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Will South Korea sell MagnaChip to China?

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Will the Blue House block the deal?

The world’s media has been focused on how the White House is frustrating China’s bid for technological self-sufficiency. But in South Korea all eyes are currently trained on the Blue House.

At the end of March, the official presidential residence in Seoul received an online petition protesting against the prospective sale of MagnaChip, the world’s second largest manufacturer of OLED panel driver semiconductor chips, to China’s Wise Road Capital for $1.4 billion.

The Chinese private equity fund focuses on high-tech investments and was founded by Zhang Yuanjie, a former managing director at China Investment Corp, the country’s sovereign wealth fund. Wise Road plans to take the New York-listed MagnaChip private but says that its primary focus is providing the capital that will allow the South Korean management to execute its expansion plans.

The reaction in South Korea has been hostile. The petition argues that, “the acquisition of MagnaChip may greatly benefit China’s technology for OLED DDI (display driver integrated circuits) and power chips. This will pose a threat, not only for chip and display companies, but for Korea’s competitiveness as a whole”.

The company’s union has organised protests on behalf of the group’s 880 South Korean staff. It believes that MagnaChip will become “the second Hydis” – a reference to the sale of SK Hynix’s flat panel display business to China’s BOE Technology in 2003. “Korea has the bitter experience of handing over its position as the global leader in the LCD market to China several years ago [following the Hydis sale],” the Korean Times recalled.

MagnaChip is an appealing target. Chinese news website Guancha says that a takeover will help China to develop its own chip technology for smartphone display panels, overcoming a “bottleneck”.

The US brokerage Roth Capital also describes MagnaChip as a “highly valuable strategic asset particularly in China where the smartphone and display segments represent very important industries”. It believes a valuation of 2.2 times 2022 enterprise value to sales makes sense for both buyer and seller. At $29 per share, the offer price represents a 42% premium to the stock’s spot close, in line with global peers.

At the end of 2020, MagnaChip had a 33.2% market share in OLED DDI chips, second only to Samsung Electronics on 50.4%. Some way behind is Taiwan’s Novatek on 7.6%.

Financial analysts point out that MagnaChip should do very well from the 5G smartphone era. Phone handsets using the latest technological iteration accounted for 70% of fourth quarter OLED DDI revenues, up from 20% during the first quarter of 2020.

Like Hydis, MagnaChip was originally part of SK Hynix. After going public in New York, it has closed its manufacturing plants to become a fabless business focused on OLED and power resistors.

According to Money Today, South Korea’s Ministry of Trade, Industry and Energy has asked MagnaChip’s management for more information so it can ascertain whether “national technologies” are at stake.

Last year, the ministry approved the $1.08 billion sale of Samsung Display’s 60% stake in its Suzhou LCD plant to TCL Technology. However, that factory was already located in China and Samsung Display was exiting the business.

The Chinese press has quoted Ahn Ki-hyun, president of the Korea Semiconductor Industry Association, who says the deal might go through because the government has traditionally only blocked takeovers involving memory chips like DRAM and NAND.

Unsurprisingly, netizens from China and South Korea have markedly different views about MagnaChip’s fate. Censors have deleted the most liked comment on one Chinese news site, which declared that “you’re worth $1.4 billion now but after a few years, China will have achieved self-sufficiency and you’ll be left to rot”.

That is just the scenario that worries the South Koreans. Tensions between China and South Korea are nothing new. They have burst back into the open in the cultural arena – this time over the ban of a children’s anime series that used maps that don’t depict territories that China regards as its own (see WiC534).

The South Korean government may yet decide that MagnaChip is territory worth protecting too.


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