Bets on solar cells and batteries don’t pan out

Samsung Electronics isn’t the only company looking for new growth engines. Others companies including OCI and Woongjin are on an active search for new businesses outside their current specialties.

But like the tech behemoth, many are stuck for ideas.

The idea that Korea needed new growth “engines” became popular in 2009 when the Lee Myung-bak administration said green technology, industries converging and high-end services were the keys to the nation’s economic future industries.

With the government’s inspiration and encouragement, many companies have jumped into those fields - with very mixed results.

One such business is solar cells, which was once deemed the next generation of renewable energy. Today the solar battery business across the globe is in a funk because of an excessive supply flooding out of China, which has caused polysilicon prices to plummet. The price of polysilicon, which was $200 per kilogram in 2008, recently plunged to $15.

And Europe, which is the world’s largest market for solar cells - accounting for more than 70 percent of demand - continues to struggle with its fiscal crisis.

Lee Woo-hyun, senior executive vice president of OCI, Korea’s No.1 solar cell company, said in a recent investor relation presentation, “For the next couple of years, polysilicon prices will not rise more than $30.”

Woongin Group, which grew by selling books and water purifiers, placed all its bets on the solar battery business, even putting one of its main cash cows, Woongjin Coway, up for sale. Now it’s on the brink of seeing its entire conglomerate collapse due to poor performances and huge debts.

Hanwha Group continues to focus its energy on solar cells as it’s betting that competition will be forced out of the market, much in the way Samsung became the world’s leading computer chipmaker by being the last man standing in a fierce price war few years back.

Hanwha has been expanding starting with a takeover of China’s Solarfun Power Holdings in 2010 and than making an additional acquisition of Germany’s Q.Cells last year.

However, the money borrowed for the acquisitions has become a financial burden.

“It’s really difficult to be positive on solar cell investment as polysilicon prices continues to fall,” said Park Young-hoon, an analyst at LIG Investment & Securities.

Batteries for electric vehicles, which was a huge prospect few years back, aren’t doing too well either. LG Group saw this area as its next big business. In 2011, LG Chem built the world’s largest EV battery production plant in North Chungcheong and last year completed the construction of a $300 million production plant in Michigan. However, as electric vehicle lost their sheen with to consumers, especially with another fear of a an economic slowdown depressing consumer spending, LG’s U.S. production line remains on hold.

During an investor relation presentation last month, LG Chem President Cho Seok-je said the company has no additional plans in investing on batteries for electric cars.

Other companies investing in the business are facing the same problem, including SK Innovation.

In September, the company completed a battery plant in South Chungcheong that has the capacity to produce 10,000 electric car batteries per year.

Last month it launched a joint venture with Germany’s automotive part manufacturer Continental. The Korean company holds a 51-percent stake in Continental E-motion while the German company holds the rest.

Samsung SDI has a similar joint venture with Bosch.

But with demand for electric cars extremely low, analysts don’t expect stellar results.

“Talk about electric cars has vanished as if they never existed,” said an industry official. “It seems it’ll be a long time, at least five years, before electrics will be running on the streets.”

The situation is not much different for resource development. Posco had a plan for expanding beyond steel to become a comprehensive materials company.

In the last three years, the steel company has bought plants and new material companies including Daewoo International. The company’s affiliates nearly doubled from 36 in 2009 to 70 last year. But many of the affiliates have trouble making money.

Last year the steelmaker saw its operating profit fall 33 percent to 3.6 trillion won. The operating profit generated from its steel business accounted for 2.8 trillion won while its non-steel sector accounted for 1.1 trillion won.

Posco started a restructuring late last year and reduced or merged 24 affiliates. Now it has roughly 50 affiliates.

By Ko Ran, Lee Ho-jeong [ojlee82@joongang.co.kr]