South Korea Inc heaps added pressure on Samsung
Peer pressure might be a good thing for Samsung Electronics (005930.KS). The $350 billion conglomerate’s 51% rise in quarterly operating profit underscores its dependence on memory chips. Local competitors Hyundai (005380.KS), SK (034730.KS) and LG (003550.KS) are moving faster to capitalise on new markets. Maybe that’ll be a call to action.
Strong demand for high-margin DRAM and NAND chips used in phones, PCs and data centre servers powered another strong quarter at South Korea’s biggest company. Operating profit in Samsung’s semiconductor division, which also houses smaller foundry and microprocessor businesses, surged 150% from a year earlier to $6.7 billion in the three months ending March 31.
Chips stand apart at Samsung. Decent sales of its latest flagship Galaxy model weren’t enough to overcome other challenges in the mobile and devices unit, where operating profit tumbled 17% from a year earlier. Concerns about supply-chain snarls, weak memory prices and geopolitical uncertainties also have weighed on Samsung shares. Following an 18% fall since the start of 2022, they trade at less than 9 times forecast earnings for the next year, per Refintiv, below a three-year average of 12 times.
Nimbler rivals are also stealing a march on Samsung. Legal scandals have been a distraction for third generation heir Jay Y. Lee, and the company is struggling to develop new sources of growth. Since spending $8 billion to buy components supplier Harman in 2016, Samsung has been quiet on electric vehicles and self-driving technology.
In the meantime, LG Chem (051910.KS) recently spun off its $78 billion battery-making subsidiary, the world’s second largest supplier behind CATL (300750.SZ), and struck a bold $8 billion deal to expand in Indonesia. Similarly sprawling SK group floated its biotech business, which developed South Korea’s first experimental Covid-19 vaccine. Hyundai is racing ahead in electric vehicles, ambitiously targeting 7% of the global market by 2030 from less than 3% last year, as estimated by Bernstein analysts.