With the rumors about the purchase of Pantech by a foreign company emerging, the possibility of a foreign acquisition is having a huge effect on the local mobile phone industry and the whole ICT ecosystem. It is attributable to growing concern about Korea’s weakening national competitiveness stemming from corporate technology leakage.
Experts pointed out on April 14 that the disposal of Pantech to any foreign firm is unlikely at the moment. However, the buyout will be possible if the firm cannot attract a sufficient amount of investment to survive.
According to the Korea Development Bank (KDB), which is one of the creditor banks, Indian handset maker Micromax indicated its intention to buy an ownership stake in Pantech through an M&A advisory firm in late Feb. The third-largest mobile phone manufacturer in the nation flatly said that Micromax’s move is simply its investment effort, and it is not related to the sale of Pantech. Currently, the local mobile phone maker is under a debt-workout program for the next three months, from March 5 to June 5. The main point of the program is to first improve its financial health through debt-for-equity swaps, cancellation of debt, and a lowered interest rate, and to attract more investment afterwards. Hence, Micromax’s effort is aimed at boosting its financial health, according to Pantech.
In fact, there will be many hurdles that the Korean firm has to clear in order to sell its distressed assets to a foreign company. First, controversy over corporate technology leakage could be reignited, as evidenced by SsangYong Motor’s case in 2006. Since 2007, the Ministry of Trade, Industry and Energy (MOTIE) has been trying to prevent the outflow of technology by classifying the nation’s core technologies into 55 categories, which include smartphone technology.
A MOTIE official remarked, “I think that some interface and chipset technologies in the smartphone field could be included in the nation’s core technologies.” The official added, “Pantech does not appear to have core technologies right now, but we will check if the company has any related technology in the event of a sales deal.”
Even if Pantech’s technologies are not classified as one of the country’s core technologies, many in the industry point out that the firm’s technologies, which have been developed over the past 23 years, will be totally transferred to any foreign firm if the company is bought. In fact, the Korean company has world-class technologies such as the world’s first fingerprint technology for the Vega LTE-A and its back button technology. To date, the firm has obtained 4800 patents, and 12 cases are connected with the world’s first technology.
If Pantech’s situation continues to deteriorate owing to the market environment, and it fails to mobilize enough capital, the possibility of a foreign acquisition cannot be excluded. The Korean handset maker is believed to have recorded a first-quarter operating loss, although it operated at a profit in Jan. and Feb. The phenomenon is due to the fact that the firm was directly hit by the decision of the nation’s telecoms watchdog in March to suspend the businesses of three carriers (SKT, KT, and LG U+) up to 45 days for illegal subsidies on smartphones.