Pantech sends `SOS,` Samsung Electronics `OKs`

Pantech is expected to break through its struggling smartphone business as it will receive investment from Samsung Electronics.

According to both companies on Wednesday, Samsung Electronics will buy a 10.03 percent stake in Pantech at 53 billion won (47.55 U.S. million dollars) through issuance of new stocks via third party allotment. When the deal is finalized, Samsung Electronics will become Pantech`s third largest shareholder, followed by Qualcomm (11.96 percent) and Korea Development Bank (11.81 percent).

Thanks to Samsung`s investment, Pantech is expected to stabilize its business by securing capital for operation. Samsung Electronics announced that it would not participate in Pantech`s management. The tech giant will just help the struggling company rebound at a time when companies are trying to expand business through acquisition of rivals. Upon this opportunity, Pantech is hoping to get additional investments from its creditors.

Samsung Electronics made the decision after Pantech founder and Vice Chairman Park Byeong-yeop proposed it. Park recently passed the company`s management to Vice President Lee Joon-woo in order to focus on attracting investment from outside.

Park is known to have persuaded Samsung Electronics that Pantech`s revival would also help Samsung. Pantech competes with Samsung Electronics in smartphone device market, but is also a buyer of smartphone chips from Samsung.

"Samsung decided to invest in Pantech that has world top technology, quality and product capability for co-prosperity of Korea`s information and communication technology industry," Park said. "Samsung made the decision to make responsible efforts to enhance national competitiveness."

A Samsung Electronics source said, "If our major supplier Pantech suffers, not only we but also small and mid-sized domestic companies will be adversely affected. We made the decision to protect our suppliers." From Samsung`s major affiliates, Pantech bought its supplies and parts worth 235.3 billion won (211 million dollars) last year and a cumulative 811.6 billion won (728 million dollars) in the past five years.

Some telecommunications sources say Samsung`s decision is to respond to the potential changes in the smartphone market. The rise of low-priced smartphones led by Chinese brands such as Huawei and ZTE may have prompted Samsung Electronics to invest in Pantech to respond to the low-end market while maintaining high-quality brand strategy.

A telecommunications source said, "If Pantech falls behind in Korea`s mobile phone market, the market will more lean toward Samsung. Samsung` latest decision will bring sound competition landscape in the domestic mobile phone market and enable Samsung to strengthen overseas markets."