Economy Outlook 2007
Economy Outlook 2007
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  • 승인 2006.12.01 12:01
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Government Policy

New Plans for New Year in IT Ministries

Next year's budget for information industry amounts to about US$3.45 billion, which will be a little higher than this year. On November 20, the Ministry of Planning and Budget said: "According to the business plan for the information industry for 2007 prepared by the Korean government ministries, the total budget for information industry in 2007 has increased by 1.3%, compared to this year's budget.

For 2007, the investment in strengthening IT [Information Technology] industry has been reduced a little, but more emphasis has been placed upon the e-government project and information-intensive project for people's life." It is noteworthy that for the realization of e-government the second computer center is to be built in Gwangju, and the electronic voting system development is scheduled in the information-intensive project for people's life. Also, the budget to reduce the dysfunction of the information industry has been increased by 3.1% to about US$97.8 million. An official of the Ministry of Planning and Budget said: "While stressing the importance of information protection, the 51 government organizations have increased their investment in information protectionrelated projects, thus reaching about US$100 million for the first time in history."

Second computer center is government's key business plan

The business plan for information industry for 2007 of eight government ministries -- the Ministry of Planning and Budget, Ministry of Education and Human Resources Development, Ministry of Unification, Ministry of Government Administration and Home Affairs, Ministry of Culture and Tourism, Ministry of Commerce, Industry and Energy, Ministry of Information and Communication, and Ministry of Health and Welfare -- has been disclosed on November 21.

The most salient projects in the information industry business plan for 2007 are: the establishment of a second computer center, the expansion of an archive management system, the expansion of open software introduction, the expansion of information protection budget, and the establishment of information technology architecture. Of key concern is the second center for integrated computer systems to be built in Gwangju in June next year following the first computer center in Daejeon. The completion of this computer center will bring hardware transfer and integrated operation to the 48 government organizations, consequently contributing to saving the budget and raising the stability in system operation.

Now let's see the major business plans for information industry of each ministry. First, the Ministry of Education and Human Resources Development -- the implementation direction of education information industry focuses on the following: knowledge creation and strengthening the learning ability of the people, laying the foundation for a ubiquitous learning environment, plan to become a global leader in the education information, and taking measures to bridge the information gap. Noticeably, the majority part of the budget for 2007 goes to the establishment of an e-learning system. Secondly, the Ministry of Unification -- until now the ministry has performed the first stage of its information industry, mainly putting emphasis on building the information system for major businesses.

But for 2007, it plans to perform the second stage of information industry, centering on the establishment of a cooperative information system within the ministry and between related government organizations. Thirdly, in the case of the Ministry of Government Administration and Home Affairs, in 2003 it had selected the implementation tasks for the establishment of e-government, and in the year of 2004 and 2005, it had focused on its system construction, followed by this year's efforts to integrate the systems. For 2007, it targets the realization of integrated services.

Following its incessant efforts to lay the foundation of industrial information and follow-up expansion plan, the Ministry of Commerce, Industry and Energy has defined the period from 2006 to 2010 as a maturity stage. For this year, it has decided to put main emphasis on the following five projects: administration information for intellectual property, comprehensive service for foreigners, digitalization of production processes, etrade service, and informatization for small and medium business.

In the case of the Ministry of Information and Communication, the budget for information industry for 2007 has increased by 7% to about US$193 million compared to the year of 2006. The main portion of the budget goes to postal services and postal administration. Lastly, the Ministry of Health and Welfare: the major part of the budget goes to health and medicine, followed by social welfare, social insurance, and administration information. The size of budget has increased by 151% compared to the previous year.

Major Carrier Investment

Telecommunication Companies Reduce Facility Investment

KT, SK Telecom, and KTF have made a record-breaking huge investment in Wibro and 3.5-generation High Speed Downlink Packet Access (HSDPA). Nearly half of their target investment has been made this year. It is therefore natural that their investment will decline next year. For example, KT has made a plan to invest about US$1 billion in Wibro until 2010, but this year alone it has made an investment of US$500 million, half of its total target investment. In 2007, the company plans to put more emphasis on expanding its coverage to other areas outside of the Seoul metropolitan area. For the time being it will try to expand the number of subscribers and intensify marketing activities. Due to the severe competition of the Internet market, cable communication companies are likely to make investments on an ongoing basis. The reason is that LG Powercom's aggressive entry into the market has proved that speed has a direct impact on the number of subscribers. KT and Hanaro Telecom are expected to make an equal investment in the Fiber to the Home (FTTH) and optical LANs as they did this year. In the case of next generation services including IPTV, however, further investment will be delayed due to pending regulations.

Investment for 2007 depends on KT and LG Telecom

The investment scale of both KT and LG Telecom has significant influences on the total investment of telecommunication companies for 2007. Earlier this year, KT President Nam Joong-soo announced that KT will make an investment of US$3 billion in 2006. He had not changed the scale of this investment at the third quarter conference call for 2006. Security analysts and device providers estimate that KT's investment will stand at US$2.6 to 2.7 billion at the end of this year.

