On Jan 2, 2014, we downgraded our recommendation on
SK Telecom Co Ltd
) to Neutral from Outperform as market saturation continues to
affect the company's wireless business.
Why the Downgrade?
Despite the surging demand for smartphones, the South Korean
mobile market is saturated and SK Telecom is feeling the heat of
it. The Seoul-based company currently carries a Zacks Rank #3
The demand for smartphones and high-speed data services is
growing rapidly, leading to growing requirement for wireless data
services. We believe 3G network, 4G LTE network expansion and the
cloud computing business will fuel SK Telecom's future
SK Telecom unveiled the world's first LTE-Advanced (LTE-A)
network that renders speed of up to 150 Mbps that is twice as
fast as LTE and 10 times swifter than the 3G network. To tap new
customers, the company has kept the price range of LTE-A
connection the same as LTE. We feel that availability of advanced
network at competitive pricing will enhance the popularity of
high quality broadcasting and video content as well as boost the
customer service level.
The South Korean carrier is also aiming to tap the growing
demand for software, platform and service data storage. The
company entered into a new strategic partnership with Birst Inc.
that will allow it to provide market leading business
intelligence (BI) and analysis to various firms across Korea.
The introduction of mobile number portability has resulted in
increased churn rates and stiff competition among wireless
service providers. Competition has led to stagnating sales of the
popular iPhone and Galaxy S smartphones.
Further, SK Telecom's aggressive smartphone rollout plan
includes higher promotional expenses (including the cost of
advertising and handset subsidies), which may impose downside
pressure on the bottom line in the near term. Based on these
negatives we prefer to remain cautious on the stock.
Better-ranked stocks within the same sector are
Hawaiian Telcom Holdco Inc.
Ceragon Network Limited
). HCOM currently has a Zacks Rank #1 (Strong Buy) while CRNT and
KT carry a Zacks Rank #2 (Buy).
CERAGON NETWRKS (CRNT): Free Stock Analysis
HAWAIIAN TELCOM (HCOM): Free Stock Analysis
KT CORP (KT): Free Stock Analysis Report
SK TELECOM CO (SKM): Free Stock Analysis
To read this article on Zacks.com click here.