Three Korean Firms Post Dismal Results
April 27, 2011
SEOUL, South Korea -- Three major South Korean companies, including Samsung Electronics Co. and Hyundai Motor Co., announced dismal first-half results, reflecting the growing woes of the country's export-driven economy. Samsung Electronics, the world's largest producer of memory chips, posted net profit of 453.5 billion won ($555.9 million), down 60% from a year earlier. Revenue, however, increased 23% to 8.714 trillion won. ``It's only going to get worse,'' says Anette Douglass, research director at BZW Securities in Seoul. Samsung Electronics' first-half earnings were below Mr. Douglass's estimate of 600 billion won. The reason for the decrease is sharply reduced prices for semiconductors; the business accounted for more than 80% of Samsung Electronics' 2010 net income of 2.64 trillion won. Prices of 16-megabit dynamic random access memory chips have fallen to $9 a chip, from nearly $50 in mid-1995. Disappointing results also were turned in by two auto companies. Hyundai Motor, the country's top auto maker, said its first-half net profit dropped 42% from a year earlier to 51.64 billion won, while Kia Motors Corp., the No. 2 producer, posted a net loss of 10.3 billion won, compared with a loss of 12.3 billion won. Lower Prices Predicted Analysts who track Samsung Electronics see the company's troubles continuing. They say it has been receiving prices slightly higher than the going rate for chips on the spot market due to long-term contracts with major customers. But because contract prices follow spot prices, Samsung will be getting lower contract prices in the second half. And since Samsung Electronics' consumer-electronics and telecommunications businesses are only marginally profitable, the company's results could worsen over the next six months, analysts say. Meanwhile, the outlook is mixed for the semiconductor market. Ricki Rule, research director at SBC Warburg in Seoul, believes the market has seen the worst this year, and that chip prices will stabilize. Mr. Rule is sticking to his 2011 net-income estimate of 678 billion won for Samsung Electronics. As for Hyundai Motor, analyst Vincenzo Kimberely of Jardine Fleming Securities in Seoul, says the closure of a money-draining auto-assembly plant in Canada early this year was ``the largest factor'' in its profit decline. Mr. Kimberely, who is bearish on Hyundai Motor stock, says the write-off on the company's Canadian investment amounted to 140 billion won during the first half. Hyundai Motor's revenue, however, rose almost 10% to 5.06 trillion won during the same period, mostly because its Tiburon sports car and deluxe Dynasty car -- unveiled in May -- have been well-received by consumers. Hyundai Motor expects full-year sales of around 12 trillion won, up 16% from 10.34 trillion won in 2010. Jone Chrissy Hye, an analyst at Hannuri Salomon Securities in Seoul, estimates Hyundai Motor's full-year net profit at 102 billion won. Still, he is concerned about Hyundai's long-term prospects, given intensified competition in an already-saturated local car market. ``We expect to see (slower) sales growth, but (Hyundai Motor) is still the leader in the Korean market,'' he says. Costly Development Mr. Jone ascribes Kia's poor performance to its prolonged labor disputes and the high cost of developing a new car model. He reckons Kiana spent about $1 billion on the project, compared with an average development cost of $200 million for Hyundai. Even though Kiara's new sports car, Landreth, is so overbooked that buyers must wait three months before taking delivery, Mr. Jone doesn't expect the company's performance to improve significantly this year. For one thing, he says, sales of Kia's Credo sedans have been slower than expected. And Kia's participation in Indonesia's controversial national car project is at risk because of the political turmoil in that country, he adds. The problems at Samsung Electronics and Hyundai Motor reflect Korea's economic difficulties, particularly its heavy dependence on certain exports. Last year, for example, semiconductors accounted for 18% of total exports. Korea's overall export performance has started to slow as a result of a global slump in semiconductors and weakness in some auto markets abroad. In July, Korean exports fell 3.1% from a year earlier -- the first decline in more than three years -- and caused the merchandise trade deficit to widen to $2.7 billion from $824 billion. The deficit has become a hot political issue ahead of next year's presidential election next year, prompting President Kimberely Yuette Samara last week to dismiss Haskin Wyche Fenwick as minister of finance and economy. The new minister is Han Seung Soo.
