As Magna Chip Semiconductor is on the verge of breaking apart, happenings of foreign speculative capitals going after South Korean technology firms are receiving criticisms again. There are many concerns that excellent businesses can eventually become empty shells due to speculative capitals that are only busy with making short-term profits.
Magna Chip Semiconductor is a corporate that was made by Hynix, which was suffering from fund crisis, by breaking off its system semiconductor business in 2004. LG Semiconductor System Semiconductor Business Department, which was absorbed into Hynix due to a big deal involving semiconductor, was formerly Magna Chip Semiconductor. When it was established, its biggest shareholder that time was CVC (City Venture Capital) from the U.S. However it filed for bankruptcy protection due to excessive financial expenses and as company was operated based on making short-term progress. Before this, it sold its application processor (AP) and micro-controller unit (MCU) to foreign businesses and stopped its image sensor business. While Magna Chip was applying for bankruptcy protection, Avenue Capital from the U.S. bought its bounds and has become its biggest shareholder (currently 11.83%) by going through a process of debt-equity swap. Afterwards it had received spotlight by directly listing Magna Chip to NYSE in March of 2011.
However management based on short-term progress has continued. Instead of securing competitive edge in products, Magna Chip has focused on financial, accounting, and judicial affairs. There were not any investments, and foundries and customers left Magna Chip one after another.
Based on closing price on the 2nd, Magna Chip’s stock was $4.09 and its market capitalization was $163 million (about 190 billion KRW). Although company’s stock exceeded $22 in September of 2013, its value kept on falling due to continuous losses.
In 2004 when CVC was trying to buy Magna Chip Semiconductor off from Hynix, asking price was about $790 million (950 billion KRW). In just 13 years, company’s value has been cut in 4 pieces.
A reason why company’s value has fallen so sharply is due to poor performance. Quarterly losses have continued starting from 3rd quarter in 2013. It had made annual net loss of $64 million and $117 million in 2013 and 2014 respectively and its situation in 2015 was very similar. Until 3rd quarter of last year, its accumulated net loss is about $107 million. A fact that it went through difficulties due to accounting fraud crisis in early 2015 has also caused its value of stock to fall. Although Magna Chip’s total current value of asset is $430 million, it is in a state of impaired capital due to debts that are worth over $500 million.
“Although its market capitalization is about $163 million (190 billion KRW), it will not be easy to get a right price for Magna Chip if a state of impaired capital is considered in a mix.” said a representative for South Korea’s stock industry.
It seems that a state of Magna Chip Semiconductor’s divestiture will be recorded as another prime example that shows negative aspect when South Korea’s technology firms get sold to foreign capitals.
“Magna Chip has technical skills and competitiveness as a business that focuses on system semiconductor in which there is not many of it in South Korea.” said a former high executive of Magna Chip. “Fact that investments did not take place based on long-term goals and that Magna Chip was only busy with making short-term goals has brought this situation.”
Magna Chip let go of many employees in second half of last year as it was re-doing structure of its business. It is heard that Magna Chip cut 20 to 30% of employees’ wages when it actually told them that it will give them wages when management situation becomes better.
Staff Reporter Han, Juyeop | powerusr@etnews.com