Time To Play It Safe? Not At Daewoo

It's still shooting for fast growth--and spending like mad

These should be tense days at Daewoo Electronics Co. The company, which generates almost $3 billion in revenue for the Daewoo chaebol of Korea, is leveraged to the hilt. It's stuck in the low-margin business of selling basic televisions and videocassette recorders. Its brand recognition outside of Korea is anything but desirable. And its shares have plummeted 60% over the past year. Sounds like another Asian company that must scale back its grandiose plans of making it to the big leagues.

Don't tell that to Chun Joo Bum, Daewoo Electronics' chief executive officer. After spending some $1 billion in the past four years to expand production into low-wage markets--from Uzbekistan to Vietnam to Mexico--Daewoo isn't scaling back at all. Chun has even bigger plans to power up TV parts production in Eastern Europe, South America, and Asia and triple production of such goods as refrigerators. He pledges that overseas sales, which account for nearly 90% of total revenue, will keep growing at a 30% annual clip for the next decade, crisis or no crisis. His plans offer abundant proof that despite the cratering of the Korean economy, some chaebol are as ambitious as ever.

The burning question is whether Chun is preparing Daewoo for new triumphs--or for a spectacular fall. You have to admire his drive. The feisty 46-year-old, with an MBA from the University of Illinois, has a record of pulling off the improbable. As a young manager at Daewoo's trading company, he single-handedly generated 10% of the unit's earnings in 1978. He did so by brokering a risky sale of fertilizers to Turkey's then bankrupt government. Later, Chun ran Daewoo Electronics' European operations. There, in 1996, he almost snagged the RCA television business and other properties from French consumer electronics giant Thomson. Although the deal was scuttled at the last minute because of political opposition in Paris, Chun's feisty style apparently impressed Daewoo Group Chairman Kim Woo Joong, who promoted him to CEO.

As a risk taker, Chun should love his new challenge. Commodity televisions are a dicey business, given the growing popularity of Internet-linked personal computers that could turn TVs into home entertainment museum pieces. Yet Chun insists that most consumers will stick with the basic box. "My plan is to go whole hog to serve a big chunk of the [TV] market," he says. What's more, the cheap won has given Chun a boost: Export volume has jumped 20% this year.

PROFIT PINCH. Yet running a commodity business requires a clean balance sheet to stand up to price pressure. Owing to its spending splurge this decade, Daewoo is saddled with debts of $2.3 billion, nearly four times its total equity. As was the case last year, debt service will likely wipe out the $500 million in operating profits Daewoo Electronics expects in 1998. Daewoo also has guaranteed loans, some $2.2 billion, to its various affiliate companies, "many of which are in unstable, emerging markets," says Eugene Ha, electronics analyst at Samsung Securities Co. In one sign of the company's stress, Chun has spent recent months blitzing the globe looking for foreign equity partners in order to reduce debt. Rumored players include Sony Corp. and Royal Philips Electronics. So far, though, no savior has stepped forward.

And none of Daewoo's products can command the higher prices of a top-flight Sony TV, with its ultra-flat screen and stereo sound. Daewoo might succeed as a big contract manufacturer of cheaper TVs for other brands, says analyst Park Kyung Min at Asset Korea Capital Management Co. But he thinks Daewoo's vision of "vaulting into the top league is too ambitious, because of the technology gap and its lack of recognized brands."

Chun figures he has the economies of scale to rise to the top. It won't be difficult for Daewoo to upgrade its TVs to include Internet access and home-shopping capabilities. It also is betting on new technologies. Next January in Las Vegas, it will unveil an optical projection system that will display clean images on big screens up to 300 inches wide. It's part of Chun's $70 million effort to move Daewoo up the food chain. But first, he has to make sure that debts don't eat the company alive.