Pantech to supply 3G phones to Japan's KDDI

Dow Jones International News, US
August 10, 2005
15:38

By Yun-Hee Kim and Hiroyuki Kachi

(Updates to include additional details from Pantech, closing stock prices.)

SEOUL (Dow Jones)--South Korea's Pantech & Curitel Communications Inc. (063350.SE) said Wednesday it has agreed with Japan's No. 2 wireless carrier KDDI Corp. (9433.TO) to supply third-generation mobile handsets from the fourth quarter, marking the first time a Korean vendor has penetrated the Japanese market dominated by local makers.

Pantech & Curitel said in a statement it plans to supply an unspecified number of 3G handsets, based on code division multiple access, or CDMA technology, under KDDI's "au" and Pantech's "Pantech" brands.

Financial terms of the agreement weren't disclosed.

"The Japanese handset market is one of the most competitive in the world, with exceptionally high standards in phone design and functionality," said Pantech President and Chief Executive Moon S. Song in a statement. "The fact that we have successfully met these standards represents a major endorsement of our progress in recent years."

Haruhiko Maede, a spokesman at KDDI said that while the company is open to all handset providers globally, it chose Pantech for its design features and cost.

Maede said the telecom company will start selling Pantech's mobile phone handsets as soon as later this year, in its first overseas handset procurement.

He said the handset would be priced "several thousand yen lower" than domestic 3G phones, which fetch between Y9,000 and Y14,000.

The Nihon Keizai Shimbun newspaper said in its Wednesday morning edition that the 3G handset, equipped with a high-quality camera and other basic functions, will likely become KDDI's cheapest offering with a price considerably below Y10,000.

The decision may heat up the battle for market share with rivals NTT DoCoMo Inc. (9437.TO) and Vodafone KK (9434.TO).

Pantech said in a separate statement issued later Wednesday it expects to finalize an agreement on the price per unit with KDDI "within the coming weeks."

Pantech said that typically, supply agreements with Japanese service carriers for CDMA 1x phones sell at a retail price of between US$250-$300 per unit and it hopes to set its price within a similar range.

For Pantech, the move is positive in that it will help the company gain a foothold in a market not penetrated by its bigger rivals such as Samsung Electronics Co. (005930.SE) and LG Electronics Inc. (066570.SE).

"For the long term, this is positive for Pantech as the Japanese market has been very difficult to penetrate, with local firms dominating the market. It's very symbolic for Pantech in that sense," said Kim Ji San, an analyst at Hanwha Securities in Seoul.

Japan's handset market is currently dominated by domestic manufacturers, including NEC Corp. (6701.TO), Sharp Corp. (6753.TO) and Panasonic.

But Kim of Hanwha said the likely impact on Pantech's earnings won't be significant.

News of the agreement helped push shares of both companies higher in Wednesday trade. After hitting a fresh year-high of Y609,000 earlier in the day, KDDI shares closed up 3.8% at Y604,000 on the Tokyo Stock Exchange, outpacing the benchmark Nikkei 225 Stock Average's 1.7% gain. Shares of Pantech & Curitel, after rising as much as 2.5%, narrowed gains to close up 0.8% at KRW1,810 on the Korea Exchange.

Pantech expects to export handsets to more than 51 countries worldwide, with total annual sales of more than 30 million units forecast for this year, it said.

In May, Pantech & Curitel acquired SKY Teletech Co., formerly known as SK Teletech, the handset manufacturing arm of South Korea's largest wireless operator SK Telecom Co. (SKM).