The Korean bourse closed at 2,005.84 on Oct. 7, surpassing the 2,000-point barrier, influenced by Samsung Electronics¡¯ announcement of better-than-expected Q3 earnings after it had hovered below 2,000 points since Aug. 10.
On the same day, Samsung Electronics posted 51 trillion won in sales and 7.3 trillion won in operating profit for the third quarter of the year. The figures were higher than securities companies¡¯ estimation of 50 trillion won in sales and 6.6 trillion won in operating profit.
Samsung Electronics¡¯ Q3 performance represents a 5.1 percent rise in sales and a 5.8 percent increase in operating profit over the 2nd quarter. They are up 7.5 percent in sales and a whopping 79.8 percent over the same period of last year when the company¡¯s performance was sluggish due to sagging sales of the Galaxy S5. Thanks to the latest performances, Samsung Electronics shares jumped 8.69 percent, bringing its shares back to the 1.2 million won barrier for the first time in almost two months.
¡°Almost no one forecasted that Samsung Electronics¡¯ sales will amount to 7 trillion won before the official announcement, which has sent analysts scurrying up to find why there is a big difference between their estimations and what ¡®re officially announced,¡± an analyst in Yeouido said.
The actual reasons for Samsung Electronics¡¯ surprising earnings will be known when the final results of each division¡¯s performances come out later this month. An analysis of Samsung Electronics officials¡¯ views showed that they can be summed up as two major factors. The first one is that the company has benefited from foreign currency exchanges, and the other is about unexpectedly charming performances in the component divisions, particularly the display division.
Analyst Kwon Sung-ryul of Dong Securities, who was the sole person to estimate sales of 7 trillion won, said ¡°the Korean currency surged from an average of 1,090 won in the second quarter of the year to an average of 1,176 won against the dollar in the third quarter, so it has quietly well.¡± It means that even if the same components are sold, it will see earnings go up an average 8 percent. If analysts¡¯ average estimation of 6.6 trillion won is added with some 660 billion won or a 10 percent rise, the total would approach 7.3 trillion won in operating profits as it announced. Analysts focused on the overall sagging demand for IT products, but underestimated the effects of the currency exchange rate, Samsung Electronics officials said.
The biggest difference between the official and estimated figures came from the display division. The demand for small-size OLEDs in use for smartphone screens was supposed to decline due to the saturated premium smartphone market, but it unexpectedly surged. The demand for small OLED panels shot up as medium-priced smartphone makers like Hawei and ZTE adopted small OLED displays made by Samsung Electronics, which in return ramped up lineups for medium-priced phones. Samsung Electronics now controls almost 100 percent of the global OLED display market for small smarthpones. The display division made a splash thanks to the new demand plus the favorable effects of the foreign currency exchange rate. An analysis showed that the division¡¯s operating profit, which stood at 500 billion won in the second quarter, jumped almost twice that in the third quarter.
The semiconductor division, which so far served as a prop to prevent a plunge in the company¡¯s business performances, also fared well this time. The division contributed to half of the operating profit. Samsung Electronics¡¯ development of minute fabrication technology ahead of its rivals, and its price competitiveness, boosted its competitive advantage.
The semiconductor and display divisions fared well thanks to Samsung Electronics¡¯ rival companies¡¯ adopting its components, shifting the balance in overall profit to the component sectors. On the other hand, the IT/Mobile Division responsible for smartphone business and the Consumer Electronics Division for TV and home appliances continued to underperform. The smartphone business, which accounted for half of the company¡¯s sales, suffered a setback due to Apple¡¯s dominance and Chinese-made small- and medium-priced smartphones. But Samsung Electronics¡¯ strategic model Galaxy Note 5 outfitted with the payment system Samsung Pay, which was released in August, one month earlier than planned, held out with such economic retrenchment efforts as limited releasing and lower marketing costs.
The TV and home appliance sectors are estimated to post some 200 billion won in operating profit. The 3rd business performance figures appear to be good, but the real picture is not satisfactory, analysts said. In particular, they cited a slow sales growth turnaround rate, a key index for growth.
Samsung Electronics is enjoying a growth trend on the back of the performances of such finished products as samrtphones, TVs and home appliances, which are in top positions with vertical ties with each division and subsidiary. The reason is that finished products account for almost 70 percent of all sales the company ranks in.