Samsung Electronics to Achieve Both Performance Improvement and Shareholder Returns

3Q Operating Profit 12.3 Trillion Won...Record-Breaking Performance Exceeding Expectations
Strong Performance Expected in 4Q as 3-Year Shareholder Return Plan Concludes

On the 8th, Samsung Electronics announced that its consolidated operating profit for the third quarter of this year was preliminarily estimated at 12.3 trillion won, a 58.1% increase compared to the same period last year. The photo shows the Samsung Electronics building in Seocho-gu, Seoul. Sales increased by 6.45% to 66 trillion won compared to the same period last year. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Minwoo Lee] Samsung Electronics posted solid results in the third quarter, signaling a positive outlook for the second half of the year. The fourth quarter is also expected to see improvements in memory shipment volumes and selling prices, along with additional sales of components related to Apple's new iPhone products. Given that these strong results come at the conclusion of a three-year shareholder return plan, analysts view this as good news for shareholders as well.

On the 9th, Meritz Securities evaluated Samsung Electronics' third-quarter performance in this manner. Samsung Electronics achieved provisional consolidated sales of 66 trillion KRW and an operating profit of 12.3 trillion KRW in the third quarter of this year. This significantly exceeded market expectations (consensus), which had forecast operating profits in the low 10 trillion KRW range. Surpassing 10 trillion KRW in quarterly operating profit occurred for the first time in seven quarters since Q4 2018 (10.8 trillion KRW). This was attributed to the launch of new smartphones such as the Galaxy Note20, pent-up demand in the TV and home appliance sectors exploding, and the semiconductor division performing better than expected. It is considered a structurally improved performance compared to the strong results in the first half of the year, which were largely influenced by cost reductions.

Strong Performance in Semiconductors and Displays... IM Division Leads the 'Big Win'

The semiconductor division's operating profit is estimated at 5.4 trillion KRW, similar to the previous quarter. Sunwoo Kim, a researcher at Meritz Securities, explained, "Despite a roughly 9% decline in memory prices, mobile orders increased significantly due to Huawei export restrictions, likely causing DRAM and NAND flash shipment volumes to exceed estimates. For LSI, performance contributions have begun in earnest, and particularly, the foundry for the RTX30 series big-size chips, which attracted attention after orders from Nvidia, is presumed to have started contributing profits through manufacturing stabilization and yield improvements."

The display (DP) division's operating profit is estimated at 600 billion KRW. Recent increases in LCD panel prices contributed to performance despite business downsizing. Although the launch of the new iPhone was delayed to the fourth quarter, causing OLED panel shipments to be deferred, some sales were still recognized in the third quarter, resulting in operating profits slightly exceeding market expectations.

The mobile (IM) division was the main driver of performance improvement. Operating profit rose sharply to 4.6 trillion KRW from 2 trillion KRW in the previous quarter. Sales increased due to approximately 24 million more smartphone shipments compared to the previous quarter, and cost reductions focused on marketing expenses amid the COVID-19 pandemic were effective. Sales of Galaxy Tab S and A also surprised with 9.7 million units, an increase of over 4 million units from the previous quarter. However, it was somewhat disappointing that the sales proportion of flagship smartphones like the Galaxy Note20 has not shown significant growth for several years. From the fourth quarter, the network business division is expected to contribute to performance in the mid-to-long term. Following large orders from Verizon, additional orders from major telecom companies in India and Canada are anticipated, so next year the network business division's operating profit is expected to significantly contribute to the IM division's performance improvement.

The home appliances (CE) division is estimated to have achieved an operating profit of 1.6 trillion KRW based on cost reductions. This appears to be the result of seasonal sales strength combined with reduced marketing expenses, similar to smartphones. The video display (VD) division also posted strong results amid steady global TV sales.

Positive Outlook for Q4 Performance... Increased Expectations for Shareholder Returns

Meritz Securities assessed that Samsung Electronics' fourth-quarter operating profit could exceed the previous estimate of 10.9 trillion KRW. Researcher Kim stated, "Currently, the cost reduction effects in the set business division are clearly visible, and these effects could continue through the end of the year. There is room for improvement in memory shipment volumes and prices, and there is also optimism about strong Apple iPhone sales."

He emphasized that the next quarter is a critical time as Samsung Electronics' three-year shareholder return plan concludes, marking the point at which investment resources will be redistributed to shareholders, warranting investor attention.

Researcher Kim said, "This strong performance is a factor that can increase the investment resources Samsung Electronics promised (50% of cumulative free cash flow from 2018 to 2020). Based on previous operating profit estimates (11.4 trillion KRW for Q3 and 10.9 trillion KRW for Q4), it was estimated that 9.4 trillion KRW would be paid as special shareholder returns, but if results continue to exceed expectations, the scale of special shareholder returns could expand further." He added, "Considering the unique governance structure of the Samsung Group, shareholder returns are expected to take the form of special dividends rather than share buybacks, but some share buybacks may be included to accommodate diverse shareholder demands."

This content was produced with the assistance of AI translation services.