Starting March 16, South Korean wireless kingpin SK Telecom (SKM) will offer Apple Inc.’s (AAPL) iPhone 4. This will mark an end to the exclusivity enjoyed by its major rival, KT Corp. (KT) since late 2009.
This move will allow SK Telecom to make up for lost revenues and profits as the anticipated strong adoption of smartphones will boost its growth in the wireless market. Smartphones are gaining popularity by the day, in turn driving demand for wireless data.
SK Telecom is pursuing various business opportunities in advanced technology given limited growth prospects in the highly matured domestic wireless market. The company continues to invest in new areas of growth such as wireless Wi-Finetworks and data femtocell, 3G network expansion, introduction of 4G Long Term Evolution (LTE) network, smartphone service and mobile software business. These are expected to boost long-term growth for the company.
SK Telecom is expected to increase Wi-Fi zones to 62,000 by deploying 45,000 more Wi-Fi zones by the end of 2011, as well as expand the 1,000 femtocells deployed last year to 10,000 femtocells. The company will offer data modems for the first time in Korea in July 2011 and plans to roll out commercial LTE services in Seoul in the third quarter of 2011. The launch of diverse LTE devices including smartphones and tablet PCs is also underway. These efforts should augur well for wireless revenue growth in the upcoming quarters.
Moreover, telecom carriers in Korea are very enthusiastic about entering the cloud computing market in an attempt to tap the growing demand for software, platform and data storage in service. SK Telecom is set to spearhead this market though its differentiated cloud services as well as customized and specialized solutions.
While the company’s aggressive smartphone strategy will open up opportunities in wireless data, associated promotional expenses and heavy handset subsidies may drag its earnings in the near future. Hence, we are currently maintaining our long-term Neutral recommendation on SK Telecom.
Despite being the leader in the domestic wireless market, SK Telecom is facing greater challenges in retaining its market position. We remain cautious on tariff reductions, which are hurting revenues, intense competition and austere regulation by the Korean ministry. Hence, for the short term (1–3 months), Zacks recommends a Sell rating with a Zacks #4 Rank.
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