Samsung Stock Review (FY 2020)

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Following our Apple stock analysis from last week, we are going to take a closer look at Samsung Electronics this week – one of the largest global players in the electronics market, including the smartphone business. In this stock review, we explain not only how to get your hands on the South Korean stock but we also provide you with our comprehensive fundamental analysis to facilitate your investment decision process. Moreover, this stock review will provide you with valuable information on Samsung’s history, its business model, a SWOT analysis, a management overview as well as the roovestor company score – 100 % for free!
Samsung Stock Review Header roovestor
Samsung Electronics | South-Korea (Asia) | Technology | Fiscal Year 2020 | ISIN: KR7005930003

Table of Contents

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Qualitative Analysis

Samsung Company History

From Food Trading to Electronics

We all know Samsung for its TV devices, smartphones (as one of Apple’s main competitors) or smartwatches. Samsung is an electronics giant – even though a conglomerate. The Samsung story began in 1938 when Lee Byung-chul founded the company at the time of Japanese-ruled Korea. Starting as a food seller, the company aimed to expand its product portfolio through different industries. Back in 1969, Samsung entered the electronics business with the first TV devices (black-and-white models) sold in 1970. Seven years later, in 1977, the company began its mass production for color TV’s. In the same year, Korea Semiconductor Co. was acquired. In 1978, Samsung managed to dominate the black-and-white TV market with the highest market share around the world.

Becoming a Global Player in the Electronics Industry

During 1980’s, Samsung continued to further extent its product portfolio by adding several new products like air conditioners, industrial robots or personal computers to the line-up. It was the decade of Samsung’s most aggressive global expansion (e.g Canada, Germany). The trend toward color TV was in full swing – 1 million units produced by 1981 became 20 million units produced by 1989. In 1988, a new era started as Samsung developed its first analog mobile phone called “SH100”. In the years after, new models were launched – e.g. the 3-lined display mobile phone “SH-770” in 1994, the first SMS-enabled mobile phone “SCH-800” in 1998 or the first color display mobile phone “SCH-X430” in 2002. The first (touchscreen-enabled) Galaxy smartphone was launched in 2010 with a 4” screen and YouTube, mobile streaming, document, image and video editing functions.

The Company Today

In 2012 Samsung became the world’s largest producer of mobile phones by unit sales. Today, Samsung is a global player in electronics and the biggest employer in South Korea. But the corporate success story was not always just straightforward. As a result of declining demand in various business areas, Samsung started a greater lay-off program by cutting around 5 % of the jobs in Q1/2016. This crisis negatively affected the South Korean economy. Samsung has an outsize impact on the South Korean economy as Samsung’s business accounts for around 20 % (!) of the market value of the Korean Stock Exchange.

Samsung Business Model and Outlook

Samsung Galaxy Fold 3 5G
Illustration 1: Samsung Galaxy Fold 3 5G
Samsung divides its business into four divisions: Consumer Electronics “CE” (e.g. digital TV’s, air conditioners), Information Technology & Mobile Communications “IM” (e.g. mobile phones, computers), Device Solutions “DS” (includes semiconductors “SEMI” and display products “DP”) as well as Harman (connected car systems, audio/visual products). The IM business accounts for the highest share in revenue (around 38 % in 2020) followed up by SEMI (28 %) and CE (18.5 %). Overall, revenue has stagnated since 2017 with increased sales in the CE and Harman business and negative revenue development in the IM, SEMI and DP business. For 2021, due to global semiconductor shortages, Samsung is expecting great sales increase in their SEMI business.
Samsung has a strong research & development (R&D) team continuously looking for future growth opportunities in eight focus areas: Artificial Intelligence, Data Intelligence, Next-Generation Communications (e.g. preparing for the 6G era), Robot, Tizen (Linux-based open-source platform), Life Care & New Experiences, Next-Generation Display & Media and Security (e.g. protecting user data). Among the most recent achievements, in 2021 Samsung developed a new approach for modeling human clothing based on point clouds showing that it’s not all about TV and smartphone devices in their research program. The company can strengthen its market position in the future by identifying new innovations in its R&D focus areas. In 2020, Samsung spend around 21 trillion Korean won (around 18 billion USD) on R&D expenses. However, competition is strong – tech giants like Apple, Alphabet or Amazon are also investing heavily in R&D.
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Samsung SWOT Analysis

