We sat on the couch and looked down at the table. On the table lay the L6.
“We definitely nailed it this time,” said economist Keynes.
In the long run, as Keynes said, all humans die.
Applying this to the phone, it goes like this: “In the long run, all phones will be discontinued.”
Therefore, even the latest phone, the L6, will eventually face the path of discontinuation.
The important thing is…
“Why and when will it be discontinued?”
I touched the L6 here and there. Unlike before, nothing came to mind. I checked it thoroughly, but didn’t see any major issues.
“Did you notice anything strange while using it?”
“Far from strange, it’s the best phone I’ve ever used.”
“Have there been any discontinued smartphones from Seosung Electronics due to issues?”
Taekgyu shook his head.
“Not that I know of. Besides, even if there were issues with the phone, they would repair or compensate, not discontinue it.”
True.
Unlike the past feature phones that were limited to calls and texts, smartphones consolidate various portable electronic devices like laptops, MP3 players, and cameras into one product.
Smartphones have many features, and with complexity come various issues in software and hardware.
If every issue led to discontinuation, all manufacturers would have had to close down.
“From the manufacturer’s perspective, there’s no reason they would willingly incur losses.”
Why would a popular smartphone be discontinued?
***
On that night.
I fell asleep on the couch when suddenly a scream echoed from the room.
“Ahh!”
“What’s wrong?”
Startled, I got up and ran into the room.
Bang!
The door flung open as Taekgyu dashed out of the room. His glasses askew, he looked bewildered.
“What’s going on?”
“Something exploded near my head with a bang.”
I was perplexed.
“What nonsense are you talking about? Are you dreaming?”
“No, I’m serious. Something actually exploded. Am I okay? Did my eyes or ears fly off?”
“…”
He didn’t seem quite all there mentally.
I went into the room and turned on the light. Surprisingly, Taekgyu was telling the truth. The mattress pad was charred, smoldering slightly.
“Hey! Get some water!”
Taekgyu fetched a bottle of water from the fridge, and I poured it on the bed.
Sizzle!
Since it wasn’t a big fire, the embers were quickly extinguished with the water.
What on earth was happening this late at night?
I investigated the cause of the fire. There was no need to search hard. A melted phone lay in the middle of the charred pad.
When I reached closer, I could feel the intense heat.
Taekgyu, barely holding it together, looked at the phone and said, “What? The L6 exploded?”
I asked Taekgyu, “What did you do to the phone?”
“I didn’t do anything. I just plugged in the charger.”
According to Taekgyu, he was playing games on his phone until just before bed, then plugged in the charger right before falling asleep. And then this incident happened while he was sleeping.
“But why did it explode?”
“I have no idea.”
I examined the charger. It was a genuine charger from Seosung Electronics, and there seemed to be no loose wires or any other issues.
Why did this happen?
Taekgyu, with a shocked expression, said, “Wait, a phone explodes within a week of buying it? What kind of bomb is this?”
“A bomb?”
We looked at each other in disbelief.
“Surely not.”
Taekgyu sat in front of the computer and browsed the internet.
“There have been several explosion incidents before this.”
The first post was made three days after the release.
It all started with a photo of an exploded L6 phone posted on an online community called ‘Ppomppu.’ The victim claimed that the phone exploded for no apparent reason while charging.
Seosung Electronics responded promptly, quickly resolving the issue with the victim. However, similar posts continued to appear on blogs and Facebook.
Just by checking online, there were at least three cases.
“If we include yours, that would be four, right?”
“If we count the unreported ones, probably even more.”
The manufacturer would not want any quality controversies. Therefore, it wouldn’t be surprising if they offered cash compensation or settlements to avoid negative publicity.
“At Seosung Electronics, what did they say the cause was?”
“They said it was due to external impact. In fact, phone explosions are not that uncommon.”
Taekgyu explained.
Most electronic devices, including smartphones, use lithium-ion batteries due to their high energy density compared to volume, making them efficient.
However, lithium-ion batteries have a tendency to explode when they suffer an impact. In reality, incidents where phones made by NPL or other manufacturers explode are not uncommon.
The issue is the frequency of these incidents.
The difference between one phone exploding in a million and one in ten thousand is quite significant.
Is it really all due to external impact?
We searched through articles and posts on SNS about Seosung Electronics and the L6 all night.
Although there have been several explosion incidents and minor issues like voice recognition or screen brightness, they didn’t seem to have much impact on the sales of the L6.
While CL Electronics released the Prime 5 around the same time, it was overshadowed by the L6 and couldn’t shine.
There was a high possibility of Seosung Electronics dominating until the release of the nPhone 7 by NPL.
We examined explosion incidents from other companies, and indeed, the explosion rate of the L6 was overwhelmingly higher compared to other phones.
Could there have been an issue in the manufacturing process?
Could Seosung Electronics make a mistake that even smaller companies wouldn’t?
Unlike me, who remained composed, Taekgyu was anxious.
“This is an opportunity. We’ve got valuable information in our hands now.”
“Let’s wait and see.”
“Why wait? We should act fast, even a little.”
Taekgyu expressed frustration.
“What if Seosung Electronics announces discontinuation first? We’ll lose everything then.”
Selling off Bitcoin was not an investment but a move to mitigate risks. Even if the Mountain Hill bankruptcy didn’t materialize, there wouldn’t be much of a loss. The WTI buy was a small part of assets, just $3 million.
However, this time is different.
If I were only investing $2 or $3 million like last time, I wouldn’t have debated this much.
