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18-Feb-98

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  • Samsung, LG Engineers Arrested in Industrial Spying
  • February 18, 1998 (SEOUL) -- Korean prosecutors have arrested 20 former and present engineers of Samsung Electronics Co., Ltd. and LG Semicon Co., Ltd. on charges of stealing top semiconductor technology and selling it to Nan Ya Technology Corp. of Taiwan.

    The investigation is still underway and the extent of the damage remains uncertain.

    However, speculation already is mounting about the leakage of the most closely guarded technology from the Korean companies to their Taiwan rivals.

    Business headlines in Korea flashed warnings about the fallout from the leaks.

    The Chosun Ilbo quoted an industry consultant as saying the Korean semiconductor industry may be overtaken by the Taiwan rivals if its core technology continues to flow into Taiwan.

    The Maeil Business Newspaper said the commanding lead of Korean chipmakers in the world market is in danger.

    Korea is the world's largest producer of DRAM memory chips, accounting for 30-40 percent of the world market.

    DRAM exports made up 13 percent of Korea's total exports in 1997.

    Korea's big three chip makers -- Samsung, LG and Hyundai Electronics Industries Co., Ltd. -- are producing 64M DRAMs in anticipation of large memory needs for the forthcoming Windows 98 operating system.

    The Korean chipmakers are targeting a 16 percent growth in exports in 1998 to US$16 billion.

    Korean chipmakers have been wary of the Taiwan competition, as the Taiwan firms are seen as trying to repeat Korea's success in the global semiconductor industry.

    In the 1980s, the Koreans built a DRAM industry from scratch with technology borrowed from Japanese firms.

    They also imported Korean researchers working in the United States to help carve out Korea's place in the semiconductor market.

    The result was a huge success, making Korea a DRAM champion over Japan in the 1990s. Now the Korean firms believe that the Taiwan firms have the same ambition.

    For example, Nan Ya enlisted Korea Semiconductor Technology Co. (KSTC), a small consulting firm set up by a former Samsung chip executive in 1997, to import Korean technology.

    The Korean firm allegedly lured Samsung and LG engineers with bribes and offers of big salaries to obtain unauthorized semiconductor technology. The firm's executives are also under arrest.

    Nan Ya said in Taipei that its Korean partner was asked in its contract not to use unauthorized materials to develop new technology.

    "We have watched the cooperation closely and have not found KSTC to have used any technology data that belonged to others," the company said.

    The scandal comes at a time when the Korean chipmakers are suffering from the country's recent financial crisis.

    The Korean won's 40 percent plunge against the U.S. dollar in 1997 has made the cost of financing and equipment imports prohibitively expensive for the Korean companies, which have to continue investing in capacity to keep their market lead.

    "The Koreans may eventually lose out to latecomers if they fall behind in investment," said Kim Chee-rak, vice president of the Korea Semiconductor Industry Association.

    The Korean government plans to beef up measures against cross- border industrial espionage.

    The Ministry of Trade, Industry and Energy said in early February that it is considering enactment of anti-industrial spying laws.

    Keyword: Nan Ya Technology Corp. Nan Ya Technology Corp., founded in 1974 to build a US$675 million DRAM plant, is a wholly-owned subsidiary of Formosa Plastics Corp., Taiwan's largest business conglomerate. (Return to news)

    (James Lim, Asia BizTech Correspondent)

    Related story: Nan Ya Denies Involvement in korean Industrial Spying


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    Updated: Tue Feb 17 14:48:26 1998