Chapter 14: Risk and Reward: The L6 Gamble

We sat on the sofa, looking down at the table. On it was the L6.

"They really did a great job with this one."

Economist Keynes once said:

"In the long run, we are all dead."

Applied to phones, that could be phrased as:

"In the long run, all phones are discontinued."

This means that even the latest phone, the L6, will eventually follow the path to discontinuation.

The important thing is...

"The reason why and when it gets discontinued."

I fiddled with the L6, but unlike earlier, nothing appeared. I examined it closely, but there didn't seem to be any issues.

"Have you noticed anything strange while using it?"

"Strange? No way. This is the best phone I've ever used."

"Has there ever been a case where one of Seoseong's phones was discontinued due to an issue?"

Tae-gyu shook his head.

"Not that I know of. And even if a phone has an issue, they'd repair or compensate you—they wouldn't discontinue it. That just wouldn't make sense."

He was right.

Unlike the feature phones of the past that were only used for calls and texts, smartphones have integrated devices like laptops, MP3 players, and cameras all into one.

A smartphone contains countless features, and with its increased complexity, problems with both software and hardware are bound to arise.

If they discontinued a model every time there was an issue, all manufacturers would have gone bankrupt long ago.

"There's no way a manufacturer would do something that would hurt their bottom line."

So, why would a popular smartphone suddenly get discontinued?

That night.

While I was sleeping on the sofa, I suddenly heard a scream from the room.

"Ahhh!"

"Huh? What's going on?"

Startled, I shot up and rushed to the room.

Bang!

The door burst open, and Tae-gyu ran out, looking panicked. He hadn't even put his glasses on properly, clearly shaken.

"What happened?"

"Something exploded, right near my head!"

I couldn't believe it.

"What kind of nonsense is that? Did you have a bad dream?"

"No! I swear, it really exploded! Am I okay? My eyes and ears are still there, right?"

"..."

Mentally, he didn't seem all that stable.

I walked into the room and turned on the light. To my surprise, Tae-gyu was telling the truth. The bed cover was singed, with embers slowly burning through it.

"Hey! Get some water!"

Tae-gyu grabbed a bottle of water from the fridge, and I poured it over the bed.

Sizzle!

The fire wasn't big, so the water quickly extinguished the embers.

What on earth just happened?

I looked around for the cause of the fire. I didn't have to look far. Right in the middle of the scorched bed was a phone, blackened and partially melted.

As I reached out, I could feel the heat radiating from it.

Tae-gyu stared at the barely recognizable phone and said,

"Wait, the L6 exploded?"

I asked him,

"What did you do to it?"

"Nothing! I just plugged it in to charge."

According to Tae-gyu, he had been playing a game on the phone before going to bed and plugged it in to charge right before falling asleep. And then, this happened.

"Why would it explode?"

"I have no idea."

I examined the charger. It was a genuine Seoseong charger, and there didn't seem to be any damage or issues with it.

So, what on earth caused this?

Still catching his breath, Tae-gyu muttered,

"Seriously, why would a phone blow up after just a week? What, is it a bomb?"

"A bomb?"

We exchanged glances.

"Could it be…?"

--------

Tae-gyu sat at his computer, scouring the internet.

"There have been several incidents of explosions before this."

The first report came just three days after the phone's release.

A photo of an exploded L6 was posted on an internet community called 'Ppomppu.' The user claimed that the phone exploded while it was charging, with no obvious reason.

Seoseong responded quickly, and the issue seemed to have been resolved quietly, likely through some agreement with the affected user. However, similar posts continued to surface on blogs and FaceNote.

From what we could find on the internet, there had already been three such cases.

"With yours, that makes four?"

"There's probably more that haven't been reported."

Manufacturers are quick to avoid any quality scandals. It wouldn't be surprising if they had hushed people up with cash settlements.

"What's Seoseong saying the cause is?"

"They're blaming external impacts. To be fair, it's not uncommon for phones to explode."

Tae-gyu explained.

Most electronic devices, including smartphones, use lithium-ion batteries because of their high energy density relative to their size, making them highly efficient.

But lithium-ion also has a tendency to explode when subjected to external impact. In fact, phones made by other manufacturers like Apple have had their own explosion incidents.

The real issue is the rate at which these explosions occur.

There's a big difference between one phone exploding out of a million, and one out of ten thousand.

Is it really just external impact?

We spent the night researching Seoseong and the L6, combing through articles and social media posts.

While we found several reports of explosions, along with minor issues like voice recognition problems or screen brightness glitches, these hadn't seemed to affect L6 sales much.

CL Electronics had released their Prime 5 around the same time, but it was overshadowed by the L6's popularity.

Until Apple released the nPhone 7, Seoseong seemed to have the market to itself.

We also looked at explosion reports from other companies, but the L6's explosion rate was noticeably higher.

Was there some problem during manufacturing?

Surely Seoseong wouldn't make a rookie mistake that even small companies wouldn't...

While I was calmly analyzing the situation, Tae-gyu, on the other hand, was becoming increasingly frantic.

"This is an opportunity. We've just stumbled on some major information."

"Wait a second…"

"Why wait? We need to act fast."

Taekgyu spoke impatiently.

"What if Seoseong Electronics announces the discontinuation first? Then it's all over."

Selling off BANTCoin wasn't an investment decision, it was a move to avoid risk. Even if Mountain Hill's bankruptcy didn't happen, there wouldn't have been any significant loss. The WTI purchase only involved a fraction of our assets—$3 million.

