Potential buyers looking at reduced acquisition price for DB HiTek

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Top conglomerates keeping eye on Korea's No. 2 foundry chipmaker

 

As semiconductors, electric vehicle (EV) batteries and displays are classified as national strategic industries, many governments are actively investing in these high-technology industries.Among the core strategic items, an ongoing semiconductor supply shortage issue has been a worldwide headache as various data indicated that vehicle production could be disrupted until next year due to lack of semiconductors."As new cars, including EVs, are released in the second half of this year, standby demand for new cars will recover compared to the previous year's level, but sales performance will remain sluggish because the semiconductor supply shortage continues," a Korea Automotive Technology Institute report said Monday.Due to the lack of chips, the importance of the foundry business is particularly highlighted and industry officials said there are a few companies including SK hynix, LG and Hyundai Motor Group that are aiming to acquire DB HiTek, Korea's second-largest contract-based chip manufacturing company."SK hynix, LG and Hyundai Motor Group are seen as potential acquirers for DB HiTek. However, they may try to acquire the foundry business company at a lower price. Also, it is questionable whether DB Group, which still wants to have a manufacturing business, will make a decision to abandon the foundry unit," a high-ranked official in a related industry told The Korea Times.Dongbu HiTek develops analog and mixed-signal processing technologies. It sells chips on a contractual basis and produces system-level chips at between the 80- and 90-nanometer levels. As IT gadget sales have increased in the wake of the COVID-19 pandemic, the company has seen soaring demand for producing analog chips used for measuring temperature and heart rate as well as OLED driver chips.In the second quarter, DB HiTek recorded sales of 274.7 billion won ($234 million) and operating profit of 81.4 billion won, the highest ever in its history. The market sees the value of DB HiTek, which has a market capitalization of 2.58 trillion won, at around 4 trillion won to 5 trillion won when accounting for management rights of the company.However, DB HiTek has been dogged by its foundry semiconductor business divestment scenario, as the company has been hesitant about whether to increase investment in the foundry business due to a concern that the ongoing soaring chip demand may end soon.DB Group denied reports that it was considering selling its 17.38 percent stake in DB HiTek, valued at around 800 billion won. Despite the company's denial, industry officials are still weighing the possibility of DB selling its semiconductor unit as there had already been an official move to sell the company in the past.Back in 2014, Dongbu Group, the previous name for DB Group, tried to sell the foundry affiliate as part of its group-wide restructuring, but the group failed to attract a potential acquirer. Though the selling of the foundry unit fell through, there was public opinion in Korea that DB HiTek should be prevented from being acquired by overseas companies given the importance of the foundry business to the country's economy.Another industry official said SK and LG may come up as potential buyers of DB HiTek as the former wants to improve its competence in the growing and lucrative foundry business and the latter, specifically, aims to expand into the vehicle components business, but what matters is the price."LG and SK may be interested in acquiring DB HiTek but the current price is too high. LG is going to bet a huge drive on the automotive component business in the future, which is considered to have high potential. SK, which had a lot of fun with the acquisition of Hynix, is also very willing to strengthen its foundry capability. However, the amount of money is expected to determine whether the firm is sold or not," the official said.Regarding that, SK hynix, LG and Hyundai Motor all denied the possibility of acquiring the semiconductor company."In order to expand our capacity in the foundry business, SK hynix is considering various measures such as expanding its local production or M&As, but nothing has been confirmed," an SK hynix official said.