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Bankruptcy of Circuit City Smashed IT shares 2008/11/12 By Lee, Kyung-min As Circuit City, the US 2nd largest electronics retailer, went bankruptcy, the shares of the domestic IT businesses have fallen down. On November 11, when the news of Circuit City going bankruptcy are delivered to the stock market, the shares of IT companies including Samsung Electronics just fell down drastically. Shares of Samsung Electronics fell down to KRW 456,000 per share and then slightly recovered to KRW 470,000 at closing thanks to the programmed buying. LG Electronics recorded KRW 86,500, down 7% from a day earlier. Also, Samsung Electro-Mechanics, Samsung SDI, LG Innotek and LG Display had to witness the fall of shares. Many experts said that Circuit City’s bankruptcy will not make significant impact on the domestic electronic makers since they have relatively smaller amount of loss in Circuit City and the overall problem was not the electronic retailers but only Circuit City’s problem. Lee Sun-tae, researcher of Meritz Securities, said, “Best Buy, a competitor of Circuit City, recorded $2.15 billion in operating income, maintaining a surplus. Therefore, the bankruptcy of Circuit City is an internal one.” Also, he predicted the domestic electronics makers will be able to recover the loss as they have subscribed insurances. However, there is a growing concern over the real economy in the US including the electronics retail industry. Particularly, as the electronics distribution channels are moving from offline to online, Walmart and Costco are enhancing the sales of IT gadgets, making the existing electronics retailers stranded. They point out the worsening profitability of those electronics retailers in the US. In addition, such a change is predicted to lead to the pressure on the unit cost. Circuit City is likely to maintain the business and begin the discount sales to consume its inventory in December. Then, it will demand manufacturers to share its burden. Pak Kang-ho, researcher of Daishin Securities, said, “If Circuit City begins the discounted sales, Best Buy and Walmart will also demand manufacturers to cut the price, worsening the profitability of the electronics makers in 1Q.” He added, “But, the Korean makers benefit from the weakening won phenomenon, coming up with more competitiveness in profitability than Japanese competitors.”