Thanks to a spike in sale of electronic components, Samsung electronics has finally managed to record its first on-year profit growth in two years, ending a long drought in profits. The company is now taking steps towards a massive share buyback estimated to be in the vicinity of $9.9 billion.
The profit growth also saw its shares surge up, reaching their highest point in nearly six months.
From what we know, Samsung is planning to cancel all the shares it acquires via this multi-billion buyback and plans to provide its shareholders with almost 30 percent to 50 percent of its free cash flow, over a period of three years via the means of dividends.
The company’s buyback bid, which will be implemented in phases and will take almost a year to complete, is being hailed as a smart move by various market analysts. As per HDC Asset Management fund manager Park Jung-hoon,
Samsung’s decision to buy back and cancel its own shares was exactly what the market was hoping for,
A sentiment echoed by its shareholders, who as is their wont, had been on the lookout for profits even as the company backslides, losing business to competitors in the smartphone market. However, the third quarter operations finally brought a measure of relief to the company, with profits recording a jump of almost 82 percent (up to $6.5 billion). The revenue received by the company also rose significantly over last year and reached 51.7 trillion won (up 8.9% from last year).
A lot of these profits come from Samsung’s strong grip on the chip market, where the company raked in 3.66 trillion won. Interestingly, despite various ups and downs in market conditions and requirements, Samsung’s chip business has proved to be a steady earner and this was the fifth-straight quarter, where it brought in profits for the company.
Samsung’s renovation of its tablet and smartphone line-ups also seemed to be having an effect as its mobile division recorded a profit growth — for the first time two years — spiking by 37 percent, up to 2.40 trillion won.
While the third quarter returns may have some stakeholders looking forward to prospects of increasing profits in the near future — perhaps even a return to the massive 2013 earnings — for the tech giant, investors have their doubts, mainly caused by the fact that the smartphone business that is at the core of the company is still struggling, despite all the major changes that have been implemented in recent times.
Apart from major competitors such as Apple and Huawei, smaller, domestic players are also chewing holes into the company’s smartphone business by introducing low-end, high-performance devices. Further compounding the problem is the foreign exchange rate, which may have an adverse effect upon its revenue. As per Samsung (via VentureBeat),
In the fourth quarter, the company expects earnings to decline from the earlier quarter, as it does not expect the foreign exchange rate to have a positive effect,