Samsung Electronics, South Korea's tech giant, announced a surprising stock buyback initiative, driving its share price up sharply in early trading. Over the next year, Samsung plans to repurchase approximately 10 trillion won (about $7.2 billion) of its stock. This move comes despite the company's stock dropping nearly 30% this year due to slow HBM development and weakening DRAM demand.
Samsung's shares spiked about 8% on the Seoul stock market after the announcement, following a 7.2% rebound last week. The market remains concerned about Samsung's long-term position in AI storage chips compared to rivals like SK Hynix, whose stock has surged since early 2023.
Analysts see this unexpected buyback as a positive catalyst for Samsung's declining stock. Some suggest it may help the founding family strengthen their control over the company. Meanwhile, SK Hynix has outperformed Samsung by capitalizing on the demand for HBM storage and enterprise SSDs.
J.P. Morgan analyst Jay Kwon noted that Samsung's management is actively working to prevent further stock price declines. He emphasized that strategic restructuring and reclaiming leadership in storage technology are crucial for Samsung's long-term stock performance.
The first phase of Samsung's buyback plan will see about 3 trillion won of shares repurchased and canceled by February 2025. The board will discuss the best use of the remaining 7 trillion won buyback budget afterward.
Analysts believe the buyback will aid the founding family in bolstering their control by reducing external shareholdings. This might also help address issues related to inheritance tax loans. Local traders have speculated about Samsung's response to family-related collateral pressure, driving short-term price spikes.
Samsung continues to face challenges in outsourced chip manufacturing, lagging behind TSMC in Taiwan, and facing competition from Chinese manufacturers in the smartphone and consumer electronics markets. Despite recent progress in HBM storage systems, some observers believe gaining NVIDIA (NVDA) supplier certification will take time, with potential management changes on the horizon.
Citi analyst Peter Lee anticipates significant changes within Samsung's chip foundry business by the end of November, along with the stock buyback, as measures that will be well-received by the market.
This surprise buyback comes as South Korea's government and regulatory bodies seek policies to enhance the country's stock market valuation compared to developed nations. Samsung has previously executed major buybacks in 2017 and 2015.
The chip industry highlights the impact of AI on corporate growth trajectories. Despite recent rebounds, Samsung's stock remains down nearly 30% this year, mainly due to missed AI opportunities linked to its HBM systems not qualifying as NVIDIA suppliers.
Samsung's struggles continue in its quest to become a leading chip foundry for 3nm and below processes. The company lags in AI storage systems, especially those tied to NVIDIA's high-performance AI GPUs, behind long-time rival SK Hynix.
In its latest earnings report, Samsung disclosed delays in obtaining certifications for its HBM3E series storage systems from major clients like NVIDIA, affecting its semiconductor revenue. SK Hynix, meanwhile, plans to supply 12-layer HBM3E to clients, including NVIDIA, in the fourth quarter. Samsung also falls behind TSMC in custom AI chip production.
AI has significantly transformed the valuation landscape for global chip companies. Samsung's current market value is less than a third of TSMC's, whose client list includes top AI chip makers NVIDIA and AMD. Once comparable, Samsung's market value now trails significantly, highlighting the growing gulf created by AI-driven market dynamics.
Portfolio manager Jian Shi Cortesi from Zurich's GAM Investment Management noted TSMC and SK Hynix's strong performance confirms their positions as key AI players. AI remains an early-stage theme expected to endure for years, according to Cortesi.
Global chip industry leaders like ASML and TSMC reported robust third-quarter results, underscoring the widening gap between chip companies riding the AI wave and those not as integrated into AI markets.
