Samsung's returns conservatism is self-defeating

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The author is a Reuters Breakingviews columnist.  The opinions expressed are her own. Refiles to correct name in the editing credits.
By Robyn Mak
HONG KONG, Oct 29 (Reuters Breakingviews) - Samsung Electronics's 005930.KS conservatism is increasingly tone-deaf. The $1.2 trillion titan has reported another set of record earnings thanks to booming demand for its memory chips. Yet it is silent on plans to boost returns where smaller rival SK Hynix 000660.KS has offered detailed dividend and buyback schemes. Samsung's opacity may preserve flexibility but a 6% share price fall suggests it's not worth the shareholder angst.
     The South Korean conglomerate's $80 billion of operating profit easily pips third-quarter results at Big Tech behemoths like Alphabet GOOGL.O, Microsoft MSFT.O and Meta Platforms META.O. Samsung executives reckon artificial intelligence-driven memory chip shortages will continue and said on Thursday that supply of its high-bandwidth memory (HBM), used in cutting-edge AI processors, is already sold out for 2027. Analysts polled on Visible Alpha forecast operating profit of $285 billion for 2026, surpassing even Nvidia NVDA.O.
That still left investors hoping for more clarity on Samsung's shareholder returns disappointed. The company merely reiterated plans announced in August to distribute 30 trillion won ($22.4 billion) in dividends for the quarter, together with a full-year returns target of 90 to 110 trillion won. In contrast, SK yesterday laid out its own 100 trillion won policy for the year comprised of over 30 trillion won in cash dividends and share repurchases, plus cancellations of more than 60 trillion won. That clarity, plus strong earnings, helped propel the stock up 11%.
Despite pledging roughly the same level of returns, SK has set the tone for markets and even recently declared it was removing a ceiling of returning half of free cash flow to shareholders. That makes Samsung's existing 50% commitment look stingy. Comparisons with US rivals Micron Technology MU.O and SanDisk SNDK.O are less flattering still, as both expect to hand back 100% of "excess cash", broadly understood as what's left after investing in the business.
Samsung's de facto boss Jay Y. Lee may have decent reason for stalling on payout details. For one, his company is furiously playing catch up in HBM, where Counterpoint data show SK leading with a 50% market share. Indeed, Samsung said capital spending in its semiconductor division will surge 62% this year to 76.8 trillion won, or $57 billion.
Another factor may be M&A. With a net cash pile of nearly $150 billion, expectations for bolder dealmaking are rising. So far, the company has opted for modest targets, investing $500 million in an AI infrastructure company last month after splashing 1.5 billion euros for German air conditioning and heating systems specialist FläktGroup in 2025.
Maintaining maximum flexibility to spend may strike management as eminently sensible, but weighed against curdling shareholder sentiment it could ultimately prove the costlier option.
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CONTEXT NEWS
Samsung Electronics on October 29 reported revenue of 195.3 trillion won ($145.6 billion) in the quarter ended September 30, an increase of 127% from a year earlier. Operating profit rose 783% to 107.4 trillion won.
The company also announced total cash dividends for the quarter of 30 trillion won, and said it is "committed to actively considering and adjusting" the number of preferred shares relative to common shares to address the price gap between the two.
Samsung added that it will announce its next shareholder return policy, along with detailed plans for the rest of 2026, after its board meeting scheduled for January 2027.
The company's stock was down more than 6% at about 226,000 won as of late morning trading in Seoul on October 29.

(Editing by Hudson Lockett; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on MAK/  robyn.mak@thomsonreuters.com))