Samsung Electronics’ top executives spent nearly six hours on Wednesday trying to persuade analysts and investors that the sun is not setting on the South Korean company’s days of heady growth.
The event was only Samsung’s second ever “analyst day”, and its first since 2005. As a sign of increasing concerns about Samsung’s growth prospects, one of the biggest questions the South Korean company faced ahead of the event at Seoul’s Shilla Hotel was rising investor demands for higher cash returns.
Samsung’s net cash is set to nearly double from Won14.6tn ($13.8bn) at the end of 2011 to Won26.9tn this year, according to analysis by CLSA. The brokerage estimates that net cash will rise sharply to Won72.7tn at the end of 2015.
At the same time, analysts at Citi forecast that the operating margin for Samsung’s smartphone business will decline from 18.7 per cent this year to 16.4 per cent next year.
In his opening speech, chief financial officer Lee Sang-hoon promised “a greater emphasis on direct returns to shareholders”. This year’s dividend will be 1 per cent of the average share price for the year, he said – up from about 0.6 per cent last year. Company officials later added that total shareholder return will be linked to free cash flow, suggesting the possibility of share buybacks to boost returns.
But shares in Samsung, which had risen 7.5 per cent over the past month, fell 2.3 per cent on Wednesday, suggesting investors were unimpressed.
“There has been widespread speculation about an announcement on the shareholder return policy,” said Marcello Ahn, a portfolio manager at Quad Investment Management, who attended the event. “But the market expectation was too high.”
Both Mr Lee and vice-chairman Kwon Oh-hyun, one of three joint chief executives who answer to chairman Lee Kun-hee, emphasised that Samsung’s priority remains developing new, fast-growing businesses. “We plan to allocate a significant portion of annual operating cash flow to investment in capex and R&D,” Mr Lee said.
Samsung is set to spend $22bn on capital expenditure this year, while spending on R&D will rise from $8bn in 2010 to $14bn – the highest figure for any company in the world except Volkswagen, according to the consultancy Booz & Co.
More importantly, half of Samsung’s 80,000 staff in R&D are now focusing on software – a “weak spot” for the company, Mr Kwon admitted. Unlike Apple, Samsung relies on third-party operating systems from Google or Microsoft to run the bulk of its mobile devices and PCs.
“Everyone says Samsung is a hardware-orientated company – it is not,” Mr Kwon said, adding that while Samsung had been “quite conservative” in terms of mergers and acquisitions in the past, it will now “aggressively acquire companies as long as they provide nice technology”.
Shin Jong-kyun, head of Samsung’s mobile business, said new growth for smartphones would come from emerging markets such as China and India, and contested the idea that growth in the premium smartphone market will slow or stagnate.
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