But this situation is different.

If I were only going to invest $2 million or $3 million like before, I wouldn't be worrying this much.

Even if the discontinuation was certain, it wouldn't directly translate to profit. We need to determine the timing and the broader impact of the discontinuation before deciding how to invest.

I spoke carefully.

"Let's just observe for a few days."

---------

The next day.

Taekgyu called the service center to report the L6 explosion. A staff member came to our house immediately.

Not every person who repairs Seoseong Electronics products in a company uniform is an actual employee of Seoseong Electronics. Most service center workers are from subcontracted companies. But the person who came to our house wasn't from a subcontractor; they were from the head office.

I asked the staff member, "What was the cause of the explosion?"

The employee answered cautiously, "We'll need to investigate before giving you an answer."

They collected the exploded L6 and handed over a replacement. Then, they mentioned compensation.

There was one important condition to receiving the compensation: until the investigation was complete, we were asked not to post any information or photos related to the incident online.

The employee asked us sincerely, almost pleading.

Taekgyu agreed and sent the staff member away.

"It seems like this has happened quite a lot."

The employee hadn't been flustered by the sight of the melted L6, acting according to a prepared manual.

"There must be several times more cases than what's been reported online."

If it were just a device defect, a repair or replacement would suffice, without leading to discontinuation. But explosions are a different matter.

The most critical factor for electronic products is safety.

In terms of safety concerns, smartphones are especially sensitive. Not only do they hold important information like photos and contacts, but people also carry them on their person all the time.

In Taekgyu's case, the phone exploded next to him while he was sleeping, so no harm was done. But had it happened during a phone call or while gaming, he would have suffered severe burns.

If these explosions continue, it would be more than enough reason for a discontinuation.

Currently, Seoseong Electronics has a market capitalization of 260 trillion won.

Their annual operating profit is between 30 and 35 trillion won, coming from various sectors including semiconductors, displays, consumer electronics, and the IM division.

Forty percent of this operating profit comes from the IM division, which includes smartphones.

"If L6 is discontinued, does that mean 40 percent of their operating profit will vanish?"

I shook my head at Taekgyu's words.

"Not that much. They have mid-range and low-end models too, not to mention older models."

Unlike Enple, which only releases one or two premium phones a year, Seoseong Electronics has a wide range of models, from high-end smartphones costing over a million won to budget models under 300,000 won.

While the L series dominates the domestic market, in emerging markets where incomes are lower, budget phones are the main sellers.

Even considering all this, the discontinuation of the L6 would be a massive blow to Seoseong Electronics.

I asked Taekgyu, "How many countries were part of the initial launch?"

"About ten countries, including South Korea, the U.S., Canada, and Europe."

"And how many units have been sold?"

"Around 6 million, I think."

That's an enormous number.

If the L6 gets discontinued due to explosions, not only will they stop future sales, but they'll also have to refund all the phones they've sold so far.

At a price of 1 million won per unit, the refund alone would amount to 6 trillion won.

Adding the lost potential revenue from future sales and the drop in brand value, the total loss would multiply significantly.

If the information is accurate, this is a golden opportunity.

Even if the L6's discontinuation is certain, the real challenge starts now.

If we expect a particular stock to rise, we can just buy it. If we're even more confident, we could use margin trading or leverage.

But what if we expect a particular stock to drop?

In this case, the investment options are more limited.

Taekgyu said matter-of-factly, "Isn't this exactly why short selling exists?"

"That's true."

There are two types of short selling.

One involves borrowing the stock first and then selling it. The other is selling a stock you don't own yet. The former is called a borrowed short, and the latter is called a naked short.

Currently, naked short selling is illegal in South Korea, and only borrowed shorting is allowed.

In theory, individual investors can also short sell. But with limited access, it's mostly done by institutions and foreign investors.

However, OTK Company is a foreign entity, and our OTK Company account is linked to Golden Gate. Therefore, Taekgyu's funds are classified as foreign capital.

In other words, we're the so-called "black-haired foreigners."

"Black-haired foreigners" refers to Koreans who set up a corporation abroad and disguise their investments in the Korean stock market as foreign capital.

It's not illegal, but retail investors tend to dislike them. They believe these "foreign" investors manipulate the market (which is partly true).

Short selling itself isn't complicated.

In regular stock trading, you buy first and then sell. In short selling, you sell first and then buy later—that's the only difference.

"The issue is the return..."

The return on short selling can never exceed 100 percent.

Even if you short sell a stock worth 1 million won and buy it back later for 10,000 won, your return would be capped at 99 percent.

Realistically, there's no way Seoseong Electronics' stock will drop that much. Even if the L6 discontinuation becomes a reality, the drop will likely be around 20 to 30 percent.

"Investing 13 billion won would net us, at best, 3 or 4 billion won?"

That would still be a tremendous profit.

But is that all there is to it?

Should we settle for such a modest return when this is such a prime opportunity?

Isn't there a way to make an even bigger profit?

As I was deep in thought, Taekgyu spoke up.

"What about futures and options?"

I had thought about that.

"But I don't know much about derivatives."

"Didn't they teach it in college?"

"I only attended for a year."

Futures and options are usually taught in the third or fourth year.

"Didn't your investment club cover it?"

"Our investment fund was only 1 million won. Do you think we could've tried futures or options with that?"

You can't even approach the futures and options market with such a small amount.

But now, we have $12.5 million at our disposal. It's not my money, but we do have significant funds to work with.

This time, it's worth giving it a shot.