Samsung expects forex losses to reach W3 tril. in 2013
A monitor shows foreign exchange rates at the dealers’ room in the head office of the Korea Exchange Bank, Friday. The U.S. dollar topped 100 yen for the first time in four years. / Korea Times photo by Kim Dong-ho
Firms raise guard against weak yen
By Kim Yoo-chul
Leading Korean firms, such as Samsung Electronics and Hyundai Motor, are preparing to minimize the impact of shocks that could be caused by the rapid depreciation of the Japanese yen.
With the recent fall of the Japanese currency below 100 yen to the U.S. dollar, Korean players are steadily losing their price competitiveness in global markets and experiencing a resulting fall in profit margins.
To overcome this, they have entered emergency modes by launching task forces and modifying their overseas marketing strategies.
Samsung Electronics admitted that its profit is declining as the yen continues to weaken, albeit stressing that the impact of the weak yen will be short-lived.
“The weak yen is hitting us as the trend is truly helping our key Japanese competitors gain a price advantage in key overseas markets. Samsung recently created a special task force to study the effects of the weak yen,” said an official at a Samsung affiliate Friday.
The Japanese currency fell below 100 yen to the U.S. dollar for the first time since April 2009 in New York, Thursday. It was trading close to 100.8 yen to the dollar in Asia on Friday.
The yen has fallen nearly 25 percent against the dollar since November, after Japan unveiled a series of aggressive moves to spur economic growth.
“Helped by the weak yen, leading Japanese technology firms have been pursuing aggressive promotional campaigns for their products since early this year in Europe and the United States,” the official said.
Hyundai Motor Group also said the weak yen is sapping its profit. “We are applying a contingency plan to offset the impact of the weak yen on profit,” the automaker said.
“We anticipated the yen-dollar rate to move within the 100-yen level in the second quarter. But the present situation tells us that we may continue to suffer.”
Some 80 percent of Hyundai’s annual corporate revenue comes from abroad. Hyundai-Kia directly competes with major Japanese carmakers.
According to Samsung officials, the company suffered 360 billion won in foreign exchange losses in the fourth quarter of last year.
Robert Yi, Samsung investor relations chief, said the ongoing unfavorable foreign currency movements including that of the yen will cost Samsung as much as 3 trillion won in 2013. Samsung estimates that it suffered 1.2 trillion won in foreign exchange losses in 2012.
“Revenue and profit are currently being managed based on scenario-based plans according to currency movements. It’s too early to say that Japanese exporters will totally dominate the market only because of the weak yen because Korean-made products are much better than their Japanese counterparts in terms of after-sales services and brand recognition,” said another Samsung official.
Over 85 percent of Samsung’s total revenue also comes from abroad. Europe is its biggest overseas market in terms of annual revenue, followed by the United States, China, South America, Asia and Africa.
“Samsung will try hard to minimize the effects of the weak yen on profit by selling more products in the latter half of this year. However, we will see more competition from Japanese firms in the same period ― Samsung will continue to get disadvantaged as its Japanese competitors continue to leverage the weak yen,” said the official.
Mark C. Newman, a senior analyst at Bernstein Research, believes Samsung’s margins can’t increase significantly in the upcoming quarters.
“In fact, it may fall as Samsung ramps up its low-end smartphone business as well as increases investment in longer-term growth. An abrupt strengthening of the Korean won is reducing revenue and increasing costs,” Newman wrote.
LG Electronics, the world’s second-largest TV maker, is also feeling mounting pressure from the weak yen. The impact of the weak yen will weigh heavily on LG Electronics than it will on Samsung.
“The situation doesn’t look good for us. Japanese rivals are diversifying their product lineup by offering more budget models in key markets amid the weak yen, directly hitting us,” said a senior executive at LG Electronics by telephone.
Representatives of Samsung and LG said they will pursue target marketing to make their premium products appeal to existing and future customers. They will also team up with major distributors and outlet channels.
Data from research and consulting firm DisplaySearch shows Samsung dominated the global market share in TV sets with 27.7 percent, followed by LG with 15 percent and Sony with 7.8 percent.