Samsung, LG tighten belts despite record earnings

Samsung Electronics' home appliances are displayed at a hypermarket in Seoul, April 3. Yonhap

Samsung Electronics and LG Electronics have stepped up efforts to reduce costs as uncertainty grows over the second-quarter sales of their home appliances, even after both firms made handsome profits during the first quarter.

Despite estimating that its first-quarter operating profit surpassed 57 trillion won ($38 billion), Samsung has not scrapped its February order requiring all executives in its Device Experience division, which oversees smartphones and home appliances, to fly economy class on flights of less than 10 hours.

The company is also reassigning employees in its television unit.

After carrying out layoffs at its U.S. subsidiary, Samsung has taken steps to shut down its television factory in Slovakia as well. In China, rumors have circulated that Samsung will downsize its home appliance business there.

The series of cost-cutting measures comes as most of the company’s operating profit has stemmed from semiconductor sales amid a slow recovery in earnings from smartphones and home appliances.

The union’s ongoing threat to strike is regarded as another risk to Samsung's profits.

Citing SK hynix’s elimination of the cap on performance-based bonuses, the union has urged Samsung to pay a performance-based bonus equal to 15 percent of its annual operating profit, raising concerns that the company could face setbacks in spending on research and development.

Earlier this month, LG Electronics ordered its executives to fly economy when they go on overseas business trips. They were also asked to hold teleconferences instead of going on domestic business trips.

The company expects a 33 percent year-on-year increase in its first-quarter operating profit to 1.67 trillion won and a 4.4 percent rise in sales to 23.73 trillion won. The estimated revenue is higher than what the company posted in previous first quarters.

While the strong earnings have been attributed to rising sales of televisions and other home appliances, LG Electronics is said to be wary of forecasting another satisfactory result for the second quarter, given that prolonged geopolitical tensions have disrupted logistics and increased raw material costs.