Foreign firms may buy Pantech, Dongbu HiTek

Experts are worried that Korea could lose its tight grip on the mobile phone and semiconductor industries because foreign companies are planning to purchase stakes in leading domestic technology firms.

Experts said that the Korean government should consider whether or not to allow foreign firms to buy stakes in Dongbu HiTek and Pantech, due to fears over possible technology leaks.

Dongbu HiTek

Officials at Korea Development Bank (KDB), the main creditor of Dongbu Group’s semiconductor unit, plans to send an invitation letter to seven potential buyers, four of whom are foreign companies.

A KDB spokesman, however, declined to confirm this information.

Dongbu Group is selling its 37.9 percent stake in Dongbu HiTek. The entire stake, including the managerial rights premium, which is valued at some 135 billion won, said the officials.

“GlobalFoundries of the United States, Bosch of Germany and TowerJazz of Israel will receive the letter from KDB,” said an official at the bank who declined to be named.

KDB and Nomura Securities, the lead manager of the deal, plan to complete the sale by the end of June.

GlobalFoundries is keen on buying the Dongbu HiTek stake as part of its goal to strengthen its strong foundry business, said the bank official. The U.S. chip supplier is the second-biggest foundry chip supplier in the world as of last year with $3.2 billion in revenue.

Dongbu HiTek develops analog and mixed-signal processing technologies. It sells chips on a contractual basis and produces system-level chips at the 90-nanometer level.

Solutions by the Dongbu Group affiliate are used in various electronics including PCs, TVs and mobile phones, and in automobiles.

The bank is pushing for the sale of Dongbu HiTek to ease growing worries about the group’s liquidity. The bank plans to provide key fact sheets to the foreign firms that respond to the letter.

However, analysts and government officials are critical of KDB’s sales plan because of a possible technology leak. Dongbu HiTek is a global leader in semiconductors.

“The Korea Semiconductor Industry Association (KSIA) held an emergency meeting with some local chip designers to discuss what the consequences would be if a foreign firm purchases HiTek,” said an official at the KSIA, who added that most of the participants were against the plan to sell the company to a foreign company.

While Dongbu HiTek reported operating losses for seven straight years, it expects to achieve a profit this year thanks to the rising demand for smartphones and tablets.

Kwon Ki-joo, a spokesman for Dongbu Group, said he can’t comment on issues that are related to mergers and acquisitions.

An alternative to the deal that also eliminates technology leak worries is persuading LG Electronics to hand over its managerial rights at a discounted price, said officials.

To cut its heavy reliance on Qualcomm and to diversify its sources for logic chips, LG Electronics has contracted with more chip designers to develop the mobile application processors for its G line of tablets and smartphones, said LG officials.

“LG Electronics will release a new smartphone using its own mobile application processors. LG is spending more to boost its capability for logic chips,” said an LG executive by phone.

An LG Electronics spokesman, however, declined to comment on whether or not the company is interested in resuming its chip business.

LG was forced to drop the business in the late 1990s in the wake of the Asian financial crisis.

“Such a decision, if realized, means that LG will buy less of third-party application processors, including from Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Co.), which will boost its profitability and will allow the integration of unique technologies into its chips,” said the LG executive.

Pantech

Meanwhile, India’s No. 2 smartphone maker, Micromax Informatics, has expressed its keen interest in acquiring a stake in Pantech, the smallest mobile phone manufacturer in Korea.

A Pantech spokesman confirmed that it was approached by Micromax and that Pantech is negotiating with other foreign companies interested in buying a stake.

“Micromax told KDB that it is interested in either investing in Pantech or purchasing the entire company,” said the spokesman.

The state-owned bank is considering allowing Micromax to see confidential Pantech data to complete the sales process as early as possible, according to a bank official.

Pantech reported its seventh consecutive operating loss during the first quarter of this year, according to Pantech officials.

“Creditors of the company led by KDB, Woori Bank, Nonghyup, Shinhan and Hana are now in the process of checking balance sheets before making the final decision of whether or not to sell the company.”

Pantech is currently under a court receivership. The creditors own 37 percent of the company. Samsung Electronics and Qualcomm also own stakes in Pantech with 11.96 percent and 10.03 percent, respectively.

“Even though Pantech is struggling, it has competitive mobile phone technologies and related patents. If a foreign company buys the carrier, it can expand its portfolio; however, such a sale may leak Pantech’s valuable assets. The nine Pantech creditors should consider that before choosing a preferred bidder for the mobile phone manufacturer,” said an official at Samsung Electronics.

“The Korean government is thinking about how to balance between reality and the national interests,” said the official.

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