Fig. 1. An aerial view of Hyundai Semiconductor's fab in Inchon, South Korea. (Source: Hyundai Semiconductor)

Hyundai Electronics

Hyundai Electronics Industries started operation in Seoul in 1983 (Fig. 1). It is ranked 11th in the world merchant semiconductor market, with 1995 sales estimated at $3.6 billion. The semiconductor operation is focused on the development and production of CMOS memory and logic devices. Hyundai has three locally independent subsidiaries: Hyundai Electronics America (HEA), founded in 1983; Hyundai Electronics Europe (HEE); and Hyundai Electronics Asia.

As with most major Korean semiconductor manufacturers, Hyundai is exerting a diversification effort aimed at getting away from a dependence on memory chips (Fig. 2). The company's strategy can be described as one of aggressive management and localization. HEA acquired Maxtor Corp. (San Jose, Calif.) and formed a new division, MaxMedia, which will develop and manufacture media for use in Maxtor disk drives. In 1996, Hyundai Digital Media Division was established as a wholly owned subsidiary of HEA under the name of ODEUM Microsystems Inc. This enables the new division to have a higher level of autonomy in expanding its silicon and software solutions for home entertainment markets. It is a leading provider of MPEG-2 products.

Fig. 2. Hyundai has had successful products, such as 4Mb, 16Mb and 64Mb DRAMs; 1Mb and 4Mb SRAMs; 8Mb and 16Mb Mask ROMs; ASICs; and various other devices for data processing, telecommunications and consumer electronics, as well as non-memory applications.

Hyundai has a broad range of memory applications, from video RAM to Mask ROM, flash memory and various IC cards. It successfully developed the 64Mb DRAM in 1992 and followed with 16Mb, 4Mb and 1Mb DRAMs, as well as mass producing 1Mb, 4Mb and 256Kb SRAMs. The company also produces ASSPs, ASICs, logic devices, compound semiconductors and MPUs for the computer market.

Hyundai invests ~12% of its gross sales in R&D and is designing high-speed 1Mb SRAMs with processing speeds of <15 ns. Its R&D operation has had significant accomplishments, such as the development of 4Mb, 16Mb and 64Mb DRAMs; 1Mb and 4Mb SRAMs; 8Mb and 16Mb Mask ROMs; ASICs; and sundry logic devices for data processing, telecommunications and consumer electronics. Hyundai divides its research operations into two subdivisions of memory and non-memory applications from ASICs to SCSI computer chips, as well as graphics technology such as VGA.

The company has completed the stabilization of process technologies for high-volume production of 64Mb DRAMs and has developed these high-performance DRAMs based on its 0.50 µm double-metal CMOS technology. In addition to the development of the synchronous 16Mb DRAM and 4Mb VRAM, it has developed cost-effective 4Mb DRAMs and second-generation 16Mb DRAMs (Fig. 3). Hyundai is developing high-speed 1Mb SRAMs with data-processing speeds <15 ns. In the non-volatile memory device area, Hyundai has developed 4Mb and 8Mb Mask ROMs and is focused on 16Mb Mask ROMs and 16Mb flash EEPROMs.

Fig. 3. Shown is a view of a typical fab line. (Source: Hyundai Semiconductor)

Hyundai Electronics has semiconductor production networks worldwide, with several manufacturing facilities in Asia as well as a global sales and marketing network. It is currently building a fab in Eugene, Ore., which will have a monthly capacity of 20,000 wafers and will be capable of 0.25 µm work. It is scheduled to begin production at the end of the first quarter of the current year. In 1996 the company announced it would build a $3.6 billion fab in Dunfermline, Scotland, to produce 200 mm wafers with 0.25 µm and 0.22 µm geometries. Scheduled for completion this year, it has fallen behind a year and will not open until the first half of 1999.

Hyundai Electronics China Shanghai (HECS) is already producing semiconductors, including assembly and test, and Hyundai Semiconductor America (HSA) and Hyundai Semiconductor Europe (HSE) are planning to produce 64Mb/256Mb DRAMs soon. In the field of system ICs, Hyundai is emphasizing ASIC, foundry and ASSP development.

Like most Korean companies, Hyundai's strategy had been to build a new fab for every DRAM generation. This has changed, particularly after 1996. The direction now it to retrofit and upgrade existing installations to work in the smaller geometries and larger wafer sizes. DUV and CMP equipment purchases are high on the agenda, and the company has allocated ~$10 billion to be spent between 1997 and 2000 to this purpose.

LG Semicon

LG Semicon (LGS) was established in 1989 as a company specializing in semiconductor technology by consolidating the memory chip lines and the ASIC/MICRO chip lines of two LG Group companies LG Electronics (formerly Goldstar Co.) and Goldstar Semiconductor. LGS is divided into four business units: Memory, ASIC, MCU and Micro. In 1995, LGS had net sales of $3.3 billion. Some industry observers rank the company seventh in the worldwide semiconductor market (Table 1).

Table 1. LG Semicon Snapshot

LGS has more than 30 overseas sales and branch offices around the world and two overseas subsidiaries: LG Semicon America in San Jose, Calif., and LG Semicon Hong Kong. The subsidiaries are expected to expand soon from R&D and sales to include semiconductor manufacturing.

Through heavy and continuous R&D investments $800 million in 1995 LGS is developing a 256Mb DRAM, a new generation memory chip and several advanced customer chips such as ASIC and Micro. By the 21st century, LGS expects to be among the five largest providers of DRAM devices and one of the top 10 semiconductor suppliers.

