Have Venture Companies Made the Big Time? Not Really

Analyst: “Didn’t the prices of your products peak?”

CFO: “No. Profitability will be high all the way into 2008.”

The Kosdaq index jumped in the morning on January 17. Manager Jeong Woo-cheol at Dong Yang Securities and Manager Ahn Hong-ik at SK Securities visited Reigncom, an MP3 player manufacturer. The two analysts bombarded Yang Dong-ki, the CFO and vice president, and Cho Yoon-hak, the head of the IR team, with questions for an hour and half.

As venture companies are once again in the center of enormous popularity for the first time in five years, analysts at securities companies are visiting tech companies listed on the Kosdaq one after another.

Competitiveness in Danger-

“Recently, I saw the Chinese market is full of cheap MP3 players that cost in the range of 60,000 won. Are China’s cheap products crowding out your players?” Manager Jeong’s questions about price lasted throughout the visit. The point of them was that although current profitability is good, equally high profitability in the future is not guaranteed.

CFO Yang defended his company, saying, “When the demand is high enough, nothing seems like trouble.”

Afterwards, Ahn asked about last year’s performance and the business outlook in 2005, and IR chief Cho of Reigncom looked tense. “It’s not as bright as investors might hope. Considering our previous performance, this year it will…”

Right there, the CFO cut in and said, “The prediction will be officially released later.” In fact, early tipping of a business’s performance violates the rules for fair announcements.

Jeong then relentlessly asked questions about expenditures, such as, “How much is the rent? Isn’t that too much of fixed cost if your company occupies a whole four floors?” Cho answered, “I can’t remember all the details. I can show you exact numbers later.”

“No Legendary Success”-

Analysts think any “legendary success” or “mega hit” among tech venture businesses will be unlikely. Jeong pointed out, “It has become difficult to build a technological monopoly against startups. So the lifespan of venture companies are getting shorter.”

In 2000, the focus of the tech frenzy was on those companies specializing in the Internet, its security, and software development, and most of them had to close within three years. The reason is weakened competitiveness due to the flood of undifferentiated firms. Ahn warned, “Even those companies which saw a recent rise in their stock prices have to bear this in mind.”

Business plans based on digital multi-media broadcasting and stem cell technology are novel, but novelty does not ensure success, and companies agree with this view. CFO Yang said, “With a shortened market cycle in place, we will diligently continue research and development to create new growth points.”

Sorting Out Real Gems-

Experts advise that one can project the future of each business by reading analysts’ reports. Ahn explained, “Currently we make more visits to Kosdaq-listed companies. The purpose is to look at the real performance of stocks that are popular due to passing fads.”

The reports are available on the homepages of securities companies. Daewoo Securities’ executive director Jeon Byung-seo noted, “Those reports contain high quality information because they are written after personal visits to companies.”

legman@donga.com