Stock Market
Concerns over Samsung Electronics’ Q3 earnings are rising, due to the appreciation of the won and sluggish performance on the part of its display and consumer electronics business units.
Some experts are saying that a bigger challenge is waiting in the final quarter of this year and later. With over 75% of its total operating profits being derived from its mobile business, they are forecasting that the maturity of the market and heated competition in it could drag down profitability.
Under the circumstances, a series of securities firms are now adjusting their estimates downward for Samsung Electronics. For example, on September 30, KB Investment & Securities estimated its sales and business profits for Q3 this year at 59.8 trillion won (US$55.7 billion) and 9.7 trillion won (US$9.0 billion), respectively. Its previous profit estimate had been 10.2 trillion won (US$9.5 billion). “The demand increase in the system LSI segment has been below expectations, and its rival TV manufacturers are supplying cheaper products to affect Samsung’s profitability in the consumer electronics and display industries,” it explained.
Likewise, IM Investment & Securities lowered its operating profit estimate from 10.14 trillion won (US$9.4 billion) to 9.727 trillion won (US$9.061 billion). eTrade Securities’ figure was found to be 9.37 trillion won (US$8.72 billion), the lowest among local stock firms. eTrade Securities and HI Investment & Securities (9.549 trillion won, US$8.895 billion) predicted that Samsung Electronics’ operating profits for the third quarter of this year would be less than, or at best similar to, that recorded in the preceding quarter (9.5 trillion won, US$8.8 billion). In the meantime, Kiwoom Securities gave the highest estimate of 10.305 trillion won (US$9.591 billion).
However, the news is unlikely to have a significant impact on the market because the negative outlook has already been reflected in the stock price of the company. Nevertheless, the possibility has been raised that foreign investors will turn their backs on it from the final quarter of this year.
Market insiders have mixed opinions. Hana Daetoo Securities mentioned that uncertainties are still lingering for the IT and Mobile (IM) Division of Samsung, cutting its operating profit estimate for next year from 48.7288 trillion won (US$45.3481 billion) to 33.7752 trillion won (US$31.4363 billion). Meanwhile, Hanwha Investment & Securities said, “The IM Division is likely to maintain its profitability, and the entire company is expected to enjoy some recovery in Q4 to make up for the shortage in profits.” It maintained the target stock price at 1.9 million won (US$1,769).
“The operating profit consensus for Samsung Electronics has recently been adjusted to below 10 trillion won from 10.3 trillion won, causing the stock price to move below 1.4 million won,” said Seo Won-seok, Korea Investment & Securities research analyst, adding, “In the fourth quarter, the competition in the smart phone market is expected to get even fiercer as Apple releases the iPhones 5S and 5C and the increase in its marketing expenses could deteriorate its profitability to put a brake on its rally.”
Many people are agreeing that Samsung’s future depends on how it will deal with its lopsided business structure because of its mobile division. There is no doubt that such a heavy dependence will pose a great burden on the business stability of the company. Besides, it is having some difficulties in seeking new profit sources in the wake of the disbanding of the new project development team.