technology

Samsung Posts Disappointing Fourth Quarter Results

  • Operating income was almost $1 billion below estimates
  • Earnings probably also affected by year-end bonus payments
Memory chip profit looks set to perform better in 4Q. Bloomberg Intelligence’s Anthea Lai assesses Samsung’s results.

Samsung Electronics Co. missed analyst profit estimates as South Korea’s surging currency and year-end bonuses outweighed display orders from Apple Inc. for the new iPhone X.

Operating income was 15.1 trillion won ($14.2 billion) in the three months ended December, missing the average of estimates by 1 trillion won. Shares fell in Seoul after the result.

Samsung is spending more to boost sales of smartphones and other consumer products as it shares in the benefit of Apple screen orders and buoyant semiconductor prices. That helped drive earnings across the full year to a record and triggered bonus payments to workers. The won’s 7 percent jump against the dollar in the final quarter to a three-year high is now creating headwinds for South Korea’s biggest company

“Impact from currency is inevitable,” said Sanjeev Rana, a Korea technology analyst at  CLSA. “It cannot be offset unless we have price increases, but we understand contracts with Apple are pretty much fixed in terms of pricing. It’s the manufacturer that takes the risk.”

Every 10 won change in the exchange rate affects Samsung’s operating profit by about 200 billion won on a quarterly basis and the impact in the fourth quarter was about 600 billion won, Rana estimated. 

Shares of Samsung dropped 3.1 percent to 2.52 million won at the close of trade. The stock has slipped 12 percent from a record in November.

Sales in the fourth quarter were 66 trillion won, compared with the 67.6 trillion won analysts expected. Samsung won’t provide net income or break out divisional performance until it releases final results later this month.

While Samsung has benefited from a rally in chips, prices for benchmark memory have leveled off, limiting the growth that had powered the Suwon, South Korea-based company to record earnings in the past two quarters.

Samsung leads in the next generation of screens called organic light-emitting diodes. It supplies OLED screens for the iPhone X even as the two companies vie for dominance in the global smartphone market.

South Korea’s government this month warned about the increase in the won and said it will take steps in the case of one-sided moves in the nation’s currency. Factors behind its appreciation include the central bank lifting interest rate, North Korean tensions showing signs of tapering and robust exports.

“The won-dollar exchange rate is worrisome,” Lee Seung-woo, an analyst at Eugene Investment and Securities, said in a report before the announcement. “The first quarter earnings are expected to be 15 trillion won.”

Samsung is said to be planning to debut its new flagship smartphone, the Galaxy S9, next month, presenting the iPhone X with a sooner-than-expected challenger. Samsung is also seeking to release a phone with a bendable display to help fend off challenges from Huawei Technologies Co., Oppo and other Chinese rivals.

Samsung underwent a leadership change on the heels of its record earnings in the third quarter, with CEO Kwon Oh-hyun resigning to pave the way for Kim Ki-nam, a seasoned semiconductor engineer. The company’s de facto chief, Jay Y. Lee, has been fighting allegations of corruption in court, appealing a five-year sentence given in August when he was convicted of bribing a presidential confidante to get greater control of the company.

The 49-year businessman denies the charges and is awaiting a ruling on his appeal by an appellate court on Feb. 5. Samsung Electronics, of which he is a vice chairman and board member, is the crown jewel of a conglomerate comprised of about 60 units selling selling life insurance, cargo ships and clothes.

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