money machine

Technology? Samsung Has Something Cooler

Its most impressive end product is buckets of cash.
Photographer: SeongJoon Cho/Bloomberg
At Closing, June 21st
47050.00 KRW

There's a lot going on at Samsung Electronics Co. Its OLED screens are the hippest new thing in displays, its memory products are in hot demand, and its smartphones enjoy continued consumer support.

But as everyone else slices and dices each of Samsung's business units to divine the past, present and future of the world's most powerful technology company, 1 I want to take a step back for a bigger-picture view of what it means to investors.

One of the most significant statements to come out of Samsung's fourth-quarter earnings report was its forecast of a decrease in capex this year. Frankly, that makes sense. Outlays surged last year as the company expanded capacity in NAND and DRAM memory as well as OLED screens. It also doubled its dividend payout after pressure from activist investors.

Might as Well Jump

Samsung doubled its dividend payout in 2017 while capex surged as it expanded capacity and rolled out advanced memory-chip manufacturing technologies

Source: Bloomberg, Samsung

While neither move dented the balance sheet too much, investors should be relieved that this scale of spending won't be repeated in 2018. Samsung's cash pile climbed to a record $78 billion -- helped by a stronger South Korean currency -- and is near record highs when denominated in won. Assuming revenue and profits grow this year, then lower capex should lead to even more free cash flow in 2018.

Samsung announced Wednesday that it will do a 50:1 stock split, a strategy for lowering the price of its shares to boost trading liquidity. That move follows a 9.2 trillion won ($8.6 billion) buyback that mostly had the effect of boosting the share price, but didn't hand cash directly back to investors. And that repurchase was only equivalent to around 10 percent of cash on hand at the time.

Rising Pile

Samsung's cash holdings climbed to a record at the end of December in U.S. dollar terms

Source: Samsung

Note: Cash includeds equivalents, short-term investments, and securities available for sale.

But what's coming down the pike is where Samsung's real value lies. Back in October the company pledged it would double dividends this year and keep them at that level through 2020. The total cost will be 29 trillion won over three years. Given the solid free cash flow, around 10 trillion won in annual dividends will barely make a dent in the balance sheet.

Earlier this month I urged investors at arch-rival Taiwan Semiconductor Manufacturing Co. not to focus too much on short-term drivers (such as cryptocurrency mining and artificial intelligence). These are, of course, important to the top and bottom lines of any company. But like TSMC, Samsung's investors should keep an eye on the bigger prize: buckets of cash and management's willingness to hand it out.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Controversial statement, but you know I am right.

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

To contact the editor responsible for this story:
Matthew Brooker at

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