Samsung Electronics is facing an 'earnings shock' after recording a provisional operating profit in the ₩4 trillion range for the second quarter of this year (April-June), significantly below market expectations. However, undeterred, the company is actively pursuing a shareholder return policy, including large-scale share buybacks and cancellations, to boost its stock price and fully restore investor confidence.
On the 8th, Samsung Electronics announced in a regulatory filing that its consolidated operating profit for Q2 provisionally fell by 55.94% year-on-year to ₩4.6 trillion. This figure is about ₩1.5 trillion lower than the securities firms' consensus of ₩6.1833 trillion, representing a 31.24% decrease from the previous quarter. During the same period, revenue was ₩74 trillion, a decrease of 0.09% year-on-year and 6.49% quarter-on-quarter.
The primary reason for this underperformance stems from the Semiconductor (DS) division. Samsung Electronics explained in its briefing materials that "the Semiconductor (DS) division saw a decrease in profit compared to the previous quarter due to inventory provisions and the impact of sanctions on advanced artificial intelligence (AI) chips for China." In particular, the memory business was heavily affected by one-off costs such as inventory valuation allowances. For the non-memory business, restrictions on sales of advanced AI chips due to sanctions against China, related inventory provisions, and reduced factory utilization rates were cited as major reasons for the decline in performance.
Despite the challenging situation, Samsung Electronics anticipates a reduced deficit in the second half of the year due to gradual demand recovery and improved utilization rates. Furthermore, the smooth progress in customer evaluations and shipments of High Bandwidth Memory (HBM) products is interpreted as a positive sign. HBM is a key memory component in the age of AI, and while Samsung Electronics had recently lagged behind SK Hynix, it is now accelerating technology development and mass production, aiming to expand its market share.
What's particularly noteworthy is that despite this earnings shock, Samsung Electronics is looking to overcome the crisis with an aggressive shareholder return policy. On the same day, Samsung Electronics' board of directors decided to purchase 56,888,092 common shares and 7,834,553 other shares on the open market from July 9th to October 8th. The total planned acquisition amount is approximately ₩3.9119 trillion, of which 70%, or ₩2.8119 trillion, will be cancelled to enhance shareholder value. The remaining ₩1.1 trillion worth of treasury shares will be used for employee compensation.
Treasury share cancellation has a positive impact on the stock price by reducing the number of outstanding shares and thereby increasing earnings per share. Samsung Electronics' decision to undertake this large-scale treasury share cancellation is interpreted as a strong commitment to enhancing shareholder value. Attention is now focused on whether this move can alleviate investor anxiety and create an opportunity for a stock price rebound. The market is watching to see if Samsung Electronics can leverage this crisis as an opportunity to strengthen its shareholder-friendly management and secure long-term growth momentum.
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