Pantech's speed sets the pace
Date: 2-27-2004

Nokia, Motorola and other mobile phone makers have grown used to fierce competition from Samsung and LG, South Korea's two leading handset brands. But now they are forced to contend with a third Korean challenger. The Pantech group, which includes Pantech Co. and Curitel Communications Inc., grabbed a combined 14 per cent of South Korean handset sales last year. Now, it has set its sights overseas and wants to be among the world's top-five handset manufacturers by next year.

Pantech started life as a pager producer in 1991, before entering the mobile phone business in 1994 as South Korea emerged as one of the world's leading mobile markets. The group increased its scale in 2001 through the acquisition of Hyundai Curitel, formerly the telecommunications arms of Hyundai Electronics.

"When we first plunged into the market, there were a lot of worries, considering our low brand awareness and limited finances for investment," says Moon Song, president of Curitel Communications Inc. "But we have succeeded in attracting customers by developing products faster than others. Agility is our biggest strength." Pantech and its affiliate, Curitel, operate as two separate companies, with distinctive brands and products catering to both GSM and CDMA technology.

The group's expansion owes much to its focus on the fastest-growing part of the handset market: camera phones.

Curitel was one of the first to introduce camera phones to South Korea two years ago and today commands about 25 per cent of the segment, ahead of LG Electronics' 20 per cent. The company still trails far behind the dominant Samsung Electronics. But the upstart manufacturer has been attracting tech-savvy customers. "Despite being a late comer, Curitel is getting consumer recognition fast, thanks to its ability to read the market trend quickly and move fast," says Kim Hee-yeon, an analyst at Hyundai Securities.

Analysts say Pantech group's aggressive spending on research and development has given it an edge over bigger rivals. About 40 per cent of the group's total workforce is devoted to R&D.

"Speed is the crucial factor for success in this business," says Lee Sung-Kyu, Pantech's chief executive, who was poached from Samsung. "We're developing new products within seven months, much faster than our rivals." Mr. Lee spent 25 years at Samsung and was credited with helping to establish the company as a force in the handset market before defecting in 2001.

The Pantech group aims to increase its share of the South Korean market to 20 per cent this year, grabbing sales from Samsung and LG. However, most of the group's sales are made overseas through contract manufacturing for other mobile phone companies that put their brand on Pantech products. Motorola, the world's second-largest handset manufacturer, is Pantech's biggest customer, while Curitel provides phones for Verizon and Sprint, the US wireless operators.

Three-quarters of Curitel's Won 1,386bn ($1.2bn) of sales last year were exports, as were the majority of Pantech's Won 615bn revenues.

Curitel posted Won40bn in net profit last year and targets Won100bn for this year.

The company believes its gradual shift to the higher end of the market will improve profitability, as its focus on camera phones and color-screen handsets tracks the shift by consumers towards more sophisticated models. In contrast, Pantech suffered Won18.3bn of net loss last year because of increased competition in China, the company's biggest export market. But it expects a turnround in earnings this year as it expands aggressively in emerging markets such as south-east Asia, eastern Europe and South America. In addition to its contract manufacturing, the company has launched the Pantech brand in several emerging markets, selling mid-to-high-priced handsets.

"Pantech has to develop a niche market for a new source of growth. Its advance into such underdeveloped mobile phone markets seems to be the right strategy," Ms. Kim said.

However, Mr. Song believes the group's global ambitions will be impossible to achieve unless it is successful in the domestic market. South Koreans are among the world's most enthusiastic users of mobile phones and wireless data services, making the country an ideal laboratory for developing new models.

The life cycle of a mobile phone is shorter in South Korea than any other country in the world, with people treating their handset as a fashion item that needs upgrading every time an improved model is launched.

Financial Times (February 27th, 2004)