SK Telecom First-Quarter Profit Jumps on Smartphone Sales
May 04, 2011, 2:44 AM EDTBy Jun Yang
(Updates with closing share price in the fifth paragraph.)
May 4 (Bloomberg) -- SK Telecom Co., South Korea’s largest mobile-phone operator, reported a 57 percent jump in first- quarter profit, helped by sales of smartphones including Apple Inc.’s iPhone.
Net income rose to 537.3 billion won ($500 million) from 343.3 billion won a year earlier, the Seoul-based company said in a regulatory filing today, based on International Financial Reporting Standards adopted this year.
SK, which began selling the iPhone in March, expects to surpass its target of 10 million smartphone subscribers by the end of the year, the carrier said. The company plans to boost capital spending to a record this year to upgrade networks and manage a surge in data traffic from Web-connected handsets.
“Earnings will be good at least until the second quarter,” said Kim Hue Jae, a Seoul-based analyst at Daishin Securities Co. “Smartphones are behind their growth story.”
SK rose 0.6 percent to 166,000 won at the 3 p.m. close in Seoul trading, while the benchmark Kospi index fell 0.9 percent.
Operating profit rose 29 percent to 614.3 billion won while sales gained 3.8 percent to 3.91 trillion won. The sale of a stake in SK C&C Co. helped boost earnings, the carrier said.
Smartphones
Under the new reporting standard, SK’s 2010 operating profit increased by about 300 billion won and net income rose by about 500 billion won, the company said. SK in January reported an operating profit of 2 trillion won and net profit of 1.4 trillion won for 2010.
SK will offer about 30 new smartphones and tablet computers this year as it seeks to tap demand for such devices, SK said in January. Smartphone sales in South Korea surpassed 10 million units as of the end of March, surging from 800,000 units at the end of 2009, Ahn Jae Min, an analyst at Kiwoom Securities Co. in Seoul, wrote in an April 20 report. SK currently has about 6 million smartphone subscribers, according to the company.
SK spent 785.4 billion won on marketing in the first quarter and aims to increase capital spending this year to 2.3 trillion won, 15 percent more than a previous forecast, the company said.
In the second quarter, SK may be able to spend less on marketing to avoid losing customers to KT Corp., which had been the exclusive provider of the iPhone, said Choi Nam Kon, a Seoul-based analyst at Tong Yang Securities Inc.
Government Pressure
Earnings growth may be capped by the government’s push to reduce phone bills for consumers as part of efforts to curb inflation, according to Kiwoom Securities’ Ahn, who wrote in the April 20 report that such a move is negative for carriers.
The communications commission is considering making mobile- phone text messages free of charge, Choi See Joong, chairman of South Korea’s telecommunications regulator, said April 13.
The regulator’s plan won’t likely materialize, as revenue from text messages accounts for as much as 4 percent of phone carriers’ sales, Ahn said. A more realistic option for the government is to order phone companies to lower subscription fees and offer more free calls, he said.
--Editors: Suresh Seshadri, Chua Kong Ho
To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
