The Virtue of Laziness

A $1.8 billion buyback was the least bad idea, given constraints on expansion.

Share buybacks are about the laziest, least creative thing CEOs can do with shareholders' cash. They inflate the stock, and by extension raise the P/E ratio, without adding much to the current or future value of the underlying company.

Rather than invest in new businesses, boost capital expenditure, pay a dividend, buy into related industries, take out competitors, reduce debt, increase marketing or raise R&D outlays, all a boss need do with a buyback is call a broker. 

Value Proposition

Samsung's P/E ratio has been inching upward, yet still trades below historic levels

Source: Bloomberg

That's what Samsung has just decided to do. Boosted by strong sales of its latest smartphone, the South Korean company posted its biggest profit beat in five quarters. It then followed up with a 2.02 trillion won ($1.8 billion) share buyback.

That sounds like a lot. It isn't. Samsung is sitting on more than $60 billion in cash and short-term investments.

The happy problem for Samsung is that it's throwing off so much cash as to be almost drowning in the stuff, and the alternatives are few. The latest fat check is the $9 billion the company is looking to spend on factories and equipment to supply a cool new display technology called organic light-emitting diodes.

All Cashed Up

Samsung's cash and short-term investments climbed to a record last quarter

Sources: Bloomberg, Samsung

Even that's not such a huge figure: The company devoted $22.9 billion last year to capex, and has exceeded the $20 billion mark for each of the past four years to build everything from smartphones to semiconductors.

Samsung could make vertical or horizontal acquisitions -- buying in related sectors or purchasing competitors -- but it already has most of the juicy parts of the supply chain covered, and there are few juicy competitors worth looking at. There's certainly room to buy a sensor maker here, a chip designer there, yet they'll come cheap.

Artificial intelligence and virtual reality are two new areas Samsung is looking at, and it is ready to build or buy in those fields, Executive Vice President Rhee In Jong told Bloomberg's Jungah Lee last month. That, too, is unlikely to burn a lot of cash.

Paying down debt is another option, though Samsung already is under-leveraged and has among the lowest total debt ratios in the industry. It could spend more on marketing, but it's already outspending the competition and ranks seventh globally -- behind Apple, Google, Microsoft and IBM -- with a brand value of $45.3 billion, according to Interbrand.

Where Samsung does lag, relatively speaking, is in R&D. At 7.4 percent of sales, the company is below the technology industry's global average of 9.7 percent. To be fair, that's as much a function of its high sales as it is of low spending. Samsung could spend more, and will probably need to do so as it doubles down on display and semiconductor technologies, and moves into new software and services including VR and AI. But even that's unlikely to eat into its cash hoard.

The reality is that with so much cash and limited room to expand, Samsung's best option is the lazy one it just took.

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at

    To contact the editor responsible for this story:
    Paul Sillitoe at

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