Obviously, the high R&D focus is one of the company’s strengths. Trending technologies enable further growth for a stronger positioning in the highly competitive technology market. Samsung has already introduced innovative solutions in the past that go down well with customers. The company operates production facilities in different countries, achieved economies of scale with low production costs due to its size and offers a great experience to customers with its well-designed products. The product brand also has a strong level of recognition around the world.
Nevertheless, the corporate image suffered due to some scandals in the past (see CEO section), which is one of the company’s weaknesses. Furthermore, unlike Apple, Samsung does not have a clear focus on one or a few industries. It is more a conglomerate, with various products within different industries, making highly concentrated competitors stronger in their specific field. But the opposite side of the coin is, that Samsung has a higher grade of diversification and therefore a lower portfolio risk. Another point of difference to Apple is that Samsung does not run its own operating system – and is thus dependent on Google’s Android.
As already described, on the opportunities side the high R&D focus is very prominent. Samsung is operating its businesses in several high-growth industries – which is not a company-specific opportunity, but an industry-specific one. Especially regions that have not reached its mature stage yet are offering further growth potential in the future. In 2016, Samsung acquired Harman for 8.0 billion USD which is the world’s leader in connected car solutions. Further M&A transaction will bring new opportunities to Samsung.
It is clear that the increased competition is a major threat for Samsung. It is not only Apple, but also Alphabet, Huawei or Xiaomi. Furthermore, black swan events are always a threat to all companies as happened in 2020 when Covid hit and smartphone sales declined by -20 % in Q1/2020. Possible patent infringements are another risk threatening the company’s business. Eventually, the smartphone patent war between Samsung and Apple ended after Samsung made a compensation payment of 539 million USD for infringing on Apple’s patents.

Samsung Co-CEO's: Kim Ki Nam, Kim Hyun Suk & Koh Dong Jin

"The next generation of leaders are well suited to accelerate the pace of innovation and address the demands of the connected world."

Oh-Hyun Kwon (former Samsung Vice Chairman)
Samsung does not have one, even not two CEO’s – the company has a three-CEO-system with Kim Ki Nam, Kim Hyun Suk and Koh Dong Jin as the company’s Co-CEO’s. Kim Ki Nam, who joined the company in 1981, is seen as the semiconductor specialist of the Management Board. He led the Semiconductor Business from 2014 to 2017 before becoming President and Head of Device Solutions and then Vice Chairman and CEO in 2018. Kim Hyun Suk led the Visual Display Business from 2011 to 2017, then started as President & CEO of the Consumer Electronics Business in 2017 before becoming President and CEO in 2018. Koh Dong Jin is Samsung’s President & Head of IT & Mobile Communications since 2017 and President & CEO since 2018.
This new three-CEO-system has been set up after the corruption scandal started in early 2017 leading to a damaged reputation of the prime South Korean electronics giant and a stock price decline of around -25 % within a single month. The former vice chairman of Samsung Electronics, Lee Jae Yong (grandson of the group’s founder), was arrested on charges of bribery, embezzlement, and perjury. In January 2021 the Seoul High Court in South Korea announced that Lee Jae Yong will be jailed for 2.5 years. Today, the Samsung share is quoted about +70 % above the corruption low showing that sometimes scandals are favorable moments to invest.

How to invest in the Samsung stock

Trading Samsung stocks on the U.S. or European stock market underlies limitations. You may intend to buy the security directly on the Korea Exchange (KRX) located in South Korea – but what’s the process? Two ways how to do it: First, you can buy Samsung stocks through a local broker. Second, if you intend to trade directly on the KRX, you’ll need to prepare some paperwork (e.g. passport copy, signature, investment ID) in order to get your investor registration certificate (IRC). This process is not only much more complicated than just buying U.S. stocks. It is also coupled to higher transaction fees (e.g. for currency conversion). You can speed up the process by simply buying a South Korea ETF. For instance, BlackRock offers its iShares MSCI South Korea ETF (CUSIP: 464286772) with a TER of 0.59 % and a Samsung weighting of more than 20 %. Although this is not a direct investment in the Samsung stock, this security will spread your investment risk.
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Quantitative Analysis

Samsung roovestor company score

Samsung roovestor company score
Illustration 3: Samsung roovestor company score

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We assume no liability for the accuracy of the financial data. Sources of the financial data are foremost IR websites of the company subject to the analysis. Additionally we rely on further data and information from Thomson Reuters EIKON. Moreover, unless better data is available, we do our own calculations of available data for KPI determination. Our stock analyses are by no means to be understood as a buy or sell recommendation and do not provide any conclusions regarding the future development of the company (and thus the future price development of the share).