[Originally published in the OTHER paper, Eugene, Oregon in November, 1998.]
Hyundai's woes: Suits, counter suits, merger, levies, and junk bonds
by Wanda Ballentine
According to Sherri Buri McDonald's report in the 9/24 Register-Guard, the Eugene Hyundai plant is mired in a huge legal entanglement of suits and countersuits between the company, its dual contractor, Meissner-Wurst/ADP Marshall [who are suing each other], and more than a dozen sub-contractors, some of which could be forced out of business if Hyundai fails to pay its bills. The City of Eugene is also claiming $3.75 million in systems development charges.
Plant construction, budgeted at $230 million, incurred over $60 million in cost overruns, including $484,000 just to keep track of the company's unpaid bills. Hyundai claims to have paid $40 million over the contracted amount, suggesting that the contractor failed to pay subcontractors.
Millions were spent in trying to speed up construction; at least $634,000 due to the company's insistence on beginning construction in a wetland in the middle of December in one of Oregon's wettest winters. Hyundai has charged Meissner-Wurst with failure to design a state-of-the-art facility, among several other grievances, while the latter claims Hyundai broke its contract, changed the scope of the work, failed to pay for the changes, and disrupted the work.
The local fiasco is set against the backdrop of the parent company's larger international problems. Hyundai's parent company in Korea is committed to covering losses from overruns or delays, but the Korean financial crisis has seriously restricted its financial capacity. It is trying to sell nonessential subsidiaries in order to raise $7.8 billion by the end of 1999.
In June, Hyundai Electronics Co.'s proposed $775 million sale of Symbios, Inc., a subsidiary producing computer parts, fell through due to opposition from the U. S. Federal Trade Commission. That same month, the Semiconductor Industry Association projected a 1.8% drop in chip sales worldwide, with even worse projections for memory chips. Those sales dropped 21.2% in 1997, and are expected to drop 26.6% this year after a massive glut resulting from too many chip plants put into production, exacerbated by the Asian financial crisis.
A merger is in the works between Hyundai Electronics and LG Semicon Co., another Korean semiconductor company, but the two are arguing over which will run the merged operation, and in September, the Commerce Department found both companies guilty of chip dumping. Hyundai was assessed a 3.9% tariff on all DRAM imports into the U.S. between May, 1996 and April, 1997, to be paid immediately, while LG Semicon was hit with a 9.28% tariff.
Hyundai claims the method of calculation was unfair; LG Semicon claims a third party imported its chips. Both were absolved in three previous annual reviews of chip-dumping and have protested to the World Trade Organization that the U.S., according to its procedural rules, should have dropped the case.
DRAMs produced in Eugene, however, will not be assessed, revealing another reason why Hyundai located here and is holding on. Said spokesman Pang Min Ho, "... we feel we have solved the dumping problem with the recent opening of our factory in Oregon. The factory will produce 90% of Hyundai's DRAM chips." Only goods made domestically can be sold below production costs; selling imports below cost is illegal. However, goods made partially in the U.S. qualify as domestic.
Hyundai has plans to make multiple integrated circuits here, then export them to be cut up and packaged as individual integrated circuits in labor-intensive operations offshore. Some portion would be shipped back to the U.S, becoming "domestic" for the purposes of the anti-dumping laws. Hyundai only has to run enough wafers though the Eugene plant to account for all of its low-cost integrated circuit sales in the U.S. which may explain why the company doesn't want wafer production numbers specified in their proposed LRAPA permit [see "Proposed Hyundai air pollution permit raises questions"].
More problems may await the two companies. Their lead product is 64 Mbit memory chips, and IBM has just announced development of 256-Mbit high-density memory chips it plans to have in production by early 1999, jumping far ahead of current technology. Texas Instruments has also announced plans that will put it two years ahead of current projected development.
Junk bonds. In May, the bonds Hyundai floated to help pay for its $1.4 billion plant in Eugene were downgraded to "junk" status by Moody's Investor Service, a credit rating agency, because it was not producing at 70% of capacity. Hyundai expected to reach this goal October 1 with the installation of the necessary additional equipment, and Moody's did expect the company to recover. However, in August, Standard and Poor's credit rating agency, which had also rated Hyundai's bonds below investment grade in May, lowered its rating again. The poor status of both the parent company and the global market for the dynamic random access memory [DRAM] chips Hyundai produces were cited as reasons.
In July, Hyundai halted construction on its plant in Scotland, projected to be a twin to the Eugene factory.
[Sources: Semiconductor Business News, 9/1/98: Is TI going out on 0.10-micron limb? By J.R. Lineback; 9/9/98, Dumping penalities against LG Semicon are raised, while Hyundai's are lowered, by J. Robertson; IBM rolls out 256-Mbit SDRAM; www.semibiznews.com/stories98/sep98x/8i09ibm.htm.]
©Wanda Ballentine, 1998