Another Korean chaebol, Hyosung, dropped a $2.8 billion bid in 2009. Yet Chey had access to something the other bidders didn’t: SK Telecom’s figures for data traffic, which showed demand rising as older 3G networks were replaced by speedier 4G. Chey sensed that demand for the DRAMs to power the more data-hungry devices using these networks was set to take off.
He was right. Over the past five years the semiconductor industry has swelled by nearly 52% to $463 billion, according to research firm Statista. “With the adoption of 4G, smartphones required more memory and the demand for memory grew overall,” says Shawn Park, associate director of S&P Global Ratings in Hong Kong. “That is part of what SK Telecom saw in the overall growth potential.”
The year after SK took it over, SK Hynix’s earnings rebounded to $2.7 billion from a loss of $148 million the year before. Chey wasn’t on hand to celebrate: in early 2013, he was arrested on charges of misappropriating company funds, convicted and sentenced in February 2014 to four years in prison. In August 2015, then-President Park Geun-hye pardoned Chey along with 16 other businessmen. Shares of SK Hynix, meanwhile, rose 51% while he was in prison as 2014 net profits climbed 40%; shares in SK Holdings almost tripled as its earnings soared 90%.
Chey returned in March 2016 as chairman of both SK Holdings and SK Hynix and led a renewed push for vertical integration at the chipmaker, buying suppliers of the wafers and gases that are SK Hynix’s raw materials. The next year, SK Hynix’s earnings more than tripled, and rose another 46% in 2018 to a record 15.5 trillion won.
That kind of growth was bound to attract competitors. Now China’s chip companies pose a growing threat. State-owned Yangtze Memory Technologies is building out its production of NAND chips that, unlike DRAM, can store memory without access to a constant power supply, like a USB drive. “China wants an in-house production to have a stable supply,” says Cliff Leimbach, a senior analyst for information provider IHS Markit.
SK Hynix has a head start in NAND chips, but lacks scale. It’s the world’s No. 2 DRAM producer, but only No. 5 in NAND production. Smartphones require both: DRAM to run increasing numbers of apps; NAND to store the exploding number of user photos, songs and other digital bric-a-brac.
Last June’s Toshiba deal provided a stopgap. Toshiba Memory is the No. 2 producer of NAND. Its parent Toshiba was looking for cash to pay down debt at its U.S. nuclear energy business. Bain Capital knew just where to get it, forming a group that included Apple, Dell, Kingston Technology and SK Hynix to buy the stake in Toshiba Memory.
While seemingly straightforward, the deal took nine months to win approval from regulators in no less than eight countries, including China, which only dropped its objections in May as an apparent olive branch to Washington. Toshiba’s own hierarchy, Chey says, proved a high hurdle of its own. “The deal itself was so complicated,” he says. SK Hynix’s $3 billion contribution fetched it a 15% stake in the Japanese chipmaker. “Korea, U.S. and Japan; the purpose is cooperation,” Chey says.
Chey isn’t stopping there. In October SK Hynix opened a new NAND production facility in its home turf as part of an $18 billion investment over the next five years. Separately, in February, it announced a 10-year plan to invest $107 billion, starting in 2022, to house four large semiconductor plants and a network of suppliers. While analysts note that any 10-year plan can be subject to change, the announcement is a sign that Chey is thinking long-term with SK Hynix.
Chey has been diversifying into new industries, spending $3.2 billion to buy 12 companies in Europe, Southeast Asia and the U.S. in the past six years. In 2017, SK paid $459 million for two chemical lines from U.S.-based Dow Chemical. In March last year, it paid $75 million for a stake in Singapore-based ride-sharing company Grab.
And in September, it paid $470 million for a 9.5%, stake in Masan group, a Vietnamese conglomerate whose portfolio includes food and beverages, livestock, mining and financial services. (Masan’s chairman Nguyen Dang Quang joined the Forbes Billionaires list this year with an estimated net worth of $1.3 billion.)
Chey, who wrote a book on social enterprise during his incarceration, insists that SK’s investments won’t be based solely on scale and profits—they should also create social value. “My father had a philosophy,” he says. “He asked, ‘Why are we here?’ It’s about the people.” At Davos, he is hosting, for the first time, a panel with the Boston Consulting Group on social impact investing. “If we spend so much money,” he says, “it has to impact society.”
Asked how SK is making a difference, he cites a pilot program SK Innovation launched in September with rival refiner GS Caltex (a joint venture between Korea’s GS Holdings and U.S. oil giant Chevron), Korea’s CJ Logistics and logistics startup Zooma that lets online retailers use roughly 200 of SK’s 3,600 filling stations as merchandise distribution points.
