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S&P Keeps Samsung Electronics' Credit Rating at 'AA-'
Despite Japan’s Export Curbs
S&P Keeps Samsung Electronics' Credit Rating at 'AA-'
  • By Yoon Young-sil
  • July 31, 2019, 11:41
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Standard & Poor's (S&P) has maintained its credit rating on Samsung Electronics Co. at "AA-" and its rating outlook at “stable.”

Standard & Poor's (S&P) announced on July 30 that it has maintained its credit rating on Samsung Electronics Co. at "AA-" and its rating outlook at “stable.”

"We expect that Samsung Electronics will maintain its solid financial statement over the next two years despite the slowdown in the memory chip business and intensifying trade dispute," the global credit rating agency said in a report.

It also added, “Its profitability and cash flow will be lower than the record high levels of 2017 and 2018 but the company will still show sold performance based on its strong global market position, leading technology and diversified business portfolio.”

However, S&P expected that Samsung Electronics’ annual operating profit will decrease 60 percent from 58.90 trillion won (US$49.87 billion) in 2018 to 24 trillion won (US$20.32 billion) this year due to weaker fundamentals of the memory chip and display panel markets. This is because the price of DRAM and NAND flash chips has been plunging since the second half of last year with the extension of its competitors and the slowing of demand.

S&P said, “Samsung Electronics operating profit in the memory chip unit dropped 64 percent on-year in the first half of this year. The price of memory chips led to lower performance. Such a trend will continue over the next few quarters.” In addition, it said that the company’s display unit wouldalso face a growing burden on performance as the price of panels decreased because of the large-scale extension of Chinese panel producers and the decline in demand for IT products, including smartphone.

The rating agency also warned of the impact of Japan's recent export curbs targeting South Korea. "Japan's restrictions on the export of several chemical materials to Korea could hamper Samsung Electronics' semiconductor and display panel production to some extent, if not resolved in a timely fashion," S&P said.

S&P said the U.S. government's ban on Huawei could boost Samsung's 5G equipment and smartphone sales, while posing the risk of shrinking Samsung's chip and display sales to the Chinese tech giant. Currently, Samsung Electronics competes with Huawei in the network equipment market. At this point when a considerable number of telecommunications operators are introducing 5G services, the ban will be an opportunity for Samsung Electronics to strengthen its position in the radio communication market over the next two to three years.