Samsung warns of political risks as chips boost profit

A man tries out a Samsung Electronics' Gear VR at its store in Seoul

A man tries out a Samsung Electronics' Gear VR at its store in Seoul

Published Jan 24, 2017

Share

Seoul -  Samsung Electronics on Tuesday said it expects profit growth in 2017

despite challenges arising from political uncertainty, after

record chip earnings glossed over the Note 7 smartphone fiasco

in the fourth quarter.

The South Korean tech giant and Apple Inc rival is

embroiled in an influence-peddling scandal surrounding President

Park Geun-hye, with five Samsung Group executives already

grilled by prosecutors and investigations ongoing.

"The uncertain business environment such as the changing

political landscape in Korea and overseas poses a challenge to

the execution of mid- to long-term business strategies, such as

M&A and investment decisions and developing new growth engines,"

Samsung Electronics said in a statement.

Even so, it flagged higher earnings this year after a slow

first quarter, when steeper marketing costs will eat into its

bottom line as it tries to rebuild its reputation from the

failure of its latest flagship phone.

The world's top manufacturer of smartphones, memory chips

and flat-screen televisions is counting on the booming chip

market to continue driving growth and give the mobile business

breathing space to rebuild its premium lineup.

The company forecast "stable demand" in 2017 for memory

chips, which hit an all-time earnings high in the

October-December period.

Fourth-quarter operating profit jumped 50 percent to 9.22

trillion won ($7.93 billion), its highest in over three years

and matching prior guidance of 9.2 trillion won. Earnings from

the chips business soared 77 percent year-on-year to a 4.95

trillion won. Revenue were flat at 53.3 trillion won.

Analysts said the outlook for 2017 was clouded by

uncertainty over the performance of new premium smartphones,

succession planning within the controlling Lee family and the

fallout from the graft scandal.

Samsung Group scion Jay Y. Lee, 48, is restructuring the

sprawling conglomerate in moves analysts see as preparations to

succeed his father, Lee Kun-hee, who was hospitalised in 2014.

But the heir-apparent has been classified as a suspect by

prosecutors investigating whether the conglomerate paid bribes

to a Park associate to win support for a merger of affiliates in

2015.

"If the head of the group is indicted there will likely be

some leadership vacuum, which does present a risk," Alpha Asset

Management fund manager C.J. Heo said.

BUYBACK

Samsung said it planned to buy back 9.3 trillion won worth

of shares this year, in response to calls for improved

shareholder returns. In November it said it would return 50

percent of its free cash flow for 2016 and 2017 to investors.

Read also:  Samsung chief staves off arrest

In its mobile business, operating profit rose 12 percent to

2.5 trillion won in the fourth quarter as models such as the

Galaxy S filled the void following the discontinuation of the

fire-prone Note 7 in October.

Samsung said on Monday that defective batteries caused the

Note 7 handsets to overheat and catch fire, and indicated that

it may delay the launch of its next premium Galaxy S smartphone

as it overhauls its product safety systems.

Executives declined to give a launch date for the S8 handset

when asked on Tuesday.

While the mobile business is struggling, the positive

outlook for memory chips used in mobile devices and OLED

televisions propelled Samsung's shares to a series of

record-highs this month.

The stock traded flat versus the wider market's 0.2

percent fall as of 0305 GMT on Tuesday. 

REUTERS

Related Topics: