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Samsung pays out $1bn in bonuses to mark chairman Lee Kun-hee's 20 years Samsung pays out $1bn in bonuses to mark chairman Lee Kun-hee's 20 years
(35 minutes later)
Samsung Electronics earned less than even the most conservative analyst forecast in October-December after handing out an estimated $1bn (£610m) in bonuses to mark 20 years since its chairman set it on the road to becoming a global behemoth.Samsung Electronics earned less than even the most conservative analyst forecast in October-December after handing out an estimated $1bn (£610m) in bonuses to mark 20 years since its chairman set it on the road to becoming a global behemoth.
The world's largest smartphone maker has splashed out on its employees from a cash pile of around $50bn just two months after increasing its dividend yield far less than many investors had expected.The world's largest smartphone maker has splashed out on its employees from a cash pile of around $50bn just two months after increasing its dividend yield far less than many investors had expected.
Fourth-quarter operating profit was likely 8.3 trillion won (£4.7bn), down 6% on the year and 18% from a record third quarter, Samsung Electronics said on Tuesday before a final reading on 24 January.Fourth-quarter operating profit was likely 8.3 trillion won (£4.7bn), down 6% on the year and 18% from a record third quarter, Samsung Electronics said on Tuesday before a final reading on 24 January.
The figure was pulled down by bonuses given to employees high and low commemorating chairman Lee Kun-hee's "new management" strategy, which analysts put at ₩300-700bn. The figure was pulled down by bonuses, which analysts put at ₩300-700bn, given to employees to commemorate chairman Lee Kun-hee's "new management" strategy.
The profit would be less than the most bearish forecast among 23 analysts polled by Reuters of ₩8.8tn, and would be the lowest since the ₩8.1tn of July-September 2012.The profit would be less than the most bearish forecast among 23 analysts polled by Reuters of ₩8.8tn, and would be the lowest since the ₩8.1tn of July-September 2012.
Samsung shares traded unchanged at ₩1.307m after the announcement, versus a 0.3% gain in the wider market . Samsung shares traded unchanged at ₩1.307m after the announcement, versus a 0.3% gain in the wider market.
"Samsung's special incentive payments to employees including domestic and overseas units appear to have been much larger than the market expected; marketing costs of its mobile business might have also been larger," said Shinhan Investment analyst Kim Young-chan."Samsung's special incentive payments to employees including domestic and overseas units appear to have been much larger than the market expected; marketing costs of its mobile business might have also been larger," said Shinhan Investment analyst Kim Young-chan.
Lee took over Samsung in 1987 from his father, who founded the group. In 1993, Lee ordered lieutenants to "change everything except your wife and children" to transform Samsung Electronics from a mid-tier television set manufacturer into a global technology leader. Lee took over Samsung in 1987 from his father, who founded the group. In 1993, Lee ordered lieutenants to "change everything except your wife and children" to transform Samsung Electronics from a mid-tier television manufacturer into a global technology leader.
It has since overtaken Sony in TVs, Nokia in mobile phones and Applein smartphones. It has since overtaken Sony in TVs, Nokia in mobile phones and Apple in smartphones.
Lee, who turns 72 this week, set the agenda for the future in his New Year speech by stressing the need to drop a hardware-centric culture and adopt new ways of thinking to drive innovation.Lee, who turns 72 this week, set the agenda for the future in his New Year speech by stressing the need to drop a hardware-centric culture and adopt new ways of thinking to drive innovation.
The company usually pays bonuses up to 100% of basic monthly salary to employees in units which achieve targets, and up to 50% of annual salary by returning 20% of profits that exceed targets. Korean companies often pay low salaries and top up with various bonuses. The company usually pays bonuses up to 100% of basic monthly salary to employees in units which achieve targets, and up to 50% of annual salary by returning 20% of profits that exceed targets. Korean companies often pay low salaries and top up with bonuses.
Fourth-quarter earnings were also likely affected by Samsung's flagship Galaxy S and Note smartphones losing out somewhat to Apple in the United States and Japan during the year-end holiday season. Fourth-quarter earnings were also likely affected by Samsung's flagship Galaxy S and Note smartphones losing out somewhat to Apple in the US and Japan during the year-end holiday season.
It estimated fourth-quarter sales of ₩59tn, versus the ₩61tn Thomson Reuters' Starmine SmartEstimate of 23 analysts, which gives greater weighting to the more accurate analysts.It estimated fourth-quarter sales of ₩59tn, versus the ₩61tn Thomson Reuters' Starmine SmartEstimate of 23 analysts, which gives greater weighting to the more accurate analysts.
Samsung is bracing itself for its toughest year at its mobile devices division since it started making smartphones in 2007, with analyst estimates ranging from low single digit profit growth to mild contraction after growing eight times over in past five years. Samsung is bracing itself for its toughest year at its mobile devices division since it started making smartphones in 2007, with analyst estimates ranging from low single-digit profit growth to mild contraction after growing eight times over in past five years.
The division, which earns two thirds of overall operating profit, will come under pressure when Apple makes its phones available from 17 January via China Mobile, through which Samsung has been selling smartphones for around seven years.The division, which earns two thirds of overall operating profit, will come under pressure when Apple makes its phones available from 17 January via China Mobile, through which Samsung has been selling smartphones for around seven years.
Apple is also widely expected to sell smartphones with larger screens come autumn when it traditionally announces products, neutralising a selling point that Samsung has enjoyed since introducing its Galaxy Note in late 2011. Apple is widely expected to sell smartphones with larger screens in autumn when it traditionally announces products, neutralising a selling point that Samsung has enjoyed since introducing its Galaxy Note in late 2011.
"Even taking into account one-off costs, the [fourth-quarter] profit is lower than expected. Samsung has not provided details, but smartphone profit may have fared worse than expected, given increased marketing expenses," said IBK Investment and Securities analyst Lee Seung-woo."Even taking into account one-off costs, the [fourth-quarter] profit is lower than expected. Samsung has not provided details, but smartphone profit may have fared worse than expected, given increased marketing expenses," said IBK Investment and Securities analyst Lee Seung-woo.
Weak smartphones sales would translate into weaker earnings at Samsung's components businesses, particularly its display unit which counts Samsung's mobile and TV arms as its biggest customers. Weak smartphone sales would translate into weaker earnings at Samsung's components businesses, particularly its display unit which counts Samsung's mobile and TV arms as its biggest customers.
Samsung shares have been pummelled in recent weeks by 22 analysts downgrading fourth-quarter earnings estimates over the past 30 days. Samsung shares have been pummelled in recent weeks by 22 analysts downgrading fourth-quarter earnings estimates over the last 30 days.
The shares, worth $190bn, fell 10% over the past fortnight to a four-month low last week, wiping off market value to the tune of $19bn - equal to the total value of shares of Sony. The shares, worth $190bn, fell 10% over the last fortnight to a four-month low last week, wiping off market value to the tune of $19bn – equal to the total value of Sony's shares.
The won's rise to a five-year high against the US dollar has also been prompting investors to sell, as a strong won reduces the value of Samsung's repatriated earnings.The won's rise to a five-year high against the US dollar has also been prompting investors to sell, as a strong won reduces the value of Samsung's repatriated earnings.
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