New Manufacturer From South Korea Competes For Smartphone Supply Contracts

by Trey Miller
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Submitted by Trey Miller as part of our contributors program.

Sollensys is an innovative technology and manufacturing company originating from South Korea, trying to export not only products but know-how. It has the potential to do in the touch panel industry what Gangnam Style song did in the Hip-Hop area: becoming a global hit overnight.

Despite having one of the most industrialized economies and one of the highest levels of prosperity in Asia, many consider South Korea economically inferior to two of its larger neighbors and rivals, China and Japan.

Even starving and authoritarian North Korea is more often in the spotlight. For example, North Korea made top-line news as recently as this January when a former governor of New Mexico and a prominent Democrat, Bill Richardson, and Eric Schmidt, executive chairman of Google (NASDAQ: GOOG), visited this communist stronghold to argue for greater freedom of information, more openness, and higher acceptance of internet communications.

According to sources, internet connection in North Korea is highly regulated and anyone who wants to have an internet connection, except the government, needs a special authorization. The majority of the population is limited to using the domestic-only network known as Kwangmyong. South Korea, on the other hand, has one of the highest internet penetration rates and speeds in the world.

While CNN and The Washington Post are a lot more interested in the daily drama from North Korea, investors and Wall Street have payed a close eye on South Korea’s remarkable economic progress for decades. Due to its dedication to free economy and hard work, South Korea’s economy recently ranked 15th in the world by Gross Domestic Product (nominal GDP), ahead of that of Switzerland and Saudi Arabia. Also, the country is a member of the G-20 major economies, is one of the Asian Tigers (Hong Kong, Singapore, and Taiwan are the other three tigers), and is part of the Organization for Economic Cooperation and Development.

Importantly, South Korea is designated as a member of the Next Eleven (N-11) or economies that are expected to become some of the largest in the 21st century. Factors used to determine the N-11 group include macroeconomic stability, political maturity, and openness of investment and trade, and educational quality.

In the near term, LG Economic Research Institution, a private think tank, estimates that the Korean economy grew 2.2% in 2012 and expects this growth rate to jump to 3.4% this year boosted by higher domestic investment in facilities and demand from China and the United States.

In addition, many analysts and policy makers expect exports from Korea to rebound in 2013 after declining by an estimated 1.3 in 2012 from the year before. While the economic recovery will be constrained, in January of 2013 exports were up 11.8% compared to January of last year.

These estimates, while not outstanding, are positive given the slow-down in Europe and the low growth rate many economists predict in 2013 for the U.S.

South Korea’s Economic Wonder

During the past hundred years Korea’s society, which traditionally relies on order and harmony, has undergone through a number of dramatic changes.

From 1910 until its liberation by Allied forces at the end of World War II, Korea was under Japanese dictatorship. Following democratic ellection in 1948, Republic of Korea was born. However, the North Korean government, installed by communist Russia, invaded the South. What ensued is known as the Korean War and lasted until 1953. A piece treaty was never signed and even today, hostilities in the demilitarized zone set up between the north and the south are not rare.

While tension between North Korea and South Korea remains, Korea has been able to transform itself into a modern free economy and democratic society.

Fast forward to today and the country is ruled by Park Geun-hye who was elected president in December of 2012. Geun-hye is the eleventh president of the country but the first female one. She is the daughter of Park Chung-hee, who was South Korea’s president from 1963 through 1979. She is one of the most influential politicians in Korea after the Kim political dynasty, who held the president’s post from 1993 to 2003.

Park Geun-hye is what South Korea needs in of world economic instability. She is one of the most conservative and market oriented political leaders in the country and as a president she could have the ability to implement her policies. These policies include promotion of trade and economic growth, less regulation and welfare equality.

In terms of GDP per capita, South Korea economy is quickly rising in the ranks. In 2003, the country’s GDP per capita, according to the International Monetary Fund was $13,451 and is expected to climb to $26,189 and $31,825 in 2013 and 2017. While the consumers in the developing world are losing purchasing power or the growth in their purchasing power is slowing almost to a halt, the Korean consumer is enjoying a rising spending power.

While consumer confidence in Korea has been negatively affected by the recent financial and economic crises, unemployment rate in South Korea stands at 3.4%, compared to about 8% in the U.S. and double-digits in many European countries.

Political changes in South Korea coupled with an economic recovery now expected for the second half of 2013 could mean more positive news for the Korean GDP per capita and the consumer there.

Since the 1960s Korea has rightfully been named as one of the Asian Tigers. Following years of Japanese dictatorships and regional wars, Korea has been able to adopt free economic system and become one of the most economically successful countries in Asia.

This economic wonder should not come as a surprise as the business climate in Korea’s has been accommodating to economic growth and modern industrial development. Chaebols lie in the heart of this economic success as well as some failures.

Chaebols are conglomerates controlled by a chairman and members of his family. The large size of the chaebol allows for easier access to low interest loans while the relatively small number of chaebols makes it easy for the chaebols to make favors to each other and the government.

