DB Group is in fierce debate internally on how to proceed with the factory expansion plan for its semiconductor contract making affiliate DB HiTek, sources within the group told TheElec on Thursday.
DB HiTek CEO Choi Chang-sik, who has led the company since 2012, is arguing for a new 300mm wafer factory line while the leadership of DB Group wants a step-by-step expansion and to add another 200mm wafer line instead, they said.
Choi has told the leadership multiple times that a new 300mm factory is needed for growth, the sources said.
However, the family of former DB Group chairman Kim Jun-ki and senior executives are arguing that HiTek has just begun to secure its return of investments, and another large-sized investment could be dangerous as there was no guarantee of success, the sources said. It is, in effect, a vote of opposition to the plan, they said.
It will cost trillions of wons to construct a new 300mm wafer factory line, even if it is executed sequentially.
DB HiTek is currently contract producing analogue, sensor and mixed signal semiconductor chip using 90 nanometer to 350 nanometer processes at its 200mm wafer lines.
It current has two factory lines __ one in Bucheon, Gyeonggi Province dubbed Fab 1 and another at Eumseong, North Chungcheong Province called Fab 2.
A third factory, if it is built, will likely be at DB’s Eumseong site.
DB HiTek has been increasing the process efficiencies of its factory lines for the past couple of years. It has a production output of 100,000 wafer sheets per month back in 2014, but this has increased to 122,000 sheets per month as of last year. It is planning to increase efficiency to reach 130,000 sheets per month this year.
But this increase in efficiency alone is considered insufficient to meet the rising demand for contract chip production, called foundry in the semiconductor industry.
DB HiTek’s current factories had a near 100% operation rate in the first half of 2019. The factories were only stopped during maintenance, a person knowledgeable on the matter said. The company already lost the opportunity to expand its factory lines, they said.
DB HiTek has never posted a net profit since its founding in 1997 up to 2013. DB Group is estimated to have spent over 2 trillion won to the company in this time period. Former chairman Kim spent 350 billion won of his personal fortune back in 2009 to restructure DB HiTek.
Though DB Group leadership has voiced their opposition to Choi’s proposal for a new 300mm wafer line, it is hard for them to flat out refuse the CEO’s request, the sources said. Choi, an ex-Samsung executive, is credited with turning DB HiTek around __ the company turned profitable in 2014 and has been so ever since then. Choi was recently promoted to vice chairman thanks to this.
DB HiTek posted 181.3 billion won in operating profit and 807.4 billion won in sales last year. This is an operating margin rate of 22.5%, which is very high. The company is expected to do even better this year and post record profits, according to South Korean analysts. Another person knowledgeable on the workings of DB HiTek said if the company expanded its factories sooner at the right time, the company could have been even more valuable than it is now.
Meanwhile, former DB Group chairman Kim, in his court verdict for his trial over the sexual assault against his maid, in which he received a two years and a half jail sentence suspended for four years, said that he would dedicated his remaining life to the non-memory semiconductor industry. His statements caused DB HiTek share prices to drop 1.45% in the next trading day. This likely reflected the disappointment of investors that DB HiTek, in which one time DB Group considered selling off, was still part of the group, according South Korean analysts.
