Samsung Electronics Co. posted record profit on booming demand for displays and memory chips, setting the stage for co-Vice Chairman Kwon Oh-hyun to step down and move the South Korean company past a corruption scandal.
Kwon, who also served as chief executive officer, announced his retirement on Friday after the Suwon-based company reported that operating income almost tripled to 14.5 trillion won ($12.8 billion) in the three months ended September. That topped the 14.3 trillion-won average of analysts’ estimates compiled by Bloomberg. Third-quarter revenue matched predictions at 62 trillion won.
Kwon ran Samsung Electronics with Jay Y. Lee, heir to the company’s founder and de facto chief, who was sentenced to five years in prison in August for bribing a presidential confidante in return for help in succeeding his father. The younger Lee has appealed, and denies the charges. While the trial has blemished Samsung’s corporate image, that hasn’t dented demand for its products. The world’s largest maker of memory chips can rely on steady demand for the components, which are used in smartphones, personal computers and data centers. “Kwon has been the face of Samsung since legal troubles began for Lee,” said Chung Sun-sup, head of corporate analysis firm chaebul.com. “For some time to come, though, the company won’t have anyone to go out there and interact publicly.”
Friday’s results didn’t include net income or break out divisional performance. Final numbers are usually released two weeks later. Samsung’s shares fell less than 1 percent by midday Friday in Seoul. They have climbed more than 50 percent this year. Kwon, a semiconductor engineer, has met with President Moon Jae-in and attended events both at home and abroad since Lee was detained in February on corruption charges. Kwon will resign from the management board in March next year when his term ends, the company said. “As we are confronted with unprecedented crisis inside out, I believe that time has now come for the company start anew, with a new spirit and young leadership to better respond to challenges arising from the rapidly changing IT industry,” Kwon said in the statement. Mark Newman, senior research analyst at Sanford C. Bernstein said Kwon’s top deputies, President J. K. Shin, who is in charge of mobile products, or Kim Ki-nam, president of Samsung’s semiconductor business, may be in line to succeed Kwon.
“It’s definitely unexpected,” Newman said. “I think the company is going to be fine. The company just needs to find a way to fill this hole that Kwon is leaving.” Lee’s conviction in August is part of a bigger corruption scandal that brought down South Korea’s president. Samsung Electronics is the crown jewel of a conglomerate comprised of about 60 units selling life insurance, cargo ships and clothes. Despite the trial, the company’s business has remained robust, helped by strong demand for memory chips. Contract prices for 32 gigabyte DRAM server modules climbed 7.2 percent in the September quarter from the June period while prices for 128 gigabit MLC NAND flash memory chips rose 4.7 percent in the same period, according to inSpectrum Tech Inc.
“It’s the chip prices that are driving up the profit rather than the sales volumes,” said Park Kang-ho, an analyst at Daishin Securities. “We’re expecting an operating profit of about 16 trillion won in the next quarter.” Samsung also leads in the next generation of screens called organic light-emitting diode displays, supplying them to Apple and other smartphone makers, even as it competes for dominance in the global market. It’s also seeking to release a phone with a bendable display next year to tighten the lead with Apple and fend off challenges from Huawei Technologies Co., Oppo and other Chinese rivals.
Samsung is counting on the S8 and Note 8 smartphones released this year to recover from last year’s debacle with the Note 7. The company may benefit if Apple is unable to deliver a high volume of iPhone X smartphones as planned this year.
Source: Bloomberg
