Samsung, Hyundai Brace for Weakness in ’12 Economy From Europe Debt Crisis
Samsung Electronics Co. and Hyundai Motor Co. (005380), South Korea’s largest companies, told employees to brace for intense competition in a weak global economy as the government called for contingency planning.
“South Korea’s economy is facing increased uncertainties this year, and the global economy may rapidly deteriorate if the European debt crisis worsens,” Finance Minister Bahk Jae Wan said in a New Year statement released today. “Contingency plans to prevent contagion from Europe’s crisis should be strengthened.”
Exports from Asia’s fourth-largest economy may grow 6.7 percent in 2012 from 19.6 percent in 2011, according to government forecasts. Security risks from a leadership change in North Korea are adding to uncertainties for the South as European leaders struggle to hold their monetary union together in the face of credit downgrades and a looming recession.
“The global economy’s low-growth trend will continue and uncertainty surrounding the business environment won’t be easily removed,” Samsung Chairman Lee Kun Hee said, according to a summary of a speech to employees today that was distributed by the company. “We should make our corporate culture more open, flexible and innovative.”
The maker of televisions, computer chips and mobile phones and affiliated Samsung Group companies had combined sales in 2010 equivalent to one-fifth of South Korea’s gross domestic product.
President Lee Myung Bak today said he would focus in the coming year on reducing inflation and bringing down unemployment by investing over 10 trillion won ($8.6 billion) in creating jobs. The government’s goal is to get inflation down to the low 3-percent range, he said. Consumer prices rose 4.2 percent in December.
“The auto industry in 2012 is expected to show slow growth and intense competition between companies,” Chung Mong Koo, chairman of Hyundai and its affiliate, Kia Motors Corp. (000270), said today in a New Year speech to workers in Seoul.
The carmakers will focus on improving quality and the image of their brands as they seek to increase global sales by 6.1 percent this year to a combined 7 million vehicles.
“Compared to the last two years, the growth target is conservative,” said Park In Woo, an analyst at LIG Investment & Securities Co. “This may come from the grim economic outlook, but more so, Hyundai is planning to take this year to focus on internal management such as quality control.”
Demand for Hyundai’s Sonata sedan and Kia’s Sportage sports utility vehicle helped the companies boost (005380) global sales in 2011 as Japanese rivals were hampered by a strong yen and suffered from production disruptions after the March quake and record flooding in Thailand.
Hyundai shares fell 1.4 percent to 210,000 won at 1:36 p.m. in Seoul while Kia declined 0.8 percent. Samsung rose 1.4 percent to 1,073,000 won and the benchmark Kospi index slipped 0.4 percent.
Samsung Electronics, the flagship unit of the Samsung Group, had record net income of 16.2 trillion won ($14 billion) in 2010. Profit may have fallen to fall to 13.8 trillion won in 2011, according to the average of 38 estimates (005930) from analysts compiled by Bloomberg. Preliminary earnings from the company, based in Suwon south of Seoul, will be released on Jan. 6.
“This year is a big uncertainty for Samsung,” Park Hyun, a Seoul-based analyst at Tong Yang Securities Inc. said. “Potential demand may be there, but whether it will materialize totally depends on the macroeconomic situation.”
Finance Minister Bahk said that while the European debt crisis may reach its peak in the first half of the year, the global economy could rapidly deteriorate if the situation worsens. The government will work to support households, companies and financial markets, he said.
South Korea’s economy may expand 3.7 percent in 2012, from 3.8 percent last year, according to the central bank.