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How 5G Revived Zombie Company and Made One Man $900 Million

Yoojung Lee
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How 5G Revived Zombie Company and Made One Man $900 Million

(Bloomberg) -- For most people, the transition to 5G means faster mobile data speeds, possibly up to 100 times quicker than the current standards. For Kim Duk-yong, it means amassing a fortune worth hundreds of millions of dollars.

When South Korea became the first country to launch nationwide fifth-generation mobile services in April, Kim’s KMW Inc., a supplier of telecom equipment used in 5G networks, was a major beneficiary. Shares of the company surged sevenfold this year, boosting KMW’s market value to about $2.6 billion. The stock rose as much as 3.6% on Tuesday.

Kim, who owns 36% of KMW along with his family, is now worth about $900 million, according to a calculation by the Bloomberg Billionaires Index that excludes shares pledged as collateral. He’s one of the first big winners of the shift to 5G that’s set to spread worldwide.

It’s also a remarkable transformation for a company that had been mired in losses before sales more than doubled in the first half of 2019.

Kim, 62, declined to comment. He told local media in August that some people were beginning to write off his company.

“We were even called a zombie company by banks,” Kim was quoted as saying by ZDNet Korea, a technology news website. “Things have got better with the launch of 5G networks.”

South Korea’s science and technology minister at the time, You Young-min, visited KMW in Hwaseong, a city south of Seoul, last month as part of checks on small and medium enterprises after the start of 5G services. Kim told the minister that demand for KMW’s products had surged, with revenue increasing 113% in the first half of 2019 from a year earlier, according to the ministry’s press release.

KMW makes radio-frequency components for base stations. Its main customers include 5G infrastructure providers such as Samsung Electronics Co. and Nokia Oyj. The company’s ability to mass produce filters, essential for 5G services, at lower costs gives it an edge over competitors, according to a KMW spokesman.

South Korea has seen a rapid expansion of 5G services since April, with the number of subscribers surpassing 2.5 million and more than 89,000 base stations in operation as of last month.

China Prospects

KMW has room to grow outside South Korea as well, according to analysts. In the Chinese market, the government granted 5G licenses to wireless carriers in June. KMW supplies ZTE Corp., the smaller Chinese rival of telecom-gear giant Huawei Technologies Co.

“5G spending by China’s big three operators is much larger than that of South Korea,” said Kim Hong-sik, an analyst at Hana Financial Investment Co. in Seoul who rates the stock a buy. “KMW provides its products to the largest one, China Mobile, through ZTE. Its exports to China are expected to increase further in line with the country’s preparation for 5G.”

KMW also manufactures LED lights, which make up 10% of its revenue, according to its 2018 annual report. In 2015, the New York Yankees chose the company to install lights at its stadium.

The stock surge has pushed up valuations, with KMW now trading at about 18 times book value. Still, all five analysts covering the stock recommend buying more. One risk to the company is how things will unfold in China, including a possible delay in 5G buildup because of a consumption slowdown, according to Wangjin Lee, an analyst at Ebest Investment & Securities Co.

Wary Lenders

It wasn’t Kim’s dream to become an entrepreneur. As an electronic engineering student in Seoul, he wanted to study more to become an academic. But he couldn’t afford to stay in school, so he entered the job market, working at companies including Samsung’s joint venture with Hewlett Packard before starting KMW in 1991.

Kim founded the company with money from selling his apartment, and could only afford to hire one employee. Before this year, KMW incurred losses as Chinese competitors flooded the market with cheaper prices. That prompted banks to become wary of transactions with KMW, Kim told E-daily, a local newspaper, in a May interview.

“I experienced how banks take the umbrella away when it rains,” Kim said. “I’ve been striving to show how a zombie company can survive.”

(Updates with Tuesday’s share move in second paragraph.)

To contact the reporter on this story: Yoojung Lee in Singapore at ylee504@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Tom Redmond, Peter Eichenbaum

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