Samsung Coddles Workers, Ignores Investors

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Samsung Electronics Co., Ltd. (KRX:005930) is under fire this morning after the company warned that its profits will likely come in well below consensus expectations for the December quarter. The company’s under performance comes on the back of a $1 billion employee special bonus that Samsung paid out in order to celebrate twenty years of transformation at the South Korean company.

Shareholders at Samsung Electronics appear to be unhappy with the news and there may be good reason from their perspective. Samsung is likely to miss the lowest of analyst expectations when it shows its earnings for the last three months of 2013, and shareholder value is likely to suffer as a result. In trading on South Korean stock market this morning the company’s stock had fallen by a fraction.

Samsung Success Skips Investors

Samsung Electronics has managed to build itself into the most valuable company in Asia. The electronics manufacturer’s shareholders have not seen the kind of returns they’d like out of the stock, and last year was a particularly egregious offender. Through 2013 shares in the company lost close to 10% of their value, in the midst of a solid year for stocks. South Korea’s KOPSI index traded up a fraction for the full year.

Samsung has a hugely significant effect on the performance of that index, and measure would have been up far more appreciably had the company not been included. Investors are seeing headline after headline with news of the success of Samsung, but they are not seeing that success realized in their portfolios.

Samsung holds around $50 billion i cash. The company is the leading player in everything from televisions to smart phones. Samsung has a plan for the future, and it is differentiating itself in the Android space and changing the way that ecosystem works. Employees are reaping a close to $1 billion reward for their work over the last two decades. In recent time investors have seen little return at Samsung.

Investors Hold On For Dividend

Samsung Electronics may not be finished with its bonuses just yet. Shareholders are hoping that the company makes an increase in its capital return program a part of its celebration of a twenty-year expansion, but there is no guarantee that shareholders will benefit from the festivities. Returns are hard to come by at Samsung, despite the company’s attractive valuation, and management is not making the processes behind those decisions very transparent.

The return to workers is not the issue in the latest news from Samsung. The problem comes from the company’s attitude to its investors. With many Western investors getting involved in the company in recent years the attitude may bring with it quite the culture shock. Samsung seems unmoved by shareholder problems where an American company would do more to change the playing field.

Samsung is a strong company, and it will remain strong if it continues current performance. Shareholders will have to decide whether to stick with the firm, or put their money into a company whose behavior they feel they have a better chance of predicting.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.