Sam­sung posts record profit in Q3

The Korea Times - - FRONT PAGE - By Yoon Sung-won

Sam­sung Elec­tron­ics posted a record 14.5 tril­lion won ($12.8 bil­lion) op­er­at­ing profit in the third quar­ter, boosted by a stronger de­mand for semi­con­duc­tors — nearly triple the amount from the pre­vi­ous year.

It is higher than the mar­ket con­sen­sus of 14.3 tril­lion won and marks a 179 per­cent in­crease from a year ago. Ac­cord­ing to a pre­lim­i­nary earn­ings guid­ance re­leased Fri­day, its sales reached an all-time high of 62 tril­lion won in the third quar­ter, up 29.7 per­cent year-on-year.

Sam­sung will re­lease its fi­nal earn­ings re­port later this month.

It did not un­veil the prof­its for each di­vi­sion, but its strong per­for­mance in the semi­con­duc­tor busi­ness is be­lieved to be the key driver be­hind the record profit amid a mem­ory chip “su­per cy­cle.”

Ac­cord­ing to an­a­lysts, the op­er­at­ing profit of its chip di­vi­sion is pro­jected to sur­pass 10 tril­lion won. Its chip di­vi­sion posted an op­er­at­ing profit of 8.03 tril­lion won in the April-to-June pe­riod and 6.31 tril­lion won in the first quar­ter.

Its profit mar­gin — the op­er­at­ing profit to sales ra­tio — stood at 23.4 per­cent in the quar­ter, the high­est in the com­pany’s his­tory.

Sam­sung’s third-quar­ter op­er­at­ing profit amounts to about 28.7 per­cent of the to­tal op­er­at­ing profit gen­er­ated by all listed Korean com­pa­nies. Ac­cord­ing to fi­nan­cial in­dus­try in­for­ma­tion provider FnGuide, the sum of all Korean listed firms’ op­er­at­ing profit is pro­jected to be 51 tril­lion won in the third quar­ter.

Sam­sung’s quar­terly sales are as much as the gross do­mes­tic prod­uct of Viet­nam, whose econ­omy ranked 40th in the world at 244 tril­lion won, ac­cord­ing to data from the Inter- na­tional Mon­e­tary Fund.

Mar­ket ex­pec­ta­tions are that Sam­sung has gen­er­ated 20 tril­lion won in sales from its semi­con­duc­tor busi­ness alone in the quar­ter.

The com­pany is also es­ti­mated to have made more than 3 tril­lion won op­er­at­ing profit in the mo­bile de­vice busi­ness. Though this isn’t as much profit as in the semi­con­duc­tor busi­ness, the mo­bile busi­ness is con­sid­ered to have achieved a good re­sult as the com­pany has in­creas­ingly been fac­ing tougher com­pe­ti­tion in the global smart­phone mar­ket.

Sam­sung’s op­er­at­ing profit from its mo­bile busi­ness plunged to 10 bil­lion won last year, hit hard by the dis­con­tin­u­a­tion of its ill-fated Galaxy Note 7 smart­phone.

Pre­vi­ous ex­pec­ta­tions are that it will be dif­fi­cult for Sam­sung to dra­mat­i­cally im­prove prof­itabil­ity in its smart­phone busi­ness in the third quar­ter due to the ex­panded mar­ket­ing ex­penses to pro­mote Galaxy Note 8.

How­ever, the Note 8 has at­tracted a bet­ter-than-ex­pected re­sponse in the do­mes­tic mar­ket with about 850,000 be­ing sold through pre­sales in Korea. This is more than twice the 400,000 pre­sales record set by the Note 7.

The Galaxy Note Fan Edi­tion (FE), which is a lim­ited re­fur­bished ver­sion of the dis­con­tin­ued Note 7 smart­phone, has sold out here, fu­el­ing the com­pany’s mo­bile busi­ness per­for­mance.

Sam­sung is ex­pected to have even bet­ter re­sults in the fourth quar­ter, re­sult­ing in sales of 245 tril­lion won and 55 tril­lion won in op­er­at­ing profit for the full year. No Korean en­ter­prise has posted over 50 tril­lion won in an­nual op­er­at­ing profit so far.

