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A New Force in Chip Wars : Korean Chip Exports Are Growing 35% a Year, and the U.S. and Japan Are Worried


SEOUL — As a young engineer working in International Business Machines Corp.'s semiconductor research laboratory, Chin Dae-Je had access to the company's advanced technology. Thus, he believed that IBM would be less than pleased when he decided to leave after seven years to help launch South Korea's semiconductor industry.

Instead, IBM sent Chin on his way with words of encouragement and a two-month bonus. "They told me they wanted a strong competitor to break the Japanese monopoly in memory chips," explained Chin.

Chin hasn't disappointed. As director of Samsung Electronic's semiconductor research center in Kiheung, he led the team that developed the state-of-the-art, 16-megabit DRAM (dynamic random-access memory) chip ahead of the Japanese competition.

Samsung's progress in advanced memory chips, critical components of computers and consumer electronics equipment, is the crowning achievement of South Korea's spectacular rise as a semiconductor power.

In 1987, when Chin left IBM, Japan seemed to be on its way to monopolizing the business, with nearly an 80% share of all DRAM sales. Korea had a minuscule 3% share.

Last year, Japan's share of the $7-billion world market for DRAMs dropped to 57%, while Korea's share jumped to nearly 19%, according to Dataquest, a market research firm.

But now that it has become a force in the world market, Korea is facing some of the same trade problems that have bedeviled Japanese chip makers.

Acting on a complaint from Micron Technology, a Boise, Idaho, chip supplier, the International Trade Commission ruled that some of Korea's major chip producers may have injured the U.S. semiconductor industry by selling chips at below market value, a practice known as "dumping."

Next month the U.S. Department of Commerce will decide whether to impose punitive duties on the products of Korea's Goldstar Electron Co. and Hyundai Electronics Industries Co. because of the charges. The two are the major Korean chip producers in addition to Samsung.

Also, the European Community is expected to rule this month on charges that Korean companies dumped chips in Europe, hurting EC companies.

Unquestionably, Korea's industry has served to check Japan's powerful semiconductor industry. Growing Korean exports have helped drive down chip costs for such users as personal computer manufacturers.

Lower product prices have undercut the competitive strength of Japanese electronics makers by preventing them from getting a full return on the billions of dollars in investments they have made in semiconductor production the past three years.

"If Koreans didn't make memory chips, Japanese would control the market by themselves now," says Son Jong-Hyun, general manager of Dataquest's Korea office.

Korean companies have been boosting chip exports at a rate of 35% a year over the past three years. Now, in a push to boost exports to $15 billion by 1996 from $5.7 billion last year, the South Korean government is expecting chip makers to invest a massive $11 billion in production facilities the next four years.

But Korea will face serious obstacles as it tries to maintain such frenetic growth.

Korean companies suffer from a relatively shallow technology base and lack of foreign partners to help with technology development. In contrast, major chip makers in the United States, Europe and Japan have been forming alliances with one another to share technology and help spread the huge cost of chip development.

Meanwhile, both American and Japanese companies are threatening to increase the royalties they collect from Korean firms for the use of their semiconductor technology, a move Koreans see as an effort to slow them down.

"Sometimes it does seem like Korea against the world," says Kee Young Nam, analyst at Jardine Fleming's Korea branch.

Even the government seems to be having second thoughts about the high cost of chip investment. "Each new generation costs twice as much to produce, with a 16-megabit DRAM production line costing about $1 billion," says Paik Man-Gi, director of the semiconductor division at the Ministry of Trade and Industry. "There is a question of whether it is really feasible to have three (Korean) DRAM makers."

Although Korean chip makers would like to ally themselves with major Western chip makers, most of the largest companies have already made alliances.

Hitachi provided Goldstar with technology for two earlier generations of memory chips. But Hitachi has refused to share its technology for 16-megabit chips with Goldstar because it has a technology exchange deal with Texas Instruments.

IBM, which once seemed to be encouraging the Korean chip industry as a counter to Japan, now has a joint venture to produce advanced memory chips with Toshiba, Japan's largest chip maker, and Siemens, Europe's largest chip maker.

Korea's narrow focus on DRAM production, its dependence on Japan for semiconductor manufacturing equipment and its small domestic semiconductor market are also chinks in the national industries' armor.

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