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(Nikkei BP Group)

(No.1 High-Tech News Site in Japanese)

  • [Industry Forecast ’99] Recovery Expected in Korea’s IT Industry
  • January 5, 1999 (SEOUL) — Korea’s IT industry experienced a year of turbulence in 1998, and hopes are high that 1999 will be a year in which the country’s economy makes a strong comeback.
    The 1998 results are mixed for Korean IT companies. Internet and mobile communications companies boomed. However, deep slumps were seen in personal computers, semiconductors and other electronics products. The performance gap is expected to narrow in 1999 as domestic and worldwide demand for Korean IT and electronic products begins to recover.


    Korea’s online service market continued to expand in 1998 with leading online service companies reporting double-digit growth in sales and number of subscribers. More than 5 million Koreans subscribe to online services. And more than 2 million of them are using the Internet, an increase in excess of 200 percent from a year ago and the trend is expected to accelerate in 1999.

    Interest in commercial opportunities on the Internet is growing as well, fueled by an expansion of electronic commerce in Korea. EC infrastructure laws will be implemented in 1999.


    Korea’s PC industry, which was hurt by the country’s economic crisis in 1998, will likely pick up steam. The domestic PC market collapsed and exports tumbled in 1998. But the Korea Institute for Industrial Economics and Trade (KIET) projects 18.6 percent growth in domestic PC sales in dollar terms and 15.6 percent growth in overseas sales in 1999.

    Low-priced machines with many multimedia features will lead the industry’s recovery with sales to the U.S. and European markets projected to expand sharply. Notebook and handheld models will comprise other growth markets.

    Mobile Communications

    The mobile communications market was a bright spot in the midst of Korea’s worst recession. As of November 1998, 13.5 million Koreans subscribed to mobile phone services, compared with about 5 million at the end of last year, according to the Ministry of Information and Communication (MIC). About 6 million people subscribe to digital PCS (personal communications service), which started from October 1997.

    The MIC estimated that domestic sales of wireless services increased 41 percent year-on-year to 7.3 trillion won (US$6 billion) in 1998, surpassing those of fixed-line services for the first time. In 1999, the MIC projects 39 percent growth.


    Korea’s semiconductor industry appears to have improved prospects, with a moderate recovery in DRAM prices forecast for 1999. Exports, which account for more than 90 percent of Korean microchip output, will increase 12.7 percent year-on-year in 1999, compared with a drop of 3.9 percent in 1998, according to the KIET’s projections.

    “The semiconductor industry is on an upward curve following the worldwide demand cycle, but structural excess capacity is likely to result in a supply glut again in 1999,” said Joo Dae-young, a DRAM industry analyst at the KIET.

    The rest of the electronics sector will stage a moderate rebound in 1999, following steep drops in output and sales in 1998. Growing demand for digital appliances such as digital TVs in advanced countries and the trend of a stronger yen will likely help increase Korean exports in this area.

    Industry Consolidation/Foreign Investment

    Major events are in store for Korea’s IT industry in 1999.

    Two DRAM giants, Hyundai Electronics Industries Co. and LG Semicon Co., are set to merge to create one of the world’s largest semiconductor companies. Also, Samsung Electronics Co., Ltd., the world’s biggest DRAM producer, will absorb Daewoo Electronics Co., which makes products ranging from consumer electronics to TV set-top boxes.

    Foreign investments in Korean IT companies that began to grow in 1998 will likely increase, which will further alter Korea’s industry landscape. Samsung, LG and other conglomerates, which are under increasing reform pressures at home and abroad, will finally open their doors to foreign investors.

    In 1999, foreign investment limits on large telecom companies including Korea Telecom are expected to disappear. Japanese IT companies, which have been shut out of the Korean market for the past two decades, will be allowed to set up local units, as Korea’s import restriction program targeting specific Japanese products, like mobile phones, will be abolished by July 1999.

    Analysts believe that the long-term success of Korean IT companies requires sound financial structures.

    “The companies previously borrowed billions of dollars to invest in the industry when everybody was investing, yet they know this simply does not work and they will have to figure out how to build profitable operations,” said Park Jung-su, a KIET telecom analyst. “Foreign investment is only part of the solution to their problems.”

    (James Lim, Asia BizTech Correspondent)

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