SK says this “Imagine Your Gas Station” project supports small entrepreneurs by lending its infrastructure to startups such as Zooma. While promising, others note the embryonic nature of this effort. “It’s still a minor part of the company’s business,” says Wan Hee Yoo, an analyst at Moody’s in Hong Kong. “It’s not a big revenue driver. We have to continue to watch it.”
Others worry SK’s overseas investment binge is an unwelcome diversion from its core businesses in Korea. “Investors do not like uncertainty,” says Yang Jong-in, an analyst at Korea Investments and Securities in Seoul. “Overseas investment success rate is so low. They prefer domestic services, not services by foreigners.”
Many analysts, however, say it makes sense for Chey to reduce SK’s dependence on income from a business that, as Hynix learned in 2001, is boom-and-bust. Despite its impressive earnings growth since 2013, SK Hynix now faces a downturn amid a looming glut of memory chips.
“Weak demand and uncertainties with global trade are two of the common reasons that we are hearing,” says Leimbach. The smartphone market is saturated, he says. “Consumers are no longer replacing their phones as quickly as they were.”
Taking a cue from Japanese tech giant Softbank, SK plans this year to convert SK Telecom into an intermediate holding company to channel the group’s tech investments. SK Telecom has already begun acting more like a private-equity firm.
In the past year, SK Telecom’s chief executive Park Jung-ho has overseen the $650 million purchase from the Carlyle Group of a 55% stake in Korean security systems firm ADT Caps and secured $450 million in funding for Korean e-commerce company 11 Street. “There will be some failures,” says Baker, “But they are hoping to build a few sizable businesses out of all of these investments.”
At the group level, SK made its investment in Masan through a new, $500 million fund it set up last year in Singapore called the SK Southeast Asia Investment fund, which will receive another $500 million this year to invest in the region. “SK Group has been keen on the Southeast Asian market, which has much growth potential,” says Cho Dae-sik, who chairs SK’s Supex Council, in an email interview.
Chey, who will likely step down as chairman of SK Holdings this month to focus on his role as CEO, says Masan is also part of SK’s social impact efforts: “We didn’t look at their portfolio as much as we did their management.” He has also met with the Vietnamese government to suggest new engines for growth, particularly in areas that create social value such as the environment.
“In the end, it’s the pursuit of happiness, for all of us. Some would say, ‘Just make more and more money,’ right? Actually, that’s not really true,” he says. “Think about why chaebols are looked down upon. I want to start changing that.”
-Grace Chung;Forbes Staff
Packing Light In School Bags
Former South African rugby star John Mametsa provides alternative energy solutions for the state. With his wife Tumi, he says their future in the business is bright.
In his prime, former Blue Bulls winger John Mametsa had rugby fans screaming in delight at his try-scoring exploits at Loftus Versfeld Stadium. Between 2001 to when he retired in 2010, he had brought smiles on people’s faces.
Hidden beneath the rugby bravura on display on a weekly basis were Mametsa’s entrepreneurial exploits, which led him to co-found Soltech, a solar technology company he started with his wife Tumi.
Soltech has bridged the gap between solar technology and user-friendly consumer products by creating school backpacks, outdoor umbrellas and lifestyle bags custom-fitted with solar power.
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The smiles are back but Mametsa has brought them in a different form.
Soltech’s main aim is to help companies achieve their corporate social investment targets and make a real difference in the lives of school children who might not have electricity at home, or whose access to electricity is limited.
“Generally, I love giving back. Just to see the kids smile brings joy to me,” Mametsa says.
“It is the best space I could have asked for. Other than when I was involved in rugby, this is the best thing I could have ever been a part of.
Putting smiles on kids’ faces is the best thing. Because we are dealing with children, we have aligned ourselves with people that want to make a difference.
“We don’t stop at just giving them the bags where they can charge phones and study at night but we also educate them about the social ills that come with roaming on the internet and social media.”
During this period of Eskom blackouts, uncertainty about South Africa’s energy and a widening chasm between the haves and have-nots, he says Soltech’s products make a difference in the lives of ordinary citizens.
In a sense, they’ve taken the might of solar technology and put it right in people’s hands. The school bags come with a solar-powered battery, which has a night lamp and cellular phone battery charger installed.
“With everything that’s going on at Eskom now, they (citizens) are using millions of liters of diesel per month, just to keep the lights on,” Mametsa says.
“Hence, it’s coming back to hit our pockets and they (Eskom – South Africa’s national energy provider) are raising the electricity prices again. Such things we have to read about so that, as we grow, we educate the people that we are selling the bags to.