A number of large chaebols collapsed during and after the Asian crisis of 1997. These chaebols were highly leveraged and dependent on exports. More recently, chaebols have been criticized for exerting monopolistic power and reducing competition and interfering with the free market.

Park Geun-hye has not openly criticized the chaebols but she and her political partners would like to see a more democratic and open economy with less regulatory burden and barriers to entry. In addition, the new president favors entrepreneurship and diversifying away from an export-dependent country as a way to keep the economy healthy and growing.

Sollensys: An Example of Korea’s Ingenuity

Sollensys Korea was established in May of 2010 in the city of Gwangju, South Korea. Sollensys Corp. (OTCQB: SOLS), a shell company in the U.S., entered into a share acquisition agreement on Sept. 30, 2012 to acquire Sollensys Corporation (Sollensys Korea) for $2 million in stock.

Prior to the acquisition, the entity “Sollensys Corp.” had no operations and was a shell corporation registered in Nevada. On February 15, 2013, Sollensys Corp. acquired the operational company Sollensys Korea. This South Korean manufacturer is now trading in the U.S. with access to one of the most dynamic capital markets in the world. The company focuses on offering a pure investment in the touch screen market.

The growth opportunity with Sollensys are obvious as the company operates in a high-growth market. Even though the merger passed all regulatory approvals and the company is trading in the U.S. its financial statement are still being reviewed by a CPA firm. Once the company’s financial statements are certified, it will likely attract the attention of institutional investors.

Sollensys manufactures physical components for use in standard 3.5-inch, 4-inch and 10.1-inch screens, such as those found in Android, iPhone, iPad, Blackberry and other types of interactive devices. Sollensys’ touch screens for various products range from 3 inches to 20 inches. Sollensys Korea is also planning on providing consulting services on TSP manufacturing processes.

The company receives monetary grants and subsidies as well as non-monetary assistance from the Korean government. This help should rise once the Park administration takes control of the government. Sollensys is an example of a modern company and business model that Park would most likely make sure that it succeeds.

Sollensys operates in a fast growing industry. Demand for touch screens is expected to increase significantly as consumers, businesses, and governments become accustomed to the ease of their use in smart phones and tablets as well as other devices and applications.

Currently, there are more than one billion smart phones in use in the world. As newer and cheaper smart phones enter the markets the demand for touch panels will follow. For example, according to Wikipedia founder Jimmy Wales, smartphones in Africa will be disrupting the markets there faster than anyone expects. African consumers are already utilizing smart phones for mobile payments as a more secure way than carrying cash.

Sollensys should benefit from the proliferation of smart phones as most smart phones use capacitive touch panels. These are the panels manufactured by Sollensys.

Analysts estimate that this year the mobile industry will ship 837 million smartphones this year. This represents a growth of 22.5% from the number of smartphones shipped in 2012.

The growth in touch screens is even faster. Counting all applications, the world market for touch screen panels is estimated to rise from $3.6 billion in 2008 to over $9 billion in 2014. Sollensys has the capacity to make some of the most important technologies in the touch panel industry.

Many touch screen manufacturers specialize in manufacturing touch panels for mobile phones/tablets. Sollensys is able to make a variety of touch panels for different industries because of pattern design and tuning technologies for TSP. Sollensys manufactures three major touch screen modules, including glass, touch sensor panels, and LCD displays.

Leading with Knowledge and Intellectual Property

Sollensys has secured a valuable portfolio of 26 patents. The company’s portfolio of patents covers touch panel functionality, stylus design, manufacturing processes, and a proprietary technology for human hand interaction.

The patents and knowledge that Sollensys has developed allow the company to have a manufacturing advantage. In particular, Sollensys’ manufacturing yield is at or about 95% in capacitive touch sensor. This is especially beneficial in a world where touch screen panel manufacturing is dominated in low-cost countries such as China and Philippines.

Sollensys’s business plan includes what the company calls “Technical Cooperation and Overseas Plant Export Contract.” It includes selling (collecting of 30% rate of return as a technology premium) a turn-key manufacturing facility, plant design, production equipment, and touch screen manufacturing expertise.

The first factory under this technology transfer mechanism is already a fact. Sollensys is investing $15 to $20 million in a new Guatemala factory that will make touch screens from 3 to 10.1 inches in size at a rate of 500,000 panels per month. After a period of training by Korean engineers (up to one year), the factory will be run by domestic workforce, thus, creating jobs for educated professionals in Guatemala and other emerging economies.

Global expansion of Sollensys-licensed factories in the next 5-10 years will be mainly in Central America (Guatemala), Europe (Turkey), Russia, India, and Southeast Asian countries. Once these factories start running independently, Sollensys trained engineers will provide consulting services.

Importantly, Sollensys entrepreneurial spirit and intellectual properties are currently backed by some of the most prominent financial instittions in South Korea, such as KB Bank and Rothdale Partners. Headquartered in South Korea with offices in California, China and Guatemala, Sollensys stock is now open to American investors as it expands its global reach in the touch panel industry.

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