Even if discontinuation is confirmed, it doesn’t necessarily translate to immediate profits. Understanding the timing of the discontinuation and the implications it may have is crucial in determining the investment approach.
I cautiously said, “Let’s just observe the situation for a few more days.”
***
The next day.
Taek-gyu called the AS center to report the explosion of the L6. Immediately, an employee rushed to his house.
Not all individuals wearing Seosung Electronics uniforms and repairing Seosung Electronics products are employees of Seosung Electronics. Most of the AS center employees were outsourced workers.
However, the person who visited his house was not an outsourced worker but an employee from the headquarters.
I asked the employee, “What was the cause of the explosion?”
The employee cautiously replied, “I will let you know after the investigation.”
The employee collected the exploded L6, handed a new product, and brought up the topic of cash compensation.
To receive full compensation, there was one important condition – not to post anything related to this incident on the internet until the investigation results were released.
The employee requested this like a plea.
Taek-gyu acknowledged and sent the employee away.
“There have been quite a few similar incidents, haven’t there?”
Even when faced with the melted L6, the employee did not panic and acted according to the prescribed manual.
“If it’s just a device malfunction, it won’t lead to discontinuation but if it’s an explosion, it’s a different story.”
In household electronics, the most important thing is stability.
When it comes to safety issues, cell phones are particularly sensitive. This is because they often carry important information such as photos or contacts, and are constantly carried around.
In the case of Taekgyu, it was lucky that the phone exploded while left aside, as if it had exploded during a game or a call, he would have suffered severe burns.
If explosions continue to occur as they are now, it is sufficient reason to discontinue the product.
Currently, the market capitalization of Seosung Electronics is 260 trillion won.
The annual operating profit is around 30-35 trillion won, evenly generated across sectors like semiconductors, displays, CE, and IM.
Among this operating profit, the IM sector, which includes smartphones, accounts for 40 percent.
“If the L6 is discontinued, does that mean 40 percent of the operating profit will be lost?”
I nodded at Taekgyu’s words.
“Well, there are also mid-range models, so it might not be that severe. They also have models from previous generations.”
While Enple focuses on releasing one or two premium phones per year, Seosung Electronics releases a variety of models from premium phones costing over 1 million won to budget phones costing less than 300,000 won.
While the L series is the main focus in the domestic market, in low-income emerging markets, budget phones are more popular.
Considering all these factors, the discontinuation of the L6 would greatly impact Seosung Electronics.
I asked Taekgyu, “How many countries were in the first launch?”
“Korea, the US, Canada, and Europe, so probably around 10 countries?”
“And the sales volume?”
“Probably around 6 million units.”
It really sold a lot.
If it is discontinued due to explosions, not only will they not be able to sell future units, but they will also have to refund all units sold so far.
With each unit costing 1 million won, the refund amount alone would be 6 trillion won.
Considering the profits that could have been made by continuing to sell here and the decrease in brand value, the losses would likely escalate significantly.
If the information is accurate, it can be considered as seizing the opportunity.
Even if it’s certain that L6 will be discontinued, the real issue starts now.
If a specific stock is expected to rise, buying that stock is the way to go. If you are more confident, you could even leverage credits or receivables.
But what if a specific stock is anticipated to fall?
In this case, the investment options are limited.
Taek-gyu said as if it were obvious, “Isn’t short selling available for times like these?”
“Yes, that’s true.”
There are two methods of short selling.
One involves borrowing stocks and selling them, while the other involves selling stocks that you do not own. The former is called covered short selling, and the latter is naked short selling.
Currently in Korea, naked short selling is prohibited, only covered short selling is allowed.
In theory, even individual investors can engage in short selling. However, the access is limited, so practically only institutions and foreign investors can do it.
But OTK Company is a foreign corporation. Moreover, OTK Company’s account is linked with Golden Gate. Therefore, Taek-gyu’s funds fall under foreign category.
Known as “Black-haired Foreigners!”
“Black-haired Foreigners” refers to investors who, despite being Koreans, establish a foreign entity and disguise themselves with foreign capital to invest in the Korean stock market.
It’s not illegal, but individual investors do not particularly like them because they are seen as forces that disrupt the market. (Partly based on truth)
Short selling itself is not that difficult.
It’s similar to traditional stock trading, but the main difference is that one sells first and then buys back instead of buying first and then selling.
“The issue lies in the profit margin…”
The profitability of short selling can never exceed 100 percent.
Even if you short sell a 1 million won stock and later buy it back for 10,000 won, the profit margin will only reach 99 percent.
Thinking rationally, the likelihood of Seosung Electronics stock plummeting to that extent was not realistic. Even if the discontinuation of the L6 model materializes, the decline would likely stop at 20-30 percent.
“Would making 30-40 billion won from a 13 billion won investment be considered successful?”
Even just achieving this would be an enormous profit.
But, is this really all there is?
Should one be satisfied with this level of profit from such a golden opportunity?
Is there a way to reap even greater profits?
As I ponder deeply, Taekgyu chimed in.
“What about futures and options?”
It’s not like I haven’t considered that before.
“I’m not well-versed in derivative products.”
“You didn’t study that in college?”
“I only attended for a year.”
Courses on futures and options are typically taken in the third or fourth year.
“What about the investment club?”
“Our investment fund was only 1 million won. Can you imagine trying that with such a paltry sum?”
Accessing the futures and options market is simply unfeasible with such a small amount of money.
However, our current fund stands at 12.5 million dollars. It’s not my own money, but a substantial investment capital is at our disposal.
With this amount, it seems fitting to give it a proper try.
