Can an arranged marriage succeed? It's a difficult question to answer. Many people would argue that it depends on the compatibility of the two and their determination to make it work. What if the marriage is between two companies rather than two people? Many would contend that the same answer applies.

Hyundai Electronics and LG Semicon, brought together by the South Korean government in 1998 during the country's economic downturn, are in the process of working out their own solution to this quandary. To form a lasting union, Hyundai must capitalize on the synergies and minimize the disadvantages of the combination.

On the plus side, the merged entity now stands as the world's largest DRAM supplier, with 11 semiconductor manufacturing facilities worldwide and production capacity of more than 300,000 wafer starts per month. Profitability has returned to Hyundai as the DRAM market rebounds from a slump that lasted several years. The new group now has 3700 R&D staff members at its disposal, a force that is expected to help reduce costs by speeding up delivery of new chips.

But other potential synergies may be several years away. Hyundai and LG Semicon have incompatible production processes in their fabrication facilities. True integration is not likely to occur until 2002 when 256-Mbit DRAMs go into production. In the area of flash memory, Hyundai expects LG's NAND products to contribute significantly to its program and help make the company one of the top five in flash in a couple of years.

Hyundai is also depending on increased sales of non-memory devices, such as system ICs and telephone handsets, as a significant fuel for future growth. Leading this push into diversification is the company's new president and CEO, Chong Sup Park. Using skills he acquired running Hyundai Electronics America, Park is instituting a Western style of management to eliminate some of Hyundai's bureaucratic tendencies.

Park has restructured operations into three business areas the company identifies as its core competencies: semiconductors, telecommunications, and liquid-crystal displays. Each area will function as an independent profit center and will have full operational autonomy. 'Hyundai used to be centrally driven,' Park says. 'This is no longer believed to be relevant now, as a company needs to be flexible, quick, and oriented to customer needs within each business group.'

Hyundai Electronics is currently in the process of spinning off its automotive electronics and monitor units. This not only demonstrates the company's intent to focus on core strengths and eliminate elements on the fringe, but also helps the company reduce a significant debt burden.

Hyundai's desire to broaden its scope into non-memory markets is not a surprising development when you consider, on one hand, the pricing fluctuations that afflict the DRAM market and, on the other, the enormous growth prospects and higher margins that characterize the system IC and telecommunications arenas.

Hyundai is converting DRAM capacity for flash production and making upgrades to existing fabs to capitalize on these new opportunities. This year, Hyundai expects non-memory products to account for about 10 percent of revenues. In a few years, Park expects that percentage to rise to 40 percent.

A recent announcement that Hyundai will supply US distributor Audiovox with 6 million CDMA mobile-telephone handsets provides an example of Hyundai's attention to boosting margins. While Hyundai's previous handset offerings were low- and mid-priced models, the new products aim toward the higher-end, with some units offering combined analog and digital capabilities. One planned phone will be equipped with email and Web-access functionality.

Park believes Hyundai is headed in the right direction and has put its worst days behind it. In his mind, the company's prospects are highly dependent upon its management of capital, both human and financial. He places high importance on retaining employees at a time when many are being tempted to jump ship for appealing start-ups.

Similarly, Park says Hyundai is on course financially. 'Our strategies require a lot of investment,' he says. 'As we transition to new areas, we must convince the investment community that we have a model that will create reasonable returns. I believe we have the right measures in place and if we continue to implement well, we can mitigate our problems.'