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SK Telecom's Quarterly Profit Unexpectedly Rises (Update3)

April 29 (Bloomberg) -- SK Telecom Co., South Korea's largest mobile-phone operator, reported an unexpected gain in first-quarter profit as revenue for online services such as games and music surged.

Net income rose to 453 billion won ($388 million) from 449 billion won a year earlier, according to a regulatory filing. Wireless Internet revenue surged 48 percent, outpacing a 7 percent overall gain in sales.

The Seoul-based company needs to increase earnings through higher phone usage because seven of 10 Koreans already own a handset, according to investors such as Park Hyung Ryul. SK Telecom is also losing market share to KT Freetel Corp. and LG Telecom Ltd. after the government made it easier for people to switch phone company.

``The key for earnings now is how much will they be able to raise sales from wireless Internet services,'' said Park, who helps manage 1.2 trillion won at KTB Asset Management Co. in Seoul. Park may buy more SK Telecom shares, he said.

The stock, which earlier traded as much as 2.8 percent lower, rose to 196,000 won, up 0.3 percent on the Korea Stock Exchange as of 2:08 p.m., after the earnings were released. Net income was more than the 403 billion won median estimate of eight analysts surveyed by Bloomberg News.

Higher Marketing Costs

SK Telecom says South Korea has the world's fastest mobile data services, allowing Koreans to download games including Tetris and ring tones such as the latest Christina Aguilera songs at speeds of up to 2.4 megabytes per second using Qualcomm Inc.- licensed technology. That's more than 40 times the speed via a computer-modem connection or phone line.

Sales gained to 2.4 trillion won from 2.2 trillion won a year earlier, in line with analysts' expectations. Wireless Internet sales jumped 48 percent to 392 billion won. SK Telecom has said it plans to spend 18 percent of revenue this year on marketing, up from 16.6 percent in 2003.

Rising competition that's boosting marketing expenses prompted Chief Executive Kim Shin Bae to say on March 23 he doesn't expect this year's earnings to meet last year's.

SK's figures are ``the first sign that the company will have difficulty in meeting even last year's numbers,'' said Steve Yoo, an analyst at Nomura Asian Equity Research in Hong Kong.

Operating profit fell 8 percent from a year earlier to 691 billion won, beating the 671 billion won expected by the survey of analysts. Operating profit fell after marketing costs rose 34 percent to 478 billion won, according to a company statement.

``A drop in operating profit was pretty much expected,'' said Kim Jae Ho, who helps manage the equivalent of $257 million at Seoul Investment Trust Management Co. ``It had to spend more money to keep its customers from competitors after the government allowed number portability.''

Market Share

SK Telecom lost market share to its rivals for a third month in March after the government, aiming to loosen the company's grip on the market, allowed SK subscribers to switch services without having to change numbers. The change prompted networks to offer discounts and add sales staff to win users and stem defections.

SK Telecom's market share fell to 52.7 percent at the end of last month, its lowest level since February 2001, from 53.3 percent the previous month.

``The telecommunication industry isn't an industry with higher sales growth anymore because the market has saturated,'' said Seoul Investment's Kim, who's sold some SK Telecom shares since last year.



To contact the reporter on this story:
Young-Sam Cho in Seoul
at [e-mail]

To contact the editor on this story:
Charles Bickers in Tokyo
at [e-mail]
Last Updated: April 29, 2004 02:30 EDT

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