Seoul: Technology powerhouses Samsung Electronics and LG Electronics reinforced market optimism that strong demand recovery is in place, while cautioning that competition from global rivals is heating up.
The comments from Samsung, the world’s top maker of LCD flat screens and memory chips and the No.2 mobile phone maker, come as the firm is forecast to report record profit this year, with its key businesses benefiting from an improving global economy.
Both Samsung and LG have won market share from Japanese companies such as Sony Corp and Sharp to emerge as global brands, but rivals are restructuring and beefing up their product line-ups.
“Japanese firms are sure to aggressively tackle this (market share loss)... and aggressive counter-marketing by Samsung may weigh on its margins,” said Kim Young-june, an analyst at LIG Investment & Securities.
Samsung last year overtook Hewlett-Packard Co as the world’s biggest electronics firm by sales, with revenue of $121 billion.
Samsung competes with Finland’s Nokia and LG in mobiles, Hynix and US Micron Technology in memory chips and Sharp and Sony in flat-screen televisions.
Samsung and LG together control more than 30% of the global mobile market, but their share in the booming smartphone market is below 5%.
On average, analysts have raised their 2010 profit forecast for Samsung by 9% over the past three months, Thomson Reuters data showed. Expectations for Sony have also improved with narrower losses forecast, while the consensus for LG has been cut by 12%.
Samsung’s entry into semiconductors three decades ago has helped the conglomerate grow from a sugar maker and trader into a global powerhouse in consumer technology and chips.
At shareholder meetings on Friday, both Samsung and LG pointed to lingering market uncertainties as major economies unwind stimulus measures and the South Korean won currency strengthens, which may hurt pricing against Japanese products.
Heavy investment by sector leaders has also raised oversupply concerns in flat panels and chips.
“Our competitors have strengthened their capability and some have completed restructuring... They are racing ahead to rival us and this will increase competition and toughen our business outlook,” Choi Gee-sung said in his first meeting with shareholders after becoming Samsung chief executive in December.
Sony, which is falling behind both Samsung in LCD TVs and Apple Inc’s iPod in portable music, reported a first profit in five quarters last month as a restructuring at the Japanese electronics maker starts to pay off.
Samsung shares ended up 0.9%, while LG edged up 0.5% in a broader market up 0.7%.
Expectations priced in
Samsung is targeting a higher operating profit and double-digit growth in sales in 2010, fuelled by strong demand for its flat screens and memory chips.
The forecast was in line with market estimates. Samsung is expected to report a 14% rise in 2010 sales to 155.4 trillion won on a consolidated basis, and a 42% jump in operating profit to 15.5 trillion won this year, according to Thomson Reuters I/B/E/S.
The Samsung Group accounts for a fifth of South Korea’s annual exports.
A firmer won is a risk for South Korean exporters. The currency has risen 3% against the dollar this year after gaining 8% to the dollar and 11% to the Japanese yen in 2009.
Analysts say the two Korean firms face key challenges in a potential LCD sector slowdown in the second half and relatively weak smartphone offerings.
On Friday, nearly 500 firms held their AGMs in and around Seoul, a practice that began decades ago as an attempt to block activist shareholders from gatecrashing many meetings.
In the past, some shareholders have used AGMs to demand higher dividends and changes in corporate structures.
Samsung’s meeting, complete with orchestral music and heavy security at the firm’s new offices, went off smoothly, with a number of shareholders praising management.
“Samsung achieved great results and improved its brand image when the economy is in bad shape, and it warmed the hearts of many shareholders,” shareholder Choi Kyung-ja read from a prepared statement, asking investors to approve a proposal to increase executive pay.