KB Se­cu­ri­ties ex­pects Sam­sung to post 16.7 tril­lion won in op­er­at­ing profit in the fourth quar­ter. Han­wha In­vest­ment & Se­cu­ri­ties and eBest Se­cu­ri­ties ex­pects it to be 16.5 tril­lion won and 16.6 tril­lion won, re­spec­tively.

On the day Sam­sung Elec­tron­ics pre­dicted record-high op­er­at­ing profit, its de-facto tem­po­rary head an­nounced he will re­tire in March. With Vice Chair­man Lee Jae-yong de­tained on charges re­lated to a po­lit­i­cal cor­rup­tion scan­dal, there is ris­ing con­cern that the coun­try’s top con­glom­er­ate will face a lead­er­ship vac­uum.

The global tech gi­ant said Fri­day that Vice Chair­man and CEO Kwon Oh-hyun plans to re­sign as the com­pany’s head of the De­vice So­lu­tions Busi­ness and will not ex­tend his cur­rent ten­ure as board chair­man when his term ends in March next year. He will also re­sign as the CEO of Sam­sung Dis­play.

In a let­ter sent to all em­ploy­ees, Kwon said that he de­cided it was the right time to an­nounce his re­tire­ment though it was the most dif­fi­cult thing he has ever done.

“It is some­thing I had been think­ing long and hard about for quite some time. It has not been an easy de­ci­sion, but I feel I can no longer put it off,” he said.

“As we are con­fronted with un­prece­dented crises in­side and out, I be­lieve the time has now come for the com­pany to start anew, with a new spirit and young lead­er­ship to bet­ter re­spond to chal­lenges aris­ing from the rapidly chang­ing IT in­dus­try.”

Kwon is one of the wit­nesses of the global IT gi­ant’s his­toric suc­cess. Af­ter ma­jor­ing in elec­tri­cal en­gi­neer­ing at Seoul Na­tional Univer­sity and get­ting a Ph.D. at Stan­ford Univer­sity, he joined Sam­sung in 1985 as a re­searcher at its Semi­con­duc­tor Re­search In­sti­tute in the United States. He also served as pres­i­dent and head of the Sys­tem LSI Di­vi­sion and as pres­i­dent and head of the Semi­con­duc­tor Busi­ness be­fore be­com­ing CEO of the com­pany in 2012. He has also served as the CEO of Sam­sung Dis­play since 2016.

Recol­lect­ing how he has wit­nessed the com­pany emerge as a global leader in the semi­con­duc­tor busi­ness dur­ing the past 32 years, the CEO said he har­bors a “deep sense of pride and honor to have taken part in the com­pany’s in­cred­i­ble jour­ney to suc­cess.”

“There are no words to de­scribe how proud I am that to­gether we built one of the most valu­able com­pa­nies in the world. We have come a long way to cre­ate a com­pany that truly changes how peo­ple live, work and com­mu­ni­cate with each other.”

He noted that while Sam­sung is en­joy­ing record-high per­for­mances, this is the fruit of de­ci­sions and in­vest­ments made in the past. He showed con­cern that it is not seek­ing new growth en­gines.

Kwon has been head­ing Sam­sung Elec­tron­ics since Lee, heir of the Sam­sung Group Chair­man Lee Kun-hee, was de­tained for al­leged in­volve­ment in the po­lit­i­cal cor­rup­tion scan­dal that led to the im­peach­ment of for­mer Pres­i­dent Park Geun-hye.

It re­mains to be seen whether Sam­sung Elec­tron­ics will have to reshuf­fle its man­agers since it has min­i­mized new ap­point­ments dur­ing the past few years fol­low­ing the sud­den hos­pi­tal­iza­tion of the chair­man due to a heart at­tack.

Ac­cord­ing to Sam­sung, Kwon is soon to rec­om­mend his suc­ces­sor to the board in­clud­ing Lee.


Sam­sung Elec­tron­ics Vice Chair­man Kwon Oh-hyun speaks dur­ing the com­pany’s share­holder meet­ing at the Sam­sung Group of­fice in Seoul, March 24.

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