Daily Brief: Samsung’s Investors Have Good Reason To Feel Positive About Its Future Profits

Daily Brief: Samsung’s Investors Have Good Reason To Feel Positive About Its Future Profits

almost 3 years ago3 mins

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Samsung announced on Wednesday that it’s projecting a 44% jump in last quarter’s profit, as a homebound world kitted out their kitchens with unnecessary – but admittedly really cool – gear.

What does this mean?

Samsung is all set to report its first-quarter earnings at the end of the month, but clearly it couldn’t contain itself till then: the company revealed that its profit is poised to climb by just as much as analysts are expecting. That surge is probably down to strong sales of smartphones and home appliances, which have offered locked-down customers something to spend their money on in the absence of, y’know, active social lives.

Samsung preliminary results

Why should I care?

For markets: Everyone’s hungry for chips.

Samsung’s investors have good reason to be feeling positive about the company’s future profitability: it’s the world’s biggest maker of memory chips, and that’s a good business to be in nowadays. See, there’s a global shortage of semiconductors because of strong demand for anything electronic, and that’s been driving up their prices since March. And with the shortage expected to last for two more years, they might have a lot higher to rise…

Patiently waiting

The bigger picture: Are smartphones a dying business?

The launch of Samsung’s latest smartphone in January boosted its market share too, with the company’s sales representing 23% of the global smartphone market last quarter. That’s up from 16% the quarter before, when arch-rival Apple poached the top spot for the first time in four years. LG Electronics, for its part, seems fed up of being the third wheel in this will-they won’t-they: the manufacturer announced on Monday that it’s quitting the smartphone market altogether to focus on electric vehicle (EV) components. That might be a smart move: the EV market is only just taking off, while fresh data has shown a 10% fall in the global smartphone market last year – the third drop-off in a row.

Global Smartphone Shipments 2011 to 2020

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Toshiba Got A $20 Billion Takeover Bid

Toshiba image

Private equity firm CVC Capital made a $20 billion offer to buy Japanese conglomerate Toshiba on Wednesday, in what would be the country’s biggest leveraged buyout in history.

What does this mean?

In a leveraged buyout, a private equity firm – Europe’s CVC, in this case – borrows money to buy a business, typically hoping to improve its operations and sell for a profit later on. And given that global investors see Japanese conglomerates as particularly inefficient, it’s a strategy that could work out well for Toshiba and its shareholders.

Toshiba’s shares surged 18% to a four-year high on the news of CVS’s offer, but it’s fair to say those investors might be getting ahead of themselves. The government has to sign off on any takeover bids made by foreign private equity firms, and considering Toshiba’s in charge of the country’s nuclear power plants, this one’s going to be under even more scrutiny…

Toshiba stock
Source: Google Finance

Why should I care?

The bigger picture: Private equity firms aren’t through with Japan yet.

Private equity firms see Japan as one of the most target-rich markets in the world, and it shows: they’ve announced $15 billion worth of buyout deals focused on Japanese firms in the last twelve months, according to Bloomberg. This Toshiba takeover would be CVC’s second major deal in the country this year alone, after it agreed to buy Shiseido’s personal care business for $1.5 billion in February.

For markets: Welcome to the Land of Rising Activism.

Activist investors have increasingly been flexing their muscles in Japan over the last few years, pushing management teams to make reforms that’ll give shareholders more bang for their buck. That hasn’t gone unnoticed by Toshiba: the company – which was forced to issue $5.3 billion of new shares after a brush with bankruptcy in 2017 – is heavily owned by foreign activist funds, which just won a landmark vote to investigate the company’s management team.

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