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Crisis or opportunity? Pantech at crossroads

Nation’s smallest handset maker faces challenges ahead of stake takeover

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Published : 2014-04-16 20:27
Updated : 2014-04-16 20:36

A rocky road stretches ahead for Pantech, the nation’s smallest handset maker that is struggling to stay afloat in a quickly saturating smartphone market. There are now talks of foreign companies such as Micromax seeking a stake in it, but whether this will be a blessing or a curse for the company is still up for debate.

As Pantech has confirmed that several overseas companies including Indian handset maker Micromax have shown interest in the investment, concerns are rising about the matchup and the possibility of a technology leak.

“Pantech would largely fall into the hands of foreign capital, and this may inevitably lead to a leak of technology,” said Kim Jong-ki, an analyst at Korea Institute for Industrial Economics & Trade. 
An employee walks past Pantech signage at its factory in Icheon, Gyeonggi Province. ( Bloomberg)

Technology leaks had been an issue in 2009, when local carmaker Ssangyong blamed Chinese company SAIC, then its largest shareholder, for stealing technology and failing to live up to its promise of continued investment.

The stakeholders also may face a conflict of interest. Currently, Qualcomm holds the largest stake of 11.96 percent in Pantech, followed by Korea Development Bank with 11.81 percent and Samsung Electronics at 10.03 percent.

As Samsung Electronics is the world’s largest handset maker, Micromax is currently no match for Samsung, but it would still be unusual for two rival manufacturers to hold stakes in the same company, another industry observer said.

Others dismissed the worries, saying that even if Micromax or any other handset maker were to acquire Pantech, there would be no notable technology of which to take advantage.

Micromax did not immediately respond to requests for comment.

Others expressed skepticism about the profitability of the potential tie-up.

“There has been no successful case after buying a struggling handset maker. It is highly unlikely that Micromax’s interest leads to actual investment as many companies lose their interest after due diligence,” an anonymous analyst said.

As for an acquisition by a Korean company, the possibility appears to be much lower.

“Samsung and LG do not want to be accused of monopolizing the market. Further, Pantech, which competes in the same high-end handset market as the two, is unlikely to appear as an attractive investment,” said Noh Keun-chang, an analyst at HMC Investment Securities.

Pantech has been suffering financial distress in recent years after it failed to catch up in the fast changing smartphone market. The handset maker’s domestic market share fell from 14 percent in 2010 to 8.6 percent in 2013.

This year, it hopes to sell at least 4 million units. However, this is likely a daunting goal as market conditions are far from positive.

The domestic telecommunications market is nearly frozen with local telecoms forced to suspend their operations last month on the regulator’s orders. This has been a huge blow to Pantech, as 95 percent of its sales come from its home turf.

Pantech is currently scheduled to unveil its new strategic smartphone Vega Iron 2 next month, but sales are likely to be affected as the business suspension of the nation’s largest carrier SK Telecom is scheduled to last until mid-May.

By Shin Ji-hye (shinjh@heraldcorp.com)

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