Daily Management Review

Samsung Announces Share Buyback and Q4 Operating Profit Rise by 50% on Year


Samsung Announces Share Buyback and Q4 Operating Profit Rise by 50% on Year
Fallouts of investigations of its senior executives in an on-going corruption scandal and from a massive product recall of its Galaxy Note 7 handsets were cushioned as Samsung's profits jumped 50 percent on-year in the fourth-quarter, as a diverse business portfolio helped in the cushioning.
Up 50.16 percent from 6.14 trillion won from a year earlier, operating profit for the October-December 2016 quarter came in at 9.22 trillion Korean won ($7.9 billion), said Samsung Electronics - the flagship of South Korea's biggest conglomerate in a regulatory filing on Tuesday. Based on guidance provided previously, the earning was in line with expectations.
The components businesses, which make memory chips and display panels, was the driver behind the company adding fourth-quarter earnings. A positive impact on its operating profits was given by a weaker Korean won against the dollar.
Samsung expects a drop in sales of TVs due to weak seasonal demand and a drop in earnings from higher marketing expenses for its mobile division and hence the company expects the outlook to be less positive for the January-March 2017 quarter.
Samsung also said that the plan, buy back 9.3 trillion won worth of shares this year, aims to reduce the total number of outstanding shares. The buyback is about 3.14 percent of its total market value.
Samsung also manufactures and supplies memory chips to other companies including Apple, Samsung's main rival in the smartphone business, via its semiconductor business which is the standout performer for the company.
On the overall, the division accounted for nearly 47 percent of Samsung's annual profit numbers and the operating profit in that division climbed 76.78 percent on-year to 4.95 trillion won for the quarter. In 2017, demand for memory storage from smartphones and servers is expected to be stable by the company.
However as continued price rises are eventually expected to curb demand, some pointed to limits on how long the unit may bolster Samsung's earnings.
"We expect memory prices to peak by the September quarter, so you are looking at a situation where there are two more quarters of sequential increase," said Mehdi Hosseini, senior vice president for semiconductors at Susquehanna Financial Group, said.
Quarterly operating profit jumped from 300 billion won to about 1.34 trillion won on-year at Samsung's display business which makes OLED panels used on a variety of devices.
Samsung said that helped by strong sales of the existing flagship models - the Galaxy S7 and S7 edge - and "improved profitability" in the mid-to-low end models, its mobile business also showed signs of recovery, with operating profit up 12 percent on-year to 2.5 trillion won.
after the mobile business took a massive 96 percent hit in the July-September quarter from the discontinuation of the fire-prone Note 7 handsets, the overall operating profit climbed 10.7 percent at 29.24 trillion won on-year for the full financial year.
Samsung expects new services such as the use of artificial intelligence in handsets to become a differentiating factor with global smartphone growth projected to slow down. To make them more competitive, features usually available in their premium models are aimed to be added into their mid-to-low end handsets, the company said.
Due to the delayed launch of the flagship Galaxy S8 phone, mobile revenue could still take a hit in the near term. "The underlying mobile business is still not strong," Manoj Menon, partner and MD at Frost & Sullivan, said.
The much-anticipated S8 is expected to be introduced sometime in March or April as suggested by and various reports which indicate that the much-anticipated S8 will not be launched at this year's Mobile World Congress.