Meanwhile, the telecommunication industry thinks that the government is not showing a positive policy direction to induce investment for 2007. Also, IT 839 policies and third generation mobile communication policies are not suggesting a clear vision to the major telecommunication companies. The service convergence of IPTV, which is critical to the cable companies, is also giving no signal, thus making it difficult to make a decision on investment for 2007. However, an official from the Ministry of Information and Communication said: "It is right that the government turns to market-friendly regulations and that the industry circles make a market-oriented decision on future investment autonomously. This direction will lead to a solid investment."

Common Carrier Investment in Telecom Industry Hits Milestone

The nation's major common carrier investments in the communication industry are expected to reach around 7 trillion won (US$7.47 billion), market analysts said. KT's investment for next year will be focused on WiBro, introduction of an advanced subscribers' network, and expansion of its broadband convergence network (BcN).

Its investment in the WiBro project, which amounted to 500 billion won (US$533 million) in 2006, will be centered on expanding the WiBro service next year. KT will invest some 1.6 trillion won (US$1.71 billion) for introduction of an advanced subscribers' network next year, they said.

SK Telecom plans to curb its facility investment for next year to below 1.6 trillion won (US$1.71 billion) as its nationwide network of WCDMA and HSDPA will be completed before the first half of next year.

It projects to invest 100 billion won (US$107 million) in new communication service projects next year and focus its efforts on creating a new growth engine, a company spokesman said.

KTF is planning to make facility investments amounting to 1 trillion won (US$1.07 billion) next year, a slight drop from 1.2 trillion won (US$1.28 billion) for 2006. Meanwhile, LG Telecom plans to invest about 400 billion won (US$428 million), similar to this year.


Next Year is Digital Year

Recently the Korea Electronics Association ( has made a survey of domestic electronics industry through a questionnaire and the business outlook for 2007 of the major market survey institutions. According to the survey, the exports of the domestic electronics industry is expected to reach US$133 billion, an increase of 15.5% over the previous year; the production is expected to stand at about US$231 billion, an increase of 4.8% compared to the previous year; the imports are expected to be US$67.5 billion, an increase of 9.5% over the year of 2006, and the domestic demand is forecast to stand at about US$162 billion, a 3.5% increase over this year.

In particular, 85.3% of the respondents in the questionnaire have given a positive answer that the export for 2007 is expected to show a favorable trend, and that 81.2% and 76.4% of the respondents forecast a favorable trend of both production and domestic demand respectively. The main factors of favorable export are supposed to be the demand expansion of existing markets (35.0%), followed by the expansion of overseas demand and exploration of new markets (17.5%) and advancement of technology competitiveness (7.5%). With regard to the facility investment, 82.5% of the respondents have forecast the expansion of facility investment and mainly pointed out the following reasons for that: in order to strengthen the market domination (48.1%), for an early investment to preoccupy the favorable position of a promising item (22.2%), and in an effort to reduce the labor costs through production automation.

Double digit increase of exports is possible

Woo Seung-je, group chief of R&D Center of Korea Electronics Association, said: "As the overseas market demand on electronics parts including semiconductors and LCD is increasing on a continual basis, the double digit increase of exports in the digital electronics is possible. And the digital electronics are to take the lead in the domestic industries." By sector, semiconductors are expected to show a high growth of 13% in 2007, while mobile phones are expected to depend on the demand-creating ability of new technologies including DMB. In the case of digital home appliances, the products of high function and value add are expected to expand their market shares.

Economic Growth

Economic Growth Will Likely Slow to 4%

Korea's economic growth is seen to slow further in the first half of next year owing to weaker exports and sluggish domestic demand, with the GDP growth rate falling to below 3.5 percent, LG Economic Research Institute said. The institute expects the 2007 full-year growth rate to reach 4.0 percent, the lowest growth projection among private and staterun economic institutes.

It compares with a 4.3 percent growth predicted by the state-run Korea Development Institute.

Accordingly, the central bank needs to ease its monetary policy to achieve a softlanding of the economic growth, it said. The downturn of the economy will be mainly caused by weaker exports, it said. The expected fall in global demand for Korea's key export items will pull the export growth rate down to 8.7 percent from the 14 percent projected for this year.

However, the economy is likely to see a pick-up in the latter part of next year thanks to the economic recovery of developed nations and the turnaround of the worlds' information and technology industry. It also forecast that private consumption growth would reach 3.6 percent next year. The Korean won will continue to be strong next year, but expanding current account and geopolitical risks will check the pace of gains in the value of the won, with the average won-dollar rate hovering

Mobile Phone Market

Global Mobile Phone Companies Create Stiff Competition

Global mobile phone makers, including Samsung Electronics and LG Electronics, are expected to stage stiff competition in the music phone market next year. As the mobile music service is rapidly spreading in Europe and North America, global demand for music phones is increasing sharply, market analysts said. Alarmed by Sony Ericsson's favorable performance in the high-priced music phone market with its Walkman phone series, Samsung Electronics, LG Electronics, Nokia and Motorola are seeking proper countermeasures.

Nokia, which took over the digital music supplier LoudEye, is making preparations for providing a music service. Sony Ericsson is also pushing ahead with offering the online music service M-Buzz. In addition, Apple is poised to advance into the mobile phone market with the introduction of iPhone.