LGS has two manufacturing plants in Cheongju and Gumi. The Cheongju plant produces high-density devices of 1Mb and higher, and the Gumi plant produces non-memory devices.

LGS is investing $2.31 billion to build an electronics complex in Newport, South Wales, UK. Scheduled for production this year, the fab will produce wafers for 64Mb and 256Mb DRAMs. There will also be a consumer electronics plant. In addition, there are long-term plans to build additional plants in the United States and Asia.

In the field of memory devices, LGS was the first company in Korea to develop semiconductor products of 1Mb density with the introduction of a 1Mb ROM in 1985.

The company's commitment to R&D resulted in the development of a 64Mb DRAM in 1992, which is evidence of its world-class technology. The company is now progressing in its research on up-to-the-minute technology for the development of the next-generation chips such as the 1Gb DRAM, 256Mb DRAM, 64Mb ROM and flash memory.

In the field of non-memory devices, LGS has developed many logic, linear and drive ICs for various system applications, such as computers and workstations, televisions, VCRs and telecommunications products.

LGSDRAM monthly production alone accounts for 17 million 16Mb DRAMs and 2 million 64Mb DRAMs. As the demand and supply of 16Mb DRAMs in the world market settles down and the 64Mb DRAM market stabilizes, LGS expects a 20% growth rate this year, which is expected to increase afterward.

Like others, LGS is preparing for the coming of 300 mm. It has already signed aboard I300I and in mid-1998 plans to build a 300 mm pilot line. The company is also keeping an eye on the non-memory market, which is expected to grow at about 16% annually.

Samsung

In January 1974, Samsung Electronics Co. founded a semiconductor company after producing a chip for use in an LED watch, planting the seed that would develop into the Korean semiconductor industry. A little more than two decades later, Samsung became the world's largest supplier of DRAMs, demonstrating its progress with the development of 16Mb and 256Mb DRAM chips. Samsung captured the No. 6 position in the ranking of worldwide merchant semiconductor manufacturers, with estimated 1995 sales of $87 billion. Like its peers, Samsung took a profit hit with the collapse of the DRAM market in 1996, with an almost 80% decrease in pretax profits (Table 2).

Samsung was the first to complete the prototype circuit for the 1Gb SDRAM. The device has a minimum feature size of 0.16 µm and processes data in 31 ns, allowing burst transfer rates as high as 1 billion bytes/sec.

In addition to more than 60 branches worldwide, Samsung operates 29 plants and has built large-scale, integrated production complexes in the UK, Mexico, Thailand and China, where it is also considering opening a DRAM fab. It also maintains eight ASIC design centers in Korea, Japan, the United States, Germany and Taiwan for the design of standard cell circuits and gate arrays on a 0.35 µm process.

Samsung is building what it describes as a "truly first-class global production network." The goals for 2000 are to increase the workforce of 13,000 overseas employees to 50,000 and expand from 22 plants in 15 countries to 60 plants in 21 countries, including five integrated electronics complexes. Samsung expects to boost overseas production from 9% to 20%, growing overseas production of their five main products from 28% to 70%. This is expected to increase overseas sales from $14 billion to $40 billion.

The company's investments in new facilities and R&D are designed to support these ambitious objectives. In 1996, total investment in new facilities was $4.9 billion, up from $4 billion in 1995. Of this, $2.8 billion represented investment in strategically critical semiconductor facilities. During the same period, the total R&D investment was $1.81 billion. At 6.7% of overall sales, this total is slightly less than the 7% allocated in 1995. Nonetheless, it represents an actual increase of $350 million over the previous year.

By 1998, Samsung intends to offer chips with 32Mb of DRAM. It has already revealed its decision to manufacture 64Mb DRAMs that need half the power (3.3 V) of other companiesmemory devices, manufactured on a 0.32 µm process. The EDO DRAM is aimed at notebook PCs, PDAs and other battery-powered consumer equipment.

Like the others, Samsung was hit by the collapse of DRAM prices in 1996. The company's overall 1996 semiconductor-related sales decreased by 31.8%, reducing sales revenue contribution to some 33.3% compared to 47.9% the previous year. Despite the disappointing DRAM price drop, SEC believes they handled the market setback very well and has set down "strategic contingency plans" designed to offset sudden market fluctuation in advance.

Samsung Electronics is the world's largest DRAM producer, with 17% of the global market share. In order to reduce its dependence on memory chips, Samsung entered the thin film transistor-liquid crystal display (TFT-LCD) business in 1995 and geared its strength toward the development of Alpha chip (CPU) and other non-memory products. The increase in demand for notebook PCs had brought about a global shortage of TFT-LCDs, enabling a rebound in TFT-LCD prices in late 1996.

The expectation of continued unlimited growth rates in the memory market, up to 40% according to some sources, received a harsh inoculation of reality in 1996. The Korean semiconductor industry took a long hard look at its expectations in relation to the real world's markets and drastically adjusted its sights. It is unlikely that the planning that led to the overcapacity of memory devices will be repeated. Because of these adjustments, the global IC market is now making what industry analysts view as a slow recovery, with stronger growth projected for this year and continuing into 1999. Some forecast that by the year 2000 there will be a $188 billion market. By then, new denser, less power-hungry devices will begin going into portable products currently being designed, resulting in new markets and increased demands for advanced memory chips.