Samsung posts record profit in Q3
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.