KoreaToday Restructuring Is Key Word for Korea Inc.
Electronics, Autos, Shipbuilding Are Bracing for Full Brunt of Rationalization
By Kim Yoo-chul
Staff Reporter
Restructuring is a key word for Korea Inc., under pressure by the global financial crisis and without certain future growth engines in sight.
Analysts say Korean companies will have to boost efficiency and that corporations should better compete with rivals in overseas markets, strengthening their cash cow businesses.
``Amid a deepening credit crunch, most leading companies have been pitching up efforts either to drop money-losing units or to merge units for better efficiency,'' Shin Min-young, an economist at the LG Economic Research Institute told The Korea Times.
``This restructuring is different from the one that was implemented during the Asian financial crisis a decade ago,'' said Yoo Byung-kyu, a senior economist at Hyundai Research Institute.
Yoo said companies are making selective restructuring voluntarily and the efforts will help them increase their competitiveness in the global market after the current financial crisis ends.
Big firms are already taking steps. Samsung Electronics has internally set to cut its spending on marketing by as much as 30 percent for 2009, Samsung officials said.
Samsung, the world's biggest maker of computer memory and NAND flash memory chips, will transfer its less efficient 200 millimeter (8 inch) wafer fabrication lines into advanced 12-inch wafers to boost efficiency in production.
The world's No. 1 supplier of liquid crystal display (LCD) panels for pricey flat-screen TVs plans to convert three or four of its existing LCD lines in its complex in Tangjeong, South Chungcheong Province, into more profitable active-matrix organic light emitting diode (AM OLED) panels, according to Samsung officials.
Samsung earlier said it was lowering its targets for sales in its core businesses, capital spending and profit, which they say reflect the slumping global economy.
``Time is not on our side to restructure some of our money-losing units for greater stability in our global businesses. Although we will suffer possible falling profits in the following quarters, we are positive about the long term as long as the restructuring is implemented,'' a Samsung spokesman said.
Hynix Semiconductor, which trails Samsung in the computer memory chip segment, announced a restructuring plan that will cut its workforce and trim payrolls for its chief executive-level officers as it seeks to cut labor costs by more than 15 percent.
Samsung SDI is also reviewing whether to lower its production of plasma panels or completely halt some such lines for the next-generation panels, while LG's flat-screen affiliate LG Display has been lowering utilization rates in its lines to 80 percent.
Some industry watchers say the massive layoffs by Japan's Sony could be just the beginning of a regional wave of job cuts, if the global economy continues to slump, hitting demands for TVs, computers and other consumer electronic goods.
``Most have avoided massive layoffs so far, often by taking other cost-cutting measures. But many may soon run out of options and have to follow suit as demand for their products dives in the key U.S. and European markets,'' Joseph Lau, an economist at Credit Suisse wrote in a note to clients.
Samsung appears willing to restructure its overseas units, including a possible plan to cut workforce and lower sales targets, according to sources. Samsung, however, officially denied the speculations.
LG Merges Units, Rationalizes Plasma Lines
Samsung's cross-town rival LG Electronics seems to go one step further.
LG has two units going independent_ air-conditioning and business solutions _ and digital media division (DM) is merged with the digital display division (DD) to create a home entertainment unit, brining the number of units to five from the current four.
``The reorganization aims to boost our competitiveness amid the ongoing era of digital convergence. By merging units and separating the next `cash cows,' we will reap bigger profits in the global market,'' said an LG spokesman.
The newly created home entertainment division covers LG's display, TV and digital media businesses. The business solution unit, also new, will provide commercial monitors and TVs for hotels and security, LG said in a statement to explain its reshuffle. The air-conditioning unit was separated from LG's appliance division as LG wants to grow in the commercial air conditioner market.
Previously, the DD unit was responsible for making plasma and LCD TVs, while DM was for producing laptop PCs, optical storage items and home-theaters. Digital Appliance was responsible for ``white goods,'' such as freezers and washers. LG is the world's No. 5 mobile phone maker.
The company also plans to reorganize its unprofitable panel business by halting production of smaller screens.
LG may stop making its niche 32-inch plasma screens from next year to improve profitability and focus on screens measuring at least 50 inches.
The company predicted in October the 32-inch plasma screens would account for about 20 percent of total shipment in 2009, down from 40 percent at the end of September.
``Shipments of the 32-inch displays will decline rapidly. Restructuring our plasma lines is a strong necessity amid declining demand for electronics gadgets,'' said an LG spokesman.
Auto Industry Bears Full Brunt of Reorganization
Although Hyundai-Kia Automotive Group said it has no plans to conduct forceful restructuring on its employees like Samsung Electronics, LG Electronics and SK Group, the automotive group is taking various steps to reduce its rising inventory by cutting daily work hours or shutting down production lines.
More than half of Korean-made cars are sold in the United States and Europe ― the economies of which have already sunk into recession.
``Global carmakers have been engulfed by a wave of output cuts and restructuring efforts and we are experiencing difficulty without exception,'' said Kia Motors CEO Cho Nam-hong recently said in a speech at an industry meeting.
``To overcome the crisis facing the auto industry, we should diversify export markets and improve the competitiveness of small cars,'' according to the official.
Renault Samsung shut down its Busan plant for three days earlier this month. The company, 80 percent owned by France's Renault S.A., runs one plant with an annual capacity of 300,000 units in Korea. GM Daewoo has also shut down its plant in Bupyong, Gyeonggi Province, for similar reasons. Officials forecast job cuts as part of further restructuring.
The Korean government is now moving to cut the excise tax on vehicles by 30 percent to help struggling local carmakers better sell their cars at home.
``The time is very near for the global auto industry to see a rapid change in the landscape as most leading carmakers are experiencing painful restructuring for survival with little hope,'' said a spokesman from Kia Motors.
Shipbuilding Industry in Same Conundrum
The situation is not much different for the nation's shipbuilding companies. The government and local banks are set to restructure nonviable shipbuilders in a bid to prevent fallout from their sudden collapse.
The government and the banking industry are to adopt a liquidity supply program, enabling shipbuilders to apply for financial support with some strings attached, according to sources.
South Korea's shipbuilders are currently facing serious trouble from a sharp decline in orders amid the slumping global economy, along with foreign exchange losses.
After enjoying huge revenue in recent years from strong demand for crude carriers and offshore exploration equipment, the profitability of local shipbuilders is dropping and some smaller shipyards face a severe liquidity squeeze.
``The possible restructuring not only plans to support the ailing shipbuilders but also intends to kick out nonviable firms, which could severely damage the real economy if they collapse,'' said an official from Hyundai Heavy Industries.