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Amid restructuring, company faces an uphill battle in restoring its stock rating
Since the revelation that cellular phone maker Pantech Group recently applied for a corporate fiscal restructuring known as a "workout'' on December 12, its credit rating has been summarily lowered. Korea Ratings and Korea Investors Service adjusted the credit rating of corporate bonds at Pantech and Pantech & Curitel and their affiliates, moving the rating downward from BB+ to CCC, basically sounding a death knell for the company on the market. Pantech's failure was caused by a liquidity crisis, but more fundamental reasons can be found in the business environment and structure of the cellular phone industry. The market has already been saturated, and only so-called "dinosaurs'' of the industry seem able to survive. The five largest enterprises in the field - Nokia, Motorola, Samsung Electronics, LG Electronics and Sony Ericsson - occupied 81 percent of the worldwide market in the third quarter of this year. The situation is different from the days when Pantech joined the mobile phone market in 1997 and achieved rapid growth. But under the weight of economies of scale, Pantech cannot best its rivals in cost competitiveness. Kim Ji-seon of Hanhwa Securities said that "with rapid changes in the climate of the communications industry, the businesses there have come to need to investigate a huge amount into research and marketing. Some experts note that companies that "dig only one well' come to have difficulties surviving in an era of convergence. Pantech, in fact, has attempted business diversification several times. The third-largest cellular phone maker in the nation, which originally started its business in the sector by manufacturing pagers in 1991, was reborn as a mobile phone maker in 1997. Pantech in 2004 concentrated its energy on purchasing Daewoo Heavy Industries & Machinery (currently Doosan Infracore) to change its focus on robots for home use, but it failed. In this respect, Pantech can be compared with Trigem Computer, which suffered similar business problems. Both companies could not properly adapt to digital convergence. Companies like Samsung or LG, which produce various items including computers, software, and communications devices, have a more competitive edge because they can introduce new and diversified goods to the market earlier than other firms. "As a founder of the company, I can entrust the creditors with the managerial right to rescue the company,'' said Park Byeong-yeop, vice chairman of Pantech. "I am suffering from the first crisis in 16 years. If I can overcome this temporary crisis, I will be able to revive,'' added Park. With all the reasons behind Pantech's difficulties staying afloat, why would the company's "one single failure" happen now? Park suggested the gap between investments made last year for promoting its products under its own brand name and the returns received on these. Previously, Pantech had sold its products under major producers' brand names, as well, but had difficulty when shifting back to selling under its own name. Due to the company's restructuring efforts, Pantech is expected to record a surplus beginning next year, stressed Park. The company also has signed a number of supply contracts in recent months, he added. Please direct questions or comments to [englishhani@hani.co.kr]
