Hyundai driven to play catch-up in technology

Kia Motors’ K9 grabbed attention for cutting-edge IT components. Provided by the company

Last month, LIG Nex1, a leading defense company, suffered a major setback when a large number of research personnel resigned and applied for openings at Hyundai Autron, an affiliate of Hyundai Motor Group.

According to industry insiders Hyundai has been recruiting top research talent by offering higher pay to join its Hyundai Autron, affiliate launched in April to develop automotive electronic, including semiconductors.

“The people they recruited were reported to have been offered 20 million won ($17,520) above their current annual salary,” said an industry insider speaking under the condition of anonymity.

“The [defense] company tried to keep the issue on a low profile and even warned Hyundai Motor that it may take legal action.”

A specialty of the defense company is submarine technologies, including sonar systems.

LIG Nex1 wasn’t the only company that saw talented researchers trying to move to Hyundai. Of the roughly 10,000 applicants to Hyundai Autron’s job opening, some 3,000 reportedly came from Samsung and LG Electronics.

Securing advanced automotive electronics technology has become essential to the survival of the automotive group and enhance its competitiveness as automobiles become much more than just transportation.

When Hyundai Motor’s main affiliate Kia Motors rolled out the K9, it captured the imagination of the market with not just its slick exterior and interior design but with cutting edge technology, including the head-up display and LED headlights with automated leveling.

Advanced electronics components now play a significant role in automobiles. The parts that accounted for roughly 1 percent among the total components installed in vehicles in the 1980s, now make up about 23 percent and are expected to grow to 40 percent in 2015.

Today, about 200 semiconductors are installed in each vehicle. Semiconductors control the engine, transmission and brakes, but on luxury models they are also used in automated parking and lane departure warning systems.

Electronics and related parts are estimated to account for 20 to 30 percent of the cost to build an automobile.

The automotive chip industry is not an easy market to enter as it requires a more cutting-edge technology than other computer chips including those installed on home appliances.

While the life expectancy of chips is about three years for home appliances and 10 years for industrial usage, automobile chips must last as long as 15 years.

The global automotive semiconductor market is expected grow at an annual rate of 10 percent. The market was $14.7 billion in 2008 is estimated to be $20 billion this year and $29 billion by 2015, according to iSuppli, a research institute.

In the global nonmemory chip market, automotive semiconductors are the fourth-largest segment (8 percent), after personal computers (47 percent), telecommunications (23 percent) and home appliances (16 percent).

According to Gartner Inc., a technology research firm, as of 2010 the global semiconductor market was $299.4 billion, 97 percent of which involve nonmemory chips.

Despite the technology’s growing prominence, Korea falls far behind in the development and production of automotive semiconductors. Many experts consider this to be alarming, in light of the fact that Korea is a leader in the global semiconductor market and Hyundai Motor Group is the world’s fifth-largest automobile manufacturer.

Currently, Korea relies on imports for more than 98 percent of its automotive semiconductors.

As of the second quarter of 2010, the latest available data, Renesas of Japan, Infineon and Robert Bosch of Germany, Freescale of the United States and STMicro of France and Italy have a combined 44.8 percent share of the global automotive semiconductor market.

Last year, Hyundai and Kia were believed to have imported 1.2 trillion won in automotive chips from Infineon.

Korea represents only 5 percent of the global automotive semiconductor market and even the world’s leading chipmaker - Samsung Electronics - is estimated to have no more than 2 percent of the global market.

In 2009, the government mediated a collaboration between Samsung Electronics and Hyundai Motor. The meeting alone drew huge public attention as it was the first time the two largest conglomerates in the country cooperated on a joint project. The companies agreed to develop an automotive semiconductor that will be installed in Hyundai vehicles this year. The government contributed 5.8 billion won in the project.

Hyundai Motor said the jointly developed automotive chip has been installed on its Grandeur HG.

The chip was used in the vehicle’s around-view monitor, a navigation system, which lets the driver see areas surrounding the vehicle through a monitor.

Hyundai Motor has not indicated whether its groundbreaking project will continue.

Instead, the company launched Hyundai Autron in April.

The moniker “Autron” is a combination of “Automotive” and “Electronics.” Hyundai Motor contributed 60 billion won to the new affiliate while Kia Motor and Hyundai Mobis injected 20 billion won each.

“The electronic systems are key technologies for modern vehicles that will determine the competitiveness of an automobile manufacturer,” said a brokerage analyst.

“This is particularly so as the era of the ‘smart’ automobile is dawning.”

The analyst said it is essential for the Korean automaker to secure or expand its global presence, and in order to successfully do that it needs to localize advanced technologies, including automotive semiconductors.

Hyundai Motor Group has been aggressively expanding its investment in research and development. Although the company did not disclose how many researchers it employs, it plans to invest 5.1 trillion won in research and development this year, up more than 10 percent from last year’s 4.6 trillion won.

Hyundai Mobis, the main auto parts supplier for Hyundai Motor Group, is planning to double its investment in research and development from 326 billion won last year to 650 billion won in 2015. It also intends to double its number of research and development personnel to 3,000 in 2015.

Last November, Hyundai Mobis announced that it has succeeded in localizing nine automotive chips. Strategies call for Hyundai Autron to double its research and development workforce from the current 200 to 400 by the end of the year and expand it further to 500 by the end of next year.

Meanwhile, Samsung Electronics also is reportedly making moves to expand into the automotive semiconductor market.

According to a report by Hana Financial Group’s research center, Samsung Electronics will focus more than half of its investment in system semiconductors and therefore enhance the development of automotive semiconductors.

The leading chipmaker intends to invest a total of 8.2 trillion won in nonmemory chips and 6.8 trillion won in memory chips.

Also on the drawing board is the mass production of the automotive chip that it has jointly developed with Hyundai Motor.

Jay Y. Lee, Samsung Electronics chief operating officer and heir apparent to the conglomerate, has been reported meeting with top officials of automakers across the globe since late last year.

Not only did Lee become the outside director of Exor, the holding company of Fiat-Chrysler Group, earlier this year, but he also met with automobile executives of companies, including Martin Winterkorn of Volkswagen Group, Daniel Akerson of GM and Akio Toyoda of Toyota.

Experts speculate that Lee’s moves are meant to strengthen Samsung’s ties with automobile manufacturers in a bid to become a significant suppler of high tech products, including automotive chips, batteries and even OLED.

By Lee Ho-jeong [ojlee82@joongng.co.kr]