The Samsung paradox: Distributed $80 billion and crashed in trading
The technology giant presented the largest profit distribution plan in its history, but investors who expected more sent the stock into a sharp decline of more than 8% following the absence of one dramatic commitment.
Shares of the South Korean technology giant Samsung Electronics recorded a sharp decline of more than 8% today, Monday, at the start of trading. This comes despite the company publishing a historic plan to return huge sums to shareholders, in an amount that could reach 110 trillion South Korean won, or about 80 billion dollars.
According to the plan, Samsung is expected to return to investors during the year between about 65 to 72 billion dollars. As part of the move, the company also announced a cash dividend distribution of about 22 billion dollars as early as the third quarter. This is a sum five times higher than the company's previous distribution record, which was recorded in 2020.
According to a Reuters report, the funds come at a time when Samsung is benefiting from the growing demand for chips, against the backdrop of the accelerated development of the artificial intelligence field. However, in the capital market, it turns out that a huge sum on paper is not necessarily enough. Investors expected an even bigger move, with some analysts estimating that the company could reach a return of up to 145 billion dollars.
One of the main points of disappointment was the lack of a clear commitment to buy back and cancel the company's shares. Such a move reduces the number of shares traded on the market and may support their value. Instead of announcing a clear program, Samsung left the issue for future discussion by the board of directors.
Disappointment was also fueled by the move of competitor SK Hynix. A week earlier, the company announced a program for the purchase and cancellation of shares in the amount of 29 billion dollars alongside an intention to direct more than 50% of its free cash flow to shareholders. Samsung, on the other hand, left the return rate at 50% of the cash flow.
Local regulation also makes it difficult for Samsung to carry out more significant moves in the stock market. There are legal restrictions on the purchase and cancellation of ordinary shares, partly due to the group's ownership structure. Such a purchase could affect the ownership rates of financial subsidiaries, including Samsung Life Insurance, and cause them to exceed the legal ownership ceiling, which stands at 10%.
The event well illustrates one of the key principles in the capital market: it is not only the amount a company distributes that determines, but also the gap between expectations and the actual result. From Samsung's perspective, this is an unprecedented profit distribution program in its scope. From the investors' perspective, it did not provide the financial move they hoped to see.
In the background is also the growing competition in the AI chip industry, as Samsung competes against companies like SK Hynix and TSMC. The moves of the competitors increase the pressure on the South Korean company to prove not only its ability to benefit from the demand for chips, but also its ability to reward investors in a competitive manner.
Thus a significant paradox is created: Samsung presents a program that may return to investors a sum of up to about 80 billion dollars, but the company's stock is plummeting. For the capital market, it turns out that even a giant distribution is not enough when expectations are even higher.
