All chips in

Chaebol biding for chip giant Hynix

By Kim Yoo-chul

It appears that Korea Inc.'s worst-kept secret will no longer be a secret as industry sources confirm LG Group's interest in up-for-sale Hynix Semiconductor.

The decision made at LG's executive suite is to file a letter of intent (LOI) for a stake in the world's second-largest maker of computer memory chips.

The group will be willing to spend up to 1 trillion won (about $923 billion) to acquire Hynix, according to the sources.

The logic is that the inclusion of Hynix will create synergy that will benefit LG’s solar-cell business and advance its smartphone technology.

LG faces cutthroat competition against other Korean industrial giants like Hyundai Heavy Industries (HHI) and SK Group over Hynix in the high-profile corporate auction.

"LG's top management has its merger and acquisition (M&A)-related teams reviewing a possible Hynix deal. The company's advanced semiconductor technology will benefit LG's solar and smartphone divisions, which are viewed as the group's main business engines," said a source close to the discussions within LG, Sunday

It remains to be seen just how much LG will be investing into Hynix, the source said, as the group is more interested in the chipmaker's non-memory and foundry-driven operations.

Another source in the banking industry confirmed that LG has been seeking input from Korea Finance, a key Hynix shareholder, to measure the chipmaker's financial health.

LG, a technology-driven conglomerate that has LG Electronics, LG Display and LG Chem among its key affiliates, has long been linked to talks involving Hynix, although the company has previously denied interest.

LG Electronics' recent struggles in the smartphone market, where it remains in the shadows compared to larger rivals like Apple and Samsung Electronics, spur the group's urgency to buy into new capabilities.

LG Electronics CEO Koo Bon-joon, the younger brother of LG Group Chairman Koo Bon-moo, recently expressed concerns over the company's decline in handsets and consumer electronics.

The lack of chip capability has been cited among LG Electronics' weaknesses in smartphones and other Web-connected "smart" devices.

The company recently withrew from a project to develop its own dual-band mobile chips that could provide compatibility between third-generation (3G) and fourth-generation (4G) Long Term Evolution (LTE) environments and decided to rely on the technologies of U.S. chipmaker Qualcomm instead.

Industry observers believe LG is considering acquiring capability for non-memory chip fabrication for mobile application processors and solar-cell technologies.

Non-memory chips are less volatile than conventional memory chips and their demand has been rising due to the explosive growth of smart devices.

``LG can use Hynix’s local line called M8 to produce more custom mobile chips. That’s why LG is seriously in discussions to buy a stake in Hynix,’’ said another source.

LG has been annually buying 3 trillion won worth of chips from Hynix and appears to be enamored by the chipmaker’s ability in non-memory products.

Hynix has been also providing ``display-operating chips,’’ a variant of non-memory chips, to LG Display, LG’s liquid crystal display (LCD) unit, according to industry insiders.

LG Electronics’ mobile-phone division had an operating loss of 100.5 billion won in the first three months of the year, contributing to a second straight quarterly loss for the company.

The company’s share in the global mobile phone market declined to 5.6 percent in the first quarter from 7.6 percent a year earlier, according to market research firm Gartner.

LG Chem, LG’s chemicals unit, has been showing aggressiveness in its entry to the solar-energy market, with plans to invest around $455 million to build its first poly-silicon plant. Hynix’s advanced chip technologies could help LG Chem make up ground against industry leaders.

``LG could run Hynix efficiently. Hynix’s semiconductor tech has reached the level to report profits amid the industry’s cyclical and volatile nature,’’ said Lee Sun-tae, an analyst at Meritz Securities.

An LG spokesman said it has not changed its earlier stance and is not interested in Hynix for the time being.

An official from Hynix declined to comment on the issue.

Hyundai Heavy, SK in the game

Hyundai Heavy and SK Group both have their own reasons to claim that Hynix is a good fit for them.

SK, which has been struggling to expand its business overseas, sees Hynix as a potential answer to its global woes. Acquiring Hynix will also inject more energy into SK’s electric vehicles and smart grid-related businesses in China.

Hyundai Heavy, the world’s biggest shipyard, said last week that it is considering bidding for Hynix. However, it added it has made no official decision.

This is the third time that creditors are trying to unload their combined 15 percent stake in Hynix, valued at 2.6 trillion won without premium.

Ryu Jae-han, CEO of Korea Finance, said creditors are mulling the possibility of asking Hynix to issue new shares in an apparent strategy to lessen the financial burden of new shares.

Korea Finance is one of the leading shareholders in Hynix and Ryu said shareholders will reissue a tender or extend the period if they fail to get bids from more than one company.

The shareholders are planning to complete the deal within this year and Ryu said creditors are aiming to receive final bids for the chipmaker by September with the creditors intending to invite preliminary bids in July.

``The nine institutions will announce the sale schedule on June 27 or June 28,’’ said a source inside the deal, asking not to be identified.

Hynix was granted a government-led bailout program following a severe industry downturn.