Samsung Elec unveils stock split, record profit as chips sizzle

By Joyce Lee and Ju-min Park

SEOUL (Reuters) - Samsung Electronics Co Ltd announced on Wednesday its first stock split and said it expects demand for semiconductors to remain strong in 2018, as it posted record annual profit driven by a so-called memory chip "super-cycle."

The tech giant's stock split is the latest in a series of moves to bolster shareholder returns, including 5.8 trillion won ($5.4 billion) in annual dividends and 9.2 trillion won in share buybacks and cancellations in 2017.

The firm's largesse has encouraged investors to hold shares despite concerns that the memory business may be peaking. The stock split will open the door to retail investors as well, boosting liquidity and underpinning valuations, analysts said.

"The stock split comes as a surprise to me," said Kim Sung-soo, a fund manager at LS Asset Management who holds Samsung shares, noting that Samsung previously had shrugged off investors' calls to split its shares.

"This will not have an impact on the company's fundamentals, but it will increase supply of the stock and have a positive impact on shares."

Led by a stellar fourth quarter, the global leader in televisions, memory chips and smartphones brought home an annual operating profit of 53.7 trillion won ($50.2 billion) in 2017, outstripping the previous record of 36.8 trillion won in 2013.

While the profit was expected, the firm's shares surged more than 8 percent after it unveiled the stock split. They closed up 0.2 percent.

In further good news for shareholders, Samsung eased concerns that the huge expansion in the global semiconductor business may be tapering off, saying the outlook for 2018 remained strong.

Chip makers like Samsung, South Korean rival SK Hynix Inc and Intel Corp have been riding a boom in sales of semiconductors as the world demands ever greater processing capacity to power data centers, high-tech smartphones and the blockchain ledgers behind cryptocurrencies.

"Looking at the mid-to-long term, Samsung expects the components business to see demand expand from new applications," the company said in a statement.

CRYPTO DEMAND

Samsung's operating profit for the three months ended December leapt 64 percent on year to 15.15 trillion won ($14.13 billion), in line with its forecasts.

The chip business was Samsung's top earner last year, posting a record operating profit of 35.2 trillion won and more than doubling its profit on-year in the fourth quarter alone.

Samsung said it expected DRAM and NAND flash chip shipments to grow on-year by about 20 percent and 40 percent respectively in 2018.

The foundry business, which makes chips to order, would jump from 4th place to be a "strong market No. 2" behind Taiwan Semiconductor Manufacturing Co Ltd (TSMC) in 2018, partly due to the cryptocurrency boom.

Cryptocurrencies are digital currencies that use encryption techniques for security and can be traded. The technology needs powerful chips to validate transactions.

Earlier this month TSMC said it expected the cryptocurrency market to drive up demand for high-end chips and help it post record revenue this year, outweighing softening sales to smartphone vendors.

Samsung's mobile division, which competes with Apple Inc, reported operating profit of 2.4 trillion won in the fourth quarter, down 3 percent from the previous corresponding quarter.

The launch of the Galaxy S9 flagship smartphone next month should minimize any off-season weakness in demand during the first quarter, the company said.

However, the outlook for Samsung's smartphones was uncertain amid competition from Chinese rivals in markets like Europe and Asia, said Tom Kang, research director at data provider Counterpoint.

Samsung's display business, which supplies Apple with OLED screens, reported a 1.4 trillion won profit in the fourth quarter, up 5 percent from the same period last year.

KwonYoung Choi, the vice president of Samsung's display unit, brushed off reports that Apple will cut iPhone X production for the first three months of the year amid soft sales, saying the screen business was not dependent on any one client.

Samsung spent a record 43.4 trillion won in capital expenditure last year to boost production of memory chips and organic light-emitting diode (OLED) screens. As a result, capital expenditure would fall in 2018, it said.

(Reporting by Joyce Lee and Ju-min Park; Additional reporting by Hyunjoo Jin; Editing by Stephen Coates)