By Kim Yoo-chul
Major Korean exporters are nervous after the downgrade of the United States credit rating by Standard & Poor’s (S&P) has stoked fears that the world’s biggest consumer market is falling back into recession.
More seriously, the continued debt-crisis in Europe, which is another critical area for almost all Korean exporters, has been forcing them to immediately apply contingency plans to secure their bottom lines.
``The downgrade and threats of subsequent moves by S&P and other credit rating agencies has raised uncertainty about the credibility of the United States in the global economy because consumers and investors worry about another recession,’’ said a high-ranking Samsung executive, Tuesday,
Consumer sentiment for goods such as cars, electronic devices as well as business-to-business (B2B) products could slow, proving the biggest blow to Koreans.
Revenue for most of South Korean exporters usually peaks in the latter half of a year because consumers buy new consumer goods or upgrade thanks to good price offerings from manufacturers to lower inventories and prepare for a new year.
``We call it a seasonal factor. But the sequential factor was evaporating. The one clear thing is that it’s not obvious how long this economic turmoil will persist,’’ said the executive.
The United States accounted for 42 percent of the entire exports in the first half of this year, government data showed.
``Korean handset makers will face fierce price competition from their rivals and cooling consumer sentiment will have a negative impact on Hyundai-Kia Motors’ exports in advanced markets,’’ said Je Hyun-jeong, a senior economist at the Korea International Trade Association (KITA).
Korean exporters are ruling out the possibility that the U.S. economy will fall into a “double-dip recession,” however, they said higher currency volatilities against the greenback and euro may hurt the financial soundness of the companies.
Currency is another key factor to gauge the profitability of Korean exporters because a strengthening Korean won against the dollar makes Korean exporters lose price competiveness against their bigger Japanese rivals in developed markets.
Samsung Electronics, the world’s biggest technology firm by revenue, is being challenged to pass last year’s revenue and profit of 154.6 trillion won and 17.3 trillion won respectively.
For last year, Samsung earned more than 60 percent of its revenue from North America and Europe, according to the firm.
Samsung Electronics spokesman Lee Seung-joon said the Suwon, Gyeonggi Province-based heavyweight wasn’t considering lowering this year’s revenue and profit targets for the time being despite such deepening macroeconomic woes.
``Samsung Electronics’ smartphone business is expected to steadily rise in the latter half of this year, however, the profitability of the memory chip division, where it leads the global industry, will decrease because of expected slower demand of its chip-embedded devices,’’ said Song Jong-ho, an analyst at Daewoo Securities, a leading local brokerage.
Samsung’s average dollar-won currency rate in the second half is now 1,040, revised from an earlier 1,100, according to company officials. A gain of 10 won against the dollar will cost the electronics giant 300 billion won annually.
``We are closely monitoring the situation as technology industries are highly susceptible to macroeconomic moves,’’ said Lee.
Samsung’s cross-town rival LG Electronics said it’s too early to revise down this year’s revenue target of 59 trillion won, but senior LG spokesman Yoon Won-il said it’s been paying more attention to moves for economic indices as the data is affecting LG’s inventories and financial expenses.
LG Electronics also predicted that the dollar-won range will remain between 1,040 won and 1,050 won from its early prediction of 1,080.
LG Electronics has cut its TV sales target by 20 percent to 32 million sets as it’s highly unlikely the TV demand will pick up in the remainder of the year.
The nation’s leading carmaker Hyundai-Kia was worrying that a sustained drop in share prices would have a negative impact on wealth, and likely negatively affect both consumers and businesses.
Consumer spending accounts for about 70 percent of U.S. economic activity but it barely grew in the second quarter.
``We are not ruling out the possibility that the global economy may enter into another recession, hitting us because cars are very sensitive to economic moves,’’ said a Hyundai-Kia official.
For the first six months of this year, South Korea exported $4.35 billion worth of cars to the United States, a jump by 41 percent from a year earlier and cars took up 15 percent of Korea’s entire export portion, data from the trade ministry said.
Hyundai-Kia, which sold 568,000 vehicles during the first half of this year, plans to put more focus on selling value-added cars through aggressive promotion.
Unlike business-to-consumer (B2C) sectors, B2B businesses such as petrochemicals and oil industries are foreseeing that the impact of the economic turmoil will be limited.
``Oil refiners’ strategic market is Asia not in North America and Europe and meanwhile a drop in oil prices is helpful in terms of the price decline in petrochemical-related materials,’’ said Song Choong-sup, a spokesman for LG Chem.
But the Korean exporters won’t suffer from liquidity-related problems as cash-equivalent assets have been boosted thanks to inspiring performances in 2009 and 2010.
SK Telecom, which is looking at buying the world’s second-biggest memory chipmaker Hynix Semiconductor, plans to use its internal cash to minimize the effects of external factors, said SK Telecom spokeswoman Kim Ji-won.
STX Group, which has been involved in an intense battle with SK to acquire the controlling 15.1 percent stake of Hynix, is mulling the possibility of scrapping its bid for the chipmaker as its plan to sell non-core assets for the acquisition money is heading south amid the external struggles.
Unlike SK Telecom, STX said it would form a partnership with a Middle East fund and pledged to raise cash by selling its unprofitable affiliates.
``The situation is not favorable. We need to go back to basics for our financial soundness,’’ said an STX official. Lee Sung-hee, an STX spokesman, declined to confirm whether it will scrap its bold bid for Hynix.