Big Corporations Stalling on New Plans
By Kim Yoo-chul
Staff Reporter
Reflecting increasing uncertainty in the global economy, big corporations, the primary engine of Korea Inc., are delaying the formulation of their business plans for next year.
At this time of the year, conglomerates usually flesh out their export targets, profit goals, investment scale and other key components of their plans. But now, they say that things are put on hold, not knowing what to expect next year.
"We are in a holding pattern of sorts," a Samsung Electronics spokesman said, Wednesday. "One thing for sure is we are building up a cash reserve for a rainy day." In other years, the electronics giant finalizes its next year's plan during the first week of November.
Samsung, the world's biggest memory chipmaker, recently dropped its $6 billion offer to buy U.S.-based flash card memory producer SanDisk. The move is believed to reflect the group's "cash buildup plan."
To cope with declining demand for flat-screen TVs and rising inventories, the world's top liquid flat-screen maker has cut its LCD output by 5 percent since August.
"We are taking things on a short-term basis for the time being, considering all key economic indicators ― currency, oil prices and interest rates ― are in flux," a Samsung insider said. Samsung forecasts the won-dollar rate will move down to the 1,040 range.
Critical Situation for LG
The situation is more critical and urgent for LG Electronics.
Although Chairman Koo Bon-moo said its 2009 capital spending would be comparable to this year's 11.5 trillion won, LG Electronics and LG Display, the group's top guns, are already feeling the impact on their bottom lines from the slumping global economy.
LG recently terminated talks with Conergy AG for a joint venture. The German firm manufactures and sells renewable energy systems and components. Analysts and LG insiders say the case reflects LG changing its business strategy, opting for cash reserves over expansion.
LG's new "low-end" mobile phone strategy is not promising for the time being, considering its brand image, fewer models and weaker distribution and sales outlets, analysts say.
In line with the bleak outlook, LG Display will lower its investment to 2.5 trillion won in 2009. LG is the second-biggest LCD panel maker after Samsung.
Shipping, steel and airline companies are also delaying next year's budget plans.
"Next year is highly crucial for us to realize 40 million tons in production with heavy investments in related facilities. But we are still trying to fix the budget," a POSCO spokesman said.
As the plunging Baltic Dry Index (BDI) ― a key indicator measuring shipping costs for commodities ― is weighing upon domestic shippers, they are planning to maintain "flexibility" in their operation of container ships and bulk carriers.
"The bearish moves of the index were due to a freeze in financial markets in response to the global credit crunch," said an STX Pan Ocean official, adding most leading shippers are in the process of setting up next year's plan keeping a "conservative" stance.