Key M&As face growing risks amid global chip war

The Korea Times

The Korea Times

Business

Wed, September 27, 2023 | 23:03

Companies

Key M&As face growing risks amid global chip war

Posted : 2021-12-19 16:00

Updated : 2021-12-19 20:58

SK hynix' headquarters in Icheon, Gyeonggi Province / Courtesy of SK hynix

By Kim Bo-eun

Korean chipmakers are facing greater uncertainty, as key mergers and acquisitions (M&As) fall through amid the escalating power struggle between the world's two largest economies.

Magnachip Semiconductor, a U.S. integrated device manufacturer focusing on non-memory chips, last week stated it was terminating its merger agreement with China's private equity firm Wise Road Capital, after the U.S. authorities disapproved of the deal.

Magnachip stated in March that it would sell the entirety of its stock to Wise Road Capital for 1.58 trillion won ($1.4 billion). But following the Committee on Foreign Investment in the U.S.'s (CIFUS) refusal to approve the deal, Magnachip stated it would remain an independent firm.

The company was launched in 2004 after Hynix Semiconductor spun off its non-memory business. It specializes in mixed-signal and digital multimedia semiconductors used in consumer electronics and telecommunication equipment. Counting those still pending, Magnachip holds nearly 1,200 patents.

Magnachip was a domestic firm but was acquired by Citigroup in 2011. The company still has an R&D facility and production plant located in Korea, but is listed on the New York Stock Exchange. It is known to have been notified by the CFIUS about "risks to U.S. national security" that could arise with the sale of the company to the Chinese firm.

Washington has consistently referred to "national security risks" as the reason for blocking key technology from being acquired by China. The U.S. has also lobbied the Netherlands to have it prevent chip equipment manufacturer ASML from exporting its products to China, citing the same grounds. ASML is the only company manufacturing extreme ultraviolet (EUV) lithography equipment needed to produce cutting-edge semiconductors. A recent Bloomberg report stated that U.S. chip giant Intel's plan to expand semiconductor production at its plant in Cheongdu, China, was also blocked by the Joe Biden administration.

The rejection of the Magnachip deal comes after China blocked several major U.S. acquisitions years earlier. Beijing in 2018 refused to issue approval for U.S. fabless chip firm Qualcomm to take over Dutch firm NXP semiconductor. U.S. firm Applied Materials' plan to acquire Japanese company Kokusai Electric also fell through earlier this year after failing to receive approval from China.

Korean chipmakers are facing possible risks as governments around the world step up protectionism against greater possible influence exerted by businesses via M&As. There is a growing sense of protectionism, especially in the tech sector as technological prowess is now regarded as parallel to national defense or intelligence capabilities. The global chip shortage has also escalated the sense of alarm among some governments.

SK hynix is currently awaiting China's approval for its takeover of Intel's NAND business. The No. 2 memory chipmaker faces growing uncertainties under the current circumstances. The deal has been pending for 15 months, and China is the only regulatory hurdle left for it to get the green light. SK hynix also needs to receive regulatory approval from governments for its acquisition of Key Foundry.

Samsung Electronics, which has pledged to carry out "a meaningful M&A" in the next few years, could likely face similar regulatory hurdles posed by governments.

bkim@koreatimes.co.kr