KT’s Profit Rises 85% on Smartphone Sales, Web TV Demand
May 06, 2011, 3:42 AM EDTBy Jun Yang
(Updates with closing share price in the fifth paragraph.)
May 6 (Bloomberg) -- KT Corp., South Korea’s largest phone and Internet company, posted an 85 percent jump in first-quarter profit, fueled by smartphone sales and demand for Web-connected television services.
Consolidated net income rose to 555.2 billion won ($511 million), from a revised 300.6 billion won a year earlier, the Seongnam, South Korea-based company said in a statement today. The results were based on the International Financial Reporting Standards, adopted this year.
Wireless data sales gained 40 percent from a year earlier as users of Internet-connected mobile devices increased, while sales of Web TV services that allow viewers to stream programs surged 83 percent, KT said. The company faces challenges arising from possible new government regulations and surging data traffic that may strain its networks, according to analyst Yang Jong In.
“They seem to have controlled costs pretty well,” said Seoul-based Yang of Korea Investment & Securities Co. “On top of competition, important issues now are government policy and how they will use their networks effectively.”
KT rose 0.9 percent to 39,850 won at the 3 p.m. close of trading in Seoul, while the benchmark Kospi Index declined 1.5 percent.
Operating profit, or sales minus the cost of goods sold and administrative expenses, increased 62 percent to 726.3 billion won, the company said. Sales rose 6 percent to 5.3 trillion won.
IPhone
Earnings at the KT Skylife Co. unit, a provider of digital satellite broadcasting services that became a KT affiliate in April last year, contributed to the surge in profit under the new consolidated reporting standard, KT said. More costs related to capital spending were allocated to the 2010 first quarter under the new method, reducing the year-earlier net income, according to the company.
KT had 3.83 million smartphone subscribers at the end of March, surging more than fivefold from a year earlier, the company said. KT still trails SK Telecom Co., which had 5.35 million smartphone customers at the end of the first quarter and reported a 57 percent jump in profit for that three-month period.
Smartphone sales in South Korea surpassed 10 million units as of the end of March, soaring 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.
KT may struggle to match its earlier growth in smartphone subscribers because SK began selling Apple Inc.’s iPhone in March, analysts said. KT previously had the exclusive right to sell the popular device in South Korea.
“If the iPhone 5 comes out, at least half the buyers will go to SK, or more than 60 percent if you look at their market shares,” Ahn said before today’s announcement.
SK did not disclose first-quarter iPhone sales.
Regulations
Earnings may also be damped by the government’s push to cut phone bills as part of efforts to curb inflation. The country’s telecommunications regulator is considering making mobile-phone text messages free, Choi See Joong, chairman of the watchdog, told lawmakers on April 13.
Such a measure is negative for mobile-phone carriers, Kiwoom’s Ahn said in the April 20 report. The regulator’s plan probably won’t happen, 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.
KT is looking overseas for investment opportunities, with a focus on emerging markets such as central America and Africa, after agreeing to sell its 80 percent stake in Russian carrier New Telephone Co. Inc., the company said today.
KT agreed to sell New Telephone to VimpelCom Ltd. for $346 million after buying the then unprofitable Russian company for $22 million in 1997, the South Korean company said.
--Editors: Nicholas Wadhams, 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
