LG interested in Dongbu HiTek
Group wants to become game changer in automotive chip solution market
By Kim Yoo-chul
LG Group is considering buying a controlling stake in Dongbu HiTek as it seeks to become a major player in the promising automotive chip market, a company executive said Sunday.
LG is approaching the Korea Development Bank (KDB) and Nomura Securities, the lead managers handing the sale of the company, he said.
“We have an interest in buying shares in Dongbu HiTek. However, the key question is how to narrow differences, including price," said the executive at one of LG Group's technology affiliates.
An official at KDB confirmed that the main creditor of Dongbu Group's semiconductor unit sent an invitation letter to LG.
Dongbu Group is seeking to sell its entire 37.9 percent stake in HiTek, which including the managerial rights premium is valued at some 160 billion won, said officials.
The LG executive, who asked not to be identified, said LG Group of technology affiliates are teaming up to strengthen the group-wide profile in various automotive products such as dashboard, in-vehicle infotainment systems and displays.
"LG wants to realize economies of scale in components led by LG Electronics, LG Display, LG Innotek and LG Chem. We've already secured more than 20 global carmakers as our clients, with the automotive solution market being sustainable in terms of growth," said the LG executive.
He said LG has no interest in resuming its memory chip business as that is already controlled by three major players, forcing LG to seek other areas that have more growth potential.
If LG buys HiTek, then it resumes the chip business for the first time in more than two decades after the group was forced to drop the business in the late 1990s in the wake of the Asian Financial Crisis.
Dongbu HiTek develops analog and mixed-signal processing chips. It manufactures them on a contractual basis and produces system-level chips at the 90-nanometer level. They are used in automobiles and TVs.
Silicon Works acquisition
Last week LG bought Silicon Works, a local developer for logic chips for 86.5 billion won.
The firm is supplying its display driver chips to Apple and has patents in LED, and sensor and touch screen products.
"LG needs to purchase Dongbu HiTek as HiTek's products will be helpful in boosting LG's competitiveness in automotive solutions and marketing activities in China. LG aims high to get a bigger stake in electric vehicles in China," said a senior fund manager from a U.S.-based investment bank in Seoul.
He said his bank advised its clients to buy more shares in the group's components-making affiliates.
Due to an extremely large portfolio of products for cars that range from infotainment chips to chips for anti-lock braking and stability control, there are few competitors in the automotive chip market ― Texas Instruments, Broadcomm, Renesas, Qualcomm, Nvidia, and Intel.
Another LG executive said t5he firm will collaborate with various top-tier carmakers using LG Chem's client channels in a way to cut its reliance on the volatile consumer electronics market.
LG is already a major fab-less chipmaker, though it spends more than 3 trillion won in buying memory chips from SK hynix and some Taiwanese companies.
This means that the company doesn't have in-house means to fabricate its own chips, but relies on a third-party foundry chipmaker.
"LG Chairman Koo Bon-joon wants the group to have greater independence and influence in the next-generation parts and finished-goods businesses, without having to heavily rely on other companies," said the official.