Kwak Yeon-soo is a digital editor at The Korea Times creating, editing and curating digital content for the newspaper’s website, mobile app and social media. She previously covered a diverse array of cultural, political and business topics.
Major Korean firms suffer earnings shock
By Kwak Yeon-soo
By Kwak Yeon-soo
Korea's top 10 chaebol saw their combined operating profits more than halved in the January-June period from the same period a year earlier, data showed Sunday, mainly due to weak earnings of major tech firms such as Samsung and SK.
The operating profits of the top 10 conglomerates, which have a combined 90 affiliates listed publicly on the stock exchange, came to 21.3 trillion won ($17.6 billion), down 54 percent from 45.8 trillion won posted a year earlier, according to the data from industry tracker Infobigs.
In the second quarter alone, the combined operating profit of the nation's 10 leading firms stood at 8.11 trillion won, down 63 percent from 21.9 trillion won a year earlier.
The decrease was attributable mostly to poor performances by major chipmakers. Samsung Electronics, the world's leading chip and smartphone maker, saw its operating profit fall 61.13 percent in the first half of this year, while that of No.2 chipmaker SK hynix lost 83.93 percent during the same period.
The two companies cited price declines in their memory chip businesses and the slowing global economy as underlying factors for delivering the earnings shock.
Japan's export curbs of key materials needed by the tech industry as well as the trade war between the U.S. and China are expected to cast a shadow over the global chipmaking industry in the coming months.
“In the second half, the overall mobile market is expected to remain weak due to growing uncertainties over the global economy and trade,” Samsung said in a statement.
Chemical and aviation firms were also among the major losers, the industry tracker said.
LG Chem saw its operating profit decline 62 percent in the first half from a year earlier, and that of Hanwha Chemical decreased 72 percent. The operating profit of Hanjin Group, parent of Korean Airlines, slid 63 percent.
Carmakers, on the other hand, whose earnings lost ground in 2018 due to China's economic retaliation over Korea's deployment of a U.S. Terminal High Altitude Aerial Defense (THAAD) system, marked a turnaround and enjoyed higher profits.
The operating profit of Hyundai Motor Group advanced 39 percent year-on-year in the January-June period, backed by weak local currency and robust sales of new car models, Infobigs added.
“Rising uncertainties over the potential list of items subject to Japan's extended export curbs are weighing on Korean companies,” said Kim Byung-yeon, an analyst at NH Investment & Securities.
“However, earnings would gradually start to recover in the second half of this year with the support of major IT firms and carmakers.”
Lee Kyung-min, an analyst at Daishin Securities, wrote in a report that there is no sign of recovery in earnings forecasts.
“Since Korea is an export-oriented country, it is prone to external factors. The global economic slowdown, sluggish exports and sales are likely to continue in the coming months,” Lee said.
“The U.S.-China trade war is likely to lead to a vicious cycle of declining exports and reduction in investment,” said Kim Yun-kyung, a researcher at Korea Economic Research Institute. “The government needs to come up with policies to boost corporate productivity.”