Encouraged by strong demands for replacement of mobile phones in the United States and Europe, the shipments of mobile phones in the world are expected to surpass 1.1 billion units next year for the first time, they said. In 2005, the figure stood at 815 million units. In particular, global competition is expected to be fiercer in the high-priced phone market than in the low-priced phone market next year.

This year's growth was led by lowpriced mobile phones, but high-end terminals are likely to lead the handset market next year, chiefly led by North America and Europe, they said.


Samsung Sees Strong Demand for Memory Chips Next Year

Business recovering from sluggish first half The global demand for computer memory chips is expected to increase sharply next year, Chu Woo-sik, senior vice president of investor relations of Samsung Electronics said.

At the Samsung Tech Forum 2006 held at Singapore Oriental Hotel on November 13, Chu said: "As the supply of various digital equipment will increase sharply next year, the demand for computer memory chips will also rise remarkably. Accordingly, Samsung will place its focus on keeping differentiated technology competitiveness."

Another reason behind the anticipated strong demand for memory chips is the much-awaited launch of Microsoft's new operating system, Vista, in January, he said.

Chu also said that Samsung expects mobile phone sales in the first quarter of 2007 to be greater than the fourth quarter of 2006.

He said: "Our dynamic random access memory chip (DRAM) orders for the first quarter of next year are very strong, considering the seasonality aspect."

Samsung, the world's third largest handset maker after Nokia and Motorola, sold a record 30.7 million phones in the third quarter and had forecast another handset sales record for the fourth quarter. Chu said: "However, the handset profit margin in the fourth quarter would fall from the third quarter due to marketing costs. Samsung's handset division posted profit margin of 11 percent in the third quarter against 9.5 percent in the second quarter."

Samsung's mobile phone business is recovering from the sluggishness in the first half, during which it was hurt by the runaway success of Motorola's clamshell RAZR phone, with the success of a new series of ultra-sleek phones launched over the summer.

He said demand and prices for DRAM chips, used mostly in personal computers, were strong in the fourth quarter and saw the market for NAND memory chips, popular in digital cameras, stabilizing as well. In general, chip and PC makers have been eagerly awaiting the release of Microsoft's Vista operating system as consumers have been delaying the purchase of new PCs for the same reason.

Microsoft recently said Vista would be available to retail customers on January 30. The announcement dispelled worries the software giant would delay it again. Samsung, the world's top memory chip maker and the biggest maker of large liquid crystal display panels so far this year, also sees strength across business lines in the fourth quarter.

Chu said: "The fourth quarter is moving along just great. Samsung had significant recovery in the third quarter, and sees further significant improvement in the fourth quarter, affected by strength across the board from the memory business to handsets, digital media and LCD."

Aimed at the broadband convergence network (BcN)-based ubiquitous environment in 2010, Samsung Electronics also decided to actively foster the next-generation telematics service and ubiquitous sensor network business, he said.

"To this end, Samsung will exert all-out efforts to secure core technologies, including future-oriented portable terminal technology, SW platform, radio frequency [RF] connection technology, mobile system on chip [SoC] and next-generation chips," said Chu.

Revealing Samsung's road map for advanced technology to a slew of global investors and analysts attended at the forum, Chu said that Samsung expects the advent of intelligent home, terminal and agent environment around 2010.

"To continuously lead the world's mobile terminal market, Samsung has decided to develop such advanced technologies as future-oriented terminal, SW platform, multimedia and RF connection technology, mobile SoC, multi chip package [MCP], system in package [SIP], multi chip module [MCM] and high density PCB," he said.

In 2010, Samsung will explore new markets through the development of the next-generation telematics service combining mobile communication and location based service (LBS) and the USN business based on various sensor technologies, he added.

Increasing R&D Investment in Home Appliances

The two global companies -- Samsung Electronics and LG Electronics -- continue to increase their R&D investment in such home appliances as refrigerators, air-conditioners, and washing machines. For 2007, the two companies' R&D investment is expected to reach about US$830 million, up 16% over this year's estimated US$710 million. In order to target the global market with premium products and to keep up with consumer trends, earlier development of product designs has become a critical factor. LG Electronics invests US$540 million, about 5% of its total sales, in the R&D and design for home appliances, and plans to increase its investment by 20% to US$650 million for 2007. An official of LG Electronics said: "In particular, the top rate designers from three countries -- Korea, Italy, and the US -- have jointly participated in the development of Art DIOS, which had required an investment of more than US$30 million. To go ahead of other rival companies, we don't hesitate in pouring enough money to develop a premium product. For this reason, next year our investment is expected to increase at least 10% over the previous year."

Samsung Electronics is expected to make an investment of US$230 million in the R&D for home appliances. Over the years, the company has increased its R&D investment by US$10 million a year, and this year it has made an investment of US$220 million, 6% of its domestic sales, in the R&D of home appliances. An official of this company said: "In an effort to develop a new product and new technology, it is inevitable to increase an investment in R&D for home appliances, and so we are steadily investing at least 6% of domestic sales in the R&D of this field."

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