The Distant Dream of 100,000 Won Electronics... Vice Chairman Han Jong-hee Faces Another Crisis to Bow His Head [Business & Issues]

④Samsung Electronics Stock Price and Performance,
and the Controversy Over Executive Dismissals

Samsung Electronics' stock price has slipped again at the threshold of becoming an '80,000-won stock,' and now it is at risk of failing to even maintain the '70,000-won stock' level. The preliminary results Samsung Electronics disclosed showed an operating profit of 6.54 trillion won last year, the worst in 15 years since the 2008 global financial crisis. Moreover, the fourth-quarter results, which were expected to find a 'clue' for semiconductor market recovery, fell significantly short of market expectations. The only current hope to lean on is the expectation that "the semiconductor market will recover this year."

Both Performance and Stock Price Are Areas of Management Failure

Before Samsung Electronics announced its preliminary fourth-quarter results, the securities industry placed weight on the possibility of a '100,000-won stock.' The consensus for Samsung Electronics' fourth-quarter operating profit (average of securities firms' estimates) was around 3.7 trillion won, and many expected operating profits to easily exceed 4 trillion won. The target stock price for Samsung Electronics was around 95,000 won. Some securities firms expected strong fourth-quarter results and set target prices above 100,000 won.

However, when the results were revealed, the preliminary fourth-quarter results fell far short of expectations.

The fourth-quarter operating profit was 2.8 trillion won, a 35% decrease compared to a year earlier. Considering that sales only dropped by 5%, this indicates that profitability was not properly maintained. There is about a 25% gap between Samsung Electronics' fourth-quarter results and the average market expectations. The stock price is sliding down again, reflecting the shock-level results at the 80,000-won threshold. Samsung Electronics' 52-week high closing price was 79,600 won on the 2nd of this month. The stock closed at 73,100 won the previous day. The stock price has failed to rise for eight consecutive trading days.

Expectations for the first-quarter results this year are also low. Unlike the third quarter, which reflects the effect of new smartphone model launches, and the fourth quarter, when consumers open their wallets more easily, the first quarter is traditionally the off-season for the home appliance industry. The only hope to rely on currently is the 'ongoing' semiconductor market recovery. This is why there is interest in the possibility of memory semiconductor turning a profit in the first quarter.

Samsung is seeking a breakthrough in the struggling memory semiconductor market through high value-added HBM3, but it should be noted that it may take time for this to be reflected in the results. Samsung Securities researcher Hwang Min-seong said, "There have been many reports since early fourth quarter last year that Samsung would start full-scale sales of server-use HBM3, but the fact that it does not appear in the results indicates that production is difficult," adding, "Production of the newer HBM3e may be even more challenging for the industry." Samsung Electronics is currently conducting testing procedures by sending HBM3E sample products to major customers such as Nvidia.

Some also raise the possibility that the semiconductor market may worsen again in the second half of the year. Song Myung-seop, a semiconductor researcher at Hi Investment & Securities, said, "The key to continued improvement in the DRAM market in the second half will be whether the demand growth rate in the second half can exceed 20% compared to the same period last year," explaining, "Considering the effect of reversing memory semiconductor production cuts, production growth exceeding 20% is expected in the second half."

In the long term, to avoid being severely hit again by the short up-and-down cycles of the memory semiconductor market, structural changes are needed to grow the non-memory semiconductor sector such as foundry (semiconductor contract manufacturing). However, the market share gap with industry leader TSMC is widening.

Persistent Rumors of Management Dismissal

To ensure stability, Samsung Electronics decided to maintain the 'two-top' system led by Vice Chairman Han Jong-hee and President Kyung Kye-hyun in the year-end regular executive reshuffle last year. Although the worsening semiconductor market is an unavoidable result of the global industrial environment, this decision, emphasizing management stability, came amid widespread rumors that the management would be dismissed for taking responsibility for the deteriorating performance.

[Image source=Yonhap News]

Although the executive reshuffle is already over, voices calling for leadership changes still remain inside and outside Samsung. Even though Vice Chairman Han Jong-hee stepped down from his concurrent position as head of the Visual Display Business Division, he still holds the roles of DX Division head, CEO, and head of the Home Appliance Business Division. President Kyung Kye-hyun also concurrently serves as head of the DS Division (semiconductor division) and director of SAIT (formerly Samsung Advanced Institute of Technology).

The burden on their shoulders remains heavy, but the results fell short of expectations, and the stock price stuck in a box range is still stagnant, making the upcoming regular shareholders' meeting in March a significant pressure.In particular, Vice Chairman Han was reappointed as an inside director at the regular shareholders' meeting in March last year with a 97.54% approval rate, making it even more difficult to explain the disappointing results of last year that dashed shareholders' expectations.

Samsung's shareholders' meeting is a representative annual event that inevitably makes management nervous. After the 2018 50:1 stock split transformed Samsung Electronics from a 'royal stock' to a 'people's stock,' there are now over 5 million retail investors whose fortunes rise and fall with Samsung Electronics' stock price. As a result, at last year's shareholders' meeting, Vice Chairman Han was reappointed with an overwhelming approval rate but had to endure harsh criticism from shareholders telling him not to treat them like fools. At the March 2022 shareholders' meeting, Vice Chairman Han bowed his head in apology to shareholders after the stock price plunged due to the Galaxy S22 Game Optimizing Service (GOS) controversy, which caused smartphone performance degradation.

If the stock price continues its current downward trend, Vice Chairman Han may once again have to bow his head to shareholders. The worsening performance combined with news of block trades by the Samsung Group owner family has caused Samsung Electronics' stock price to continue declining since the beginning of the year.

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