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Samsung Electronics released third quarter (Q3, or July-September) performance figures that far exceeded expectations, with its highest operating profits in two years at over 12 trillion won (US$10.47 billion). LG Electronics similarly achieved record sales in Q3 amid a major increase in sales of home appliances targeting the “stay-at-home” demographic.

On Oct. 8, Samsung Electronics shared provisional Q3 figures (consolidated), including 66 trillion won (US$57.55 billion) in sales and 12.3 trillion won (US$10.73 billion) in operating profits. Its sales and operating profits were up by 24.6% and 50.9% from Q2 and by 6.4% and 58.1% from the same period last year, respectively. Quarterly operating profits exceeded 10 trillion won (US$8.72 billion) for the first time in the seven quarters since Q4 2018, when they totaled 10.8 trillion won (US$9.42 billion) amid the semiconductor “super-boom.”

Even securities company analysts did not foresee such improvements. The day before, FnGuide, a company that specializes in the analysis of financial data, calculated average forecasts for different securities companies, which included 63.81 trillion won (US$55.64 billion) in sales and 10.4 trillion won (US$9.07 billion) in operating profits -- each of them two to three trillion won lower than the provisional figures announced on Oct. 8. On this basis, the market has been calling the recent figures an “earnings surprise.”

The financial community saw the performance as reflecting a rise in mobile sales -- budget phones in particular -- and a major decrease in marketing costs amid the COVID-19 pandemic. The semiconductor sector, which had been driving Samsung Electronics’ strong performance in the past, fell in Q3 amid a drop in sales prices, while a boost in budget phone sales increased the overall sales of the mobile phone sector. The lower marketing costs amid the pandemic also led to improved profitability. In a report published the same day, Meritz Securities analyst Kim Seon-woo observed, “The percentage of sales represented by flagship smartphones like the Galaxy Note 20 has not grown significantly for several years, while sales of the Galaxy Tab S and A have contributed to the improved performance with unexpectedly high sales in the range of 9.7 million units.”

Park Gang-ho, an analyst with Daishin Securities, said there were “additional improvements to the margin rate as marketing costs fell below expected numbers amid increased online sales and reduced competition.”

Many are predicting the numbers may come back down to earth in Q4 (October to December). One reason for this is the fact that Q4 tends to be a weak period for mobile sales.

“I’m predicting operating profits of 11 trillion won [US$9.6 billion] for the fourth quarter,” said Do Hyun-woo, an analyst with NH Investment & Securities.

“Mobile sector performance will fall as we enter the slow season for smartphones,” he predicted.

Meanwhile, LG Electronics achieved its highest performance yet with Q3 figures announced the same day. Sales and operating profits respectively stood at 16.92 trillion won (US$14.76 billion) and 959 billion won (US$836.77 million) -- up by 7.8% and 22.7% from a year before. These numbers also exceeded the average projections of securities companies. In a report published on Oct. 6, Hana Financial Investment analyst Kim Rok-ho observed, “Home appliance and TV demand has undergone a robust recovery since the COVID-19 pandemic, while the proportion of online and other untact [non-face-to-face] sales has risen, making profitability for the home appliance and air [H&A] and home entertainment [HE] divisions better than had previously been projected.”

According to this analysis, the overall improvement in performance has been propelled by sectors such as H&A that have “benefited” from the pandemic.

The stock market’s response remained cool amid the two companies’ announcement of strong figures that day. Samsung Electronics share prices fluctuated throughout the day before closing at 59,700 won (US$52), down 200 won (0.17, or 0.33%) from the day before. LG Electronics experienced a relatively large slide of 2,800 won (US$2.44, or 2.91%). Both companies’ share prices had been rising for the preceding three trading days.

By Song Chae Kyung-hwa, staff reporter

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