Dow Jones INTERVIEW: S Korea Pantech Sees Swing To
Date: 2-26-2005

SEOUL (Dow Jones)--South Korean mobile handset maker Pantech Co.expects to swing back to profitability this year, thanks to a recovery in demand in its main China market and an aggressive expansion strategy in Southeast Asia, the company's chief executive said.

Pantech, which ranks as the third-largest handset manufacturer in South Korea behind Samsung Electronics Co. and LG Electronics Inc.expects revenue of 1 trillion won this year, up from billion in 2003.

Net profit will come in between 4% to 5% of total revenue, while operating profit will come in between 6% and 8%, Pantech President and Chief Executive Officer Sung Kyu Lee told Dow Jones Newswires in an interview Tuesday. That would result in 2004 net profit of KRW40 billion to KRW50 billion and an operating profit of between KRW60 billion and KRW80 billion - a three- to four-fold increase from the KRW18 billion posted in 2003. Pantech recorded a net loss of KRW18.3 billion in 2003.

Lee, who spent 25 years at rival Samsung Electronics prior to becoming president and chief executive at Pantech in September 2001, said the company suffered last year due to tepid demand from China amid the outbreak of SARS and the war in Iraq, which left the company holding high inventories. "The first half of 2003, demand-wise, was practically nonexistent with inventory locked in. We ended up having to sell our mobile phones below the cost of production." said Lee.

The sluggish market in China also took a toll on Pantech's share price.

Shares of the company, listed on the main Korea Stock Exchange, have more than halved from a high of KRW16,900 set on Jan. 13, 2003. On Wednesday, the stock closed down 2.7%, or KRW230, to KRW8180.

"The main reason for the stock plunge has been the poor earnings results but it should improve this year." he said.

Lee said that although he is "very much worried" about the potential threat to demand from the outbreak of bird flu in Asia, the impact on Pantech's operations won't be as detrimental as SARS was last year because the company is rapidly expanding into other markets such as Taiwan, Hong Kong, Thailand, Indonesia and Russia.

Late last year, the company began selling its own-brand mobile phones with the aim of reaching the high-end segment. In an effort to beef up its brand image, the company will spend more this year on advertising to lure customers. "During the past three years we've invested a lot on R&D and marketing so I think starting this year, we'll really expand sales." Lee said, adding that about 4% to 5% of revenue from each region will be allocated for advertising this year. "If you have some kind of unique features compared with other products, it will be sold in that (high-end) market."

Lee said Pantech's strategy to try and gain more market share from competitors such as Samsung, LG Electronics, Motorola Inc. (MOT) and Nokia Corp. (NOK) is to develop new models in about half the time.

"In this industry, speed is the most important thing." he said. "We add unique features prior to competitors and then we can gain more market share. I'm always stressing about coming up with new designs. And internally, we want to develop one product within seven months, almost half of others' development time." Samsung says it takes them about six months or less to develop a new product, while LG takes between 10-12 months. Pantech said it is banking on camera cell phones with built-in flash, as well as animated features that respond to voice levels to target high-end customers in those regions.

Pantech currently has 550 engineers on the job devoted to research and development on mobile phones, and Lee said he wants to add 60 more this year. In comparison, Samsung has about 5,100 R&D staff devoted to its telecommunications division, which includes mobile handsets and telecommunications equipment. The company plans to launch about 40 new models in 2004, significantly higher than the 16 handset models unveiled in 2003.

Pantech is targeting sales of 7 million handsets worldwide this year, compared with 5 million last year, of which 1.8 million will be sold under its own brand, Lee said.

The company currently has an agreement with U.S.-based Motorola to supply handsets through 2005 on an original design manufacturer basis, mainly in South America.

By Yun-Hee Kim
Of DOW JONES NEWSWIRES