Wons softness affects South Koreas Samsung

02/01/1998

Won`s softness affects South Korea`s Samsung

In response to South Korea`s currency turmoil, Samsung Group, Seoul, has delayed the second phase of its Austin, TX, DRAM fab. The company has initiated a broad restructuring plan, under which it will focus on its core growth businesses, including memory and nonmemory semiconductor units, according to a spokesman. For 1998, investments in the electronics group will be $5 billion, with $1.7 billion dedicated to domestic semiconductors.

Although the first phase of the company`s $1.3 billion fab in Austin is already operating, fundraising for the additional $500 million needed in investments (expected to begin early this year) for the second phase will be delayed. The company may also delay equipping Phase I at Line 9 in Korea for high volume production until 1999, according to Morgan Stanley Dean Witter analyst Jay Deahna.

Young-Key Hwang, senior managing director for Samsung`s Finance Group, said the company will likely have to wait until the Korean financial crisis is over before securing the funding for the Austin project. "Probably, we should wait until the institutional investors and creditors come back to the Korean market. They are not lending money to KDB. They are not lending money to the Korean government institutions. And they are not lending money to Samsung," he said.

The Korean won has depreciated more than 40% since January 1997, and government officials are working to implement a new International Monetary Fund program to help pull the Korean market out of its downturn. Hwang said the IMF program, if successful in restoring investor confidence in the Korean market, will play a pivotal role in helping Samsung secure future funding. "I think it is not an issue of Samsung`s credit and Samsung`s capability in the DRAM market; it`s more a concern of Korea`s ability to generate dollars." Hwang said there will be no major capacity expansions within the electronics group in 1998, and overall "this is the first year we are not planning on adding any new debt."

The 30% company-wide investment cut is expected to bring 1998 investments to 6 trillion won ($5.1 million), down from 8.2 trillion won ($6.9 billion) this year. Employees will be relocated as needed, but no direct layoffs are planned. According to Hwang, the company will save about 4 billion won by cutting 10% from top executives` salaries. And in a break from traditional business practices, future increases will be on merit rather than seniority. Samsung has also slashed travel and entertainment expenditures by 50%, and plans to save $150 million a year through implementing energy saving measures.

Analyst Deahna expects South Korean overall capital spending to dip about 10% this year, although he also expects currency stabilization in that time frame.- C.L., WaferNews