[OUTLOOK]A Fire Sale That Will Rebound on Hynix

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[OUTLOOK]A Fire Sale That Will Rebound on Hynix

In a bid to overcome its financial crisis, Hynix Semiconductor said Friday that it is pursuing the sale of some of its factories to Chinese interests. Because the company has tried to restructure itself mainly through the disposal of its noncore businesses, this idea of selling semiconductor factories to Chinese buyers must have been the last chip it has to play. Selling assets in its core competency of semiconductor manufacturing shows the firm's commitment to find a bottom and begin its recovery.

A senior official of the Financial Supervisory Commission recently said he was told that creditors have demanded, and Hynix accepted the need for, strong and dramatic actions. Presumably, the supervisory agency and creditors pressured Hynix into making the decision to sell Hynix's semiconductor plants.

The sale of parts of its semiconductor business will bring some much-needed liquidity to Hynix, and that could be viewed as a good measure to ease the company's cash problems.

But if we approach the issue more critically, the sale of semiconductor factories to foreign interests may be a commendable self-rescue effort, but it does not mean in itself that Hynix can be normalized. Rather, it could go against our national interests in the long term by transferring advanced technology to China, an emerging competitor of Korea. The sales could harm not only Samsung Electronics but also Hynix itself. Hynix contends that it is only disposing of some old, unneeded production lines as part of its restructuring efforts, but that is only a fond hope. Chinese firms have already attached some strings, such as demanding transfer of Hynix's 0.18 and 0.2 micron micromachining technology as part of its purchase of the plants. Therefore, selling facilities to Chinese firms is equivalent to handing over Korea's cutting-edge semiconductor technology and core work force to China. Of course, there are other channels through which China can obtain advanced technology. NEC, a Japanese computer company, already transferred its semiconductor technology to China as a way to challenge Korea. Some Taiwan companies are also poised to enter the Chinese market.

But Hynix is the third largest semiconductor manufacturer in the world, and has an upper hand in technology compared with those Japanese and Taiwanese companies. Taking into account the characteristics of the semiconductor industry, where technological strength is a decisive factor, selling Hynix plants to China to obtain cash is like losing big by going after small gains.

China's semiconductor manufacturing technology is estimated to lag behind Korea's by about five years. This means that the semiconductor industry can serve as a driving force for Korea's economy for only about five more years. Korea needs to prepare for the post-semiconductor memory chip era in these five years. So there is a chance that Korea might lose competitiveness in the semiconductor memory chip business even before the five years have passed.

The reason that the government has helped Hynix, which lost the confidence of the financial market because of its bad debt management, is partly because the government was worried about the repercussions generated by the collapse of a large company. But more fundamentally, the government thought that letting Hynix's technology die would be a national loss. In the first half of 2001, Hynix recorded a higher ratio of profit to revenue than Micron Technology, indicating that Hynix has a better cost structure than its U.S. competitor. If Hynix factories are sold to Chinese firms, possibly leading to a loss of Korea's technological edge, the money that creditors have been pouring in would gradually vanish.

The government should think about putting Hynix under court receivership. That has been taboo so far, because Hynix was a symbol of the "big deals," a business swap among large conglomerates as part of the corporate restructuring drive by the government, and because of a possible adverse impact on the market if loans by creditors are acknowledged as nonperforming loans.

But the big deal is the thing of the past, and court management of Hynix would just bring existing bad loans to light; that does not mean actually increasing the potential amount of bad loans at the national level. Saying that court receivership is a de facto death report of Hynix is the result of worrying too much about the interests of creditors and shareholders. Those two groups should be held accountable for the current Hynix management crisis.

Court receivership is the only valid alternative to U.S. accusations of illegal government subsidies to Hynix. It would give Hynix, a financially weak but technologically strong firm, another chance to survive.


The writer is a professor of business management at the Graduate School of Investment Information at Myongji University.

by Cho Dong-keun

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