4 in 10 firms suffer earnings shock in Q3

By Kwak Yeon-soo

Four in 10 Korean firms saw their operating profits fall in the July-September period from the same period a year ago, data showed Sunday, with major tech firms such as Samsung Electronics and SK hynix grappling with the semiconductor industry's downturn.

Of the 39 major listed firms that have announced their third-quarter earnings, 15, or 38.5 percent of them, were below the market consensus, according to market tracker FnGuide.

Samsung Electronics' third-quarter operating profit dropped 56.2 percent year-on-year to 7.7 trillion won ($6.5 billion) in the face of slowing demand for smartphones and other electronic devices.

Another chipmaker SK hynix lost 92.7 percent to 472.6 billion won in the July-September period from a year earlier.

The two companies cited falling semiconductor prices and the slowing global economy as underlying factors for their earnings setback. Since late last year, they have been reporting lackluster earnings.

“We will reduce the production of DRAM and NAND flashes next year. We will also cut investment to respond to the worsening market environment,” an SK hynix official said during a conference call to discuss its financial results.

Steelmaker POSCO as well as chemical and refinery firms were also among the major losers, the market tracker said.

POSCO saw its operating profit decline 32 percent in the third quarter from a year earlier, hit by increased raw material costs, and that of LG Chem decreased 37 percent. The operating profit of S-Oil slid 26.9 percent.

Hyundai Motor gained 31 percent year-on-year to 378.5 billion won in the July-September period, but was noticeably below the 533.3 billion won projected by analysts.

Financial services firms were also hit by the economic slowdown. NH Investment & Securities' operating profit plummeted 19.8 percent to 117.4 billion won, missing the projected earnings expectation of 139 billion by a landslide.

Industry analysts were divided over whether earnings risks will continue their downside in the fourth quarter.

“Corporate earnings are expected to remain tepid in the fourth quarter on account of underlying weak demand, the ongoing U.S.-China trade war, Japan's trade curbs and the global economic slowdown,” an official at the Korea Chamber of Commerce and Industry (KCCI) said.

On the other hand, some voiced hopeful outlooks for the industry's earnings.

“The semiconductor industry will likely bottom out in the fourth quarter,” said Seol Tae-hyun, an analyst at DB Financial Investment, citing that Samsung Electronics and SK hynix account for more than 25 percent of the total KOSPI market capitalization.

“As a result, Samsung's operating profit will recover in the first quarter next year while SK hynix will see a turnaround in the second quarter.”