Another Korean Cell-Phone Power?
At CeBIT, the big technology fair held every spring in Hanover, Germany, it's no surprise to find Korean mobile phones. Samsung Electronics, after all, is the world's No. 2 handset maker, while crosstown rival LG Electronics Inc. stands at No. 5. The pair have maintained an impressive presence at the show for the better part of a decade. But this year, another Korean -- Pantech Co. -- tried to grab the spotlight as well. The upstart held its own, offering 29 models with features ranging from TV receivers to a motion sensor that calculates the calories its user burns while walking. And it won two design awards, with a camcorder phone and a combo phone/MP3 player that can be worn as a necklace. "It's time for us to make another leap into the global arena," declares Park Byung Yeop, Pantech's 42-year-old chairman.
Park's goal is to become the world's No. 5 mobile-phone maker within three years -- and he's making good headway. Park founded Pantech as a maker of pagers in 1991 and began producing cell phones in 1998. In 2001, Park bought Curitel, the handset business of Hyundai Electronics. The pair has established a reputation for good -- if not exceptional -- design at prices that typically undercut Samsung's by about 10%. This year, the group expects unit sales to jump 60%, to 28 million handsets -- 90% of them exported to the likes of Verizon Wireless and Sprint Corp. (FON ) in the U.S. and a host of customers in China, Russia, and Latin America. That should boost profits by 80%, to $206 million, as revenues climb 47%, to $4.3 billion. "No other Korean startup has secured such a foothold in the global market," says Kim Woon Ho, an analyst at Daewoo Securities Co.
To meet his target, though, Park needs to take his business to a new level. The group has thus far prospered by manufacturing phones for others, and last year just 31% of Pantech's sales were made under its own brands. The company sold 4.5 million phones to Motorola Inc. (MOT ) and 6.7 million to North American distributor Audiovox Corp (VOXXE ). Company execs say building their own brand will allow them to more than double margins from last year's levels of 2.8% for Curitel and 6.5% for Pantech. But Park needs to move fast, since UTStarcom Inc. (UTSI ) -- a U.S. equipment manufacturer -- in November bought Audiovox, and Motorola last fall sold its 16.4% stake in Pantech.
Though both companies plan to continue to buy Pantech phones, Park knows he can't depend on those sales forever. So this year, Park aims to sell 80% of his phones under the Pantech name. To do that, he has earmarked $200 million for marketing -- quadruple last year's budget. He'll also continue spending 7% of sales on research and development -- in line with most rivals. Even so, some skeptics say Park's sales target may be ambitious. "Building brand image is a whole new world from acquiring manufacturing prowess," says Choi Dong June, vice-president at SK Teletech, a smaller local rival that primarily makes phones for SK Telecom, Korea's top mobile operator.
Park says his Korean success has given him the experience he needs. Koreans replace their cell phones about every 18 months, and more and more they're picking Pantech. Since it started selling phones in Korea in 2002, Pantech has grabbed a 20% share, up from 12% in 2003, and is now No. 3 after Samsung and LG. "Once you survive and grow in the competitive battleground at home, you can expand overseas," Park says. Global top five? It might be a stretch, but don't count this upstart out.
By Moon Ihlwan in Seoul