Mobile Phone and D-RAM To Lead IT Businesses

Return of IT businesses are expected in the stock market as they showed decent performance records in third and fourth quarter (July to September) this year and prospects of next year are encouraging.

Performance prospects by business sectors, however, largely differ from each other. Profit models of internet businesses are still unstable and almost all software system integration (SI) businesses have been staggering with deficits so far.

▽ Recovery of IT businesses, Samsung Electronics optimistic = Jeong, Chang-won, analyst of Daewoo Securities forecasted, “Rapid growth of Asian markets and mobile phone change demands would have the IT business return next year.”

Ratio of Asia in World semiconductor market exceeded 40% this year, stepping up from 30% of last year. Analysts say that Asia would lead restoration of world IT businesses next year as its ratio has expanded and the market is growing fast.

Mobile phone market is expected to meet boom next year due to change demands. In Korea, color mobile phone to fast internet mobile phone, in foreign countries, black-and-white to color mobile phone, changes are under way. Upturn of D-Ram market is expected in lower half of next year. An, Seung-ho, Analysit of the Meritz Securities speculated, “By the first half of next year, DDR (double data rate)-Ram would remain in a bearish trend, but it would take upturn afterwards.”

Recovery of IT businesses would, in particular, benefit the Samsung Electronics. Jeong, Chang-won, the Daewoo analyst, said “D-Ram and mobile phone businesses would encourage performance of Samsung, supplementing it.” He estimated that stock price of Samsung would reach 5 hundred and thousand won by late second and fourth quarter (April to June) next year.

▽ Internet Stocks, hopes and concerns mixed together= Since late October, stock prices of internet business in United States have soared drastically. Stock price of Yahoo doubled just in a month, and businesses’ stock prices jumped average 20%. Korea is no exemption at that perspective. Within last week, stock price of Daum, Neowiz, Interpark recorded 15%, 19%, 31% rise respectively. Bettered performance records should be the reason.

Four main internet corporations, Daum, Auction, Neowiz, Interpark, come to greet surpluses recording 370 million won operating revenue in second and fourth quarter, as their revenues surpassed 100 billion won and operating revenue reached 770 million won in third and fourth quarter.

It is, however, still early to celebrate. Critics are that stock prices of inter-net businesses remain overestimated as they are usually ten times more than average price earning ratios (PER).

It is uncertain whether present profit models would maintain their profitability and stability because they are making money from entertainment businesses such as inter-net games and avatars. Kwan, Young-sam, analyst of Sejong Securities said, “if civic spending were hurdled, profits of internet businesses that charge their services would shrink.”

Restructuring is a problem to be solved as well. Auction in the limelight these days cleared its subsidiary companies, and met favorable responses from investors with its simple account book. Interpark, however, which has subsidiary and investment companies ten for each, is required to carry out restructuring.

▽ Slow recovery of SI businesses= SI businesses, Force Data, Donyang Systems, Shinsegae I&C and so on, affiliates of conglomerates, showed their potential with increased profits in recent days. But their average sale profitability is below 5%. Software Security Network Integration (NI) businesses are under the same situation. Only several companies including Ahn Lab, and Future Systems are making surpluses. Among them, a lot of companies are being excluded from analysis subject of analysts of stock companies as their average sales profitability fell almost to 0.

Eun-Woo Lee Wan-Bae Lee libra@donga.com roryrery@donga.com