“At some point, you need to convert [to reusable energy sources], you need to start using solar energy. We are still fortunate that there’s an Eskom in the first place. What about those countries that don’t even have electricity at all?
“Yes, we have power cuts but the people that really need the bags are people in the rural areas.”
Admittedly, Mametsa was the pretty face and Tumi conceptualized the idea when they started. But their partnership was perfect in more ways than one. Tumi, just like her husband, had a massive entrepreneurial drive.
While Mametsa was playing rugby, he would dabble in taxi and printing businesses – an uncommon trait among sportsmen and sportswomen who are at the peak of their powers. Tumi was no different. As a student, she would sell hair and cosmetics products, something that sharpened her business senses.
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And despite a successful 11-year career in corporate as an accountant and financial manager for companies such as Alexander Forbes and the Film and Publication Board, Tumi took a bet on herself and dedicated her time fully to building Soltech.
The result was that, in just the company’s second year, they have signed a memorandum of understanding with Finland solar technology company Tespack. Tespack founders Caritta Seppä and Yesika Robles were last year named in Forbes ’s 30 Under 30 Europe.
The joint venture will see Soltech come out, among other things, with a solar-powered, fast-charging power bank, which should totally disrupt the smartphone accessories market.
“There’s going to be skills and knowledge transfer,” Tumi says.
“The DTI (Department of Trade and Industry) is also backing us on the partnership because we need them and their funding to assist us. We will be hiring South Africans to work the machinery, which was something that was very attractive to the DTI.
“The Tespack partnership confirmed my belief that our company could grow from a small tree to a forest someday. Once we manufacture in-house we can streamline the process. And there are so many other ideas for products I have, such as ladies’ handbags and stuff.”
Here at home, Soltech has partnered in CSI projects with Liberty and Exxaro and they hope to grow their client base in the next couple of years. It is a huge endorsement of their products and should see them salve some of the hurt from the country’s electricity crisis, especially to those who need it the most.
‘Worth Millions And Billions’
Terence Terenzo, the award-winning South African hairdresser and founder of hair salon group Terenzo Suites, on his biggest investment decisions and blunders.
What is your investment philosophy?
One of my philosophies is to really analyse ‘is this an investment or is it a money pit… Are you sure you got a good investment and not a liability?’… Over the last 10 years, I’ve tried to invest in things that don’t absorb all my time and energy.
So if someone were to say to me, ‘you can work your butt off seven days a week and we will give you a million rand a month, or you can take it super easy and do the absolute minimum but you can have R400,000 ($27,700) a month’, I would rather take the R400,000 because that would free me up so much more.
I would have time to do things that are important and other projects. So, for me, it is about setting up passive income businesses instead of creating businesses that need huge amounts of management.
What are some of the big investments you have made over the years?
Most of them were in property but this, Terenzo Suites, is one of the biggest investments I have ever made. It was many many millions. And then on the stock market, I’ve played around on the Johannesburg Stock Exchange where we have invested quite heavily. I would use it, then look at the market and sometimes pull the money out and move it. I have also invested in Naspers.
Have you had any regrets?
If any entrepreneur tells you that he hasn’t had that [an investment blunder], he is lying. So, what happened was I bought a property in 2008, just before the [recession]. I was stuck with it for years and even when I sold it, I sold it many years later at the same price I bought it.
I bought it in an absolute inflated stop end, and it was really at an all-time high and I had to sell it at an all-time low… But the main thing for me about those kind of things is that you learn from them and you must not beat yourself up for too long.
Try and see what you learned from them.
Why did you invest in the hair business?
I think the hair industry is going to explode in South Africa and the whole continent, if you just think of the possibilities of wigs, hair pieces, hair colors and relaxers. Millions of women before weren’t so worried about their hair but as the world has changed so much, all of them want to look amazing and they want to look current, fresh, sexy, and that is all a part of the hair industry.
What should you consider first before you invest in your hair?
I think the one thing is to have a professional conversation with someone instead of just doing your own thing and, usually, hairdressers are quite happy to consult with you without charging you before you make a serious investment in hair pieces or wigs.
How big do you think the hair industry is in Africa?
I think it is worth millions and billions… and I think it is an undiscovered industry that is still going to explode. I don’t think we have scratched the tip of the iceberg with this.
A Germ Of An idea
The microbiologist-turned-entrepreneur Babajide Ipaye started making good-looking shoes to fit his size 48 feet but decided to create them for others as well.
Selling shoes was probably the last thing Babajide Ipaye, a microbiology graduate, envisioned doing. But when by the age of 10, he was already wearing his father’s shoes, a size 44, he knew that some day that he would step in that world.
