Amid white noise and K-drama, don’t lose fo­cus on Sam­sung

New Straits Times - - Business -

THERE’S a lot go­ing on at Sam­sung Elec­tron­ics Co, what with its chief in hand­cuffs, an ac­tivist de­mand­ing more cash, the scent of ex­plod­ing phones and the hum of self-de­struc­t­ing wash­ing ma­chines.

Heck, you could be for­given for ask­ing: What is it Sam­sung does again?

It’s pos­si­ble in­vestors who’ve run the stock up 61 per cent over the past 12 months – out­per­form­ing a nine per cent rise in the bench­mark Kospi – haven’t been ask­ing that ques­tion enough.

Per­haps they’ve been dis­tracted by the Korean drama play­ing out in court, or the dream that Paul Singer’s El­liott Man­age­ment Corp will lead them to the promised land of higher div­i­dends, a com­pany split and a United States list­ing.

As much as th­ese moves could un­lock vast amounts of value at South Korea’s largest com­pany, they’re also dis­trac­tions from the task of build­ing and sell­ing prod­ucts.

Speeches by divi­sion chiefs at Sam­sung’s share­hold­ers meet­ing on Fri­day helped to re­mind ev­ery­one that it makes logic and mem­ory chips, flat-panel dis­plays, smart­phones (not all of them are the ex­plod­ing type), TVs and even white goods.

It’s also try­ing to sell a suite of other ser­vices rang­ing from pay­ments to cloud com­put­ing.

If you look at each of th­ese in turn, you’ve got to ask whether or not the outlook truly is as won­der­ful as in­vestors think.

The three-day sell-off th­ese past few days in­di­cates at least some are hav­ing doubts.

Sam­sung ’s rep­u­ta­tion will bounce back from the Note 7 cri­sis, but that doesn’t change the fact that the smart­phone mar­ket is fac­ing macro is­sues even the mighty can’t avoid.

Mem­ory chips did well last year, but it’s such an un­sta­ble sec­tor that this can’t last long con­sid­er­ing the amount of ca­pac­ity be­ing built glob­ally.

Sam­sung’s logic divi­sion is one of the best in the world, but if the smart­phone mar­ket doesn’t meet ex­pec­ta­tions, it will have trou­ble fill­ing those ex­pen­sive fac­to­ries with or­ders from Ap­ple Inc or Qual­comm Inc, or its own de­vices.

There are great hopes for the panel busi­ness, thanks to or­ganic light-emit­ting diodes (OLED), of which Sam­sung is the cur­rent king.

Yet com­peti­tors will come on fast and force prices down. At the same time, the South Korean con­glo­morate is bet­ting on curved and frame­less TVs to drive de­mand, which sounds re­mark­ably sim­i­lar to the false hopes that were held for 3D and curved mod­els a few years back.

In­vestors fo­cused on fun­da­men­tals may point out that Sam­sung is trad­ing at a rel­a­tively low price-to-earn­ings ra­tio, yet that also looks like a func­tion of sell­side an­a­lysts rais­ing their ex­pec­ta­tions to keep pace with the buy­side run-up.

There are a lot of rea­sons to be­lieve Sam­sung will get through all its cur­rent prob­lems and come out stronger. But with vice-chair­man Kwon Oh-hyun say­ing on Fri­day that a hoped-for split into op­er­at­ing and hold­ing com­pa­nies “doesn’t look easy”, in­vestors need to be sure they’re fo­cused on the busi­ness and not the noise. Bloomberg

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