Corporate Giants Defy Downturn
Chaebol Set Record Earnings in 3rd Quarter
By Kim Tong-hyung
The year 2009 was supposed to be a dismal one for South Korea’s corporate giants. But when considering their robust profits during the third quarter, it seems clear that they missed the note.
At a time when most companies would have settled for doing slightly less bad than expected, the Korean blue-chippers did that and much more, with perennial standouts Samsung Electronics and Hyundai Motor even shattering their old earnings records and moving close to assure a happy holiday season.
According to an analysis by market researcher, Fn Guide, the country’s top-100 firms listed on the Korea Composite Stock Price Index (KOSPI) saw their operating profit and net income exceed market expectations by averages of 1.62 percent and 7.64 percent, respectively.
Hyundai Motor, the world’s fourth-largest automaker in units sold, delivered the brightest performance, with its net income of 979.1 billion won (about $847 million) exceeding market predictions of 555.6 percent by 76 percent, and its operating profit of 586.8 billion beating forecasts by 15 percent.
Samsung Electronics, the kingpin of Korea Inc. and now the world’s largest electronics company, posted 4.23 trillion won in operating profit, up 185.5 percent year-to-year, and 3.72 trillion won in net income during the third quarter, better numbers than what market watchers had predicted.
LG Electronics, Samsung’s bitter industry rival; SK Telecom, the country’s No.1 mobile telephony operator; LG Chem, the biggest Korean chemical company; Doosan Heavy Industries and Construction, a leading builder of nuclear and thermal power plants; and POSCO, the world’s third-largest steelmaker, were also among the list of third-quarter studs.
Among the 15 largest companies listed in stock markets, 12 of them reported higher net income during the July-September period than the previous quarter, Fn Guide said.
It seems that all the talks about collapsed consumer demand and decimated stock markets at the start of the year are now remembered merely as sound bites.
“It would be safe to call the third-quarter performances overall as an ‘earnings surprise,”’ said Kim Hak-gyun, a researcher from SK Securities.
“The companies in information technology (IT) obviously benefited from weakened competition, which led to a ‘winner-takes-all’ situation, and the car makers have been successfully expanding their global markets share during the economic downturn.”
Granted, industry watchers stress that the Korean companies can ill-afford to stay drunk off their third-quarter champagne. With the Korean won beginning to regain its value, the shrinking of currency-related benefits alone could mean that the companies could see more modest numbers in the fourth quarter.
However, there is no reason to touch the panic button either. The major Korean companies, especially the export juggernauts, appear to have staying power, having already displayed their mettle during the recession of the past year by gaining acceptance and building on their brands in different global markets.
When many of their rivals in rich nations were on damage-control mode to respond to the consumer slowdown and restrained finances, Korean companies like Samsung Electronics and Hyundai Motor have been successfully exploiting the softened competition in the past months to strengthen their positions in key markets.
Electronics Firms, Carmakers Lead Way
Despite the turmoil in the global chip market in the early part of the year, Samsung Electronics had managed an impressive second-quarter driven by its strengths in its two major markets ― mobile phones and consumer electronics.
Now, with the market for memory chips starting to come around, Samsung Electronics is firing on all cylinders.
The average selling prices (ASPs) of DRAM chips increased 20 percent quarter-on-quarter during the July-September period, while the spot prices for 1 gigabit (Gb) DDR2 were up 28 percent from the previous quarter. The prices for 16-Gb MLC NAND flash memory increased 9 percent during the same period, the company said.
Samsung Electronics is now the world’s largest flat-screen television maker and has benefited this year from getting out of the gate early on light-emitting diode (LED) backlit liquid- crystal display (LCD) models, an emerging segment in premium televisions.
The company is also the world’s No.2 handset vendor and has been gaining on leader Nokia.
Revenue from Samsung Electronics’ mobile handset unit reached 10.7 trillion won during the third quarter, up 20.6 percent year-on-year, with its global market share exceeding 20 percent for the first time.
Among the world’s five largest mobile-phone makers, only Samsung Electronics and LG Electronics, the No.3 player, saw increased shipments during the third quarter, according to industry figures, with Nokia, Motorola and Sony Ericsson suffering declines in market share.
The Korean handset vendors currently combine for a 30-percent global market share, including 50 percent in the United States and 40 percent in Western Europe markets.
“It was a tremendous 40th birthday bash for Samsung Electronics,” said Seo Won-seok, an analyst from NH Investment Securities.
“The company’s balance in its display and mobile device divisions, which posted operating profit of 2.17 trillion won and 1.96 trillion won, respectively, was impressive. However, future growth will be driven by the company’s semiconductor, especially with the DRAM market expected to hit an upward cycle.”
Hyundai Motor also finds itself flexing stronger muscles in the global auto market than it did a year ago, leaving a few clobbered competitors wondering how it is doing so well in the downturn.
It was just a few years ago when Hyundai Motor was struggling to shed a reputation for mediocrity in the U.S. market, where it was regarded as a maker that often confused cheapness with good value.
Fast-forward to 2009, and Hyundai Motor seems close to hitting the gold trail in the U.S. Hyundai Motor’s sales in the U.S. increased by 9 percent year-on-year through September, making it the only major carmaker to manage growth in a decimated market that has left bigger rivals like GM, Ford, Chrysler, Toyota and Honda reeling.
The company is now the sixth-most popular auto brand in the U.S., edging Nissan, which saw its U.S. sales fall 24 percent in the first 10 months of the year.
Hyundai Motor’s global market share now stands at 5.2 percent, up from 3.7 percent in the third-quarter of last year.
“More good things are expected for Hyundai Motor in the next few months,” said Suh Sungmoon, an analyst from Korea Investment and Securities.
“The global demand in cars has been rebounding from the second quarter. Hyundai Motor will be the biggest beneficiary of this, as it had seen its market share jump significantly in the past year.”