The only child of his parents, who passed away in a car accident when he was only 11, Ipaye was raised by his grandparents and extended family members who shaped the early years of his life.
“I had a lot of people who were trying to nurture me and they had different professions. So for example, one was an artist and I was endeared to him, another one was a medical doctor, so my granddad wanted me to study medicine and another uncle was a computer scientist, so I was kind of confused growing up. I wasn’t sure what I wanted to do, so I kind of lived the life of almost everyone that influenced me,” says Ipaye.
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That confusion helped Ipaye cut his teeth in various industries early on in his career. His medical doctor uncle influenced his career as a microbiologist where he worked with Ideas International Bio Technology Services, spending his days cleaning up oil spills and bacteria.
Then followed a stint in Information Technology (IT), a move also inspired by another uncle, where he worked with Tranter IT Infrastructure Services and Computer Warehouse as an analyst deploying managed technology services for multinationals like Guinness, Total and KPMG.
“At this point in time, IT was very hip and we happened to be one of the early pioneers in the tech space which was a very exciting time and considering where I was coming from in microbiology, it was a new field for me, I was working with multinationals and the exposure was amazing, it gave me a very broad sense of how organizations function.”
But Ipaye soon became dissatisfied with being put in a silo. There was too much structure and rigor due to the size of these multinationals and he became bogged down with a lot of systems and processes, which ultimately stifled his creative juices. His solution was to start his own IT company, Torque Technologies.
The company began providing IT equipment and technology services in its early days to multinationals before quickly creating a niche for itself in the fiber optics space. In early 2003 to 2005, the Nigerian telecoms era had just started booming and Ipaye and his partner saw a first-mover advantage in fiber optics by providing training to firms in Nigeria, which they did for the next 10 years.
By 2015, Ipaye decided he wanted a new challenge outside the IT world. After parting ways with his partner, he began to ponder about his life-long struggle with footwear.
“So I said to myself ‘why don’t I make my own shoes?’ So I went on the internet, did a bit of research and came across a school in the Netherlands called SLEM. I called them up and found out about the shoe-making course and I said since I was on holiday, why don’t I take some time off the business and explore how to make my own shoes and I went to the Netherlands.”
Keexs was born. The goal was to make shoes that fit Ipaye’s size 48 feet but also looked aesthetically pleasing. But making shoes for him alone would prove to be too costly.
Ipaye decided to make shoes for others as well. He would focus on the athleisure market, which is a portmanteau of ‘athletic’ and ‘leisure’, a market that has grown to the stage where it is no longer a trend but a mainstay in Nigerian fashion.
To stand out in the competitive footwear market, Ipaye decided to add some African elements to his innovative footwear brand and focused on outsourcing the production to a factory in the Netherlands while he focused on the product and design to save on cost.
The aim in the long run was to move production to Nigeria where he could fulfill the brand’s social mission of providing employment and skills training to unemployed youth. However, to make the business viable, he had to make a minimum of 1,000 pairs of shoes to achieve economies of scale. Next came the challenge of securing startup funding.
“From my previous experience of starting my technology business in Nigeria, I came to realize that the cost of funding in Nigeria is very high and also there are a lot of businesses chasing funding and the risk level of most potential investors in Nigeria is very conservative and they don’t want to invest in stuff they are not sure about.
“So I read about crowdfunding and consulted a company in the Netherlands and I came across a site called kick-starter which is a US-based platform that offers a global crowdfunding platform to innovative ideas and projects, hence we started the first innovative and social focused brand in Africa,” says Ipaye.
In just over two years Ipaye has managed to grow the business through leading e-commerce sites like Jumia and Konga as well as via its own website which receives orders from countries around the world. The shoes sell for anywhere from $40 to $60, with over 8,000 pairs of shoes sold till date.
Keexs has about 18 outlets in Nigeria with retail partners in Kenya, South Africa and Guadeloupe and Nairobi.
The company also sells through social media channels where they boast over 15,000 followers on Instagram. The long-term goal for Ipaye is to secure enough funding to set up a factory in Nigeria, which he is looking to raise through an amalgamation of funding sources including grants and loans.
“We realized very quickly that economies of scale is critical to drive the growth of this business therefore there is a need for a lot of capital. There are four sides to this chain; production, design, distribution and retail. The problem with a lot of businesses in Africa is that they are expected to do everything from start to finish along that entire value chain and what that does is, it stifles the growth of the business,” says Ipaye.
The big-time hit when CNN profiled Keexs on its African Voices show. Since then, they have managed to establish themselves as an innovative social brand focused on empowering unemployed youth in Nigeria. Next on the to-do list for Ipaye is establishing a production line in Nigeria, and then taking his brand global.
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